<PAGE> 1
____________________________________________________________________
____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM: ___________ to __________
__________________________________
Commission File Number: 0-25170
__________________________________
ROYAL SILVER MINES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0306609
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1010 Ironwood Drive, Suite 105, Coeur d'Alene, ID 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 June 30, 2000: 22,562,065 shares
____________________________________________________________________
____________________________________________________________________
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS OF ROYAL SILVER MINES, INC.
(Hereinafter referred to as Registrant or Company)
Condensed financial statements, and an accompanying accountants' review
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 June 30, 2000 and September 30, 1999, and the results of operations,
stockholders' equity and cash flows for the nine months and three
months ended June 30, 2000, and 1999, and from inception on February
17, 1994 through June 30, 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 a 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 June 30, 2000, and the related
statements of operations and comprehensive loss, stockholders' equity,
and cash flows for the three months and nine months ended June 30,
2000, and for the period from February 17, 1994 (inception) through
June 30, 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
August 1, 2000
-1-
<PAGE> 4
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, September 30,
2000 1999
ASSETS (Unaudited)
CURRENT ASSETS
Cash $ 24,302 $ 28,147
Note receivable 14,628 -
Deposit 150 -
----------- -----------
TOTAL CURRENT ASSETS 39,080 28,147
----------- -----------
MINERAL PROPERTIES 950,794 950,794
----------- -----------
PROPERTY AND EQUIPMENT
Mining equipment 8,343 196,389
Furniture and equipment 1,440 12,761
Less accumulated depreciation (6,005) (45,127)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 3,778 164,023
----------- -----------
OTHER ASSETS
Investments 348,883 153,162
----------- -----------
TOTAL ASSETS $ 1,342,535 $ 1,296,126
=========== ===========
See accountant's review report and accompanying notes
-2-
<PAGE> 5
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
June 30, September 30,
2000 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES
Accounts payable $ 133,834 $ 77,603
Payable to related parties - 44,000
----------- -----------
TOTAL CURRENT LIABILITIES 133,834 121,603
----------- -----------
COMMITMENTS AND CONTINGENCIES - -
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 40,000,000
shares authorized, 22,562,065 and
20,299,565 shares issued and outstanding,
respectively 225,620 202,995
Additional paid-in capital 11,497,174 11,428,674
Deficit accumulated during
development stage (10,639,808) (10,457,146)
Accumulated other comprehensive income 125,715 -
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,208,701 1,174,523
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,342,535 $ 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
Period from
02/17/94
Three months ended Nine months ended (inception)
June 30, June 30, June 30, June 30, through
2000 1999 2000 1999 06/30/00
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES $ - $ - $ - $ - $ -
---------- ----------- ---------- ----------- -----------
GENERAL AND ADMINISTRATIVE
EXPENSES
Mineral property
expense 2,322 3,134 7,417 3,134 566,859
Depreciation and
amortization 1,646 6,202 7,948 21,249 234,122
Officers' and directors'
compensation 2,000 17,500 17,000 77,040 1,411,760
General and
administrative 75,206 42,843 124,913 110,109 3,802,207
---------- ----------- ---------- ----------- -----------
TOTAL EXPENSES 81,174 69,679 157,278 211,532 6,014,948
---------- ----------- ---------- ----------- -----------
OPERATING LOSS (81,174) (69,679) (157,278) (211,532) (6,014,948)
---------- ----------- ---------- ----------- -----------
OTHER INCOME (EXPENSES)
Interest income 122 - 304 7,058 58,935
Interest expense - - - - (74,348)
Gain on property
interest sold - - - - 1,875,281
Gain (loss) on
disposition and
impairment
of assets 26,089 (1,146,559) (25,688) (1,393,671) (6,484,728)
---------- ----------- ---------- ----------- -----------
Total other
income (expense) 26,211 (1,146,559) (25,384) (1,386,613) (4,624,860)
---------- ----------- ---------- ----------- -----------
INCOME (LOSS)
BEFORE TAXES (54,963) (1,216,238) (182,662) (1,598,145) (10,639,808)
INCOME TAXES - - - - -
---------- ----------- ---------- ----------- -----------
NET INCOME (LOSS) (54,963) (1,216,238) (182,662) (1,598,145) (10,639,808)
OTHER COMPREHENSIVE
INCOME (LOSS)
Unrealized gain (loss)
on market value of
investments (146,426) - 125,715 - 125,715
---------- ----------- ---------- ----------- -----------
COMPREHENSIVE INCOME
(LOSS) $ (201,389) $(1,216,238) $ (56,947) $(1,598,145) $(10,514,093)
========== =========== ========== =========== ============
NET INCOME (LOSS) PER
COMMON SHARE BASIC
AND DILUTED $ (0.01) $ (0.06) $ nil $ (0.08) $ (0.82)
========== ========== ========== ========== ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING, BASIC
AND DILUTED 20,410,417 20,027,070 20,374,268 19,317,737 12,982,074
========== ========== ========== ========== ==========
See accountant's review report and accompanying notes.
-4-
<PAGE> 7
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Total
Common Stock Additional Accumu- Stock-
Number Paid-in lated holders'
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 accountant's review report and accompanying notes.
-5-
<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 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 accountant's review report and accompanying notes.
-6-
<PAGE> 9
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Total
Common Stock Additional Stock-
Number Paid-in Accumulated holders'
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 accountant's review report and accompanying notes.
-7-
<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 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 accountant's review report and accompanying notes.
-8-
<PAGE> 11
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 accountant's review report and accompanying notes.
-9a-
<PAGE> 12
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 - 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 accountant's review report and accompanying notes.
-9b-
<PAGE> 13
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional
Number Paid-in
of Shares Amount Capital
Balance forward 20,229,565 $ 202,995 $ 11,428,674
Shares issued to consultants
for services at $0.05
per share 62,500 625 2,500
Shares issued to officers for
debt at $0.04 per share 2,200,000 22,000 66,000
Net loss for nine months
ended June 30, 2000 - - -
Unrealized gain on market
value of investments - - -
---------- --------- ------------
Balance, June 30, 2000
(Unaudited) 22,562,065 $ 225,620 $ 11,497,174
========== ========= ============
See accountant's review report and accompanying notes.
10-a
<PAGE> 14
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 accountant's review report and accompanying notes.
-10b-
<PAGE> 15
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From
02/17/94
Nine months ended (Inception)
June 30, June 30, Through
2000 1999 June 30, 2000
(Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net income (loss) $ (182,662) $ (1,598,145) $ (10,639,808)
Adjustments to reconcile net income
(loss) to net cash provided (used)
by operating activities:
Loss on sale of equipment 86,284 - 98,869
Equipment traded for services 4,137 - 4,137
Depreciation and amortization 7,948 21,249 229,331
Issuance of common stock for services 3,125 104,940 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
Write-off of other assets - 1,000 -
Loss on devaluation of investments - 1,150,922 3,121,060
Changes in assets and liabilities:
Note receivable (14,628) 340,000 (14,628)
Deposit (150) - (150)
Prepaid expenses - 2,162 (28,438)
Other assets - - (9,801)
Interest receivable - 17,106 (4,674)
Accounts payable 56,231 3,277 133,834
Accrued expenses - (3,000) 43,188
Payable to related party (44,000) - 256,000
---------- ------------ -------------
Net cash provided (used) in
operating activities (83,715) 39,511 (2,331,784)
---------- ------------ -------------
Cash flows from investing activities:
Purchase of investments (152,752) 105,415 (3,275,902)
Purchase and development of
mineral properties - (45,000) (1,986,690)
Purchase of fixed assets - - (325,687)
Sale of mineral properties - - 1,093,750
Sale of investments 144,622 (115,630) 356,051
Sale of fixed assets - (100,000) 5,685
---------- ------------ -------------
Net cash provided (used) in
investing activities (8,130) (155,215) (4,132,793)
---------- ------------ -------------
See accountant's review report and accompanying notes.
-11-
<PAGE> 16
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
From
02/17/94
Nine months ended (Inception)
June 30, June 30, Through
2000 1999 June 30, 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 - 131,000 6,030,764
Issuance of common stock for
accrued interest - - 38,158
Issuance of common stock for extension of
notes payable maturation - - 59,063
Issuance of common stock for payment to
related party 88,000 - 88,000
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 88,000 150,868 6,488,879
------------ ----------- -------------
Cash, beginning of period 28,147 3,147 -
------------ ----------- -------------
Cash, end of period $ 24,302 $ 38,311 $ 24,302
============ =========== =============
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 $ 104,940 $ 1,347,381
Common stock issued in
exchange for debt $ 88,000 $ - $ 1,040,950
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
See accountant's review report and accompanying notes.
-12-
<PAGE> 17
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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 June 30, 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> 18
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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> 19
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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 June 30, 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 $4,327,000. 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 June 30, 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> 20
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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 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 June 30, 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 nine months ended June
30, 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.
Investments
Investments, consisting of equity securities of private and small public
companies, are stated at current market value.
-16-
<PAGE> 21
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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> 22
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 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
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 June 30, 2000 and September 30, 1999, the market values of investments
were as follows:
06/30/00 09/30/99
Elite Logistics, Inc. $ 231,517 $ 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. - 6,795
Metalline Mining Company 57,902 -
Minimally Invasive Surgery - 2,038
Envirogold, LLC 8,000 -
Bitterroot Mountain Mining Co. 7,500 -
Sterling Mining Co. 5,951 -
Silver Belle Mining Co. 20,000 -
--------- ----------
$ 348,883 $ 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 Note 12).
-18-
<PAGE> 23
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
NOTE 5 - INVESTMENTS (CONTINUED)
Grand Central Silver Mines, Inc. (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 June 30, 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.
Metalline Mining
During May 2000, the Company traded equipment for 15,000 restricted common
shares of Metalline Mining Company which was then trading at $4.12 per
share. As of June 30, 2000, the Company's investment in Metalline Mining
Company stock had a market value of $57,902.
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.
-19-
<PAGE> 24
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
NOTE 6 - COMMON STOCK (Continued)
During the year ended September 30, 1995, the Company issued 12,750 shares
of common stock to directors and employees for services rendered, valued at
prices ranging from $2.00 to $2.50 per share, which is the fair market
value of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000 shares
of common stock in exchange for mineral properties (See Note 3) and sold
176,000 shares of common stock for $264,000 cash.
The Company issued 200,000 shares of its common stock during the year ended
September 30, 1995 in lieu of outstanding debt that was owed to Centurion
Mines Corporation (Centurion), a related entity. The stock was issued at
$1.50 per share in payment of $300,000 of outstanding debt. The Company
also issued 277,500 shares in connection with the issuance of notes
payable. (See Note 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.
-20-
<PAGE> 25
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
NOTE 6 - COMMON STOCK (Continued)
During the year ended September 30, 1998, the Company issued 398,000 shares
of common stock for services received. The shares were valued at their
fair market value at the date of issuance which ranged from $0.34 to $0.91
per share. Also during the same twelve months, the Company sold 4,923,333
shares of its common stock for $344,500 in cash and $700,000 in stock
subscriptions receivable.
In May 1998, the Company sold 3,000,000 shares of its common stock at $0.25
per share in exchange for $50,000 in cash and a short-term note in the
amount of $700,000. Because of a subsequent decrease in the market value
of the Company's stock, the Company and shareholder renegotiated the
transaction. In November 1998, the aforementioned shareholder returned
2,000,000 shares of stock to the Company for cancellation and in return the
company rescinded the $700,000 note, which was recorded as stock
subscriptions receivable at September 30, 1998. The net effect of the
renegotiated stock transaction was a sale of common stock at $0.05 per
share for cash only.
In November 1998, the Company sold 220,000 shares of its common stock at
$0.06 per share to Ashington Mining for a short-term note in the amount of
$5,000 and 100,000 shares of Ashington Mining stock valued at $7,200 (Note
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.
During the period ended June 30, 2000, the Company issued 62,500 shares of
common stock for services and 2,200,000 shares of common stock for payment
of related party payables. The shares were valued at their fair market
value at the date of issuance, which ranged from $0.04 to $0.05.
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 June 30, 2000, 12,750 shares of common
stock have been awarded under the Plan.
-21-
<PAGE> 26
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
NOTE 7 - COMMON STOCK OPTIONS AND WARRANTS (Continued)
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 expired March 21, 2000. The remaining 1,200,000 stock options are
exercisable at $0.93 per share and expire on August 31, 2001. As of June
30, 2000, none of these options have been exercised.
On January 9, 1996, the board of directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares for
a purchase price of $2.50 per share, exercisable from the date of issuance
until January 9, 1999. As of June 30, 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 June 30,
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
June 30, 2000, 1,455,000 options have been granted under the plan although
none have been exercised in the period ending June 30, 2000. The old
existing options are attributed to the merger of Celebration Mining Company
with Royal in August 1995.
-22-
<PAGE> 27
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
NOTE 8 - COMPANY STOCK OPTION AND AWARD PLAN (Continued)
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 June 30, 2000.
Weighted
Number Average
of Exercise
Shares Price
Outstanding at 10/1/1998 1,455,000 $ 1.03
Granted
Exercised - -
Forfeited - -
--------- ------
Outstanding at 9/30/1999 1,455,000 $ 1.03
========= ======
Options exercisable at 9/30/1999 1,455,000 $ 1.03
========= ======
Weighted average fair value
of options granted during
the year ended 9/30/1999 $ -
=========
Outstanding at 10/1/1999 1,455,000 $ 1.03
Granted
Exercised - -
Forfeited (255,000) 1.50
--------- ------
Outstanding at 6/30/2000 1,200,000 $ 0.93
========= ======
Options exercisable at 6/30/2000 1,200,000 $ 0.93
========= ======
Weighted average fair value of
options granted during the
period ended 6/30/2000 $ -
NOTE 9 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at June 30, 2000,
and September 30, 1999:
-23-
<PAGE> 28
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
NOTE 9 - ADDITIONAL PAID-IN CAPITAL (Continued)
June 30, 2000 September 30, 1999
Applicable to:
Common Stock $ 11,450,606 $ 11,382,106
Stock Warrants 46,568 46,568
------------ ------------
$ 11,497,174 $ 11,428,674
============ ============
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.
-24-
<PAGE> 29
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
NOTE 11 - COMMITMENTS AND CONTINGENCIES (Continued)
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 period ended June 30, 2000 and the year ended
September 30, 1999 was $1,800 and $2,400, respectively.
For commitments and contingencies regarding the Company's investment in
Envirogold LLC, see Note 5.
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 losses in 1999 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.
-25-
<PAGE> 30
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
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.
NOTE 14 - GOING CONCERN
As shown in the accompanying financial statement, the Company has no
revenues, has incurred a net loss of $182,662 for the nine month period
ended June 30, 2000 and an accumulated deficit of $10,639,808 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
Related party transactions are disclosed in Notes 5 and 13.
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<PAGE> 31
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
June 30, 2000
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.
NOTE 17 - SUBSEQUENT EVENTS
Subsequent to the date of these financial statements, in July 2000, the
Company signed a letter of intent to acquire all of the outstanding shares
of Nuvotec, Inc. (Nuvotec) through a reverse merger. Nuvotec is a
privately held company based in Richland, Washington, whose business is
focused on technology commercialization, with operating subsidiaries in the
energy and environmental, and information services sectors. Under terms of
the letter of intent, the Company will reverse split its common stock and
subsequently issue new shares of its common stock for each outstanding
share of Nuvotec. Following the merger, the Nuvotec shareholders will own
approximately 92.4 percent of the outstanding stock in the surviving
company.
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<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 determined until extensive
exploration and development work, plus a detailed economic feasibility
study, has been performed. Also, the market prices for mineralization
produced are subject to fluctuation and uncertainty, which may negatively
affect the economic viability of properties on which expenditures have been
made. During the development stage of the Company, from inception to June
30, 2000, the Company accumulated a deficit of $10,639,808.
At June 30, 2000, $950,794 of the Company's total assets of $1,342,535 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 June 30, 2000, the Company had negative working
capital of $94,754. This amount represents a further deterioration in
liquidity and capital resources from its negative working capital position
of $93,456 at September 30, 1999 and represents severe deterioration from
working capital of $303,600 at September 30, 1998. While the largest
single element of working capital at September 30, 1998 was a promissory
note of $350,000 (from Grand Central Silver Mines, Inc.), this note 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 1999 and 2000 have lessened the Company's recent ability
<PAGE> 33
to obtain cash from sales of its stock. Company sales of its stock
generated the following cash amounts: $0 in the current fiscal year;
$131,000 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.
In the first nine months of fiscal 2000, the Company increased its accounts
payable from $77,603 to $133,834 while issuing common stock to discharge
$44,000 of related party payables. Accordingly, the Company's current
liabilities moved from $121,603 at September 30, 1999 to $133,834 at June
30, 2000. The Company had no long-term debt at September 30, 1999 or at
June 30, 2000.
The Company has estimated that it will need minimal capital resources of
approximately $3,000-4,000 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 of this amount from private placement
of its shares. While no cash from stock sales was raised in the nine-month
period ending June 30, 2000, the Company's cash was primarily raised from
sales of investments ($144,622) and the sales of old equipment ($86,284).
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 expenses 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 from governmental entities.
<PAGE> 34
RESULTS OF OPERATIONS
COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 2000,
RESPECTIVELY. General and administrative expenses plummeted from $211,532
during the three quarters of fiscal 1999 to $157,278 during the same period
in fiscal 2000. This decrease is principally due to greatly reduced
compensation to officers and directors. As a result, during the first three
quarters of fiscal 1999 compared to the first three quarters of 2000, the
Company's loss from operations decreased correspondingly. In the first
nine months of 1999, the Company experienced a loss of $1,393,671 on
property impaired and sold, which had the effect of substantially
increasing the Company's net loss to $1,598,145 (or $0.08 per share) for the
first three quarters of 1999. Without this favorable loss in 2000, the
Company experienced a net loss of $182,662 (or less than one cent loss per
share) for the first nine 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.
<PAGE> 35
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
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.
(a) Exhibits
Exhibit
No. Description
27 Financial Data Schedule
(b) No reports on Form 8-K have been filed for the period ended June 30,
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 thereto duly authorized.
Dated this 12th day of August, 2000.
ROYAL SILVER MINES, INC.
BY: /s/ Howard Crosby
Howard Crosby, President,
Treasurer, Chief Financial Officer
and a member of the Board of
Directors
