<PAGE> 1
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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: March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM:
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Commission File Number: 0-25170
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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 March 31, 2000: 20,362,065 shares
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<PAGE> 2
PART 1. 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 March 31, 2000 and September 30, 1999, and the results
of operations, stockholders' equity and cash flows for the six months
and three months ended March 31, 2000, and 1999, and from inception on
February 17, 1994 through March 31, 2000, in conformance with generally
accepted accounting principles.
The accompanying financial statements consolidate the financial
statements of Celebration Mining Company and Royal Silver Mines, Inc.
due to the Reorganization discussed in Note 1 of the financial
statements following this Report. All significant intercompany accounts
and transactions have been eliminated. Also, the consolidation required
a change in fiscal year-end, from November 30 (Celebration) to
September 30 (Royal). The financial statements account for the
Reorganization using the purchase method of accounting (see Note 1 to
the financial statements). Celebration is treated as the acquiring
company for financial reporting purposes because its shareholders
constitute greater than 50 percent of the combined shareholder group.
In conformity with generally accepted accounting principles and the
Company's accounting policy, Celebration is recognized as the
predecessor entity. Consequently, Celebration's assets and liabilities
were not adjusted in the accompanying financial statements. The
financial statements for the period from the inception of Celebration
on February 17, 1994 to November 30, 1994 ("Fiscal 1994") do not
include the balance sheet data or results of operations of Consolidated
Royal Mines, Inc. The accompanying financial statements represent the
activities of Royal Silver Mines and Celebration, but are not
considered consolidated financial statements since Royal Silver is the
successor to Celebration.
As discussed in greater detail under Item 2 below, a substantial
portion of Registrant's assets consist of investments in mineral
properties for which additional exploration is required to determine if
they contain ore reserves that are economically recoverable. The
realization of these investments is contingent to large extent upon the
success of Registrant's property transactions as a whole, the existence
of economically recoverable reserves, the ability of the Company to
obtain financing or make other arrangements for development, and upon
future profitable production. Accordingly, the accompanying financial
statements make no provision for any asset impairment or other
adjustment that might result from the outcome of this uncertainty.
<PAGE> 3
The Board of Directors
Royal Silver Mines, Inc.
Spokane, Washington
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Royal Silver Mines,
Inc. (a development stage company) as of March 31, 2000, and the
related statements of operations and comprehensive loss, stockholders'
equity, and cash flows for the three months and six months ended March
31, 2000, and for the period from February 17, 1994 (inception) through
March 31, 2000. These financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. 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. 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, 1999 was audited by
us and we expressed an unqualified opinion on it in our report dated
December 27, 1999. 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 14
to the financial statements, the Company's significant operating losses
raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding those matters are also described
in Note 14. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
May 10, 2000
1
<PAGE> 4
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
March 31, September 30,
2000 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 55,797 $ 28,147
Note receivable 3,000 -
Deposit 150 -
----------- -----------
TOTAL CURRENT ASSET 58,947 28,147
----------- -----------
MINERAL PROPERTIES 950,794 950,794
----------- -----------
PROPERTY AND EQUIPMENT
Mining equipment 65,514 196,389
Furniture and equipment 1,440 12,761
Less accumulated depreciation (27,055) (45,127)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 39,899 164,023
----------- -----------
OTHER ASSETS
Investments 434,271 153,162
----------- -----------
TOTAL ASSETS $ 1,483,911 $ 1,296,126
=========== ===========
See accountant's review report and accompanying notes.
2
<PAGE> 5
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
March 31, September 30,
2000 1999
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 90,821 $ 77,603
Payable to related parties 71,000 44,000
------------ ------------
TOTAL CURRENT LIABILITIES 161,821 121,603
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
20,362,065 and 20,299,565 shares
issued and outstanding,
respectively 203,620 202,995
Additional paid-in capital 11,431,174 11,428,674
Deficit accumulated during
development stage (10,584,845) (10,457,146)
Accumulated other comprehensive
income 272,141 -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,322,090 1,174,523
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,483,911 $ 1,296,126
============ ============
See accountant's review report and accompanying notes.
3
<PAGE> 6
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Six Months
Three months ended ended
March 31, March 31, March 31,
2000 1999 2000
(Unaudited) (Unaudited) (Unaudited)
REVENUES $ - $ - $ -
---------- ---------- ----------
GENERAL AND ADMINISTRATIVE
EXPENSES
Mineral property expense 5,095 - 5,095
Depreciation and
amortization 3,139 10,200 6,302
Officers' and directors'
compensation - 2,000 15,000
General and administrative 10,825 51,562 49,707
---------- ---------- ----------
TOTAL EXPENSES 19,059 63,762 76,104
---------- ---------- ----------
OPERATING LOSS (19,059) (63,762) (76,104)
---------- ---------- ----------
OTHER INCOME (EXPENSES)
Interest income 99 - 182
Interest expense - - -
Gain on property
interest sold - - -
Gain (loss) on disposition
and impairment of assets 57,409 (247,111) (51,777)
---------- ---------- ----------
Total other income (expense) 57,508 (247,111) (51,595)
---------- ---------- ----------
INCOME (LOSS) BEFORE TAXES 38,449 (310,873) (127,699)
INCOME TAXES - - -
---------- ---------- ----------
NET INCOME (LOSS) 38,449 (310,873) (127,699)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on market
value of investments 305,284 - 272,141
---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS) $ 343,733 $ (310,873) $ 144,442
========== ========== ==========
NET INCOME (LOSS) PER COMMON
SHARE BASIC AND DILUTED $ nil $ (0.02) $ (0.01)
========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 20,362,065 19,833,121 20,356,292
========== ========== ==========
See accountants review report and accompanying notes.
4-a
<PAGE> 7
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Period from
02-17-1994
Six months ended (inception)
March 31, through
1999 3-31-2000
(Unaudited) (Unaudited)
REVENUES $ - $ -
---------- ------------
GENERAL AND ADMINISTRATIVE
EXPENSES
Mineral property expense - 564,537
Depreciation and amortization 15,047 232,476
Officers' and directors' compensation 59,540 1,409,760
General and administrative 67,266 3,727,001
---------- ------------
TOTAL EXPENSES 141,853 5,933,774
---------- ------------
OPERATING LOSS (141,853) (5,933,774)
---------- ------------
OTHER INCOME (EXPENSES)
Interest income 7,058 58,813
Interest expense - (74,348)
Gain on property interest sold - 1,875,281
Gain (loss) on disposition and
impairment of assets (247,112) (6,510,817)
---------- ------------
Total other income (expense) (240,054) (4,651,071)
---------- ------------
INCOME (LOSS) BEFORE TAXES (381,907) (10,584,845)
INCOME TAXES - -
---------- ------------
NET INCOME (LOSS) (381,907) (10,584,845)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on market
value of investments - 272,141
---------- ------------
COMPREHENSIVE INCOME (LOSS) $ (381,907) $(10,312,704)
========== ============
NET INCOME (LOSS) PER COMMON SHARE
BASIC AND DILUTED $ (0.02) $ (0.84)
========== ============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED 19,260,323 12,653,155
========== ============
See accountants review report and accompanying notes.
4-b
<PAGE> 8
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Balance
February 17, 1994 - $ - $ - $ - $ -
Issuance in May 1994
of shares at $.002 per
share to officers and
directors in exchange
for assignment of
mining property
option 2,250,000 22,500 (18,500) - 4,000
Issuance in July 1994
of shares for cash at
$.402 in private
placement, net of
costs 1,050,000 10,500 411,116 - 421,616
Issuance in August 1994
of shares to a director
in exchange for services
valued at $.417
per share 150,000 1,500 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - - - (211,796) (211,796)
--------- -------- ----------- --------- ---------
Balance
November 30, 1994 3,450,000 34,500 453,616 (211,796) 276,320
Issuance of share
in debt offering at
$.03 per share 416,250 4,163 9,712 - 13,875
Issuance of shares
for mineral properties
valued at $1.00
per share 262,500 2,625 259,875 - 262,500
Issuance of shares
for cash at $1.00
per share 15,000 150 14,850 - 15,000
Stock issuance costs - - (58,202) - (58,202)
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$.15 per share 2,434,563 24,346 335,750 - 360,096
--------- -------- ----------- --------- ---------
Balance forward 6,578,313 $ 65,784 $ 1,015,601 $(211,796) $ 869,589
--------- -------- ----------- --------- ---------
See accompanying notes and accountant's review report.
5
<PAGE> 9
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Balance forward 6,578,313 $ 65,784 $ 1,015,601 $ (211,796) $ 869,589
Issuance of shares
to directors and
employees for services
at prices ranging
from $2.00 to $2.50
per share 12,750 127 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13 to
$3.25 per share 800,000 8,000 2,530,126 - 2,538,126
Issuance of shares
for cash at prices
ranging from $1.50 to
$2.00 per share 166,000 1,660 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 200,000 2,000 298,000 - 300,000
Net loss for the
ten months ended
September 30, 1995 - - - (750,939) (750,939)
--------- -------- ----------- ---------- -----------
Balance September
30, 1995 7,757,063 77,571 4,120,540 (962,735) 3,235,376
Issuance of shares
for cash at $1.50
per share 1,176,832 11,769 1,754,010 - 1,765,779
Issuance of shares
to directors and
employees for
services at $1.50
per share 222,700 2,227 331,823 - 334,050
Issuance of shares
in exchange for
debt at $1.50 per
share 406,050 4,060 605,015 - 609,075
Issuance of shares
for cash at $2.20
per share 150,000 1,500 328,500 - 330,000
Issuance of warrants
for cash at $.05
per warrant - - 41,068 - 41,068
--------- -------- ----------- ---------- -----------
Balance forward 9,712,645 $ 97,127 $ 7,180,956 $ (962,735) $ 6,315,348
--------- -------- ----------- ---------- -----------
See accompanying notes and accountant's review report.
6
<PAGE> 10
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Balance forward 9,712,645 $ 97,127 $ 7,180,956 $ (962,735) $ 6,315,348
Issuance of shares
for cash at $1.62
per share 65,000 650 104,650 - 105,300
Issuance of shares
for cash to directors
and employees at
prices ranging from
$1.62 to $2.08
per share 107,500 1,075 181,175 - 182,250
Issuance of shares
for cash at $0.75
per share 200,000 2,000 147,985 - 149,985
Issuance of shares
for cash at $1.70
per share 250,000 2,500 422,500 - 425,000
Cancellation of 35,000
shares received in
exchange for return of
mining property (35,000) (350) (109,025) - (109,375)
Payment to Centurion
Mines for option to
repurchase stock - - - (50,000) (50,000)
Issuance of shares for
joint venture in
mining property at
$1.50 per share 100,000 1,000 149,000 - 150,000
Repurchase of 25,000
shares issued for
joint venture at
$1.40 per share (25,000) (250) (34,750) - (35,000)
Issuance of shares for
mining property at
$1.50 per share 20,000 200 29,800 - 30,000
Issuance of shares
to noteholders for
extension of notes at
$1.50 per share 39,375 394 58,669 - 59,063
Issuance of shares
for services at
$1.50 per share 215,334 2,153 320,848 - 323,001
---------- --------- ----------- ------------ -----------
Balance forward 10,649,854 $ 106,499 $ 8,451,808 $ (1,012,735) $ 7,545,572
---------- --------- ----------- ------------ -----------
See accompanying notes and accountant's review report. statements.
7
<PAGE> 11
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Balance forward 10,649,854 $ 106,499 $ 8,451,808 $ (1,012,735) $ 7,545,572
Stock issuance
costs - - (15,000) - (15,000)
Net loss for the
year ended September
30, 1996 - - - (2,045,082) (2,045,082)
---------- --------- ----------- ------------ -----------
Balance September
30, 1996 10,649,854 106,499 8,436,808 (3,057,817) 5,485,490
Issuance of shares
for cash at $0.75
per share 2,491,000 24,910 1,843,340 - 1,868,250
Stock issuance costs - - (30,000) - (30,000)
Issuance of shares
to directors and
employees for
services: at
$1.00 per share 110,500 1,105 109,395 - 110,500
$0.75 per share 25,000 250 18,500 - 18,750
Issuance of shares
for services at
$1.25 per share 98,250 982 121,829 - 122,811
Issuance of shares for
mining property at
$1.00 per share 60,000 600 59,400 - 60,000
Cancellation of 25,000
shares received in
exchange for return of
mining property (25,000) (250) (81,000) - (81,250)
Issuance of shares
for services: at
$1.00 per share 25,500 255 25,245 - 25,500
$0.75 per share 47,128 471 34,875 - 35,346
Payment for extension
of warrants for
one year - - 5,500 - 5,500
Net loss for the
year ended September
30, 1997 - - - (1,770,711) (1,770,711)
---------- --------- ----------- ------------ -----------
Balance September
30, 1997 13,482,232 $ 134,822 $10,543,892 $ (4,828,528) $ 5,850,186
---------- --------- ----------- ------------ -----------
See accompanying notes and accountant's review report.
8
<PAGE> 12
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional
Number Paid-in
of Shares Amount Capital
Balance forward 13,482,232 $ 134,822 $ 10,543,892
Issuance of shares for
cash at $0.75 per share 10,000 100 7,400
Issuance of shares to
directors, consultants and
employees for services at
prices varying from $0.34
per share to $0.91 per share 398,000 3,980 202,680
Issuance of shares for mining
property at $0.75 per share 200,000 2,000 148,000
Issuance of shares for cash
at $0.15 per share 1,913,333 19,133 267,866
Issuance of shares in exchange
for cash and note at $0.25
per share 3,000,000 30,000 720,000
Net loss for year ended
September 30, 1998 - - -
---------- --------- ------------
Balance
September 30, 1998 19,003,565 $ 190,035 $ 11,889,838
Issuance of shares to officers,
directors and consultants for
services at prices varying
from $0.04 per share to $0.06
per share 1,876,000 18,760 89,469
Issuance of shares for cash,
investment and receivable 1,070,000 10,700 66,500
Shares returned to treasury for
cancellation of receivable (2,000,000) (20,000) (680,000)
Stock issuance costs - - (133)
Issuance of shares for
cash at prices varying
from $0.04 per share to
$0.07 per share 1,800,000 18,000 63,000
Payment of stock
subscription - - -
Shares returned to treasury
for cancellation of receivable
and exchange of investments (1,450,000) (14,500) -
Unrealized loss on market
value - - -
---------- ---------- ------------
Balance Forward 20,299,565 $ 202,995 $ 11,428,674
---------- ---------- ------------
See accompanying notes and accountant's review report.
9-a
<PAGE> 13
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Total
Subscription Accumulated Stockholders'
Receivable Deficit Equity
Balance forward $ - $ (4,828,528) $ 5,850,186
Issuance of shares for
cash at $0.75 per share - - 7,500
Issuance of shares to
directors, consultants
and employees for services
at prices varying from
$0.34 per share to $0.91
per share - - 206,660
Issuance of shares for
mining property at $0.75
per share - - 150,000
Issuance of shares for cash
at $0.15 per share - - 286,999
Issuance of shares in
exchange for cash and note
at $0.25 per share (700,000) - 50,000
Net loss for year ended
September 30, 1998 - (2,637,568) (2,637,568)
---------- ------------ ------------
Balance
September 30, 1998 $ (700,000) $ (7,466,096) $ 3,913,777
Issuance of shares to
officers, directors and
consultants for services
at prices varying from
$0.04 per share to $0.06
per share - - 108,229
Issuance of shares for
cash, investment and
receivable (50,000) - 27,200
Shares returned to
treasury for cancellation
of receivable 700,000 - -
Stock issuance costs - - (133)
Issuance of shares for cash
at prices varying from
$0.04 per share to
$0.07 per share - - 81,000
Payment of stock
subscription - - 50,000
Shares returned to treasury
for cancellation of
receivable and exchange
of investments - - (14,500)
Unrealized loss on market
value of investments - (2,991,050) (2,991,050)
---------- ------------ -----------
Balance Forward $ - $(10,457,146) $ 1,174,523
---------- ------------ -----------
See accompanying notes and accountant's review report.
9-b
<PAGE> 14
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional
Number Paid-in
of Shares Amount Capital
[S] [C] [C] [C]
Balance forward 20,229,565 $ 202,995 $ 11,428,674
Shares issued to consultants 62,500 625 2,500
Net loss for six months
ended March 31, 2000 - - -
Unrealized gain on market
value of investments - - -
---------- --------- ------------
Balance, March 31, 2000
(Unaudited) 20,362,065 $ 203,620 $ 11,431,174
========== ========= ============
See accompanying notes and accountant's review report.
10-a
<PAGE> 15
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
Accumulated
Other Total
Subscription Accumulated Comprehensive Stockholders'
Receivable Deficit Loss Equity
Balance forward $ - $ (10,457,146) $ - $ 1,174,523
Shares issued to
consultants at $0.05
per share - - - 3,125
Net loss for year
ended March
31, 2000 - (127,699) - (127,699)
Unrealized gain on
market value of
investments - - 272,141 272,141
---- ------------- ---------- -----------
Balance,
March 31, 2000
(Unaudited) $ - $ (10,584,845) $ 272,141 $ 1,322,090
==== ============= ========== ===========
See accompanying notes and accountant's review report.
10-b
<PAGE> 16
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From
02/17/94
Six months ended (Inception)
March 31, March 31, Through
2000 1999 03/31/00
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating
activities:
Net income(loss) $ (127,699) $ (381,907) $ (10,584,845)
Adjustments to reconcile net
income (loss) to net cash
provided (used) by operating
activities:
Loss on sale of equipment 113,686 - 126,271
Equipment traded for
services 4,137 - 4,137
Depreciation and
amortization 6,302 15,047 227,685
Issuance of common stock
for services 3,125 75,540 1,380,071
Write-off of option costs - - 517,871
Write-off of joint venture costs - - 160,000
Write-off of mineral properties - - 2,421,354
Loss on devaluation of
investments - - 3,121,060
Changes in assets and
liabilities:
Note receivable (3,000) 350,000 (3,000)
Deposit (150) - (150)
Prepaid expenses - 1,747 (28,438)
Other assets - - (9,801)
Interest receivable - 17,106 (4,674)
Accounts payable 13,218 4,800 90,821
Accrued expenses - - 43,188
Payable to related party 27,000 (2,500) 327,000
---------- ---------- -------------
Net cash provided (used) in
operating activities 36,619 79,833 (2,211,450)
---------- ---------- -------------
Cash flows from investing
activities:
Purchase of investments (128,215) - (3,251,365)
Purchase and development
of mineral properties - 100,533 (1,986,690)
Purchase of fixed assets - - (325,687)
Sale of mineral properties - (83,333) 1,093,750
Sale of investments 119,246 (45,000) 330,675
Sale of fixed assets - (100,000) 5,685
---------- ---------- -------------
Net cash provided (used) in
investing activities (8,969) (127,800) (4,133,632)
---------- ---------- -------------
See accountant's review report and accompanying notes.
11-a
<PAGE> 17
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From
02/17/94
Six months ended (Inception)
March 31, March 31, Through
2000 1999 03/31/2000
(Unaudited) (Unaudited) (Unaudited)
Cash flows from financing
activities:
Stock issuance and offering
costs - 19,868 (189,468)
Proceeds received on
long-term debt - - 675,000
Payments made on notes
payable - - (174,206)
Issuance of common stock
for cash - 60,000 6,030,764
Issuance of common stock
for accrued interest - - 38,158
Issuance of common stock for
extension of notes payable
maturation - - 59,063
Payment for return of stock
issued for mining property
interest - - (35,000)
Payment of joint venture costs - - (50,000)
Issuance of warrants for cash - - 46,568
---------- ---------- -------------
Net cash provided by financing
activities - 79,868 6,400,879
---------- ---------- -------------
Cash, beginning of period 28,147 3,147 -
---------- ---------- -------------
Cash, end of period $ 55,797 $ 35,048 $ 55,797
========== ========== =============
Supplemental cash flow disclosure:
Income taxes paid in cash $ - $ - $ 350
Interest paid in cash $ - $ - $ 25,655
Non-cash financing activities:
Common stock issued for
services rendered $ 3,125 $ 75,540 $ 1,344,256
Common stock issued in
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 investments $ - $ 7,200 $ 7,200
The accompanying notes are an integral part of these financial statements.
12
<PAGE> 18
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
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. The Company has elected a September 30 fiscal year-end.
Celebration Mining Company ("Celebration"), currently a wholly-owned
subsidiary of Royal, was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration was
organized on February 17, 1994, as a Washington corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an agreement and
plan of reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization, the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the agreement and plan of
reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration controlled the Company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of the
assets or liabilities of Royal in the exchange as the market value
approximated the net carrying value. Royal is the acquiring entity for
legal purposes and Celebration is the surviving entity for accounting
purposes.
The $950,794 cost of mineral properties included in the accompanying
balance sheet as of March 31, 2000 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.
13
<PAGE> 19
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Company is seeking additional capital and management believes the
properties can ultimately be sold or developed to enable the Company to
continue its operations. However, there are inherent uncertainties in
mining operations and management cannot provide assurances that it will
be successful in this endeavor. Furthermore, the Company is in the
development stage, as it has not realized any significant revenues from
its planned operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Royal Silver Mines,
Inc. is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Development Stage
The company is in the development stage and has not commenced the sale
of any products.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Loss Per Share
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year. The weighted
average number of shares was calculated by taking the number of shares
outstanding and weighting them by the amount of time they were
outstanding. Outstanding warrants were not included in the computation
of loss per share because the exercise price of the outstanding
warrants is higher than the market price of the stock, thereby causing
the warrants to be antidilutive.
14
<PAGE> 20
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Mineral Properties
Costs of acquiring, exploring and developing mineral properties are
capitalized by project area. Costs to maintain the mineral rights and
leases are expensed as incurred. When a property reaches the
production state, the related capitalized costs will be amortized,
using the units of production method on the basis of periodic estimates
of ore reserves.
Mineral properties are periodically assessed for impairment of value
and any losses are charged to operations at the time of impairment.
Should a property be abandoned, its capitalized costs are charged to
operations. The Company charges to operations the allocable portion of
capitalized costs attributable to properties sold. Capitalized costs
are allocated to properties sold based on the proportion of claims sold
to the claims remaining within the project area.
Provision For Taxes
At March 31, 2000, the Company had net operating loss carryforwards of
approximately $5,590,000 that may be offset against future taxable
operating income through 2014. Additionally, the Company has capital
loss carryovers of approximately $4,300,000. No tax benefit has been
reported in the financial statements as the Company believes there is
a significant chance the net operating loss carryforwards will expire
unused. Accordingly, the potential tax benefits of the net operating
loss carryforwards are offset by a valuation allowance of the same
amount.
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Impairment of Long-lived Assets." In
complying with this standard, the Company reviews its long-lived assets
quarterly to determine if any events or changes in circumstances have
transpired which indicate that the carrying value of its assets may not
be recoverable. Because of write-downs and write-offs taken throughout
fiscal 1998 and fiscal 1999, the Company does not believe any further
adjustments are needed to the carrying value of its assets at March 31,
2000.
Financial Accounting Standards
The Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.
15
<PAGE> 21
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation
The financial statements include those of Royal Silver Mines, Inc. and
Celebration Mining Company. All significant inter-company accounts and
transactions have been eliminated. The financial statements are not
considered consolidated statements since Royal Silver Mines, Inc. was
the successor by merger to Celebration Mining Company.
Change in Accounting Policies
During the year ended September 30, 1999, the Company changed its
method of accounting for organization costs to conform to the
requirements of Statement on Position 98-5, which requires start-up and
organization costs to be expensed as incurred. The effect of the
change was to increase net loss for the year ended September 30, 1999,
by $3,502 ($0.0002 per share). The change has no effect on prior
years.
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This new standard
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value.
At March 31, 2000, the Company has not engaged in any transactions that
would be considered derivative instruments or hedging activities.
Interim Financial Statements
The interim financial statements as of and for the six months ended
March 31, 2000 included herein have been prepared for the Company
without audit. They reflect all adjustments, which are, in the opinion
of management, necessary to present fairly the results of operations
for these periods. All such adjustments are normal recurring
adjustments. The results of operations for the periods presented are
not necessarily indicative of the results to be expected for the full
fiscal year.
16
<PAGE> 22
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the State
of Utah. Under the terms of the agreement, United was to contribute
real properties for an initial 75% interest in the joint venture, and
Celebration was to remove all liens associated with the real properties
by paying $175,000 to a bank which was the primary lien holder for its
initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned promissory
note. The property was auctioned in a public auction in May 1995 and
by virtue of Celebration's first position lien, Celebration was able to
successfully bid the full amount of the underlying promissory note.
Although additional expenditures have been made on the property through
September 30, 1998, no further funds towards the joint venture have
been expended by Celebration, which owns an undivided 25% interest in
the property.
Washington and Idaho Mineral Properties
During the year ended September 30, 1995, Celebration purchased,
through the issuance of 800,000 shares of its common stock, various
mineral properties located in the states of Washington and Idaho. The
mineral properties were recorded at the fair market value of the shares
paid on the date of issuance ranging from $3.13 to $3.25 per share for
a total purchase price of $2,538,126. In May 1996, the Company sold
back the Frisco Standard Silver Mine to its original seller in exchange
for the same price (35,000 shares of Royal stock) received by the
seller when the mine was purchased. The shares received were canceled
and no gain or loss was recorded on the transaction. In the fourth
quarter of 1998, the Company disposed of additional Idaho properties.
(See Note 4).
Other Domestic Properties
In February 1999 in connection with the settlement agreement with Grand
Central (described in Note 14), the Company received a number of
patented mining claims in Utah and a number of unpatented mining claims
in Idaho. In aggregate, these mining claims were recorded at $45,000.
* * *
The Company's proposed future mining activities will be subject to laws
and regulations controlling not only the exploration and mining of
mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may necessitate
additional capital outlays, affect the economics of a project, and
cause changes or delays in the Company's activities. The Company's
mineral properties are valued at the lower of cost or net realizable
value.
17
<PAGE> 23
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and
repairs that do not increase the useful life of the assets are expensed
as incurred. Depreciation of property and equipment is determined
using the straight-line method over the expected useful lives of the
assets of five years.
NOTE 5 - INVESTMENTS
Investments, consisting of equity securities of private and small
public companies, are stated at lower of cost or net realizable value.
During 1999, certain investments were written down to their estimated
realizable value. The amount of the loss, $281,498, has been charged
to operations in 1999.
At March 31, 2000 and September 30, 1999, the market values of
investments were as follows:
March 31, September 30,
2000 1999
Elite Logistics, Inc. $ 378,210 $ 101,127
Rigid Airship USA, Inc. 5,813 31,002
Ashington Mining Company 7,200 7,200
Tintic Coalition Mines 5,000 5,000
American Health Providers Corp. 0 6,795
Minimally Invasive Surgery 0 2,038
Envirogold, LLC 8,000 0
Bitterroot Mountain Mining Co. 3,098 0
Sterling Mining Co. 6,950 0
Silver Belle Mining Co. 20,000 0
--------- ---------
$ 434,271 $ 153,162
========= =========
Other information regarding the Company's investments follows:
Grand Central Silver Mines, Inc.
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 matured in 1999. A total gain of $1,454,062 was realized on
this transaction. The promissory note was satisfied in February 1999
through a settlement agreement with Grand Central (See Notes 13 and
14).
18
<PAGE> 24
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 5 - INVESTMENTS (CONTINUED)
At September 30, 1998, the Company owned 1,235,000 shares of Grand
Central Silver Mines, Inc. common stock, which was then approximately
12% of the total outstanding shares. In the second and third quarters
of fiscal 1999, the Company disposed of all of its holdings in Grand
Central in connection with a settlement agreement.
Rigid Airship USA, Inc.
On June 26, 1998, the Company traded six patented mining claims
acquired in Shoshone County Idaho in 1995 for 50,000 shares of SynFuels
Technology, Inc. which was then trading at $8.00 per share. The
Company acquired an additional 10,000 shares of SynFuels Technology,
Inc. common stock in September 1998 in exchange for another mining
property. (See Note 3). SynFuel Technology, Inc. changed its name to
Rigid Airship in November 1998. As of March 31, 2000, the stock had a
market value of $5,813.
Envirogold, LLC
During January 2000, the Company announced that together with Nuvotec,
Inc. (Nuvotec), it has formed Envirogold LLC (Envirogold). Envirogold
is 50% owned by each and has signed a revised technology licensing
agreement with Integrated Environmental Technologies (Integrated) for
the development and use of certain patented technology for applications
in the mining and mineral processing industries. Exclusive rights to
the technology is expected to be acquired over the next 36 months.
Envirogold will operate as licensee of the technology and will be
managed by two of the Company's directors and two Nuvotec directors.
Under terms of the aforementioned agreement, the Company will assign to
the LLC its license agreement and will also supply concentrates needed
for bulk tests required to acquire the exclusive rights. Nuvotec will
pay for the costs of the test and provide technical and management
expertise to oversee the project. Upon successful completion of the
tests, each party will be responsible for one-half of all future costs.
See Note 13.
NOTE 6 - COMMON STOCK
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.002 to $.625 per share, which is the fair market value of the share
on the date of issuance.
During the year ended September 30, 1995, the Company issued 12,750
shares of common stock to directors and employees for services
rendered, valued at prices ranging from $2.00 to $2.50 per share, which
is the fair market value of the shares on the date of issuance.
19
<PAGE> 25
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 6 - COMMON STOCK (Continued)
During the year ended September 30, 1995, Celebration issued 975,000
shares of common stock in exchange for mineral properties (See Note 3)
and sold 176,000 shares of common stock for $264,000 cash.
The Company issued 200,000 shares of its common stock during the year
ended September 30, 1995 in lieu of outstanding debt that was owed to
Centurion Mines Corporation (Centurion), a related entity. The stock
was issued at $1.50 per share in payment of $300,000 of outstanding
debt. The Company also issued 277,500 shares in connection with the
issuance of notes payable. (See Note 8).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock for $2,958,314 in cash. The Company also
issued 222,700 share to directors and employees for services rendered
valued at $1.50 per share, which is the fair market value of the share
on the date of issuance. Also during the year ended September 30,
1996, the Company issued 100,000 shares of its common stock for a joint
venture in a mining property and 20,000 common shares for a mining
property. The stock issued was valued at $1.50 per share, which is the
fair market value of the shares at the date of issuance.
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.
20
<PAGE> 26
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 6 - COMMON STOCK (Continued)
In May 1998, the Company sold 3,000,000 shares of its common stock at
$0.25 per share in exchange for $50,000 in cash and a short-term note
in the amount of $700,000. Because of a subsequent decrease in the
market value of the Company's stock, the Company and shareholder
renegotiated the transaction. In November 1998, the aforementioned
shareholder returned 2,000,000 shares of stock to the Company for
cancellation and in return the company rescinded the $700,000 note,
which was recorded as stock subscriptions receivable at September 30,
1998. The net effect of the renegotiated stock transaction was a sale
of common stock at $0.05 per share for cash only.
In November 1998, the Company sold 220,000 shares of its common stock
at $0.06 per share to Ashington Mining for a short-term note in the
amount of $5,000 and 100,000 shares of Ashington Mining stock valued at
$7,200 (Note 5). An additional 1,500,000 shares of common stock were
sold in January 1999 at $0.04 per share.
During the year ended September 30, 1999, the Company issued 1,876,000
shares of common stock for services received. The shares were valued
at their fair market value at the date of issuance, which ranged from
$0.04 to $0.07.
As part of a settlement agreement with Grand Central Silver Mines, Inc.
and other parties, Royal received 1,450,000 shares of Royal Silver
Mines, Inc. stock, which were returned to treasury and cancelled.
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS
In January 1992, the shareholders of Royal approved a 1992 Stock Option
and Stock Award Plan under which up to ten percent of the issued and
outstanding shares of the Company's common stock could be awarded based
on merit of work performed. As of September 30, 1999, 12,750 shares of
common stock have been awarded under the Plan.
Celebration, prior to the exchange agreement with Royal, had granted
securities to certain shareholders, which represented rights to
purchase or receive shares of Celebration's common stock. These
options were assumed by the Company after the merger at a rate of 1.5
shares for each option still outstanding. Thus, the Company has
granted options, with varying conditions and requirements, to purchase
a total of 1,455,000 shares of its common stock. Of these stock
options, 255,000 exercisable at $1.50 per share will expire March 21,
2000. The remaining 1,200,000 stock options are exercisable at $0.93
per share and expire on August 31, 2001. As of March 31, 2000, none of
these options have been exercised.
21
<PAGE> 27
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
On January 9, 1996, the board of directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999. As of March 31, 2000 none of these
warrants have been exercised.
On March 22, 1996, the board of directors approved the issuance of
warrants to purchase 625,000 shares of common stock of the Company to
an investor in partial completion of a private placement of stock.
These warrants were exercisable until September 30, 1998, at which time
they expired unused.
On April 10, 1996, following the close of the second quarter of fiscal
1996, the board of directors authorized the issuance of 420,666
warrants to unaffiliated investors as part of the private placement of
stock. These warrants were exercisable until April 12, 1998 at prices
ranging from $2.50 to $2.625 per share. Ultimately, 320,666 of these
warrants were issued (but not exercised) for a total amount of $46,568,
with the balance of 100,000 warrants expiring unused.
In the quarter ending March 31, 1997, the Company sold 2,491,000
"units" to unaffiliated investors as part of a private placement of
stock. Each unit consisted of a share of the Company's common stock
and one warrant enabling the investor to purchase one additional share
of common stock for a purchase price of $1.25 per share during the next
two years. At March 31, 2000, none of the warrants had been exercised.
NOTE 8 - 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 March 31, 2000, 1,455,000 options have been granted
under the plan although none have been exercised or forfeited in the
period ending March 31, 2000. The old existing options are attributed
to the merger of Celebration Mining Company with Royal in August 1995.
Of the total of 2,500,000 common stock shares authorized for issuance
under the plan, 179,000 shares at values ranging from $0.34 to $0.91
per share were issued to employees and directors during the year ended
September 30, 1998 and 1,259,000 shares at values ranging from $0.04 to
$0.07 per share were issued to employees and directors during the year
ended September 30, 1999.
Following is a summary of the stock options during the year ended
September 30, 1999 and the period ended March 31, 2000.
22
<PAGE> 28
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 8 - COMPANY STOCK OPTION AND AWARD PLAN (Continued)
Weighted
Average
Number Exercise
of Shares Price
Outstanding at 10/01/1998 1,455,000 $ 1.03
Granted
Exercised - -
Forfeited - -
--------- ------
Outstanding at 09/30/1999 1,455,000 $ 1.03
========= ======
Options exercisable at 09/30/1999 1,455,000 $ 1.03
========= ======
Weighted average fair value of
options granted during the year
ended 09/30/1999 $ -
=========
Outstanding at 10/01/1999 1,455,000 $ 1.03
Granted
Exercised - -
Forfeited - -
--------- ------
Outstanding at 03/31/2000 1,455,000 $ 1.03
========= ======
Options exercisable at 03/31/2000 1,455,000 $ 1.03
========= ======
Weighted average fair value of
options granted during the period
ended 03/31/2000 $ -
=========
NOTE 9 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid in capital at March 31,
2000, and September 30, 1999:
March 31, September 30,
2000 1999
Applicable to:
Common Stock $ 11,384,606 $ 11,382,106
Stock Warrants 46,568 46,568
------------ ------------
$ 11,431,174 $ 11,428,674
============ ============
23
<PAGE> 29
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 10 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an option
from Centurion to purchase up to 800,000 shares of its common stock
held by Centurion for the exercise price of $1.75 per share during the
two-year period ending September 30, 1998. The cost of this two-year
stock purchase option was $50,000 which was paid by the Company and
charged to stockholders' equity (accumulated deficit).
Effective April 15, 1997, the aforementioned stock option agreement was
renegotiated (at no cost to the Company) and amended to extend the
exercise period until September 30, 1999 and to revise the exercise
price to $1.50 per share during this same period.
At September 30, 1999, no shares were acquired from Centurion under
this option agreement which lapsed.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
The Company was a defendant in a lawsuit alleging that the Company
failed to transfer common stock in exchange for a mining property
interest. In June 1999, Box Elder County Superior Court rejected the
plaintiff's lawsuit and let stand the Company's countersuit alleging
fraudulent misrepresentation. Although the plaintiff has filed an
appeal (regarding the originally filed lawsuit) with the Utah Supreme
Court, the Company believes that the appeal is completely without merit
and will not be sustained.
In its countersuit, the Company is seeking both full title to the
aforementioned mineral property and punitive damages. The Company
believes its countersuit will prevail.
In July 1998, the Company filed an action in Federal Court in Boise,
Idaho for declaratory judgment regarding the validity of its Crescent
Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. Although the Company has recently decided to write down
its interest in the Crescent Mine mineral lease, the Company has
elected to pursue this lawsuit, which is in the discovery phase.
The Company sublets office space on a month to month basis from one of
its officers in Coeur d'Alene, Idaho for $200 per month. Total rent
paid for this office space during the quarter ended March 31, 2000 and
the year ended September 30, 1999 was $1,200 and $1,800, respectively.
For commitments and contingencies regarding the Company's investment in
Envirogold LLC, see Note 5.
24
<PAGE> 30
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 12 - SETTLEMENT AGREEMENTS
In February 1999, the Company entered into a settlement arrangement
wherein Grand Central Silver Mines, Inc. (hereinafter "Grand")
transferred equipment, mining claims, and securities (including 450,000
shares of Royal Silver Mines, Inc. stock) to Royal in full settlement
of a $350,000 promissory note (and accrued interest) owed by Grand to
Royal. In connection with the same transaction, the Company
transferred to an individual 154,375 shares of Grand common stock
(previously held by Royal) and in turn received from this same
individual 1,000,000 shares of Royal Silver Mines, Inc. common stock
and 333,333 shares of Summit Silver, Inc. common stock. While this
settlement agreement involved mutual releases of liability for all
parties affected, the net effect of the settlement was the Company's
recording a loss of $247,112 from assets disposed in the second quarter
and $810,469 in the third quarter as this transaction was finalized.
(See Note 5).
The Company was a defendant in a lawsuit filed by some of its
shareholders for alleged financial improprieties. Although the
directors of the Company vigorously disputed the plaintiffs' claims,
the directors elected to settle this matter out of court in September
1999 after receiving advice from counsel that the costs of defending
the litigation would exceed the costs of settling out of court. In the
resulting settlement, the Company agreed to pay the plaintiffs $60,000
in cash and in addition, two Company officers agreed to transfer
personally owned investments to the plaintiffs. Accordingly, in turn,
the Company indemnified the aforementioned corporate officers by
transferring to them stock in Summit Silver Mines, Inc. and a mineral
property interest in the Imperial Mine. The transaction resulted in a
charge to operations of $103,950.
NOTE 13 - LICENSING AGREEMENT
In January 1999, the Company entered into a technology licensing
agreement with Integrated Environmental Technologies, LLC (IET), a New
York limited liability company, to acquire, develop and exploit mineral
deposits using IET technology. IET technology involves high
temperature systems that utilize plasma technology for processing
materials and includes trade secrets, inventions, (whether patented or
unpatented), information, data and experience. Upon completion of
agreed upon conditions, the Company will be granted a worldwide
exclusive license to practice IET technologies necessary for the
extraction and recovery of copper from enargite ores and gold and
silver from arsenic rich ores or residual process streams from milling
and smelting operations not to include certain properties in and around
the Yuma, Arizona region. Subsequent to September 30, 1999, the
Company renegotiated certain terms and conditions of the licensing
agreement and assigned its interest in the license agreement to
Envirogold, LLC. See Note 5.
25
<PAGE> 31
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIALS STATEMENTS
March 31, 2000
NOTE 14 - GOING CONCERN
As shown in the accompanying financial statement, the Company has no
revenues, has incurred a net loss of $127,699 for the period ended
March 31, 2000 and an accumulated deficit of $10,584,845 since
inception. These factors indicate that the Company may be unable to
continue in existence. The financial statements do not include any
adjustments related to the recoverability and classification of
recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in
existence.
The Company's management has strong beliefs that significant and
imminent private placements will generate sufficient cash for the
Company to operate for the next few years. The Company also believes
that the occasional sale of its equity investments will provide cash as
needed for operations.
NOTE 15 - RELATED PARTIES
At March 31, 2000, the Company was indebted to two of its officers for
the sum of $71,000. These funds include $59,000 which was advanced to
the Company in payment of operating expenses and $12,000 for services
performed for the Company. The advances are unsecured, non-interest
bearing, and are expected to be repaid in the next few months.
Other related party transactions are disclosed in Notes 5 and 13.
NOTE 16 - YEAR 2000 ISSUES
Like other companies, Royal Silver Mines, Inc. could be adversely
affected if the computer systems it, its suppliers or customers use do
not properly process and calculate date-related information and data
from the period surrounding and including January 1, 2000. This is
commonly known as the "Year 2000" issue. Additionally, this issue
could impact non-computer systems and devices such as production
equipment, elevators, etc. At this time there have been no known
problems related to the Year 2000 issue.
The Company has reviewed its business and processing systems and
believes that the majority of its systems are already year 2000
compliant or can be made so with software updates. Based on its
assessments, the Company regards the costs associated with Year 2000
readiness to be immaterial. All costs associated with the Year 2000
issue will be expensed as incurred.
26
<PAGE> 32
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 March 31, 2000, the Company accumulated a
deficit of $10,584,845.
At March 31, 2000, $950,794 of the Company's total assets of
$1,483,911 were investments in mineral properties. Additional
exploration is required to substantiate or determine whether these
mineral properties contain ore reserves that are economically
recoverable. The realization of these investments is dependent upon the
success of future property sales, the existence of economically
recoverable reserves, the ability of the Company to obtain financing,
the Company's success in carrying out its present plans or making other
arrangements for development, and upon future profitable production.
The ultimate outcome of these investments cannot be determined at this
time; accordingly, no provision for any asset impairment that may
result, in the event the Company is not successful in developing or
selling these properties, has been made in the Company's financial
statements.
LIQUIDITY AND CAPITAL RESOURCES.
The Company currently has no revenues 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 March 31, 2000, the Company had negative working capital of
$102,874. This amount represents some deterioration in liquidity and
capital resources from its negative working capital position of $93,456
at September 30, 1999 and represents severe deterioration from positive
working capital of $303,600 at September 30, 1998. It should be noted
that the largest single element of working capital at September 30,
1998 was a promissory note of $350,000 (from Grand Central Silver
Mines, Inc.), which was redeemed in February 1999 at a loss in exchange
for mining properties and other investments. This transaction greatly
reduced the Company's current assets and liquidity. While sales of the
Company's stock have traditionally constituted its primary source of
cash generation, depressed metals prices in 1998, 1999 and 2000 have
lessened the Company's recent ability to obtain cash from sales of its
<PAGE> 33
stock. Company sales of its stock generated the following cash amounts:
$0 in the two quarters ending March 31, 2000, $158,200 in the year
ending September 30, 1999; $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. As needed, the Company sells its investments and,
on occasion, its surplus equipment for cash.
In the first six months of fiscal 2000, the Company increased its
accounts payable from $121,603 to $161,821. Accordingly, the Company's
current liabilities increased correspondingly. The Company had no long-
term debt at September 30, 1999 or at March 31, 2000.
The Company has estimated that it will need minimal capital
resources of approximately $2,000 to $2,500 per month to meet its
estimated expenditures for fiscal 2000. 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, 1998, the Company raised over $300,000 in funds,
(primarily through the private placement of shares and warrants) and
during the fiscal year ending September 30, 1999, the Company raised
approximately half this amount from the private placement of its
shares. While no cash from stock sales was raised in the six-month
period ending March 31, 2000, the Company's cash was primarily raised
from sales of investments $(119,000) and from sales of old equipment
$(114,000).
The Company is continuing with the previously described
negotiations and various alternatives to raise capital.
Inasmuch as the Company has not yet determined in detail the
specifications of the project, operation or mining activity that it
intends to undertake, management is not able at this time to provide a
detailed listing or exact range of operation costs, including increases
in general and administrative expense, if any. However, the Company
plans to fund any increases in general and administrative expense
principally from joint venture revenues or funds it may receive or
savings it may realize through corporate restructuring or business
combination arrangements. Funds required to finance the Company's
exploration and development of mineral properties are expected to come
primarily from the contributions of its joint venture participants, and
from the funds generated from such joint ventures and other lease or
royalty arrangements.
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities which provide its
personnel, office space, and equipment needs. The Company currently is
seeking alternate sources of working capital sufficient to increase the
funding of additional general and administrative expenses that may
become necessary as the Company's business plan develops, and to
continue meeting its ongoing payment obligations for its leases to
governmental entities.
<PAGE> 34
RESULTS OF OPERATIONS
COMPARISON OF THE SIX MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 2000,
RESPECTIVELY.
General and administrative expenses plummeted from $141,853 during
the two quarters of fiscal 1999 to $76,104 during the first half of
fiscal 2000. This decrease is principally due to greatly reduced
consulting expenses and compensation to officers and directors. As a
result, during the first half of fiscal 1999 compared to the first half
of 2000, the Company's loss from operations decreased correspondingly.
In the first six months of 1999, the Company experienced a loss of
$247,112 on property sold and impaired, which had the effect of giving
the Company a net loss of $381,907 (or $0.02 per share) for the first
half of 1999. Without a similar unfavorable loss of this magnitude in
2000, the Company experienced a net loss of $127,699 (or $0.01 per
share) for the first six months of 2000.
The Company is unable to fully determine the impact of future
transactions on its operating capital. Hence, the Company has
determined not to incur and does not have any commitments or plans for
material capital expenditures during the remainder of its current
fiscal year for which it does not have a reasonably available source of
payment. It is uncertain what effect this decision may have with
respect to restricting capital expenditures.
On the one hand, if the Company were to continue such restriction,
the likely effect might be adverse to the preservation of its assets
and capital base, thereby narrowing the scope of plans for future
operations and constricting liquidity. On the other hand, if the
Company were to discontinue such restriction without an increase in
sustained cash flow, the likely effect of that might be an increase in
accumulated deficits which could be adverse to the Company's financial
condition with respect to liabilities and stockholders' equity.
Therefore, while the Company continues to seek a joint venture
participant and additional sources of capital for financing operations
during the remainder of its current fiscal year, the Company will
continue to carefully monitor its capital expenditures.
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 was a defendant in a lawsuit filed by some of its
shareholders for alleged violations of securities laws. The suit was
filed in the U.S. District Court in Denver on January 22, 1998 with
Rounds et al. as plaintiffs vs. Royal Silver Mines, Inc. et al as
defendants. Plaintiffs sought damages and attorneys' fees in the
lawsuit, which alleged that defendants made false/misleading statements
and omitted material disclosures in connection with public trading of
Royal's common stock during the period May 1996 through August 1997.
On September 2, 1999 the plaintiffs and defendants settled the action
on the following terms:
<PAGE> 35
1. To pay $60,000 in cash on the date of closing, which is
scheduled for no later than October 4, 1999.
2. To cancel a note of $50,000 which is owed by Norman Rounds to
Crosby Enterprises.
3. To pay to plaintiffs on September 7, 1999, the number of
shares of Metalline stock, based upon Schwab closing price as
of September 2, 1999, which equals $80,000. This payment
shall be made by delivering the shares to Idaho Stock
Transfer to hold these shares in escrow to be released to
plaintiffs and to Mr. Rounds, as Mr. Rounds designates, in
the amount of 5,000 shares every thirty days, beginning with
the first 5,000 shares to be delivered September 7, 1999. Mr.
Rounds and/or plaintiffs will be limited in their ability to
sell the shares of stock as follows:
(a) Plaintiffs and Mr. Rounds shall be able to sell no more
than 5000 shares of stock total per month so long as the
stock is trading at less than $4.50 per share.
(b) Whenever the stock closes at over $4.50 per share Schwab
NAV closing price for five consecutive trading days, the
transfer agent will be authorized to release to
plaintiff all remaining shares.
On October 8, 1999, the trial court issued an order dismissing the
case.
(2) The Company is also a defendant in a lawsuit filed by Thomas
F. Miller (et al.), in the First Judicial Court in and for Box Elder
County, State of Utah. The suit, which alleges that the Company failed
to transfer common stock in exchange for a mining interest, asks for
actual and punitive damages. The Company believes that this lawsuit is
without merit and has filed a countersuit alleging fraudulent
misrepresentation. The Company is seeking both full title to the
aforementioned mineral property and punitive damages, and believes its
countersuit will prevail. In the second fiscal quarter of 1999, the
Box Elder County, First Judicial Court dismissed all of Mr. Miller's
claims on a summary judgment motion, and left standing only the
Company's counterclaims. In June 1999, Mr. Miller et al. filed an
appeal to the Utah Supreme Court, which stayed all further actions on
our counterclaims.
(3) In July 1998, the Company filed an action in federal court in
Boise, Idaho for declaratory judgment regarding the validity of its
Crescent Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. Management believes that there is a good likelihood of
prevailing in this matter.
None of the Officers and Directors have been convicted of a felony
or none have been convicted of any criminal offense, felony and
misdemeanor relating to securities or performance in corporate office.
To the best of the knowledge of the Officers and Directors, no
investigations of felonies, misfeasance in office or securities
investigations are either pending or threatened at the present time.
<PAGE> 36
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
Exhibit No. Document
27 Financial Data Schedule.
There were no reports of Form 8-K filed during the period ending
March 31, 2000.
- ----------------------------------------------------------------------
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 12th of May, 2000.
ROYAL SILVER MINES, INC.
BY: /s/ Howard Crosby
Howard Crosby, President, Treasurer
Chief Financial Officer and a
member of the Board of Directors
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at March 31, 2000 (Unaudited)
and the Consolidated Statement of Income for the six months ended March 31,
2000 (Unaudited) and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-END> MAR-31-2000
<CASH> 55,7970
<SECURITIES> 0
<RECEIVABLES> 3,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,947
<PP&E> 66,954
<DEPRECIATION> 27,055
<TOTAL-ASSETS> 1,483,911
<CURRENT-LIABILITIES> 161,821
<BONDS> 0
0
0
<COMMON> 203,620
<OTHER-SE> 1,118,470
<TOTAL-LIABILITY-AND-EQUITY> 1,483,911
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 76,104
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (127,699)
<INCOME-TAX> 0
<INCOME-CONTINUING> (127,699)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (127,699)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
