<PAGE> 1
=====================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM:
__________________________________
Commission File Number: 0-25170
__________________________________
ROYAL SILVER MINES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0306609
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1010 Ironwood Drive, Suite 105, Coeur, d'Alene, Idaho 83814
(Address of Principal Executive Offices, including Zip Code)
(208) 769-7340
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares outstanding at December 31, 1998: 19,003,565
shares.
======================================================================
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS OF ROYAL SILVER MINES, INC.
(Hereinafter referred to as Registrant or Company)
Condensed financial statements, and an accompanying independent
accountants' report, are filed as part of this Quarterly Report. In
management's opinion, these financial statements present fairly in all
material respects Registrant's financial condition and changes in
condition as of December 31, 1998 and September 30, 1998, and the
results of operations, stockholders' equity and cash flows for the
three months ended December 31, 1998, 1997, 1996, and from inception on
February 17, 1994 through December 31, 1998, in conformance with
generally accepted accounting principles.
The accompanying financial statements consolidate the financial
statements of Celebration Mining Company and Royal Silver Mines, Inc.
due to the Reorganization discussed in Note 1 of the financial
statements following this Report. All significant intercompany
accounts and transactions have been eliminated. Also, the
consolidation required a change in fiscal year-end, from November 30
(Celebration) to September 30 (Royal). The financial statements
account for the Reorganization using the purchase method of accounting
(see Note 1 to the financial statements). Celebration is treated as
the acquiring company for financial reporting purposes because its
shareholders constitute greater than 50 percent of the combined
shareholder group. In conformity with generally accepted accounting
principles and the Company's accounting policy, Celebration is
recognized as the predecessor entity. Consequently, Celebration's
assets and liabilities were not adjusted in the accompanying financial
statements. The financial statements for the period from the inception
of Celebration on February 17, 1994 to November 30, 1994 ("Fiscal
1994") do not include the balance sheet data or results of operations
of Consolidated Royal Mines, Inc. The accompanying financial
statements represent the activities of Royal Silver Mines and
Celebration, but are not considered consolidated financial statements
since Royal Silver is the successor to Celebration.
As discussed in greater detail under Item 2 below, a substantial
portion of Registrant's assets consist of investments in mineral
properties for which additional exploration is required to determine if
they contain ore reserves that are economically recoverable. The
realization of these investments is contingent to large extent upon the
success of Registrant's property transactions as a whole, the existence
of economically recoverable reserves, the ability of the Company to
<PAGE> 3
obtain financing or make other arrangements for development, and upon
future profitable production. Accordingly, the accompanying financial
statements make no provision for any asset impairment or other
adjustment that might result from the outcome of this uncertainty.
ROYAL SILVER MINES, INC.
(A Development Stage Company)
Financial Statements
December 31, and September 30, 1998
C O N T E N T S
Accountant's Review Report . . . . . . F-1
Balance Sheets . . . . . . . . F-2-F-3
Statements of Operations . . . . . . F-4
Statements of Stockholders' Equity . . . . F-5 - F-9
Statements of Cash Flows . . . . . . F-10 - F-11
Notes to the Financial Statements . . . . F-12 - F-30
<PAGE> 4
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Royal Silver Mines,
Inc. (a development stage company) as of December 31, 1998, and the
related statements of operations, shareholders' equity, and cash flows
for the three months ended December 31, 1998, and for the period from
February 17, 1994 (inception) through December 31, 1998. The review
was conducted in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified
Public Accountants. All information included in these financial
statements is the representation of the management of Royal Silver
Mines, Inc.
A review consists principally of inquiries of Company personnel and
analytical procedures applied to financial data. It is substantially
less in scope than an audit in accordance with generally accepted
auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying financial statements in order
for them to be in conformity with generally accepted accounting
principles.
The balance sheet for the year ended September 30, 1998 was audited by
us and we expressed an unqualified opinion on it in our report dated
December 21, 1998. We have not performed any auditing procedures since
that date.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 19
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.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
February 8, 1998
<PAGE> 5
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
(Unaudited) (Audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 3,611 $ 3,147
Note receivable 355,000 350,000
Interest receivable 24,163 17,106
Prepaid expenses 1,415 2,162
----------- -----------
TOTAL CURRENT ASSETS 384,189 372,415
----------- -----------
MINERAL PROPERTIES 2,229,411 2,229,411
----------- -----------
PROPERTY AND EQUIPMENT
Mining equipment 83,889 83,889
Furniture and equipment 12,761 12,761
Less - accumulated depreciation (23,651) (19,868)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 72,999 76,782
----------- -----------
OTHER ASSETS
Investments 1,305,950 1,298,750
Organization costs, net 4,917 5,234
----------- -----------
TOTAL OTHER ASSETS 1,310,867 1,303,984
----------- -----------
TOTAL ASSETS $ 3,997,466 $ 3,982,592
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 6
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
(Unaudited) (Audited)
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 67,115 $ 65,815
Accrued expenses 3,000 3,000
------------ ------------
TOTAL CURRENT LIABILITIES 70,115 68,815
------------ ------------
LONG-TERM DEBT - -
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
18,932,565 and 19,003,565
shares issued and outstanding,
respectively 189,325 190,035
Additional paid-in capital 11,305,155 11,889,838
Stock subscriptions receivable (30,000) (700,000)
Deficit accumulated during
development stage (7,537,129) (7,466,096)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY 3,927,351 3,913,777
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,997,466 $ 3,982,592
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-3
<PAGE> 7
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
December 31, December 31, December
1998 1997 31, 1996
<S> <C> <C> <C>
REVENUES $ - $ - $ -
--------- --------- ---------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral leases - - -
--------- --------- ---------
Depreciation and
amortization 4,847 13,776 9,587
Officers and directors
compensation 57,540 97,041 73,625
General and administrative 15,704 279,799 257,250
--------- --------- ---------
Total expenses 78,091 390,616 340,462
--------- --------- ---------
OPERATING (LOSS) (78,091) (390,616) (340,462)
--------- --------- ---------
OTHER INCOME (EXPENSES)
Interest income 7,058 5,971 3,833
Interest expense - - (1,215)
--------- --------- ---------
Gain on property interest
sold - - -
--------- --------- ---------
Loss on disposition and
impairment of assets - (1,345) (1,769)
--------- --------- ---------
Total other income (expenses) 7,058 4,626 849
--------- --------- ---------
NET LOSS $ (71,033) $(385,990) $(339,613)
--------- --------- ---------
NET LOSS PER COMMON SHARE $ (0.004) $ (0.028) $ (0.032)
========== ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 18,708,228 13,565,232 10,701,742
========== ========== ==========
The accompanying notes are an integral part of these financial
statements.
F-4a
<PAGE> 8
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Period from
February 17,
1994 (Inception)
Through
December 31, 1997
<S> <C>
REVENUES $ -
------------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral leases 555,706
Depreciation and amortization 200,528
Officers and directors compensation 1,410,800
General and administrative 3,413,469
------------
Total expenses 5,580,503
------------
OPERATING (LOSS) (5,580,503)
------------
OTHER INCOME (EXPENSES)
Interest income 65,665
Interest expense (74,348)
Gain on property interest sold 1,875,281
Loss on disposition and
impairment of assets (3,823,223)
------------
Total other income (expenses) (1,956,625)
------------
NET LOSS $ (7,537,128)
------------
NET LOSS PER COMMON SHARE $ (0.704)
============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 10,710,609
============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-4b
<PAGE> 9
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance, 02/17/94 - $ -
Issuance in May 1994 of
shares at $.002 per share
to officers and directors in
exchange for assignment
of mining property option 2,250,000 22,500
Issuance in July 1994 of shares
for cash at $.402 in private
placement, net of costs 1,050,000 10,500
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $.417 per share 150,000 1,500
Net loss for the year ended
November 30, 1994 - -
--------- --------
Balance, 11/30/94 3,450,000 34,500
Issuance of shares in debt
offering at $.03 per share 416,250 4,163
Issuance of shares for
mineral properties valued
at $1.00 per share 262,500 2,625
Issuance of shares for cash
at $1.00 per share 15,000 150
Stock issuance costs - -
Issuance of shares to acquire
Consolidated Royal Mines, Inc.
at $.15 per share 2,434,563 24,346
--------- --------
Balance forward 6,578,313 $ 65,784
--------- --------
The accompanying notes are an integral part of these financial
statements.
F-5a
<PAGE> 10 ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance, 02/17/94 $ - $ - $ -
Issuance in May 1994
of shares at $0.002
per share to officers
and directors in exchange
for assignment of mining
property option (18,500) - 4,000
Issuance in August 1994 of
shares for cash at $0.402
in private placement, net
of costs 411,116 - 421,616
Issuance in August 1994 of
shares to a director in
exchange for services,
valued at $0.417
per share 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - (211,796) (211,796)
---------- --------- ---------
Balance, 11/30/94 453,616 (211,796) 276,320
Issuance of shares in
debt offering at
$0.03 per share 9,712 - 13,875
Issuance of shares for
mineral properties valued
at $1.00 per share 259,875 - 262,500
Issuance of shares for cash
at $1.00 per share 14,850 - 15,000
Stock issuance costs (58,202) - (58,202)
Issuance of shares to
acquired Consolidated
Royal Mines, Inc. at
$.15 per share 335,750 - 360,096
---------- --------- ---------
Balance forward $1,015,601 $(211,796) $ 869,589
---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-5b
<PAGE> 11
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 6,578,313 $ 65,784
Issuance of shares to directors
and employees for services at
prices ranging from $2.00 to
$2.50 per share 12,750 127
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13
to $3.25 per share 800,000 8,000
Issuance of shares for cash
at prices ranging from $1.50
to $2.00 per share 166,000 1,660
Issuance of shares in exchange
for debt at $1.50 per share 200,000 2,000
Net loss for the ten months
ended September 30, 1995 - -
--------- --------
Balance, September 30, 1995 7,757,063 $ 77,571
Issuance of shares for
cash at $1.50 per share 1,176,832 11,769
Issuance of shares to
directors and employees
for services at $1.50
per share 222,700 2,227
Issuance of shares in
exchange for debt at $1.50
per share 406,050 4,060
Issuance of shares for cash
at $2.20 per share 150,000 1,500
Issuance of warrants for cash
at $.05 per warrant - -
--------- --------
Balance Forward 9,712,645 $ 97,127
_________ ________
The accompanying notes are an integral part of these financial
statements.
F-6a
<PAGE> 12 ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 1,015,601 $ (211,796) $ 869,598
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to
$2.50 per share 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13
to $3.25 per share 2,530,126 - 2,538,126
Issuance of shares for cash
prices ranging from $1.50
to $2.00 per share 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 298,000 - 300,000
Net loss for the ten
months ended 09/30/95 - (750,939) (750,939)
----------- ---------- -----------
Balance, 09/30/95 $ 4,120,540 $ (962,735) $ 3,235,376
Issuance of shares for
cash-$1.50 per share 1,754,010 - 1,765,779
Issuance of shares to
directors and employees
for services at $1.50
per share 331,823 - 334,050
Issuance of shares in
exchange for debt at
$1.50 per share 605,015 - 609,075
Issuance of shares for cash
at $2.20 per share 328,500 - 330,000
Issuance of warrants for cash
at $.05 per warrant 41,068 - 41,068
----------- ---------- -----------
Balance Forward $ 7,180,956 $ (962,735) $ 6,315,348
----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-6b
<PAGE> 13
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 9,712,645 $ 97,127
Issuance of shares for cash
at $1.62 per share 65,000 650
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 107,500 1,075
Issuance of shares for cash at
$0.75 per share 200,000 2,000
Issuance of shares for cash at
$1.70 per share 250,000 2,500
Cancellation of 35,000 shares
received in exchange for
return of mining property (35,000) (350)
Payment to Centurion Mines
for option to repurchase
stock - -
Issuance of shares for joint
venture in mining property
at $1.50 per share 100,000 1,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (25,000) (250)
Issuance of shares for
mining property at
$1.50 per share 20,000 200
Issuance of shares to
noteholders for
extension of notes at
$1.50 per share 39,375 394
Issuance of shares for services
at $1.50 per share 215,334 2,153
---------- --------
Balance forward 10,649,854 $106,499
---------- --------
The accompanying notes are an integral part of these financial
statements.
F-7a
<PAGE> 14
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 7,180,956 $ (962,735) $ 6,315,348
Issuance of shares for cash
at $1.62 per share 104,650 - 105,300
Issuance of shares for cash to
directors and employees at
prices ranging from $1.62 to
$2.08 per share 181,175 - 182,250
Issuance of shares for cash at
$0.75 per share 147,985 - 149,985
Issuance of shares for cash at
$1.70 per share 422,500 - 425,000
Cancellation of 35,000 shares
received in exchange for
return of mining property (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 149,000 - 150,000
Repurchase of 25,000 shares
issued for joint venture at
$1.40 per share (34,750) - (35,000)
Issuance of shares for
mining property at
$1.50 per share 29,800 - 30,000
Issuance of shares to
noteholders for
extension of notes at
$1.50 per share 58,669 - 59,063
Issuance of shares for services
at $1.50 per share 320,848 - 323,001
----------- ---------- -----------
Balance forward $ 8,451,808 $(1,012,735) $ 7,545,572
----------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-7b
<PAGE> 15
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
Number
of Shares Amount
<S> <C> <C>
Balance forward 10,649,854 $ 106,499
Stock issuance costs - -
Net loss for the year
ended September 30, 1996 - -
---------- ---------
Balance, 09/30/96 10,649,854 $ 106,499
Issuance of shares for
cash at $0.75 per share 2,491,000 24,910
Stock issuance costs - -
Issuance of shares to directors
and employees for services
at $1.00 per share 110,500 1,105
at $1.75 per share 25,000 250
Issuance of shares for services
at $1.25 per share 98,250 982
Issuance of shares for mining
property at $1.00 per share 60,000 600
Cancellation of 25,000 shares
received in exchange for
return of mining property (25,000) (250)
Issuance of shares for services:
at $1.00 per share 25,500 255
at $0.75 per share 47,128 471
Payment for extension of warrants
for one year - -
Net loss for the year ended
September 30, 1997 - -
---------- ---------
Balance, September 30, 1997 13,482,232 $ 134,822
---------- ---------
The accompanying notes are an integral part of these financial
statements.
F-8a
<PAGE> 16
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
<S> <C> <C> <C>
Balance forward $ 8,451,808 $(1,012,735) $ 7,545,572
Stock issuance costs (15,000) - (15,000)
Net loss for the year
ended 09/30/96 - (2,045,082) (2,045,082)
----------- ----------- -----------
Balance, 09/30/96 8,436,808 (3,057,817) 5,485,490
Issuance of shares for
cash at $0.75 per share 1,843,340 - 1,868,250
Stock issuance costs (30,000) - (30,000)
Issuance of shares to directors
and employees for services
at $1.00 per share 109,395 - 110,500
at $1.75 per share 18,500 - 18,750
Issuance of shares for services
at $1.25 per share 121,829 - 122,811
Issuance of shares for mining
property at $1.00 per share 59,400 - 60,000
Cancellation of 25,000 shares
received in exchange for
return of mining property (81,000) - (81,250)
Issuance of shares for services:
at $1.00 per share 25,245 - 25,550
at $0.75 per share 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 - (1,770,771) (1,770,711)
----------- ----------- -----------
Balance, 09/30/97 $10,543,892 $(4,828,528) $ 5,850,186
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-8b
<PAGE> 17
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' 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 shares 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 at 09/30/98 19,003,565 $ 190,035 $ 11,889,838
Issuance of shares to
directors for services
at $0.06 per share 959,000 9,590 47,950
Issuance of shares for
cash investment and
receivable 970,000 9,700 47,500
Shares returned to treasury
for cancellation
of receivable (2,000,000) (20,000) (680,000)
Stock issuance costs - - (133)
Net loss for quarter ended
December 31, 1998 - - -
---------- --------- ------------
Balance at 12/31/98 18,932,565 $ 189,325 $ 11,305,155
========== ========= ============
The accompanying notes are an integral part of these financial
statements.
F-9a
<PAGE> 18
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
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 shares 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 at 09/30/98 $ (700,000) $ (7,466,096) $ 3,913,777
Issuance of shares to
directors for services
at $0.06 per share - - 57,540
Issuance of shares for
cash investment and
receivable (30,000) - 27,200
Shares returned to treasury
for cancellation
of receivable 700,000 - -
Stock issuance costs - - (133)
Net loss for quarter ended
December 31, 1998 - (71,033) (71,033)
---------- ------------ ------------
Balance at 12/31/98 (30,000) $ (7,537,129) $ 3,927,351
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-9b
<PAGE> 19
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
December 31, December 31,
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (71,033) $ (385,990)
Adjustments to reconcile net loss to net
cash used by operating activities:
Loss on sale of equipment
Depreciation and amortization 4,847 13,776
Issuance of common stock
for services 57,540 85,608
Write-off of option costs
Write-off of joint venture costs -
Write-off of mineral properties
Loss on devaluation of investments
Changes in assets and liabilities:
Note receivable (5,000) -
Interest receivable (7,058) (1,625)
Prepaid expenses (6,295)
Other assets - 317
Mineral properties
Accounts payable 1,300 (14,145)
Accrued expenses - (4,653)
--------- ----------
Net cash used in operating
activities (19,404) (313,007)
--------- ----------
Cash flows from investing activities:
Purchase of investments - -
Sale of assets - 2,600
Purchase and development of
mineral properties - (34,290)
Sale of mineral properties -
Sale of investment -
Purchase of fixed assets - -
--------- ----------
Net cash provided by (used in)
investing activities 0 (31,690)
--------- ----------
The accompanying notes are an integral part of these financial
statements.
F-10a
<PAGE> 20
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Three months ended
December 31, December 31,
1998 1997
<S> <C> <C>
Cash flows from financing activities:
Stock issuance and offering costs 19,868 -
Proceeds received on long-term debt - -
Payments made on notes payable - -
Issuance of common stock for cash 7,500
Payment for option to repurchase stock
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 - -
Issuances of warrants for cash - -
--------- ----------
Net cash provided by (used in)
financing activities: 19,868 7,500
--------- ----------
Net increase (decrease) in cash $ 464 $ (337,197)
--------- ----------
The accompanying notes are an integral part of these financial
statements.
F-10b
<PAGE> 21
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
From
Three months 02/17/94
ended Inception
December 31, Through
1998 12/31/98
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (339,613) $ (7,537,128)
Adjustments to reconcile net loss to net
cash used by operating activities:
Loss on sale of equipment 12,585
Depreciation and amortization 9,587 195,737
Issuance of common stock
for services 89,061 1,326,256
Write-off of option costs 517,871
Write-off of joint venture costs - 160,000
Write-off of mineral properties 1,097,737
Loss on devaluation of investments 1,997,813
Changes in assets and liabilities:
Note receivable - (5,000)
Interest receivable (3,833) (24,164)
Prepaid expenses (11,241) (30,600)
Other assets - (9,801)
Mineral properties (4,674)
Accounts payable (10,053) 67,115
Accrued expenses (3,282) 2,188
---------- ------------
Net cash used in operating
activities (269,374) (2,234,065)
---------- ------------
Cash flows from investing activities:
Purchase of investments - (3,004,062)
Sale of assets 500 5,685
Purchase and development of
mineral properties (16,276) (1,941,690)
Sale of mineral properties 1,093,750
Sale of investment 70,000
Purchase of fixed assets (2,830) (213,187)
---------- ------------
Net cash provided by (used in)
investing activities (18,606) (3,989,504)
---------- ------------
The accompanying notes are an integral part of these financial
statements.
F-10c
<PAGE> 22
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
From
Three months 02/17/94
ended Inception
December 31, Through
1998 12/31/98
<S> <C> <C>
Cash flows from financing activities:
Stock issuance and offering costs (30,000) (154,967)
Proceeds received on long-term debt - 675,000
Payments made on notes payable (25,000) (174,206)
Issuance of common stock for cash - 5,872,564
Payment for option to repurchase stock (50,000)
Issuance of common stock for
accrued interest - 38,158
Issuance of common stock for extension of
notes payable maturation - 59,063
Payment for return of stock issued for
mining property interest - (35,000)
Payment of joint venture costs - (50,000)
Issuances of warrants for cash - 46,568
---------- ------------
Net cash provided by (used in)
financing activities: (55,000) 6,227,180
---------- ------------
Net increase (decrease) in cash $ (342,980) $ 3,611
---------- ------------
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-10d
<PAGE> 23
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
December 31, December 31,
1998 1997
<S> <C> <C>
Net increase in cash (balance forward) $ 464 $ (337,197)
Cash, beginning of period 3,147 594,577
-------- ----------
Cash, end of period $ 3,611 $ 257,380
======== ==========
Supplemental cashflow disclosure:
Income taxes $ - $ -
Interest $ - $ -
Non-cash financing activities:
Common stock issued for services
rendered $ 57,540 $ 85,608
Common stock issued for mineral
properties $ - $ -
Common stock issued for exchange
for debt $ 30,000 $ -
Common stock issued in acquisition
of Consolidated Royal Mines, Inc. $ - $ -
Option rights acquired in exchange
for a payable $ - $ -
Common stock issued for assignment
of mining property options $ - $ -
Common stock issued in exchange
for common stock of Ashington
Mining Corp. $ 7,200 $ -
The accompanying notes are an integral part of these financial
statements
F-11a
<PAGE> 24
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
From
Three months 02/17/94
ended Inception
December 31, Through
1998 12/31/98
<S> <C> <C>
Net increase in cash (balance forward) $ (342,980) $ 3,611
Cash, beginning of period 688,716 -
---------- -----------
Cash, end of period $ 345,736 $ 3,611
========== ===========
Supplemental cashflow disclosure:
Income taxes $ - $ 350
Interest $ 5,000 $ 25,655
Non-cash financing activities:
Common stock issued for services
rendered $ 89,061 $ 1,326,258
Common stock issued for mineral
properties $ - $ 3,190,626
Common stock issued for exchange
for debt $ - $ 952,950
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 common stock of Ashington
Mining Corp. $ - $ 7,200
</TABLE>
The accompanying notes are an integral part of these financial
statements.
F-11b
<PAGE> 25
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969
under the laws of the state of Utah primarily for the purpose of
acquiring and developing mineral properties. Royal conducts its
business as a "junior" natural resource company, meaning that it
intends to receive income from property sales or joint ventures with
larger companies.
Celebration Mining Company (Celebration), currently a wholly-owned
subsidiary of Royal, was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration
was organized on February 17, 1994 as a Washington corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an Agreement and
plan of reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization, the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration control the Company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of
the assets or liabilities of Royal in the exchange as the market value
approximated the net carrying value. Royal is the acquiring entity
for legal purposes and Celebration is the surviving entity for
accounting purposes.
F-12
<PAGE> 26
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The $2,229,411 cost of mineral properties included in the accompanying
balance sheet as of December 31, 1998 is related to exploration
properties. The Company has not determined whether the exploration
properties contain ore reserves that are economically recoverable.
The ultimate realization of the Company's investment in exploration
properties is dependent upon the success of future property sales, the
existence of economically recoverable reserves, the ability of the
company to obtain financing or make other arrangements for development
and upon future profitable production. The ultimate realization of
the Company's investment in exploration properties cannot be
determined at this time and, accordingly, no provision for any asset
impairment that may result, in the event the Company is not successful
in developing or selling these properties, has been made in the
accompanying financial statements.
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
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Loss Per Share
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year. The weighted
average number of shares was calculated by taking the number of shares
outstanding and weighting them by the amount of time they were
outstanding.
F-13
<PAGE> 27
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Outstanding warrants were not included in the computation of loss per
share because the exercise price of the outstanding warrants is higher
than the market price of the stock, thereby causing the warrants to be
antidilutive.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Estimates
The preparation of financial statements 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.
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 charges to
operations at the time of impairment.
Should a property be abandoned, its capitalized costs are charged to
operations. The Company charges to operations the allocable portion
of capitalized costs attributable to properties sold. Capitalized
costs are allocated to properties sold based on the proportion of
claims sold to the claims remaining within the project area.
Concentration of Risk
The Company maintains its cash accounts in primarily one commercial
bank in Spokane, Washington. Accounts are guaranteed by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000.
F-14
<PAGE> 28
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Provision For Taxes
At December 31, 1998, the Company had net operating loss carryforwards
of approximately $7,400,000 that may be offset against future taxable
income through 2012. No tax benefit has been reported in the
financial statements as the Company believes there is a 50% or greater
chance the net operating loss carryforwards will expire unused.
Accordingly, the potential tax benefits of the net operating loss
carryforwards are offset by a valuation allowance of the same amount.
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Impairment of Long-lived Assets."
This standard is effective for years beginning after December 15,
1995. In complying with this, the Company reviews its long-lived
assets quarterly to determine if any events or changes in
circumstances have transpired which indicate that the carrying value
of its assets may not be recoverable. Because of write-downs and
write-offs taken in the fourth quarter of fiscal 1998, the Company
does not believe any adjustments are needed to the carrying value of
its assets at December 31, 1998.
Financial Accounting Standards
In October 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Stock-Based Compensation" (FAS 123).
The statement is effective for fiscal years beginning after December
15, 1995. FAS 123 encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options, and
other equity instruments to employees based on fair value. The
Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.
Principles of Consolidation
The financial statements include those of Royal Silver Mines, Inc. and
Celebration Mining Company. All significant inter-company accounts
and transactions have been eliminated. The financial statements are
not considered consolidated statements since Royal Silver Mines, Inc.
was the successor by merger to Celebration Mining Company.
F-15
<PAGE> 29
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
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 December 31, 1998, no further funds
towards the joint venture have been expended by Celebration, which
owns an undivided 25% interest in the property. See Note 16 on
related litigation.
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.
F-16
<PAGE> 30
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 3 - MINERAL PROPERTIES (Continued)
Shoshone County Idaho Mineral Lease (Crescent Mine)
In February 1995, Celebration entered into an agreement to acquire a
fifty-year renewable mineral lease on a property in Shoshone County,
Idaho. The mining property consists of twelve patented claims and
associated Idaho unpatented claims. In connection with this lease,
Celebration has paid $50,000 and issued 175,000 share of common stock.
In addition, 10,000 shares were issued to a new director for his
assistance in obtaining this lease. Celebration was originally
obligated to pay $950,000 by September 1, 1995 as "an advance
royalty." The original due date was extended and the Company paid the
aforementioned $950,000 and has the option of extending its lease for
an additional forty-nine years. When, and if, the property achieves
gross sales of $40,000,000, Celebration will be obligated to pay an
additional 0.5% royalty on future sales. Furthermore, beginning after
September 1, 1995, and at such time as the average price of silver has
reached $6.00 per ounce for a 30-day period, Celebration is obligated
to spend not less than $2,000,000 during the subsequent 36 months to
de-water and repair the mine. Thereafter, Celebration will be
required to maintain the mine in a condition to allow it to be put
into production within sixty days. There are certain claims by the
U.S. Environmental Protection Agency and the County on this property
for which the lessor is obligated to pay. In the event these claims
are not satisfactorily resolved, they may effect Celebration's rights
to the property. See Note 16 on litigation regarding this lease.
Australian Mineral Property Joint Venture
In March 1995, Celebration entered into a joint venture agreement with
an Australian company for exploration of a certain mineral property in
Australia. Under the original terms of the Joint venture agreement,
Celebration could acquire a 10% interest by paying $100,000 in April
1995. No additional funds were paid or required to be paid subsequent
to the initial payment.
* * *
F-17
<PAGE> 31
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 3 - MINERAL PROPERTIES (Continued)
Australian Mineral Property Joint Venture (Continued)
The Company's proposed future mining activities will be subject to laws
and regulations controlling not only the exploration and mining of
mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may necessitate
additional capital outlays, affect the economics of a project, and cause
changes or delays in the Company's activities. The Company's mineral
properties are valued at the lower of cost of net realizable value.
NOTE 4 - MINERAL PROPERTY DISPOSITIONS
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.
Mexico 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 that resulted in a gain of $1,454,062.
F-18
<PAGE> 32
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 4 - MINERAL PROPERTY DISPOSITIONS (Continued)
Conjecture Mine and Liberal King Mine (in U.S.)
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.
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.
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
Metalline Mining Company
During the quarter ended June 30, 1997, the Company invested $70,000 in
200,000 shares of Metalline Mining Stock. This investment represented
approximately 5.7% of the total outstanding stock in Metalline Mining at
the time of purchase. This stock was valued at cost, which is
substantially less than the market value of $1.68 per share at December
31, 1997.
F-19
<PAGE> 33
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 6 - INVESTMENTS (Continued)
Metalline Mining Company (Continued)
On January 12, 1998, this stock was transferred to Dakota Mining
Corporation plus $100,000 cash in exchange for a 35% working interest in
a joint venture with Metalline Mining co. for exploration and
development of the Sierra Mojada District, Coahuila, Mexico. No gain or
loss was recognized on this transaction. See information below and Note
20.
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. See Note 15.
he Company currently owns 1,235,000 shares of Grand Central Silver
Mines, Inc. common stock, which is approximately 12% of the total
outstanding shares at September 30, 1998. On September 30, 1998, the
market value of the Company's investment in Grand Central had dropped to
$926,250 ($0.75 per share), at which time the Company recorded a loss on
its investment of $1,997,812.
F-20
<PAGE> 34
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 6 - INVESTMENTS (Continued)
SynFuels Technology, Inc.
On June 26, 1998, the Company traded six patented mining claims acquired
in Shoshone County Idaho in 1995 for 50,000 shares of SynFuels
Technology, Inc. which was then trading at $8.00 per share. The Company
acquired an additional 10,000 shares of SynFuels Technology, Inc. common
stock in September 1998 in exchange for another mining property. (See
Note 4). The Company's cost of $392,000 is the recorded value of this
investment at September 30, 1998. SynFuels Technology, Inc. changed its
name to Rigid Airship in November 1998.
Summit Silver, Inc.
In July, 1998, the Company acquired 400,000 shares of Summit Silver
common stock valued at $0.15 per share in exchange for transferring
mining equipment with an original cost of $98,767. This transaction
resulted in a loss of $11,233.
Ashington Mining Corporation
In November 1998, the Company acquired 100,000 shares of Ashington
Mining Corporation in exchange for 120,000 shares of its common stock,
which was then trading at $0.06 per share. The Company recorded the
Ashington stock at $7,200.
NOTE 7 - INTANGIBLE ASSETS
Deferred debt issuance costs and organization costs are recorded at
cost. Amortization of these intangible assets is determined using the
straight-line method over the expected useful lives of the assets as
follows:
Description Useful Life
Deferred debt issuance costs 1 year
Organization costs 5 years
F-21
<PAGE> 35
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
NOTE 8 - COMMON STOCK
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.003 to $.625 per share, which is the fair market value of the 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
(See Note 11). The Company also issued 277,500 shares in connection
with the issuance of notes payable (See Note 11). (See also the
disclosure in Note 1).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock of $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-22
<PAGE> 36
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 8 - 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.
F-23
<PAGE> 37
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 8 - COMMON STOCK (Continued)
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).
In October 1998, the Company issued 959,000 shares of common stock for
services received. The shares were valued at their fair market value at
the date of issuance which was $0.06.
NOTE 9 - COMMON STOCK OPTIONS AND WARRANTS
In January 1992, the shareholders of Royal approved a 1992 Stock Option
and Stock Award Plan under which up to ten percent of the issued and
outstanding shares of the Company's common stock could be awarded based
on merit of work performed. As of December 31, 1998, 12,750 shares of
common stock have been awarded under the Plan.
Celebration, prior to the exchange agreement with Royal, had granted
securities to certain shareholders that 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
share of its common stock. There are 255,000 of the stock options
exercisable at $1.50 per share
which expire March 21, 2000. The remaining 1,200,000 stock options are
exercisable at $0.93 per share and expire on August 31, 2001. As of
December 31, 1998, none of these options have been exercised.
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999.
F-24
<PAGE> 38
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 9 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
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 expired unexercised on September 30, 1998. 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
expired unexercised on April 12, 1998.
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. As
of December 31, 1998, none of the warrants had been exercised.
NOTE 10 - 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 December 31, 1998, no options have been granted under the
plan. Of the total of 1,064,650 common stock shares authorized for
issuance under the plan, 110,500 shares valued at $1.00 per share were
issued to employees and directors during the twelve months ended
September 30, 1997 and 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. No shares were granted during the
three-month period ended December 31, 1998.
F-25
<PAGE> 39
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 11 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid in capital at December 31,
1998 and September 30, 1998:
December 31, September 30,
1998 1998
Applicable to:
Common stock $ 11,258,587 $ 11,843,270
Stock Warrants 46,568 46,568
------------ ------------
$ 11,305,155 $ 11,889,838
============ ============
NOTE 12 - 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.
F-26
<PAGE> 40
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 12 - OPTIONS INVOLVING MINERAL PROPERTIES (Continued)
Subsequent to March 31, 1997, due to regional environmental concerns and
the prospect of related litigation, the Company concluded that it would
not exercise its option on the Bunker Hill Mine. Accordingly, the
$238,887 in option costs and related expenses toward the purchase of
this property were written off during the quarter ended March 31, 1997.
Option 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.
NOTE 13 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an option
from Centurion to purchase up to 800,000 shares of its common stock held
by Centurion for the exercise price of $1.75 per share during the two-
year period ending September 30, 1998. The cost of this two-year stock
purchase option was $50,000 which was paid by the Company and charged to
stockholders' equity (accumulated deficit).
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 December 31, 1998, no shares were acquired from Centurion under this
option agreement. See Note 15.
F-27
<PAGE> 41
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 14 - LETTER OF INTENT WITH TECK EXPLORATION LTD.
On 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 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 15 - 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; however, the two companies continue to share one
common director and a common officer.
NOTE 16 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit filed by some of its
shareholders for alleged violations of securities laws. The suit asks
for actual damages. The Company believes the suit is completely without
merit and intends to vigorously defend its position.
F-28
<PAGE> 42
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company is also a defendant in a lawsuit alleging that the Company
failed to transfer common stock in exchange for a mining property
interest. The suit asks for actual and punitive damages. The Company
believes the suit is completely without merit and has filed a
countersuit alleging fraudulent misrepresentation. The Company is
seeking both full title to the aforementioned mineral property and
punitive damages, and believes its countersuit will prevail.
In July 1998, the Company filed an action in federal court in Boise,
Idaho for declaratory judgment regarding the validity of its Crescent
Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. Management believes that there is a good likelihood of
prevailing in this matter.
NOTE 17 - 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 share of GSLM valued at $1,424,062. (See Note
4). A total gain of $1,454,062 was recognized on this transaction.
F-29
<PAGE> 43
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1998
NOTE 18 - NOTES RECEIVABLE
At December 31, 1998, the Company's note receivable consisted primarily
of a $350,000 receivable from Grand Central Silver Mines, Inc. This
note bears interest at 8%, is uncollateralized, and matures February 15,
1999.
NOTE 19 - GOING CONCERN
As shown in the financial statement, the Company incurred a net loss of
$71,033 for the quarter ending December 31, 1998 and an accumulated
deficit of $7,537,129 since inception. Cash to accumulated deficits has
decreased from a ratio of 12.31% as of September 30, 1997 to 0.05% as of
December 31, 1998.
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 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.
NOTE 20 - SUBSEQUENT EVENT
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 world wide 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.
F-30
<PAGE> 44
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES. There is
considerable risk in any mining venture, and there can be no assurance
that the Company's operations will be successful or profitable.
Exploration for commercially minable ore deposits is highly speculative
and involves risks greater than those involved in the discovery of
mineralization. Mining companies use the evaluation work of
professional geologists, geophysicists, and engineers in determining
whether to acquire an interest in a specific property, or whether or not
to commence exploration or development work. These estimates are not
always scientifically exact, and in some instances result in the
expenditure of substantial amount of money on a property before it is
possible to make a final determination as to whether or not the property
contains economically minable ore bodies. The economic viability of a
property cannot be finally determined until extensive exploration and
development work, plus a detailed economic feasibility study, has been
performed. Also, the market prices for mineralization produced are
subject to fluctuation and uncertainty, which may negatively affect the
economic viability of properties on which expenditures have been made.
During the development stage of the Company, from inception to December
31, 1998, the Company accumulated a deficit of $7,537,129.
At December 31, 1998, $2,229,411 of the Company's total assets of
$3,997,466 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.
<PAGE> 45
LIQUIDITY AND CAPITAL RESOURCES. The Company currently has no revenues
and, as explained above, has an accumulated deficit. Because it has
sustained 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 December 31, 1998, the Company had
working capital of $314,074. This amount is a slight improvement in
liquidity and capital resources from its working capital position of
$303,600 at September 30, 1998 but represents some deterioration from
working capital of $357,646 at September 30, 1997. The largest single
element of working capital is a promissory note for $350,000 (from Grand
Central Silver Mines, Inc.) which matures in 1999. While sales of the
Company's stock have traditionally constituted its primary source of cash
generation, depressed metals prices in 1998 have lessened the Company's
recent ability to obtain cash from sales of its stock. Company sales of
its stock generated the following cash amounts: $20,000 in the quarter
ending December 31, 1998, $303,600 in the year ending September 30,
1998; and $1,843,750 in the year ending September 30, 1997. In
adjusting to smaller cash resources, the Company has substantially
decreased its expenses for office, personnel and compensation, and
consulting expenses.
In the first quarter of fiscal 1998, the Company slightly increased its
accounts payable while accrued expenses and accounts payable remained
steady. Accordingly, the Company's current liabilities moved from
$68,815 at September 30, 1998 to $70,115 at December 31, 1998. The
Company had no long-term debt at September 30, 1998 or at December 31,
1998.
The Company has estimated that it will need minimal capital resources of
approximately $20,000-25,000 per month to meet its estimated
expenditures for fiscal 1999. In recent years, several key members of
management, met with experienced financial and investment firms
throughout Europe and North America and negotiated preliminary terms and
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) and during the
fiscal year ending September 30, 1998, the Company raised $344,500 in
funds from private placement of its shares. The Company is continuing
with the previously described negotiations and various alternatives to
raise capital.
<PAGE> 46
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 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 form such joint ventures and other lease or
royalty arrangements.
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities which provide its
personnel, office space, and equipment needs. The Company currently is
seeking alternate sources of working capital sufficient to increase the
funding of additional general and administrative expenses that may
become necessary as the Company's business plan develops, and to continue
meeting its ongoing payment obligations for its leases to governmental
entities.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31,
1998, RESPECTIVELY. General and administrative expenses plummeted from
$390,616 during the first quarter of fiscal 1998 to $78,091 during the
first quarter of fiscal 1999. This increase is principally due to
greatly reduced consulting expenses and compensation to officers and
directors. As a result, during the first quarter of fiscal 1998 compared
to the first quarter of 1999, the net loss decreased from $385,990 to
$71,033 while the net loss per share improved from a loss of $0.028 to
a loss of $0.004.
The Company is unable to fully determine the impact of future
transactions on its operating capital. Hence, the Company has
determined not to incur and does not have any commitments or plans for
material capital expenditures during the remainder of its current fiscal
year for which it does not have a reasonably available source of
payment. It is uncertain what effect this decision may have with
respect to restricting capital expenditures.
<PAGE> 47
On the one hand, if the Company were to continue such restriction, the
likely effect might be adverse to the preservation of its assets and
capital base, thereby narrowing the scope of plans for future operations
and constricting liquidity. On the other hand, if the Company were to
discontinue such restriction without an increase in sustained cash flow,
the likely effect of that might be an increase in accumulated deficits
which could be adverse to the Company's financial condition with respect
to liabilities and stockholders' equity.
Therefore, while the Company continues to seek a joint venture
participant and additional sources of capital for financing operations
during the remainder of its current fiscal year, the Company will
continue to carefully monitor its capital expenditures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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 is a defendant in a lawsuit filed by some of its
shareholders for alleged violations of securities laws. The suit was
filed in the U.S. District Court in Denver on January 22, 1998 with Rounds
et al as plaintiffs vs. Royal Silver Mines, Inc. et al as defendants.
Plaintiffs seek damages and attorneys' fees in their lawsuit, which
alleges that defendants made false/misleading statements and omitted
material disclosures in connection with public trading of Royal's common
stock during the period May 1996 to August 1997. The Company believes
that this lawsuit is completely without merit. The Company is not
aware of any similar action(s) contemplated or instituted by
governmental authorities. The trial court sustained the Company's
motion for summary judgment dismissing claims against it for omissions
of material fact.
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 countersuit will prevail.
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.
<PAGE> 48
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 of corporate
office. To the best 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 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
Item
Number Document
10.15 Integrated Environmental Technologies - Technology Licensing
Agreement.
27 Financial Data Schedule.
=======================================================================
SIGNATURES
=======================================================================
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated this 11th day of February, 1999.
ROYAL SILVER MINES, INC.
BY: /s/ Howard Crosby
Howard Crosby, President,
Treasurer and member of the
Board of Directors
<PAGE> 51
INTEGRATED ENVIRONMENTAL TECHNOLOGIES
TECHNOLOGY LICENSING AGREEMENT NO. 9801
This Technology Licensing Agreement (hereinafter called the
"Agreement") is entered into between Integrated Environmental
Technologies, LLC, a New York limited liability company, registered tin
the State of Washington located at 1935 Bulter Loop, Richland,
Washington 99352 (hereinafter called "IET", and Royal Silver Mines,
Inc., a Utah corporation having its principal place of business located
at 1010 Ironwood Drive, Suite 105, Coeur d"Alene, Idaho 83814
(hereinafter called "Royal") (IET and Royal hereinafter collectively
called the "parties").
WHEREAS, IET is in the business of manufacturing high temperatur3e
systems which utilize plasma technology for processing materials and
has developed certain intellectual property include trade secrets,
inventions, whether patented or unpatented, information, data, and
experience (hereinafter called "IET" Technology") which are
confidential, proprietary and a valuable commercial assets to IET;
WHEREAS, Royal is in the business of developing mining properties and
Royal represents that Royal is a publicly traded corporation having the
capability to acquire rights in mineral deposits which can be exploited
through the application of IET technology; and
WHEREAS, Royal desires to obtain a license to IET Technology to allow
Royal to acquire, develop and exploit such mineral deposits using IET
Technology;
NOW, THEREFORE, in consideration of the mutual covenants, terms and
conditions contained herein and intending to be legally bound thereby,
the parties agree as follows:
1. Conditions Precedent
A. The grant of rights hereunder shall not take effect until
Royal has funded at direct cost, and IET has performed, a one
tone test in IET's facilities to demonstrate the technical
efficacy of the IET Technology in the processing of suitable
ores.
B. The grant of rights hereunder shall not take effect until
Royal has purchase, and IET has sold, a ten ton per day
system for installation in Benton or Franklin County,
Washington, or such other location as the parties may
mutually agree, and the parties have commenced a one hundred
ton test in this ten ton per day system to demonstrate the
efficacy of the IET Technology in the processing of suitable
ores. Such purchase and sale shall be completed within one
(1) year of the completion of the test set forth in paragraph
1.A. and that such shall be pursuant to IET's standard terms
and conditions. The parties agree that as a condition of
Royal's purchase, Royal shall be given the option to return
<PAGE> 52
the ten ton per day system for a refund of the purchase price
(exclusive of installation, transport, taxes and related
costs) within one year of such return, in the event that the
system is unable to process ores.
C. The grants of rights hereunder shall not take effect until
Royal has acquired the rights in patented mining claims,
unpatented mining claims, long term leases (10 years or more)
of patented and unpatented mining claims, or in such form as
shall be reasonably acceptable to IET, to extract, process
and sell mineral deposits and residual process streams from
milling and smelting operations containing copper, gold
and/or silver having a minimum fair market value of two
hundred fifty million dollars ($250,000,000) after
processing. As used in this agreement "fair market value"
shall mean the highest bid price of any commodity or security
on the date the commodity or security was acquired ro sold by
the parties as listed on the Chicago Mercantile Exchange, the
NYSE, the NASDAQ or, if not listed on those exchange making
markets in the commodity or security. Royal shall acquire
such rights within eighteen (18) months of the completion of
the test set forth in paragraph 1.A.
2. Grant of Rights
Under completion of the conditions precedent set forth in
paragraph 1, above, IET hereby grants to Royal a world wide exclusive
license to practice those 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. This license shall not include properties in and around
the Yuma, Arizona region currently owned or controlled by Wayne Childs.
The license granted hereunder shall be strictly limited to the
operation of systems or equipment purchased from IET for the extraction
and recovery of copper from enargite ores and gold and silver from
arsenic rich ores. IET does not grant Royal the right to manufacture
or sell systems or equipment which utilize or practice IET technology
in systems manufactured or sold by persons or entities other than IET,
and Royal shall not endeavor to purchase or utilize systems
manufactured or sold by persons or entities other than IET which
practice the IET technology. IET does not grant Royal the right to
practice to IET technology in fields other than the extraction and
recovery of copper from enargite ores and gold and silver from arsenic
rich ores, and Royal shall not endeavor to utilize the IET technology
or systems sold by IET for purposes other than the extraction and
recovery of copper from enargite ores and gold and silver from arsenic
rich ores.
3. Payment
In consideration of the rights granted herein, Royal grants IET
irrevocable warrants to purchase nineteen million nine hundred thirty
two thousand five hundred sixty five (19,932,565) shares of the common
stock of Royal Silver Mines, Inc. (which Royal represents is a number
equivalent to the issued and outstanding shares of Royal as of the
<PAGE> 53
effective date of this agreement) at a price of fourteen and four tenth
cents ($0.144) per share. Royal further agrees that in the event of any
sale or offer for sale of any shares of any type of Royal Silver Mines,
Inc., IET shall be given a right of first refusal for a period of not
less than forty five (45 days) to purchase up to one half of any such
shares under the same terms and conditions of such sale or offer.
Royal further agrees that the warrants granted hereunder shall remain
fully exercisable at IET's sole discretion for a period of not less
than ten years beginning the effective date of this agreement. Royal
further agrees to take all actions necessary, including without
limitation the filing of any required forms, papers and reports, with
the SEC, IRS and any and all other stgate4 and federal agencies, which
may be required to maintain Royal's status as a fully reporting,
publicly traded company during the period that the warrants granted
hereunder shall remain exercisable.
In addition to the warrants granted hereunder, Royal agrees that
Royal shall pay IET royalties for any and all precious metals extracted
or processed by Royal utilizing either the IET Technology or IET
furnished equipment accordingly to the following schedule:
Zinc twenty five dollars ($25) per ton
Lead ten dollars ($10) per ton
Copper forty dollars ($40) per ton
Gold forty dollars ($40) per ounce
Silver ten cents ($0.10) per ounce
In the event that IET shall exercise any of the warrants granted
hereunder, Royal shall have no further obligation for the payment of
the royalties set forth within this paragraph 3.
4. Sublicensing
Royal shall have no right to sublicense the IET Technology until
and unless IET shall exercise the warrants granted in the preceding
paragraph 3. In the event that IET shall exercise the warrants shall
exercise the warrants granted in the preceding paragraph 3, Royal shall
have the right to sublicense the IET Technology provided that any such
license shall REQUIRE, in addition to any other payment contained
within such sublicense, direct payment to IET of royalties for any and
all precious metals extracted or processed by Royal's sublicensee
utilizing either the IET Technology or IET furnished equipment
according to the following schedule:
Zinc eight dollars ($8) per ton
Lead three dollars twenty five cents ($3.25) per ton
Copper fourteen dollars ($14) per ton
Gold fourteen dollars ($14) per ounce
Silver three cents ($0.03) per ounce
Additionally, any such sublicense by Royal shall name IET as a third
party beneficiary of such license and shall contain the provisions, and
provide IET with the benefits of, paragraphs 3, 6, 7, 8, 9, 10, 11, and
12 of this agreement.
<PAGE> 54
5. Diligence Requirements
Royal's license under this agreement shall remain exclusive
provided that the diligence requirements set forth in this paragraph 5,
are met. In the event the diligence requirements are not met, Royal's
license under this agreement shall become non-exclusive. In each year,
Royal shall utilize the IET Technology to process copper, gold or
silver, having a total fair market value according to the following
schedule
Calendar Year Total fair market value
2000 $ 1,000,000
2001 $ 2,000,000
2002, and each year thereafter $12,000,000
For purpose of this paragraph, the fair market value of copper, gold or
silver processed by Royal shall be calculated as the total weight of
copper, gold and silver recovered from ores owned or controlled by
Royal using the IET Technology each quarter of Royal's financial year,
multiplied by the respective closing bid spot price of copper, gold or
silver as reported in the Wall Street Journal on the closing date of
each quarter of Royal's fiscal year.
6. Confidential Information
A. The parties recognize that IET is the owner or licensee of
certain Proprietary Information (as defined herein-below)
regarding applications of plasma and related technologies,
the unauthorized disclosure of which could have material
adverse effects upon the business prospects and advantages of
IET.
B. The term "Proprietary Information" shall mean any and all
data and information furnished by IET to Royal or by Royal to
IET related to the IET Technology by any means, including but
not limited to orally, in writing, or by electronic
transmission, which IET deems to be confidential or
proprietary to IET. Proprietary Information thus includes,
but is not limited to, business plans, financial information,
product concepts, patent applications, trade secrets, know
how, computer software, documentation, manuals, models, mock-
ups, data, reports, drawings, diagrams, design specifications
and any reproductions, in any form whatsoever, including
verbal disclosure, made thereof.
C. Any Proprietary Information furnished under this agreement,
or which may otherwise come into the possession of Royal,
shall remain the exclusive property of IET and Royal shall
not use any Proprietary Information for any purpose except as
contemplated by this agreement.
<PAGE> 55
D. Royal shall keep all Proprietary Information in strictest
confidence and shall not disclose any Proprietary Information
to any party whomsoever without first obtaining the written
consent of IET. Royal understands and agrees that no such
consent is given or shall be deemed to be have been given
through the provisions of this Agreement.
E. Royal shall avoid any unnecessary copying or other
reproductions of any Proprietary Information and shall
protect the confidentiality of all such copies to the same
extent required hereunder of original information. All
copies made of Proprietary Information shall be labeled by
Royal to include any proprietary notice delivered by IET with
the Proprietary Information. Upon request by IET, Royal
shall promptly return to IET, without further demand or other
request therefor, all Proprietary Information and copies
thereof. Royal shall further deliver to IET its certificate
stating that all Proprietary Information (and copies thereof)
has been delivered in accordance with the requirements of
this agreement.
F. Notwithstanding anything to the contrary contained in this
Agreement, Royal shall have no liability for the use or
disclosure of Proprietary Information which was:
(i) in the public domain prior to the execution of
this agreement or which, after such execution,
became a part of the public domain by means other
than the disclosure thereof by Royal in violation
of this agreement; or
(ii) in Royal's possession at the time of disclosure to
Royal hereunder and was not acquired directly or
indirectly by Royal under an obligation of
secrecy; or
(iii) received by Royal from a third party without
obligation of secrecy and which Royal did not know
or have reason to know was obtained by such third
party under an obligation of secrecy; or
(iv) developed by Royal independent of this agreement
and independent of any Proprietary Information
furnished under this agreement, as evidenced by
written documentation of the development effects,
and without violation of this agreement.
G. No Proprietary Information shall be deemed to be within the
exceptions set forth in paragraph F above solely by virtue of
the fact that such Proprietary Information is contained in
more general information then in the public domain or in
Royal's possession. Furthermore, any combination of
<PAGE> 56
characteristics peculiar to the Proprietary Information shall
not be deemed to fall within the exceptions set forth in
paragraph F above unless such combination of characteristics
is itself in the public domain or in Royal's possession.
H. Nothing contained in this agreement shall be deemed to grant
any right or license to Royal except as explicitly set forth
herein.
I. If Royal shall fail to comply with any of the provisions of
this agreement or fail to remedy any such failure within ten
(10) business days after notice from IET, then IET shall be
entitled to pursue any and all legal and equitable remedies
available against Royal. In such event, IET shall have the
right to require the immediate return of any or all
Proprietary Information (and copies thereof) furnished to
Royal under the protection of this agreement.
J. The obligations set forth in this Section 6, of this
agreement shall survive the expiration of this agreement for
a period of five years after the date first written above.
7. Payments
A. Method of Payment
All payments required under this Agreement should be made
payable to "Integrated Environmental Technology, LLC" and
sent to:
Integrated Environmental Technology, LLC
Attn: Accounts Payable
1935 Bulter Loop
Richland, WA 99352
Each payment should reference this Agreement and identify the
obligation under this agreement that the payment satisfies.
B. Payments in U.S. Dollars
All payments due under this agreement shall be payable in
United States dollars within ten days of the receipt of the
quarterly report as set forth in paragraph.
C. Late Payments
Any payments by Royal that are not paid on or before the date
such payments are due under this agreement shall bear
interest, to the extent permitted by law, at two percentage
points above the Prime Rate of interest as reported in the
Wall Street Journal on the date payment is due.
<PAGE> 57
8. Report and Record-Keeping
8.1 Frequency of Reports
A. Before commercial use of the IET Technology
Prior to the first commercial use of the IET Technology for
the processing of any copper, gold or silver bearing ores,
Royal shall deliver reports to IET annually, within sixty
(60) days of the end of each calendar year, containing
information concerning the immediately preceding calendar
year, as further described in Section 8.2.
B. Upon first commercial use of the IET Technology for the
processing of any copper, gold, or silver bearing ores, at
any property owned or controlled by Royal, Royal shall report
to IET the date of such first commercial use of the IET
Technology for the processing of any copper, gold, or silver
bearing ores, within sixty (60) days of occurrence in each
property owned or controlled by Royal.
C. After commencing the commercial use of the IET Technology for
the processing of any copper, gold, or silver bearing ores,
at any property owned or controlled by Royal, Royal shall
deliver reports to IET within sixty (60) days of the end of
each quarter of Royal's fiscal year (hereinafter "Quarter"),
containing information concerning the immediately preceding
Quarter, as further described in Section 8.2.
8.2 Content of Reports and Payments
Each report delivered by Royal to IET shall contain at least the
following information for the immediately preceding quarter:
A. The weight of all copper, gold, or silver bearing ores
processed for each property owned or controlled by Royal,
together with the weight of copper, gold, or silver recovered
from such ores using the IET Technology, together with the
respective closing bid price of copper, gold or silver as
reported in the Wall Street Journal on the closing date of
each Quarter.
B. The total royalty payable in U.S. dollars, together with the
exchange rates used for conversion.
If no amounts are due to IET for any reporting period, the
report shall so state.
8.3 Financial Statements
On or before the ninetieth (90th) day following the close of
Royal's fiscal year, Royal shall provide IET with Royal's
financial statements for the preceding year including, at a
minimum, a balance sheet and an income statement, certified by
Royal's independent auditor.
<PAGE> 58
8.4 Record keeping
Royal shall maintain, and shall cause its sublicensees to
maintain, complete and accurate records relating to the rights and
obligations under this agreement and any amounts payable to IET in
relation to this agreement, which records shall contain sufficient
information to permit IET to confirm the accuracy of any reports
delivered to IET and compliance in other respects with this
agreement. The relevant party shall retain such records for at
least five (5) years following the end of the calendar year to
which they pertain, during which time IET, or IET's appointed
agents, shall have the right, at IET's expense, to inspect such
records during normal business hours to verify any reports and
payments made or compliance in other respects under this
Agreement. In the event that any audit performed under this
Section reveals an underpayment in excess of ten percent (10%),
Royal shall bear the full costs of such audit and shall remit any
amounts due to IET within thirty (30) days of receiving notice
thereof from IET.
9. Patent Prosecution
IET shall prepare, file, prosecute, and maintain all patent rights
contained within the IET Technology. Royal shall have reasonable
opportunities to advise IET and shall cooperate with IET in such
filing, prosecution and maintenance of such patent rights.
Payment of all fees and costs, including attorneys fees relating
to the filing, prosecution and maintenance of the patent rights
shall be the responsibility of IET.
10. Infringement
10.1 Notification of Infringement
Each party agrees to provide written notice to the other party
promptly after becoming aware of any infringement of the patent
rights.
10.2 Right to Prosecute Infringements
1. Royal Right to Prosecute. So long as Royal remains the
exclusive licensee of the patent rights for the extraction
and recovery of copper from enargite ores and gold and silver
form arsenic rich ores Royal, to the extent permitted by law,
shall have the right, under its own control and at its own
expense, to prosecute any third party infringement of the
patent rights in the field licensed exclusively to Royal. If
required by law, IET shall permit any action under this
paragraph to be brought in its name, including being joined
as a party-plaintiff, provided that Royal shall hold IET
harmless form, and indemnify IET against, any costs,
expenses, or liability that IET incurs in connection with
such action. Prior to commencing any such action, Royal
shall consult with IET and shall consider the views to IET
<PAGE> 59
regarding the advisability of the proposed action. Royal
shall not enter into nay settlement, consent, judgment, or
other voluntary final disposition of any infringement action
under this paragraph without the prior written consent of
IET.
2. IET Right to Prosecute. In the event that Royal is
unsuccessful in persuading the alleged infringer to desist or
fails to have initiated an infringement action within a
reasonable time after Royal first becomes aware of the basis
for such action, IET shall have the right, at its sole
discretion, to prosecute such infringement under its sold
control and at its sold expense, and any recovery obtained
shall belong to IET.
10.3 Declaratory Actions
In the event that a declaratory judgment action is brought against
IET or Royal by a third party alleging invalidity,
unenforceability, or non-infringement of the patent rights, IET,
at its option, shall have the right within twenty (20) days after
commencement of such action to take over the sole defense of the
action at its own expense. If IET does no exercise this right,
Royal may take over the sole defense of the action at Royal's sole
expense, subject to Section 10.4.
10.4 Recovery
An recovery obtained in an action brought by Royal under paragraph
10.2 or 10.3 shall be distributed as follows: (i) each party shall
be reimbursed for any expenses incurred in the action (including
the amount of any royalty or other payments withheld from IET as
described below), (ii) as to ordinary damages, Royal shall receive
an amount equal to its lost profits or a reasonable royalty on the
infringing sales, or whichever measure of damages the court shall
have applied, and Royal shall pay to IET based upon such amount a
reasonable approximation of the royalties and other amounts that
Royal would have paid to IET if Royal had sold the infringing
products, processes and services rather than the infringer, and
(iii) as to special or punitive damages, the parties shall shares
equally in any award. Royal may offset a total of fifty percent
(50%) of any expenses incurred under paragraph 10.2 and 10.3
against any payment due to IET under paragraph 3 and 4, provided
that in no event shall the such payments under paragraph 3 and 4,
when aggregated with any other offsets and credits allowed under
this Agreement, be reduced by more than fifty percent (50%) in any
reporting period.
10.5 Cooperation
Each party agrees to cooperate in any action under this paragraph
which is controlled by the other party, provided that the
controlling party reimburses the cooperating party promptly for
any costs and expenses incurred by the cooperating party in
connection with providing such assistance.
<PAGE> 60
11. No Representations of Warranties
EXCEPT AS MAY OTHERWISE BE EXPRESSLY SET FORTH IN THIS AGREEMENT,
IET MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND CONCERNING
THE PATENT RIGHTS, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION WARRANTIES OR MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, NONINFRINGEMENT, VALIDITY OR PATENT RIGHTS CLAIMS,
WHETHER ISSUED O0R PENDING, AND THE ABSENCE OF LATENT OR OTHER
DEFECTS, WHETHER OR NOT DISCOVERABLE.
Specifically, and not to limit the foregoing, IET makes no
warranty or representation (i) regarding the validity or scope of
any patent rights, and (ii) that the exploitation of the patent
rights or any licensed product or licensed process will not
infringe any patents or other intellectual property rights of a
third party.
IN NO EVENT SHALL IET, ITS TRUSTEES, DIRECTORS, OFFICERS,
EMPLOYEES AND AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL
DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGES OR INJURY TO
PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER IET SHALL BE
ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF
THE POSSIBILITY OF THE FOREGOING.
12. Assignment
The agreement is personal to Royal and no rights or obligations
may be assigned by Royal without the prior written consent of IET.
A purchase of a majority of Royal's outstanding voting securities
by a third party without IET's prior written consent shall
terminate this agreement effective on the date of such purchase.
13. Remedies
The parties acknowledge that the damages suffered by the Company
for Royal's breach of certain covenants of this Agreement are not
ascertainable. Accordingly, if there is a breach or threatened
breach of the provisions of section 6 of this agreement, the
Company shall be entitled to injunctive relief restraining Royal
from such breach, or to specific performance. Nothing herein
shall be constructed as prohibiting the Company from pursuing any
other remedies for such breach or threatened breach.
14. Waiver of Breach
A waiver by IET or Royal of a breach of any provision of this
agreement by the other party shall not operate or be constructed
as a waiver of any subsequent breach by the other party.
15. Governing Law/Jurisdiction
The parties acknowledge that this Agreement is made in the State
of Washington. This agreement, including the validity hereof and
the rights and obligations of the parties hereunder and all
<PAGE> 61
amendments and supplements hereof shall be constructed in
accordance with and governed by the laws of the State of
Washington without giving effect to any choice of the law or
conflicts of law of any other jurisdiction. The Benton County
Superior Court and Benton County District Court of the State of
Washington and the United States District Court for the Eastern
District of Washington shall have exclusive jurisdiction of all
suits and proceedings arising out of or in connection with this
agreement. Each of IET and Royal hereby submits to the
jurisdiction of said courts for purposes of any such suit or
proceeding.
16. Integration
The Agreement contains the entire understanding between the
parties, and there are no understandings or representations not
set forth or incorporated by reference herein. No subsequent
modifications of this agreement shall be of any force or effect
unless in writing signed by the party claimed to be bound thereby.
No communications, written or oral, by other than a IET Contract
Representative shall be effective to modify or otherwise affect
the provision of the agreement.
Integrated Environmental Technologies Royal Silver Mines, Inc.
BY: /s/ Jeffrey Z. S(illegible) BY: /s/ Howard Crosby
Title: Executive Vice President Title: President
Date: 1/7/99 Date: January 7, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at December 31, 1998 of Royal
Silver Mines, Inc. (Unaudited) and the Consolidated Statement of Income for
the three months ended December 31, 1998 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 3,611
<SECURITIES> 0
<RECEIVABLES> 379,163
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 384,189
<PP&E> 96,650
<DEPRECIATION> 23,651
<TOTAL-ASSETS> 3,997,466
<CURRENT-LIABILITIES> 70,115
<BONDS> 0
0
0
<COMMON> 189,325
<OTHER-SE> 3,738,026
<TOTAL-LIABILITY-AND-EQUITY> 3,997,466
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 78,091
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (71,033)
<INCOME-TAX> 0
<INCOME-CONTINUING> (71,033)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (71,033)
<EPS-PRIMARY> (0.004)
<EPS-DILUTED> (0.004)
</TABLE>
