<PAGE> 1
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 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 of Incorporation) (I.R.S. Employer I.D.#)
Address of principal offices: 6 East Rose Street
Walla Walla, Washington 99362
Registrant's Telephone No.: (509) 526-3491
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value, $0.01
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days:
YES [ x ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K: [ x ]
As of December 15, 2000 the aggregate value of the voting stock held by
non-affiliates of the Registrant, computed by reference to the average of
the bid and ask price ($0.04) on such date was $1,040,182.
As of December 15, 2000, the Registrant had outstanding 26,004,565 shares
of common stock ($0.01 par value). An index of the documents incorporated
herein by reference and/or annexed as exhibits to the signed originals of
this report appears beginning on page 66.
=====================================================================
<PAGE> 2
TABLE OF CONTENTS
ITEM NUMBER PAGE
AND CAPTION NUMBER
PART I
ITEM 1. Business . . . . . . . . 3
ITEM 2. Properties . . . . . . . . 24
ITEM 3. Legal Proceedings . . . . . . . 26
ITEM 4. Submission of Matters to a Vote of
Security Holders . . . . . . . 26
PART II
ITEM 5. Market for Registrant's Common Equity and
Related Stockholder Matters . . . . . 27
ITEM 6. Selected Financial Data . . . . . 27
ITEM 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operation . . . . . . . . 28
ITEM 8. Financial Statements and Supplementary Data . 31
ITEM 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . 59
PART III
ITEM 10. Directors and Executive Officers of the
Company . . . . . . . . . 59
ITEM 11. Executive Compensation . . . . . . 61
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . 64
ITEM 13. Certain Relationships and Related Transaction . 65
PART IV
ITEM 14. Exhibits, Financial Statement Schedules,
and Reports of Form 8-K . . . . . 66
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Royal Silver Mines, Inc. (the "Company"), formerly known as
Consolidated Royal Mines, Inc., and also, Royal Minerals, Inc., is a
U.S. mineral resource company incorporated under the laws of the State
of Utah. The Company is engaged in the business of acquiring and
exploring mineral properties containing silver, gold, copper, and other
mineralization. Prior to September 30, 1995, the Company acquired all
of the outstanding securities of Celebration Mining Company
("Celebration"), a development stage company, pursuant to a share
exchange agreement and plan of reorganization ("Reorganization").
The Company operates its business as an exploration stage company,
meaning that it intends to receive income from property sales, joint
ventures, or other business arrangements with larger companies, rather
than developing and placing its properties into production on its own.
The Company currently has no revenues. At September 30, 2000, the
Company's accumulated deficit was $(10,885,466). Regarding its losses
from operations, the Company cannot assure that it will be able to
carry out its plans as budgeted without additional operating capital.
At September 30, 2000, the Company had a cash balance of $15,915 and
negative working capital of $78,422 as compared to a cash balance of
$28,147 and negative working capital of $93,196 at September 30, 1999.
The Company will need additional capital resources to continue
operations and has reduced monthly expenditures to approximately $2,000
per month. The industry took a tremendous and very significant
downturn in 1997 and 1998 primarily a result of the fall-out from the
Bre-X scandal which resulted in substantial losses for investors and
has placed a deep chill upon the ability of exploration companies to
raise capital. Secondly, the impact of a steadily declining gold price
through 1997 placed added downward pressure on prices of mining shares
in general. Further, as the Asian crises unfolded in 1998, prices for
copper, lead, zinc and silver plunged to multi-year lows. As a whole,
the entire industry suffered an unprecedented decline. Throughout 1999
and 2000 there was no noticeable improvement in the climate for
exploration companies.
Given this unprecedented decline in both metal prices and the
entire exploration sector, the directors of the Company have been
forced to adopt a major austerity program. The Company closed its
office in Spokane and laid off all of its remaining employees as of
August 1998. The two principal officers of the Company have continued
to work without cash compensation, and the office has been relocated to
Walla Walla, Washington, where the Company is sub-letting space from
one of its officers for $300 a month.
<PAGE> 4
At September 30, 1999, the Board of Directors of the Company made
the decision to write off the value of the Company's interest in the
Crescent Mine lease, which was being carried on the Company's books at
$1,294,867.
A number of factors were considered by the Directors in arriving
at this decision. First, the lingering depressed price of silver
continues to render the property difficult or impossible to finance,
given the depressed nature of the exploration sector. Second, the
recent developments in the West Chance area of the Sunshine Mine next
to the Crescent have not been encouraging, making it less likely that
any offers would ever materialize from Sunshine. Finally, the on-going
litigation initiated by the Company to determine the validity of its
lease, and to possibly seek damages from the lessor is not likely to be
resolved quickly, making it unlikely that the Company would be prepared
to fulfill its work commitment. See "Litigation."
As such, in accordance with GAAP rules, the Company has written
down the value of the lease to zero at September 30, 1999.
The Company intends to continue to operate at a very low
expenditure level until such time as recovery in the exploration sector
becomes evident. The Company will continue to eschew any long term
debt in order to protect the long term viability of the Company.
During the 1999 fiscal year, the Company negotiated a contingency
license agreement with Integrated Environmental Technologies of
Richland, Washington to acquire exclusive worldwide rights to IET's
patented plasma smelter technology for applications to mining and
mineral processing.
The agreement called for a successful technical demonstration via
a one ton test prior to any license rights being earned or any
compensation being given to IET. During the 1999 fiscal year, IET
completed a very small scale bench test which indicated the possibility
that its technology may work for the application in question.
During the 2000 fiscal year, the Company made the determination
that technical problems associated with the IET Technology for the
smelter applications may be too expensive to solve, and all work was
suspended to conserve resources.
During the twelve months ended September 30, 1999, the Company
placed 2,870,000 shares of its common stock for $158,200 in cash.
However, in the current depressed market, it is believed that future
placements will be much more difficult, if not impossible to complete.
As discussed in greater detail below in the section entitled
"Strategy and Business Plan" a substantial portion of the Company's
assets consist of investments in mineral properties for which
additional exploration is required to determine if they contain
mineralization that is economically recoverable. The realization of
these investments is contingent to a large extent upon the success of
the Company's property transactions as a whole, the existence of
economically recoverable metals and other mineralized material, the
ability of the Company to obtain financing or make other arrangements
for development, and upon future profitable production. The likelihood
and extent to which these contingencies may be material is uncertain,
<PAGE> 5
and the Company cannot assure that the outcome of these uncertain
events will not have a material impact and result in adverse
consequences to the Company. If the Company does not receive suitable
financing or funds from its present or future business arrangements to
develop these properties, and continues to suffer losses from
operations, the Company may have to cease operations entirely.
HISTORY
The Company was incorporated in Utah on April 6, 1969, as Royal
Resources, Inc. for the purpose of acquiring and developing mineral
properties. The Company changed its name to Royal Minerals, Inc., on
January 6, 1983, and became a public company in July 1984. The Company
complied with the Securities and Exchange Commission reporting
requirements until August 1986, at which time the Company filed Form 15
with the Commission and suspended further reporting requirements. On
January 31, 1992, Centurion owned 82.3% of the Company's common stock.
See "Centurion's Acquisition and Control of the Company." Also on
January 31, 1992, the Company shareholders authorized a 5-for-1 reverse
stock split, and on March 4, 1994, authorized a 4-for-1 reverse stock
split of the common stock of the Company. On March 17, 1994, the
Company changed its name to Consolidated Royal Mines, Inc. On November
22, 1994, the Company filed a registration statement on Form 10 and
renewed its reporting requirements, effective January 23, 1995. During
the fourth quarter of Fiscal 1995, the Company revised its business
plan to concentrate on the acquisition of silver properties. That
change in focus prompted Consolidated Royal Mines, Inc. and Celebration
Mining Company to implement the Reorganization, which closed on August
8, 1995, and to change the Company's name to Royal Silver Mines, Inc.,
effective September 18, 1995.
STRATEGY AND BUSINESS PLAN
The Company believes that control of land and mineral rights is
the key ingredient for financial success in the exploration and
development phases of the mining business. Previously, the Company had
concentrated its main exploration efforts in Idaho's Coeur d'Alene
Mining District and to a much lesser extent in the Lakeview Mining
District, and Utah's Ashbrook Mining District where the Company owns a
25% interest in the Vipont Mine property. During fiscal 1998, the
Company shifted its strategy and toward the acquisition of properties
and exploration in Chile, Mexico, and Argentina. The Company does not
currently have sufficient capital to carry out its strategy and
continue this business plan.
The Company's plan of operation for fiscal 2001 is to conserve its
resources and protect its assets consistent with the lowest possible
level of expenditure.
The Board of Directors will continue to evaluate opportunities for
the Company, and will seek to pursue opportunities to enhance
shareholder value, however, any such opportunities must be viewed in
the context of the Company's very limited liquidity, as well as the
stated goal of protecting the Company's balance sheet.
<PAGE> 6
PRIVATE PLACEMENTS.
In July 1995, the Company completed a private placement of 8,700
shares through two Regulation S offerings, both at a price of $2.00 per
share, for a total of $17,400. During September 1995, the Company
completed a private placement of 179,000 shares of common stock through
a domestic offering at a price of $1.50 per share for a total of
$241,650 after expenses. During the twelve months ended September 30,
1996, the Company placed 1,949,332 shares of its common stock for
$2,958,314 in cash. The Company also issued 406,050 shares of its
common stock in lieu of outstanding debt of $570,919, plus accrued
interest. The stock was issued at $1.50 per share for a total value of
$609,075.
On the 30th day of January, 1997, the Company sold to Britannia
Holdings Limited ("Britannia"), Channel Islands, 200,000 Units, at
$0.75 per Unit or a total of $150,000. The Registrant also granted
Britannia an option to purchase an additional 335,000 Units on February
14, 1997 and an additional 800,000 Units on March 3, 1997. Each Unit
consists of one share of Common Stock and one warrant to purchase one
additional share of Common Stock at $1.25 per share. The Units were
issued in reliance upon the transaction exemption afforded by
Regulation S, as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, as amended. Britannia Holdings
Limited exercised all of these warrants.
On the 14th day of February, 1997, the Registrant sold to
Britannia, 335,000 Units, at $0.75 per Unit or a total of $251,250. The
Registrant previously granted Britannia an option to purchase an
additional 800,000 Units on March 3, 1997. The option exercise date of
March 3, 1997 was extended by mutual agreement of the parties to March
24, 1997 and the option was increased to 1,200,000 units. On March 24,
1997, Britannia Holdings exercised its option and purchased 1,600,000
units at $0.75 per unit, for a total of $1,200,000. Each Unit consists
of one share of Common Stock and one warrant to purchase one additional
share of Common Stock at $1.25 per share. The warrants will expire two
years from the date of closing of each transaction. The Units were
issued in reliance upon the transaction exemption afforded by
Regulation S, as promulgated by the Securities and Exchange Commission,
under the Securities Act of 1933, as amended. As of the 19th day of
December, 1997, Britannia Holdings Limited had not exercised any
warrants.
On the 26th day of February, 1997, the Company sold to Louk
Jongen, ("Jongen"), Holland, 100,000 Units, at $0.75 per Unit or a
total of $75,000. Each Unit consists of one share of Common Stock and
one warrant to purchase one additional share of Common Stock at $1.25
per share. The warrants will expire two years from the date of
closing. The Units were issued in reliance upon the transaction
exemption afforded by Regulation S, as promulgated by the Securities
and Exchange Commission, under the Securities Act of 1933, as amended.
As of the 6th day of March, 1997, Jongen had not exercised any
warrants.
On the 5th day of March, 1997, the Company sold to NCL Investments
Limited ("NCL"), London, England, 136,000 Units, at $0.75 per Unit or a
total of $102,000. Each Unit consists of one share of Common Stock and
one warrant to purchase one additional share of Common Stock at $1.25
per share. The warrants will expire two years from the date of
<PAGE> 7
closing. The Units were issued in reliance upon the transaction
exemption afforded by Regulation S, as promulgated by the Securities
and Exchange Commission, under the Securities Act of 1933, as amended.
As of the 6th day of March, 1997, NCL had not exercised any warrants.
In November 1997, the Company sold 10,000 "restricted" shares to a
non-affiliate for $0.75 per share for a total of $7,500, pursuant to
Section 4(2) of the Securities Act of 1933, as amended.
In April 1998, the Company sold 913,333 "restricted" shares to a
director, a major shareholder and a non-affiliated investor at $0.15
per share for a total of $136,999, pursuant to Section 4(2) of the
Securities Act of 1933, as amended.
In June 1998, the Company sold 3,000,000 "restricted" shares to
Pines International for $0.25 per share, payable as $50,000 cash down
and a note for $700,000. Subsequent to the fiscal year end, the Company
and Pines International negotiated a settlement agreement whereby Pines
International returned 2,000,000 shares to the Company and the note was
canceled, pursuant to Section 4(2) of the Securities Act of 1933, as
amended.
In May 1999, the Company sold 1,000,000 share of "restricted"
common stock to a non-affiliate investor for $50,000. In June 1999,
the Company sold 300,000 common shares to a non-affiliate for $21,000
in cash.
In June of 2000, the company sold 1,625,000 shares to two
directors of the company, Howard Crosby and John Ryan, for $72,200 in
cash and marketable securities.
COMPETITION
The mining industry is very competitive. There is a high degree
of competition to obtain favorable mining properties and suitable
mining prospects for drilling, exploration, development and mining
operations. The Company encounters competition from a handful of other
similarly-situated mining companies in the silver mining industry in
connection with the acquisition of properties capable of profitably
producing silver and other mineralization.
RISK FACTORS.
The following risk factors with respect to the Company and its
operations may affect its strategy and business plan:
1. Going Concern. The Company's auditors have raised the issue
that the Company may not be able to continue as a going concern as a
result of net losses; a significant accumulated deficit; and, a
significant change in the Company's liquidity.
2. Recent Status as a Public Reporting Company. The Company
became a fully reporting public company on January 23, 1995. The
Company has no current operating history and is subject to all risks
inherent in a developing business enterprise. The likelihood of
success of the Company must be considered in light of the problems,
expenses, difficulties, complications, and delays frequently
encountered in connection with a new business in general and those
specific to the natural resource industry and the competitive and
regulatory environment in which the Company will operate.
<PAGE> 8
3. Exploration Stage Company. Mineral exploration, particularly
for gold and silver, is highly speculative in nature, frequently is
nonproductive, and involves many risks, often greater than those
involved in the actual mining of mineralization. Such risks can be
considerable and may add unexpected expenditures or delays to the
Company's plans. There can be no assurance that the Company's mineral
exploration activities will be successful or profitable. Once
mineralization is discovered, it may take a number of years from the
initial phase of drilling until production is possible, during which
time the economic feasibility of production may change. A related
factor is that exploration stage companies use the evaluation work of
professional geologists, geophysicists, and engineers for estimates in
determining whether to acquire an interest in property or to commence
exploration or development work. These estimates generally rely on
scientific estimates and economic assumptions, and in some instances
may not be correct, and could result in the expenditure of substantial
amounts of money on a property before it can be determined whether or
not the property contains economically recoverable mineralization. The
economic viability of a property cannot be determined until extensive
exploration and development has been conducted and a comprehensive
feasibility study performed. The Company currently does not have any
such feasibility studies, and has not yet prepared feasibility studies
on any of its properties. Moreover, the market prices of any minerals
produced are subject to fluctuation, which may negatively affect the
economic viability of properties on which expenditures have been made.
The Company is not able to determine at present whether or not, or the
extent to which, such risks may adversely affect the Company's strategy
and business plans.
4. Lack of Revenue. The Company needs additional capital but
currently has no revenues. Substantial expenditures are required to
establish ore reserves through drilling, to determine metallurgical
processes to extract the mineralization from the ore and, in the case
of new properties, to construct mining and processing facilities. The
Company lacks a constant and continual flow of revenue. The Company
currently holds certain royalty interests in several mining properties
previously sold, but there is no assurance that the Company will
receive royalty payments, or that the Company will otherwise receive
adequate funding to be able to finance its exploration activities. The
Company is looking for revenue sources on an on-going basis, but there
can be no assurance that such sources can be found or that, if
available, the terms of such financing will be commercially acceptable
to the Company. Because of the Company's need for additional capital
to fund its present operations, to complete the acquisition of certain
mineral rights, and to provide for further exploration and development,
the lack of consistent revenue could be a detrimental factor in the
progress of the Company.
5. Realization of Investments in Mineral Properties and
Additional Capital Needs. The ultimate realization of the Company's
investments in mineral properties is dependent upon the success of
future property sales, the existence of economically recoverable
reserves, the ability of the Company to obtain financing or make other
arrangements for development and upon future profitable production.
The Company expects to finance its operations for Fiscal 1999 through
the sale of equity securities, joint venture arrangements (including
<PAGE> 9
project financing, and the sale of interests in mineral properties.
The Company does not have sufficient capital of its own to explore and
develop its mineral properties and there can be no assurance that the
Company will be successful in obtaining the required funds to finance
its long-term capital needs.
6. Retention and Attraction of Key Personnel. The Company's
success will depend, in large part, on its ability to retain and
attract highly qualified personnel. The Company's success in
attracting qualified personnel will depend on many factors, including
its ability to provide them with competitive compensation arrangements,
equity participation and other benefits. There is no assurance that
the Company will be successful in retaining or attracting highly
qualified individuals in key management positions.
7. Regulatory Concerns. Environmental and other government
regulations at the federal, state and local level pertaining to the
Company's business and properties may include: (a) surface impact; (b)
water acquisition; (c) site access; (d) reclamation; (e) wildlife
preservation; (f) licenses and permits; and, (e) maintaining the fees
for unpatented mining claims. See "Business - Government Regulation
and Environmental Concerns."
8. Working Capital; Accumulated Deficit; Auditor's Report.
Although it commenced operations more than two years ago, the Company
remains in the development stage. At September 30, 1999, the Company
had negative working capital of $93,456 and an accumulated deficit of
$10,457,146, with deficits and losses expected to continue for the
foreseeable future. The Company's operations are subject to numerous
risks associated with the mining industry.
9. Reliance Upon Directors and Officers. The Company is wholly
dependent, at the present, upon the personal efforts and abilities of
its Officers and Directors who exercise control over the day to day
affairs of the Company. There can be no assurance as to the volume of
business, if any, which the Company may succeed in obtaining, nor that
its proposed operations will prove to be profitable.
10. Indemnification of Officers and Directors for Securities
Liabilities. The Bylaws of the Company provide that the Company may
indemnify any Director, Officer, agent and/or employee as to those
liabilities and on those terms and conditions as are specified in the
Utah Business Corporation Act. Further, the Company may purchase and
maintain insurance on behalf of any such persons whether or not the
corporation would have the power to indemnify such person against the
liability insured against. The foregoing could result in substantial
expenditures by the Company and prevent any recovery from such
Officers, Directors, agents and employees for losses incurred by the
Company as a result of their actions. Further, the Company has been
advised that in the opinion of the Securities and Exchange Commission,
indemnification is against public policy as expressed in the Securities
Act of 1933, as amended, and is, therefore, unenforceable.
<PAGE> 10
11. Cumulative Voting, Preemptive Rights and Control. There are
no preemptive rights in connection with the Company's Common Stock.
Cumulative voting in the election of Directors is not provided for.
Accordingly, the holders of a majority of the shares of Common Stock,
present in person or by proxy, will be able to elect all of the
Company's Board of Directors. See "Description of the Securities."
12. Potential Future Sales Pursuant to Rule 144. At December 15,
2000, there were issued and outstanding approximately 26,004,565 shares
of Common Stock of which 9,225,415 shares were "Restricted Securities"
as that term is defined in Rule 144 promulgated under the Securities
Act of 1933, as amended. In general, under Rule 144, a person (or
persons whose shares are aggregated) who has satisfied a one (1) year
holding period, may sell within any three month period, an amount which
does not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume during the four
calendar weeks prior to such sale. Rule 144 also permits the sale of
shares, under certain circumstances, without any quantity limitation,
by persons who are not affiliates of the Company and who have
beneficially owned the shares for a minimum period of two (2) years.
Hence, the possible sale of these restricted shares may, in the future
dilute an investors percentage of free-trading shares and may have a
depressive effect on the price of the Company's securities and such
sales, if substantial, might also adversely effect the Company's
ability to raise additional equity capital.
13. No Dividends. The holders of the Common Stock are entitled
to receive dividends when, as and if declared by the Board of Directors
out of funds legally available therefore. To date, the Company has not
paid any cash dividends. The Board does not intend to declare any
dividends in the foreseeable future, but instead intends to retain all
earnings, if any, for use in the Company's business operations. As the
Company will be required to obtain additional financing, it is likely
that there will be restrictions on the Company's ability to declare any
dividends.
PATENTS, TRADEMARKS, LICENSES, FRANCHISES.
The Company does not own any patents, trademarks, licenses,
franchises, or concessions, except for patented mining claims granted
by governmental authorities and private land owners and a contingent
licensing agreement with Integrated Environmental Technologies of
Richmond, Washington. See "Item 1. Business - General."
SEASONABILITY.
The Company's business is generally not seasonal in nature except
to the extent that weather conditions at certain times of the year may
affect the Company's access to its properties.
<PAGE> 11
GOVERNMENT REGULATION AND ENVIRONMENTAL CONCERNS.
The Company is committed to complying and, to its knowledge, is in
compliance with all governmental and environmental regulations. The
Company's activities in the United States are subject to extensive
federal, state and local laws and regulations controlling not only the
mining of and exploration for mineral properties, but also the possible
effects of such activities upon the environment. Permits from a
variety of regulatory authorities are required for many aspects of mine
operation and reclamation. The Company cannot predict the extent to
which future legislation and regulation could cause additional expense,
capital expenditures, restrictions and delays in the development of the
Company's U.S. properties, including those with respect to unpatented
mining claims.
The Company's activities are not only subject to extensive
federal, state, and local regulations controlling the mining of and
exploration for mineral properties, but also the possible effects of
such activities upon the environment. Future legislation and
regulations could cause additional expense, capital expenditures,
restrictions and delays in the development of the Company's properties,
the extent of which cannot be predicted. Also, as discussed above,
permits from a variety of regulatory authorities are required for many
aspects of mine operation and reclamation. In the context of
environmental permitting, including the approval of reclamation plans,
the Company must comply with known standards, existing laws and
regulations that may entail greater or lesser costs and delays
depending on the nature of the activity to be permitted and how
stringently the regulations are implemented by the permitting
authority.
The Company is not presently aware of any specific material
environmental constraint affecting its properties that would preclude
the economic development or operation of any specific property.
However, the general obstructionist regulatory environment within the
United States impedes development of its properties and the Company
plans to do limited work in the United States, unless metal prices rise
significantly or the regulatory environment grows dramatically more
favorable to industry.
At present, the Company does not have any environmental control
facilities. Thus, the Company has not made any material capital
expenditures for environmental controls, other than the nominal costs
of preparing the plans and contingencies for such environmental
controls, measures and facilities as may be required in its future
activities.
If the Company becomes more active on its U.S. properties, it is
reasonable to expect that compliance with environmental regulations
will increase costs to the Company. Such compliance may include
feasibility studies on the surface impact of the Company's proposed
operations; costs associated with minimizing surface impact; water
treatment and protection; reclamation activities, including
rehabilitation of various sites; on-going efforts at alleviating the
mining impact on wildlife; and permits or bonds as may be required to
ensure the Company's compliance with applicable regulations. It is
<PAGE> 12
possible that the costs and delays associated with such compliance
could become so prohibitive that the Company may decide to not proceed
with the exploration, development, or mining operations on any of its
mineral properties.
OFFSHORE REGULATION.
The Company is aware of comparable environmental regulation in
offshore countries where it was operating. The Company was committed
to full compliance with these regulations and engaged legal counsel in
Mexico, Chile and Argentina who assisted the Company to assure
compliance.
OFFICES
The Company's executive office is located at 6 East Rose Street,
Walla Walla, Washington 99362. The Company sub-leases its office from
one of its officers for $300.00 per month.
EMPLOYEES
The Company has no employees. The Company, therefore, arranges
for its work through contracts with various consultants. The Company
may contract with additional consultants from time to time, as required
by its operations. Consultants are treated as independent contractors.
CENTURION'S ACQUISITION AND CONTROL OF THE COMPANY
In October 1991, Centurion entered into negotiations with the
officers and directors of the Company for the acquisition and control
of the Company. In November 1991, Centurion's Board of Directors
approved this acquisition. Subsequently, Centurion entered into
subscription and investment agreements with several of the Company's
principal shareholders, whereby Centurion exchanged 174,743
"restricted" shares of Centurion stock and $1,600 cash for shares of
Company common stock constituting 37.2% ownership of the Company's
outstanding shares. On January 10, 1992, the Company's Board of
Directors authorized the exchange of 100,000 post-split shares of the
Company's common stock for approximately 4,196 acres of unpatented
mining claims and state and private mineral leases from Centurion. On
January 31, 1992, at the Company's Annual Shareholders Meeting, the
shareholders authorized the purchase of approximately 17,000 acres of
mining properties from Centurion for 1,250,000 post-split shares of
Company common stock. This acquisition of shares gave Centurion an
82.3% controlling interest in the Company. The Company does not
believe that Centurion's successor company owns any shares as of
September 30, 1999.
SUBSIDIARIES
The Company currently has four subsidiaries: Celebration Mining
Company, of which the Company currently is the sole shareholder, was
incorporated in the State of Washington in February 1994; Minera Plata
Real, Mexico, which was incorporated in March 1997 and of which the
Company is the principal shareholder; Minera Plata Real, Argentina,
<PAGE> 13
which was incorporated in March 1997 and of which the Company is the
principal shareholder; and, Minera Plata Real, Chile, which was
incorporated in June 1997 and of which the Company is the principal
shareholder.
ACQUISITION AND DISPOSITION OF MINERAL PROPERTIES.
On January 10 and January 31, 1992, the Company obtained from
Centurion a total of 23,300 acres of unpatented mining claims, and
state and private mineral leases in exchange for the equivalent of
1,350,000 post-split shares of Company common stock.
UNPATENTED MINING CLAIMS/STATE LEASES.
The Company continues to hold unpatented claims in Shoshone
County, Idaho.
GLOSSARY OF CERTAIN MINING TERMS.
ACID MINE DRAINAGE Acidic run-off water from mine waste dumps and
mill tailings ponds containing sulfide
minerals. Also refers to ground water pumped
to surface from mines.
ADIT An opening driven horizontally into the side
of a mountain or hill for providing access to
a mineral deposit.
ALTERATION Any physical or chemical change in a rock or
mineral subsequent to its formation. Milder
and more localized than metamorphism.
ANTICLINE An arch or fold in layers of rock shaped like
the crest of a wave.
ASSAY A chemical test performed on a sample of ores
or minerals to determine the amount of
valuable metals contained.
BACKFILL Waste material used to fill the void created
by mining an orebody.
BALL MILL A steel cylinder filled with steel balls into
which crushed ore is fed. The ball mill is
rotated, causing the balls to cascade and
grind the ore.
BASEMENT ROCKS The underlying or older rock mass. Often
refers to rocks of Precambrian age which may
be covered by younger rocks.
BASE METAL Any non-precious metal (e.g. copper, lead,
zinc, nickel, etc.).
BEDDING The arrangement of sedimentary rocks in
layers.
<PAGE> 14
BLOCK CAVING An inexpensive method of mining in which large
blocks of ore are undercut, causing the ore to
break or cave under its own weight.
BRECCIA A rock in which angular fragments are
surrounded by a mass of fine-grained minerals.
BULK MINING Any large-scale, mechanized method of mining
involving many thousands of tons of ore being
brought to surface per day.
CATHODE A rectangular plate of metal, produced by
electrolytic refining, which is melted into
commercial shapes such as wirebars, billets,
ingots, etc.
CHALCOCITE A sulfide mineral of copper common in the zone
of secondary enrichment.
CHANNEL SAMPLE A sample composed of pieces of vein or mineral
deposit that have been cut out a small trench
or channel, usually about ten cm wide and two
cm deep.
CHUTE An opening, usually constructed of timber and
equipped with a gate, through which ore is
drawn from a stope into mine cars.
COMPLEX ORE An ore containing a number of minerals of
economic value. The term often implies that
there are metallurgical difficulties in
liberating and separating the valuable metals.
CONE CRUSHER A machine which crushes ore between a gyrating
cone or crushing head and an inverted,
truncated cone known as a bowl.
CONCENTRATE A fine, powdery product of the milling process
containing a high percentage of valuable
metal.
CONGLOMERATE A sedimentary rock consisting of rounded,
water-worn pebble or boulders cemented into a
solid mass.
CONTACT A geological term used to describe the line or
plane along which two different rock
formations meet.
CORE The long cylindrical piece of rock, about an
inch in diameter, brought to surface by
diamond drilling.
<PAGE> 15
CROSSCUT A horizontal opening driven from a shaft and
(or near) right angles to the strike of a vein
or other orebody.
CUT-AND-FILL A method of stoping in which ore is removed in
slices, or lifts, and then the excavation is
filled with rock or other waste material
(backfill), before the subsequent slice is
extracted.
CYANIDATION A method of extracting exposed gold or silver
grains from crushed or ground ore by
dissolving it in a weak cyanide solution. May
be carried out in tanks inside a mill or in
heaps of ore out of doors.
DECLINE An underground passageway connecting one or
more levels in a mine, providing adequate
traction for heavy, self-propelled equipment.
Such underground openings are often driven in
an upward or downward spiral, much the same as
a spiral staircase.
DEVELOPMENT Work carried out for the purpose of opening up
a mineral deposit and making the actual ore
extraction possible.
DEVELOPMENT
DRILLING Drilling to establish accurate estimates of
mineral reserves.
DIAMOND DRILL A rotary type of rock drill that cuts a core
of rock that is recovered in long cylindrical
sections, two centimeters or more in diameter.
DILUTION (mining) Rock that is, by necessity, removed along with
the ore in the mining process, subsequently
lowering the grade of the ore.
DIP The angle at which a vein, structure or rock
bed is inclined from the horizontal as
measured at right angles to the strike.
DISSEMINATED ORE Ore carrying small particles of valuable
minerals spread more or less uniformly through
the hose rock.
DORE Unparted gold and silver poured into molds
when molten to form buttons or bars. Further
refining is necessary to separate the gold and
silver.
DRIFT A horizontal underground opening that follows
along the length of a vein or rock formation
as opposed to a cross-cut which crosses the
rock formation.
<PAGE> 16
DRILL-INDICATED
RESERVES The size and quality of a potential orebody as
suggested by widely spaced drill holes; more
work is required before reserves can be
classified as probable or proven.
DUE DILIGENCE The degree of care and caution required before
making a decision; loosely, a financial and
technical investigation to determine whether
an investment is sound.
ELECTROLYTIC
REFINING The process of purifying metal ingots that are
suspended as anodes in an electrolytic bath,
alternated with refined sheets of the same
metal which act as starters or cathodes.
ENVIRONMENTAL
IMPACT STUDY A written report, compiled prior to a
production decision, that examines the effects
proposed mining activities will have on the
natural surroundings.
EPITHERMAL DEPOSIT A mineral deposit consisting of veins and
replacement bodies, usually in volcanic or
sedimentary rocks, containing precious metals,
or, more rarely, base metals.
EXPLORATION Work involved in searching for ore, usually
by drilling or driving a drift.
FACE The end of a drift, crosscut or stope in which
work is taking place.
FISSURE An extensive crack, break or fracture in
rocks.
FLOAT Pieces of rock that have been broken off and
moved from their original location by natural
forces such as frost or glacial action.
FLOTATION A milling process in which valuable mineral
particles are induced to become attached to
bubbles and float, and others sink.
FOOTWALL The rock on the underside of a vein or ore
structure.
FRACTURE A break in the rock, the opening of which
allows mineral bearing solutions to enter. A
"cross-fracture" is a minor break extending at
more-or-less right angles to the direction of
the principal fractures.
<PAGE> 17
FREE MILLING Ores of gold or silver from which the precious
metals can be recovered by concentrating
methods without resort to pressure leaching or
other chemical treatment.
GALENA Lead sulfide, the most common ore mineral of
lead.
GOSSAN The rust-colored capping or staining of a
mineral deposit, generally formed by the
oxidation or alteration of iron sulfides.
GRAB SAMPLE A sample from a rock outcrop that is assayed
to determine if valuable elements are
contained in the rock. A grab sample is not
intended to be representative of the deposit,
and usually the best-looking material is
selected.
GRADE The average assay of a ton of ore, reflecting
metal content.
HANGINGWALL The rock on the upper side of a vein or ore
deposit.
HEAD GRADE The average grade of ore fed into a mill.
HEAP LEACHING A process involving the percolation of a
cyanide solution through crushed ore heaped on
an impervious pad or base to dissolve minerals
or metals out of the ore.
HIGH GRADE Rich ore. As a verb, it refers to selective
mining of the best ore in a deposit.
HOST ROCK The rock surrounding an ore deposit.
HYDRO METALLURGY The treatment of ore by wet processes (e.g.,
leaching) resulting in the solution of a metal
and its subsequent recovery.
INTRUSIVE A body of igneous rock formed by the
consolidation of magma intruded into other
rocks, in contrast to lavas, which are
extruded upon the surface.
LAGGING Planks or small timbers placed between steel
ribs along the roof of a stope or drift to
prevent rocks from falling, rather than to
support the main weight of the overlying
rocks.
LENS Generally used to describe a body of ore that
is thick in the middle and tapers towards the
ends.
<PAGE> 18
LEVEL The horizontal openings on a working horizon
in a mine; it is customary to work mines from
a shaft, establishing levels at regular
intervals, generally about 50 meters or more
apart.
LIMESTONE A bedded, sedimentary deposit consisting
chiefly of calcium carbonate.
LODE A mineral deposit in solid rock.
METAMORPHIC ROCKS Rocks which have undergone a change in texture
or composition as the result of heat and/or
pressure.
MILL A processing plant that produces a concentrate
of the valuable minerals or metals contained
in an ore. The concentrate must then be
treated in some other type of plant, such as a
smelter, to affect recovery of the pure metal.
MILLING ORE Ore that contains sufficient valuable mineral
to be treated by the milling process.
MINEABLE RESERVES Ore reserves that are known to be extractable
using a given mining plan.
MINERAL A naturally occurring homogeneous substance
having definite physical properties and
chemical composition and, if formed under
favorable conditions, a definite crystal form.
MINERALIZED MATERIAL
OR DEPOSIT A mineralized body which has been delineated
by appropriate drilling and/or underground
sampling to support a sufficient tonnage and
average grade of metal(s). Under SEC
standards, such a deposit does not qualify as
a reserve until a comprehensive evaluation,
based upon unit cost, grade, recoveries, and
other factors, conclude economic feasibility.
MUCK Ore or rock that has been broken by blasting.
NATIVE METAL A metal occurring in nature in pure form,
uncombined with other elements.
NET PROFIT
INTEREST A portion of the profit remaining after all
charges, including taxes and bookkeeping
charges (such as depreciation) have been
deducted.
NET SMELTER RETURN A share of the net revenues generated from the
sale of metal produced by a mine.
<PAGE> 19
OPEN PIT A mine that is entirely on surface. Also
referred to as open-cut or open-cast mine.
ORE Material that can be mined and processed at a
positive cash flow.
ORE PASS Vertical or inclined passage for the downward
transfer of ore connecting a level with the
hoisting shaft or a lower level.
OREBODY A natural concentration of valuable material
that can be extracted and sold at a profit.
ORE RESERVES The calculated tonnage and grade of
mineralization which can be extracted
profitably; classified as possible, probable
and proven according to the level of
confidence that can be placed in the data.
ORESHOOT The portion, or length, of a vein or other
structure, that carries sufficient valuable
mineral to be extracted profitably.
OXIDATION A chemical reaction caused by exposure to
oxygen that results in a change in the
chemical composition of a mineral.
PARTICIPATING
INTEREST A company's interest in a mine, which entitles
it to a certain percentage of profits in
return for putting up an equal percentage of
the capital cost of the project.
PATENT The ultimate stage of holding a mineral claim
in the United States, after which no more
assessment work is necessary because all
mineral rights have been earned.
PATENTED MINING
CLAIM A parcel of land originally located on federal
lands as an unpatented mining claim under the
General Mining Law, the title of which has
been conveyed from the federal government to a
private party pursuant to the patenting
requirements of the General Mining Law.
PILLAR A block of solid ore or other rock left in
place to structurally support the shaft, walls
or roof of a mine.
PORPHYRY Any igneous rock in which relatively large
crystals, called phenocrysts, are set in a
fine- grained groundness.
<PAGE> 20
PRECAMBRIAN SHIELD The oldest, most stable regions of the Earth's
crust, the largest of which is the Canadian
Shield.
PROSPECT A mining property, the value of which has not
been determined by exploration.
PROVEN AND PROBABLE
MINERAL RESERVES Reserves that reflect estimates of the
quantities and grades of mineralized material
at a mine which the Company believes could be
recovered and sold at prices in excess of the
cash cost of production. The estimates are
based largely on current costs and on
projected prices and demand for such
mineralized material. Mineral reserves are
stated separately for each such mine, based
upon factors relevant to each mine. Proven and
probable mineral reserves are based on
calculations of reserves provided by the
operator of a property that have been reviewed
but not independently confirmed by the
Company. Changes in reserves represent general
indicators of the results of efforts to
develop additional reserves as existing
reserves are depleted through production.
Grades of ore fed to process may be different
from stated reserve grades because of
variation in grades in areas mined from time
to time, mining dilution and other factors.
Reserves should not be interpreted as
assurances of mine life or of the
profitability of current or future operations.
PROBABLE RESERVES Resources for which tonnage and grade and/or
quality are computed primarily from
information similar to that used for proven
reserves, but the sites for inspection,
sampling and measurement are farther apart or
are otherwise less adequately spaced. The
degree of assurance, although lower than that
for proven reserves, is high enough to assume
continuity between points of observation.
PROVEN RESERVES Resources for which tonnage is computed from
dimensions revealed in outcrops, trenches,
workings or drill holes and for which the
grade and/or quality is computed from the
results of detailed sampling. The sites for
inspection, sampling and measurement are
spaced so closely and the geologic character
is so well defined that size, shape, depth and
mineral content of reserves are well
established. The computed tonnage and grade
are judged to be accurate, within limits which
are stated, and no such limit is judged to be
different from the computed tonnage or grade
by more than 20%.
<PAGE> 21
RAISE A vertical or inclined underground working
that has been excavated from the bottom
upward.
RAKE The trend of an orebody along the direction of
its strike.
RECLAMATION The restoration of a site after mining or
exploration activity is completed.
RECOVERY The percentage of valuable metal in the ore
that is recovered by metallurgical treatment.
REPLACEMENT ORE Ore formed by a process during which certain
minerals have passed into solution and have
been carried away, while valuable minerals
from the solution have been deposited in the
place of those removed.
RESERVES That part of a mineral deposit which could be
economically and legally extracted or produced
at the time of the reserve determination.
Reserves are customarily stated in terms of
"Ore" when dealing with metalliferous
minerals.
RESOURCE The calculated amount of material in a mineral
deposit, based on limited drill information.
RIB SAMPLES Ore taken from rib pillars in a mine to
determine metal content.
ROCKBOLTING The act of supporting openings in rock with
steel bolts anchored in holes drilled
especially for this purpose.
ROCKBURST A violent release of energy resulting in the
sudden failure of walls or pillars in a mine,
caused by the weight or pressure of the
surrounding rocks.
ROCK MECHANICS The study of the mechanical properties of
rocks, which includes stress conditions around
mine openings and the ability of rocks and
underground structures to withstand these
stresses.
ROOM-AND-PILLAR
MINING A method of mining flat-lying ore deposits in
which the mined-out area, or rooms, are
separated by pillars of approximately the same
size.
ROTARY DRILL A machine that drills holes by rotating a
rigid, tubular string of drill rods to which
is attached a bit. Commonly used for drilling
large-diameter blast holes in open pit mines.
<PAGE> 22
ROYALTY An amount of money paid at regular intervals
by the lessee or operator of an exploration or
mining property to the owner of the ground.
Generally based on a certain amount per ton or
a percentage of the total production or
profits. Also, the fee paid for the right to
use a patented process.
RUN-OF-MINE A loose term used to describe ore of average
grade.
SAMPLE A small portion of rock or a mineral deposit,
taken so that the metal content can be
determined by assaying.
SECONDARY
ENRICHMENT Enrichment of a vein or mineral deposit by
minerals that have been taken into solution
from one part of the vein or adjacent rocks
and redeposited in another.
SHAFT A vertical or steeply inclined excavation for
the purpose of opening and servicing a mine.
It is usually equipped with a hoist at the top
which lowers and raises a conveyance for
handling personnel and materials.
SHEAR OR SHEARING The deformation of rocks by lateral movement
along numerous parallel planes, generally
resulting from pressure and producing such
metamorphic structures as cleavage and
schistosity.
SHRINKAGE STOPING A stoping method which uses part of the broken
ore as a working platform and as support for
the walls of the stope.
SIDERITE Iron carbonate, which when pure, contains
48.2% iron; must be roasted to drive off
carbon dioxide before it can be used in a
blast furnace. (Roasted product is called
sinter.)
SKARN Name for the metamorphic rocks surrounding an
igneous intrusive where it comes in contact
with a limestone or dolomite formation.
SOLVENT EXTRACTION-
ELECTRO WINNING
(SX/EW) A metallurgical technique, so far applied only
to copper ores, in which metal is dissolved
from the rock by organic solvents and
recovered from solution by electrolysis.
SPHALERITE A zinc sulfide mineral; the most common ore
mineral of zinc.
<PAGE> 23
STEP-OUT DRILLING Holes drilled to intersect a mineralized
horizon or structure along strike or down dip.
STOCKPILE Broken ore heaped on the surface, pending
treatment or shipment.
STOPE An underground excavation from which ore has
been extracted either above or below mine
level.
STRATIGRAPHY Strictly, the description of bedded rock
sequences; used loosely, the sequence of
bedded rocks in a particular area.
STRIKE The direction, or bearing from true north, of
a vein or rock formation measured on a
horizontal surface.
STRINGER A narrow vein or irregular filament of a
mineral or minerals traversing a rock mass.
STRIPPING RATIO The ratio of tons removed as waste relative to
the number of tons of ore removed from an open
pit mine.
SUBLEVEL A level or working horizon in a mine between
main working levels.
SULFIDE A compound of sulfur and some other element.
TAILINGS Material rejected from a mill after more of
the recoverable valuable minerals have been
extracted.
TAILINGS POND A low-lying depression used to confine
tailings, the prime function of which is to
allow enough time for heavy metals to settle
out or for cyanide to be destroyed before
water is discharged into the local watershed.
TREND The direction, in the horizontal plane, or a
linear geological feature (for example, an ore
zone), measured from true north.
TROY OUNCE Unit of weight measurement used for all
precious metals. The familiar 16-ounce
avoirdupois pound equals 14.583 Troy Ounces.
UNPATENTED
MINING CLAIM A parcel of property located on federal lands
pursuant to the General Mining Law and the
requirements of the state in which the
unpatented claim is located, the paramount
title of which remains with the federal
government. The holder of a valid,
<PAGE> 24
unpatented lode mining claim is granted
certain rights including the right to explore
and mine such claim under the General Mining
Law.
VEIN A mineralized zone having a more or less
regular development in length, width and depth
which clearly separates it from neighboring
rock.
VOLCANO GENIC A term used to describe the volcanic origin of
mineralization.
VUG A small cavity in a rock, frequently lined
with well-formed crystals. Amethyst commonly
forms in these cavities.
WALL ROCKS Rock units on either side of an orebody. The
hanging-wall and footwall rocks of an orebody.
WASTE Barren rock in a mine, or mineralized material
that is too low in grade to be mined and
milled at a profit.
WINZE An internal shaft.
ZONE OF OXIDATION The portion of an orebody that has been
oxidized, usually in the upper portion of the
ore zone.
ITEM 2. MINERAL PROPERTIES
Vipont Mine
The Vipont Mine, which is owned by Celebration Mining Company, is
located in the Ashbrook Mining District, a remote area in the extreme
northwestern corner of Box Elder County, Utah, approximately ten miles
east of the Nevada state line and one mile south of the Idaho state
line near the headwaters of the Little Birch Creek. It is accessible
by asphalt, gravel, and dirt roads. The mine property consists of 53
patented (deeded) mining claims covering nearly 1,000 acres with a 25%
undivided interest owned by Celebration Mining Company (a wholly-owned
subsidiary of the Company.)
The Vipont Mine was at one time one of the foremost silver-
producing mines in the State of Utah. Its greatest period of activity
was from 1919 through mid-1923 after the passage of the Pittman Silver
Purchase Act ("Pittman Act") which authorized the purchase of
200,000,000 ounces of silver. The Mine closed in August 1923 with the
expiration of the Pittman Act after producing nearly 1,000,000 ounces
of silver per year. Some leasing was done in the 1930's and the Mine
was closed in 1942 when Congress passed War Order L-208 closing all
gold and silver mines. From 1977 through 1987, United Silver Mines
began further development and leached the old mill tailings.
The mineralization in the Mine occurs predominantly as the mineral
argentite in the Vipont limestone. Two other units, the Phelan
limestone, and the Sentinel limestone have produced high-grade ore.
Neither the Phelan nor the Sentinel have been seriously explored for
additional ore.
<PAGE> 25
The mineralization in the Vipont limestone occurs as a continuous
tabular "manto" mineralized body in the crests of folds (crenulations)
superimposed upon a shallowly dipping (22 degrees) syncline. The
continuity of the mineral down-dip has been shown by past mining
operations and by a line of drill holes below the old workings. It is
thought by geologists that the mineralization will continue to down-dip
toward an igneous intrusive 4,600 feet southwest of the old mine.
There are two distinct mineralized deposits on the Vipont
Property: the oxide deposit and the sulfide deposit. The
characteristics of each are unique and require different approaches to
development and exploration. According to a 1994 report by Dr. Armond
H. Beers, the oxide deposit contains 1,100,000 tons of mineralized
material grading 6.9 ounces per ton in silver and with a small gold
credit. The Company has not independently re-verified those findings
and cannot and does not make any assurance as to their accuracy or
compliance with regulatory standards.
The sulfide deposit is currently defined in the Beers Report as
478,000 tons of mineralized material at an estimated average grade of
13.52 ounces per ton in silver. Geologic interpretation of the manto-
type replacement deposit, however, may establish upon further
exploration that this mineralized resource may be larger. The
Company's management and professional staff believe that the sulfide
deposits will represent the long-term future of the Vipont Mine.
During the 1996 fiscal year, the Company elected not to proceed
further with the Vipont joint venture, but as a result of the Company's
successful effort at removing all liens on the property at a Box Elder
County Sheriff's sale, the Company's wholly-owned subsidiary now owns a
25% undivided interest in the property. The company has no plans to
proceed further with the Vipont until such time as silver prices
improve significantly.
The Company is also a defendant in a lawsuit filed by Thomas F.
Miller (et al.), in the First Judicial Court in and for Box Elder
County, State of Utah. The suit, which alleges that the Company failed
to transfer common stock in exchange for a mining interest, asks for
actual and punitive damages. The Company believes that this lawsuit is
without merit and has filed a countersuit alleging fraudulent
misrepresentation. The Company is seeking both full title to the
aforementioned mineral property and punitive damages, and believes its
countersuit will prevail.
In the second fiscal quarter of 1999, the Box Elder County, First
Judicial Court dismissed all of Mr. Miler's claims on a summary
judgment motion and left standing only the Company's counterclaims. In
June 1999, Mr. Miller et al. filed an appeal to the Utah Supreme Court,
which has stayed all further action on the Company's counterclaims.
Shoshone County Claims
The Company continues to hold nine unpatented mining claims in
Shoshone County, Idaho which lie immediately adjacent to the holdings
of Sterling Mining Company just south of the Galena Mine, which is
owned and operated by Coeur d' Alene Mines.
<PAGE> 26
Utah Properties and Royalty Interests.
The Company is not currently involved in active exploration with
respect to any of the property holdings or royalty interests within the
Utah Gold Belt. During Fiscal 1997, the Company engaged an independent
geologist to evaluate the mineral potential of the Company's holdings.
Based upon his recommendations, the company dropped some property and
has retained only claims and leases which are subject to a royalty from
Kennecott Copper.
ITEM 3. LEGAL PROCEEDINGS
The Officers and Directors of the Company certify that to the best
of their knowledge, neither the Company nor any of its Officers and
Directors are parties to any legal proceeding or litigation. Further,
the Officers and Directors know of no threatened or contemplated legal
proceedings or litigation with the exception of the following:
(1) The Company 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.
(2) 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. In October of 2000, the company elected to terminate
this action by quit claiming any interest in the leave in recharge for
receiving all the Fawcett's shares in the Company back. The company
then withdraw the suit.
None of the Officers and Directors have been convicted of a felony
or none have been convicted of any criminal offense, felony and
misdemeanor relating to securities or performance in corporate office.
To the best of the knowledge of the Officers and Directors, no
investigations of felonies, misfeasance in office or securities
investigations are either pending or threatened at the present time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There has been no vote of security holders during the annual
period ended September 30, 2000.
<PAGE> 27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common shares are traded on the Bulletin Board
Operated by the National Association of Securities Dealers, Inc. under
the symbol "RSMI." The prices listed below were obtained from the
National Quotation Bureau, Inc., and are the highest and lowest bids
reported during each fiscal quarter for the period December 31, 1994,
through September 30, 2000. These bid prices are over-the-counter
market quotations based on inter-dealer bid prices, without markup,
markdown, or commission and may not necessarily represent actual
transactions:
Fiscal Quarter Ended High Bid($) Low Bid ($)
-------------------- --------- -----------
December 31, 1997 0.62 0.56
March 31, 1998 0.45 0.42
June 30, 1998 0.20 0.18
September 30, 1998 0.10 0.09
December 31, 1998 0.09 0.035
March 31, 1999 0.1875 0.0625
June 30, 1999 0.20 0.10
September 30, 1999 0.12 0.09
December 31, 1997 0.09 0.05
March 31, 2000 0.10 0.06
June 30, 2000 0.12 0.08
September 30, 2000 0.09 0.05
On December 15, 2000, the average of the high bid and low ask
quotation for the Company's common shares as quoted on the Bulletin
Board was $0.04.
The approximate number of holders of common stock of record on
December 15, 2000, was approximately 382.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included in the following table have
been derived from and should be read in conjunction with and are
qualified by the Company's financial statements and notes set forth
elsewhere in this report. Historical financial data for certain
periods may be derived from financial statements not included herein.
09/30/99 09/30/98 09/30/97 09/30/96 09/30/95
(Audited) (Audited) (Audited) (Audited) (Audited)
Statement of Operations and
Accumulated Deficit Data:
Revenues $ 0 $ 0 $ 0 $ 0 $ 0
Operating
Expenses $ 355,528 $ 1,063,715 $ 1,558,823 $ 1,835,548 $ 962,735
Net loss $(2,991,050) $(2,637,568) $(1,770,771) $(2,045,082) $ (962,735)
Net Loss
per share $ (0.15) $ (0.16) $ (0.14) $ (0.22) $ (0.15)
Balance Sheet Data:
Work Capital
(Deficit) $ (93,456) $ 303,600 $ 671,355 $ 686,573 $ (665,274)
Total Assets $ 1,296,126 $ 3,982,592 $ 5,891,527 $ 5,605,357 $4,056,698
Long-term Debt $ 0 $ 0 $ 0 $ 0 $ 0
Stockholders'
Equity $ 1,174,523 $ 3,913,777 $ 5,850,186 $ 5,485,490 $3,235,376
<PAGE> 28
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.
There is considerable risk in any mining venture, and there can be
no assurance that the Company's operations will be successful or
profitable. Exploration for commercially mineable ore deposits is
highly speculative and involves risks greater than those involved in
the discovery of mineralization. Mining companies use the evaluation
work of professional geologists, geophysicists, and engineers in
determining whether to acquire an interest in a specific property, or
whether or not to commence exploration or development work. These
estimates are not always scientifically exact, and in some instances
result in the expenditure of substantial amount of money on a property
before it is possible to make a final determination as to whether or
not the property contains economically minable ore bodies. The economic
viability of a property cannot be finally determined until extensive
exploration and development work, plus a detailed economic feasibility
study, has been performed. Also, the market prices for mineralization
produced are subject to fluctuation and uncertainty, which may
negatively affect the economic viability of properties on which
expenditures have been made. During the development stage of the
Company, from inception to September 30, 2000, the Company accumulated
a deficit of $10,885,466.
At September 30, 2000, $698,847 of the Company's total assets of
$969,254 were investments in mineral properties. Additional exploration
is required to substantiate or determine whether these mineral
properties contain ore reserves that are economically recoverable. The
realization of these investments is dependent upon the success of
future property sales, the existence of economically recoverable
reserves, the ability of the Company to obtain financing, the Company's
success in carrying out its present plans or making other arrangements
for development, and upon future profitable production. The ultimate
outcome of these investments cannot be determined at this time;
accordingly, no provision for any asset impairment that may result, in
the event the Company is not successful in developing or selling these
properties, has been made in the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES.
The Company currently has no revenues but, as explained above, has
an accumulated deficit. Because of its recurring losses from
operations, the Company cannot assure that it will be able to fully
carry out its plans as budgeted without additional operating capital.
At September 30, 2000, the Company had negative working capital of
$78,422. This amount represents slight improvement from the negative
working capital of $93,456 at September 30, 1999, but severe
deterioration from the positive working capital of $303,600 at
September 30, 1998 and of $671,355 at September 30, 1997.
In the year ending September 30, 1999, the Company's working
capital decreased by $397,056 primarily because of decreased cash
received by the Company from its sales of common stock, while in the
year ending September 30, 2000, the Company's negative working capital
did not change appreciably. During the twelve-month period just ended,
the Company's cash decreased from $28,147 to $15,915 while the
<PAGE> 29
Company's notes receivable and investments both increased very
substantially. In this same twelve month period, the Company issued
stock to related parties and sold investments in order to generate
needed cash.
In fiscal year 2000, the Company's current liabilities decreased
by $12,488 primarily due to a payment of $40,000 on advances from
related parties and a build-up in accounts payable from the September
30, 1999 level. The Company's current liabilities of $109,115 at
September 30, 2000 represent a favorable decrease from the Company's
current liabilities of $121,603 at September 30, 1999. The Company has
no long-term debt. The Company has estimated that it will need minimal
capital resources of approximately $20,000 per month to meet its
estimated expenditures for fiscal year 2000. During the last three
years, management met wit experienced financial and investment firms
throughout Europe and North America and negotiated arrangement s for
capital fund raising. During the fiscal year ending September 30, 1997,
the Company raised $1,843,750 in funds primarily through the private
placement of shares and warrants. In fiscal 1998, the Company raised
$299,499 in cash and $700,000 in notes, primarily through the private
placement of shares. es. In subsequent years, consistent with the
depressed market for metals prices, the Company raised only $158,200
from sales of its common stock in fiscal 1999 and no cash in fiscal
2000. 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. Ho ever, the Company
plans to fund any increases in general and administrative expense
principally from joint venture revenues or private placement funds.
Financing for the Company's exploration and development of mineral
properties is expected to come primarily from the contributions of its
joint venture participants and from the funds generated from such joint
ventures and other lease or royalty arrangements.
The Company consistently has made full and timely payment of its
expenses, in particular to the various governmental payees it interacts
with, and has met its obligations to the entities which provide its
personnel, office space, and equipment needs.
The Company currently is seeking alternate sources of working
capital sufficient to increase the funding of additional general and
administrative expenses that in become necessary as the Company's
business plan develops, and to continue meeting its ongoing payment
obligations for its leases to governmental entities.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED SEPTEMBER 30, 1999 AND SEPTEMBER 30, 2000,
RESPECTIVELY.
General and administrative expenses decreased from $279,529 during
fiscal 1999 to $112,361 during fiscal 2000. This decrease is
principally due to decreased salaries and a decrease in the cost of
fund-raising associated with the Company's private placements of its
stock. Also, during the twelve months of fiscal 1999, the Company
incurred officers/directors compensation of $41,500 while such
<PAGE> 30
compensation expenses were reduced to $22,000 in the twelve months of
fiscal 2000. As a principal result of tie Company's cost reduction
efforts in fund-raising and compensation, total expenses of $355,258
for fiscal 11999 decreased to $152,983 (total expenses) in fiscal 2000.
In fiscal 1998, the Company sold some patented mining properties
for common stock and also sold a working interest in a minerals
exploration joint venture in exchange for stock and a promissory note.
These two transactions resulted in gains of $1,860,312 in fiscal 1998.
There were no comparable transactions in 199 9 or in 2000.
In the last quarter of fiscal 1998, the Company elected to
withdraw from most of its foreign mineral concessions and accordingly
recorded losses of $592,065 by writing off its exploration properties
in Chile, Argentina and Mexico. In the same quarter, the Company
elected to sell its Conjecture Mine in Washington State and incurred a
loss of $830,700 on this disposition.
Also in the fourth quarter of fiscal 1998, the value of the
Company's common stock investment in Grand Central Silver Mines, Inc.
dropped significantly and the Company posted a loss of $1,997,812 on
the decreased value of its mineral property investments.
In the second and third quarters of fiscal 1999, the Company
entered in a settlement arrangement with Grand Central Silver Mines,
Inc. wherein the effect of the transaction was to create an aggregate
loss of $1,057,581 from the related asset disposition. In the fourth
quarter of fiscal 1999, the Company elected to abandon its interest in
the Crescent Mine Idaho lease. The net effect of this abandonment was
to record a loss of $1,294,867.
In the fourth quarter of fiscal 2000, the Company concluded that
the carrying values of three of its mineral properties were not
recoverable and, accordingly, recorded a loss on impairment of
$251,947. There were no other large losses in fiscal 2000 associated
with investment or mineral properties.
The Company is unable to fully determine the impact of future
transactions on its operating capital. Hence, the Company has
determined not to incur and does not have any commitments or plans for
material capital expenditures in the near future for which it does not
have a reasonably available source of payment. It is uncertain what
effect this decision may have with respect to restricting capital
expenditures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements begin in following page.
Independent Auditor's Report . . . . . . . . F-1
Balance Sheets . . . . . . . . . . . F-2
Statements of Operations . . . . . . . . . F-3
Statements of Stockholders' Equity . . . . . . . F-4
Statements of Cash Flows . . . . . . . . . F-10
Notes to the Financial Statements . . . . . . . F-12
<PAGE> 31
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Walla Walla, Washington
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Royal Silver Mines,
Inc. (a development stage company) as of September 30, 2000 and 1999,
and the related statements of operations, stockholders' equity, and
cash flows for the years then ended, and from inception on February 17,
1994 through September 30, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Royal
Silver Mines, Inc. as of September 30, 2000 and 1999, and the results
of its operations and cash flows for the years then ended and from
inception on February 17, 1994 through September 30, 2000 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 14
to the financial statements, the Company's significant operating losses
raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
January 8, 2001
F-1
<PAGE> 32
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30,
2000 1999
ASSETS
CURRENT ASSETS
Cash $ 15,915 $ 28,147
Notes receivable 14,628 -
Deposit 150 -
------------ ------------
TOTAL CURRENT ASSETS 30,693 28,147
------------ ------------
MINERAL PROPERTIES 698,847 950,794
------------ ------------
PROPERTY AND EQUIPMENT
Mining equipment 8,343 196,389
Furniture and equipment 1,440 12,761
Less accumulated depreciation (6,497) (45,127)
------------ ------------
TOTAL PROPERTY AND EQUIPMENT 3,286 164,023
------------ ------------
OTHER ASSETS
Investments 236,428 153,162
------------ ------------
TOTAL ASSETS $ 969,254 $ 1,296,126
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 109,115 $ 77,603
Advances from related parties - 44,000
------------ ------------
TOTAL CURRENT LIABILITIES 109,115 121,603
------------ ------------
LONG TERM DEBT - -
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
23,992,065 and 20,299,565 shares
issued and outstanding, respectively 239,920 202,995
Additional paid-in capital 11,540,074 11,428,674
Deficit accumulated during
development stage (10,885,466) (10,457,146)
Accumulated other comprehensive income (34,389) -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 860,139 1,174,523
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 969,254 $ 1,296,126
============ ============
The accompanying notes are an integral part of these financial
statements.
F-2
<PAGE> 33
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
Period From
02/17/94
(Inception)
Year Ended September 30, Through
2000 1999 1998 09/30/00
REVENUES $ - $ - $ - $ -
---------- ------------ ------------ ------------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property
expense 10,182 3,736 276,476 569,624
Depreciation and
amortization 8,440 30,493 52,987 234,614
Officers' and directors'
compensation 22,000 41,500 117,652 1,416,760
General and
administrative 112,361 279,529 616,600 3,789,655
---------- ------------ ------------ ------------
Total expenses 152,983 355,258 1,063,715 6,010,653
---------- ------------ ------------ ------------
OPERATING LOSS (152,983) (355,258) (1,063,715) (6,010,653)
---------- ------------ ------------ ------------
OTHER INCOME (EXPENSES)
Interest income 324 24 27,582 58,955
Interest expense - - - (74,348)
Gain on property
interest sold - - 1,875,281 1,875,281
Loss on disposition
and impairment of
assets (275,661) (2,635,816) (3,476,716) (6,734,701)
---------- ------------ ------------ ------------
Total other income
(expense) (275,337) (2,635,792) (1,573,853) (4,874,813)
---------- ------------ ------------ ------------
LOSS BEFORE TAXES (428,320) (2,991,050) (2,637,568) (10,885,466)
INCOME TAXES - - - -
---------- ------------ ------------ ------------
NET LOSS (428,320) (2,991,050) (2,637,568) (10,885,466)
OTHER COMPREHENSIVE
INCOME (LOSS)
Unrealized gain (loss)
on market value of
investments (34,389) - - (34,389)
---------- ------------ ------------ ------------
COMPREHENSIVE LOSS $ (462,709) $ (2,991,050) $ (2,637,568) $(10,919,855)
========== ============ ============ ============
NET LOSS PER COMMON
SHARE BASIC AND
DILUTED $ (0.02) $ (0.15) $ (0.16) $ (0.82)
========== ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING, BASIC
AND DILUTED 21,211,151 19,615,730 16,348,120 13,394,948
========== ============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 34
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
--------- -------- ----------- ---------- ---------
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 35
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 29,43 - 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
Sept. 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
--------- -------- ----------- ---------- -----------
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 36
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
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
---------- --------- ----------- ------------ -----------
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 37
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
---------- --------- ------------ ------------ -----------
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 38
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT 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 - - -
---------- --------- ------------
Balance forward 21,749,565 $ 217,495 $ 11,428,674
---------- --------- ------------
The accompanying notes are an integral part of these financial statements.
F-8a
<PAGE> 39
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
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
---------- ------------ -----------
Balance forward $ - $ (7,466,096) $ 4,180,073
---------- ------------ -----------
The accompanying notes are an integral part of these financial statements.
F-8b
<PAGE> 40 ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional
Number Paid-in Subscription
of Shares Amount Capital Receivable
Balance forward 21,749,565 $ 217,495 $ 11,428,674 $ -
Shares returned to
treasury for cancellation
of receivable and exchange
of investments (1,450,000) (14,500) - -
Net loss for year ended
September 30, 1999 - - - -
---------- --------- ------------ ----
Balance,
September 30, 1999 20,299,565 202,995 11,428,674 -
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 -
Shares issued to officers
for investment at $0.04
per share 1,430,000 14,300 42,900 -
Net loss for the year
ended September 30,
2000 - - - -
---------- --------- ------------ ----
Balance,
September 30, 2000 23,992,065 $ 239,920 $ 11,540,074 $ -
========== ========= ============ ====
The accompanying notes are an integral part of these financial statements.
F-9a
<PAGE> 41
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Other Total
Accumulated Comprehensive Stockholders'
Deficit Income Equity
Balance forward $ (7,466,096) $ - $ 4,180,073
Shares returned to treasury
for cancellation of receivable
and exchange of investments - - (14,500)
Net loss for year ended
September 30, 1999 (2,991,050) - (2,991,050)
------------ -------- ------------
Balance,
September 30, 1999 (10,457,146) - 1,174,523
Shares issued to consultants
for services at $0.05
per share - - 3,125
Shares issued to officers for
debt at $0.04 per share - - 88,000
Shares issued to officers for
investment at $0.04 per share - - 57,200
Net loss for the year ended
September 30, 2000 (428,320) (34,389) (462,709)
------------ -------- ------------
Balance,
September 30, 2000 $(10,885,466) $(34,389) $ 860,139
============ ======== ============
The accompanying notes are an integral part of these financial statements.
F-9b
<PAGE> 42
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
From 02/17/94
For the Years Ended (Inception)
Through
2000 1999 1998 09/30/00
Cash flows from operating
activities:
Net loss $ (428,320) $ (2,991,050) $ (2,637,568) $ (10,885,466)
Adjustments to reconcile
net loss to net cash
used by operating
activities:
Investment given
for officers'
compensation 5,000 - - 5,000
Loss on sale of
equipment 86,284 - 12,585 98,869
Equipment traded
for services 4,137 - - 4,137
Depreciation and
amortization 8,440 30,493 45,649 229,823
Issuance of common
stock for services 3,125 108,229 206,658 1,380,071
Write-off of option
costs - - 517,871 517,871
Write off of joint
venture costs - - 10,000 160,000
Write-off of mineral
properties 251,947 1,323,617 1,097,737 2,673,301
Loss on devaluation
of investments - 1,123,247 1,997,813 3,121,060
Changes in assets and
liabilities:
Note receivable (14,628) 350,000 (250,000) (14,628)
Deposit (150) - - (150)
Interest receivable - 17,106 (9,523) -
Prepaid expenses - 2,162 5,831 (28,438)
Other assets - - - (9,801)
Mineral properties - - (4,674) (4,674)
Accounts payable 31,512 11,788 45,460 109,115
Accrued expenses - 41,000 (18,798) 43,188
Payable to related
parties 44,000 - - 344,000
---------- ------------ ------------ -------------
Net cash provided
(used) by operating
activities (8,653) 16,592 1,019,041 (2,256,722)
---------- ------------ ------------ -------------
Cash flows from investing
activities:
Purchase of
investments (152,752) (119,088) (2,934,062) (3,275,902)
Purchase and development
of mineral properties - (45,000) (185,690) (1,986,690)
Purchase of fixed assets - (112,500) (4,154) (325,687)
Sale of mineral properties - - 1,093,750 1,093,750
Sale of investments 149,173 141,429 70,000 360,602
Sale of fixed assets - - 5,185 5,685
---------- ------------ ------------ -------------
Net cash used in
investing activities (3,579) (135,159) (1,954,971) (4,128,242)
---------- ------------ ------------ -------------
The accompany notes are an integral part of these financial statements.
F-10
<PAGE> 43
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
From 02/17/94
For the Years Ended (Inception)
Through
2000 1999 1998 09/30/00
Net cash used in
investing activities
(balance forward) (3,579) (135,159) (1,954,971) (4,128,242)
---------- ------------ ------------ -------------
Cash flows from
financing activities:
Stock issuance and
offering costs - (14,633) - (189,468)
Proceeds received on
long-term debt - - - 675,000
Payments made on notes
payable - - - (174,206)
Issuance of common
stock for cash - 158,200 344,500 6,030,764
Issuance of common stock
for accrued interest - - - 38,158
Issuance of common stock
for extension of notes
payable maturation - - - 59,063
Payment for return of
stock issued for mining
property interest - - - (35,000)
Payment of joint
venture costs - - - (50,000)
Issuance of warrants
or warrants
extensions for cash - - - 46,568
---------- ------------ ------------ -------------
Net cash provided by
financing activities - 143,567 344,500 6,400,879
---------- ------------ ------------ -------------
Net increase (decrease)
in cash $ (12,232) $ 25,000 $ (591,430) $ 15,915
Cash,
beginning of period 28,147 3,147 594,577 -
---------- ------------ ------------ -------------
Cash,
end of period $ 15,915 $ 28,147 $ 3,147 $ 15,915
========== ============ ============ =============
Supplemental cash flow
disclosure:
Income taxes $ - $ - $ - $ 350
Interest $ - $ - $ 2,257 $ 25,655
Non-cash investing and
financing activities:
Common stock issued for
services rendered $ - $ 108,229 $ 206,658 $ 1,376,947
Common stock issued for
mineral properties$ - $ - $ 150,000 $ 3,190,626
Common stock issued for
exchange for debt $ - $ - $ - $ 922,950
Common stock issued in
acquisition of Consolidated
Royal Mines, Inc. $ - $ - $ - $ 360,096
Option rights acquired
in exchange for
a payable $ - $ - $ - $ 79,000
Common stock issued for
assignment of mining
property options $ - $ - $ - $ 4,000
Common stock issued
in exchange for
investments $ - $ 7,200 $ - $ 7,200
Common stock issued for
payment to related
party $ 88,000 $ - $ - $ 88,000
Investment given
for officers'
compensation $ 5,000 $ - $ - $ 5,000
<PAGE> 44
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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 $698,847 cost of mineral properties included in the accompanying
balance sheet as of September 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.
F-12
<PAGE> 45
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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 diluted loss per share because the exercise price of
the outstanding warrants is higher than the market price of the
stock, thereby causing the warrants to be antidilutive.
F-13
<PAGE> 46
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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 September 30, 2000, the Company had net operating loss
carryforwards of approximately $5,760,000 that may be offset against
future taxable operating income through 2015. Additionally, the
Company has capital loss carryovers of approximately $4,577,000. No
tax benefit has been reported in the financial statements as the
Company believes there is a significant chance the net operating and
capital loss carryforwards will expire unused. Accordingly, the
potential tax benefits of these 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, fiscal 1999, and fiscal 2000
the Company does not believe any further adjustments are needed to
the carrying value of its assets at September 30, 2000. See Note 3.
Financial Accounting Standards
The Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.
F-14
<PAGE> 47
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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 September 30, 2000, the Company has not engaged in any transactions that
would be considered derivative instruments or hedging activities.
Investments
Investments, consisting of equity securities of private and small public
companies, are stated at current market value.
Fair Value of Financial Instruments
The carrying amounts for cash, receivables, deposits, payables, and
advances from related parties approximate their fair value.
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.
F-15
<PAGE> 48
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
NOTE 3 - MINERAL PROPERTIES (Continued)
Utah Mining Property Joint Venture (Continued)
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.
In the fourth quarter of the year ended September 30, 2000, the Company
elected to write off all of its interests in three mineral properties,
which were known as Western Continental, Brush Prairie and Bismark.
The net effect of this write down was to record a loss on asset
impairment of $251,947.
* * *
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.
F-16
<PAGE> 49
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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. Depreciation expense for the years ended September 30, 2000, 1999
and 1998 was $8,400, $30,493 and $52,987, respectively.
NOTE 5 - INVESTMENTS
During the year ended September 30, 2000, the Company's securities
investments are classified as available for sale securities which are
recorded at fair value in investments and other assets on the balance
sheet, with the change in fair value during the period excluded from
earnings and recorded net of tax as a component of other comprehensive
income. The Company has no securities which are classified as trading
securities.
During 1999, certain investments were written down to their estimated
realizable value. The amount of the loss, $281,498, was charged to
operations in 1999.
At September 30, 2000 and 1999, the market values of investments were as
follows:
September 30, September 30,
2000 1999
Elite Logistics, Inc. $ 150,588 $ 101,127
Envirogold LLC 8,000 -
Rigid Airship USA, Inc. 3,100 31,002
Ashington Mining Company 7,200 7,200
Tintic Coalition Mines - 5,000
American Health Providers Corp. - 6,795
Metalline Mining Company 37,288 -
Minimally Invasive Surgery - 2,038
Advanced Process Technologies, Inc. 4,301 -
Sterling Mining Co. 5,951 -
Silver Belle Mining Co. 20,000 -
--------- ---------
$ 236,428 $ 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
<PAGE> 50
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
NOTE 5 INVESTMENTS (CONTINUED)
Grand Central Silver Mines, Inc. (Continued)
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).
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 tests 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 September 30, 2000, the Company's investment
in Metalline Mining Company stock had a market value of $37,288.
F-18
<PAGE> 51
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
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.
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.
F-19
<PAGE> 52
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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 year ended September 30, 2000, the Company issued 62,500
shares of common stock for services, 2,200,000 shares of common stock
for payment of related party payables and 1,430,000 shares of common
stock for investments. 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.
F-20
<PAGE> 53
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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 September 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. None of these warrants were exercised
before they expired.
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. None of the warrants were exercised before they
expired.
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 September 30, 2000, 1,455,000 options have been
granted under the plan although none have been exercised in the
period ending September 30, 2000. The old existing options are
attributed to the merger of Celebration Mining Company with Royal in
August 1995.
<PAGE> 54
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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 years ended
September 30, 1999 and 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 9/30/2000 1,200,000 $ 0.93
========= ======
Options exercisable at 9/30/2000 1,200,000 $ 0.93
========= ======
Weighted average fair value of
options granted during the
period ended 9/30/2000 $ -
=========
NOTE 9 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at September
30, 2000, and 1999:
F-22
<PAGE> 55
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
NOTE 9 - ADDITIONAL PAID-IN CAPITAL (Continued)
September 30, 2000 September 30, 1999
Applicable to:
Common Stock $ 11,493,506 $ 11,382,106
Stock Warrants 46,568 46,568
------------ ------------
$ 11,540,074 $ 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, 2000, 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.
F-23
<PAGE> 56
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2000
NOTE 11 - COMMITMENTS AND CONTINGENCIES
In July 1998, the Company filed an action in Federal Court in Boise,
Idaho for declaratory judgment regarding the validity of its Crescent
Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. In 1999, the Company elected to write off its
interest in the Crescent Mine mineral lease. Subsequent to September
30, 2000, the Company withdrew from the lawsuit and is no longer a
party to the action.
The Company sublets office space on a month to month basis from one
of its officers in Walla Walla, Washington for $300 per month. Total
rent paid for this office space during the year ended September 30,
2000 was $1,200.
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.
F-24
<PAGE> 57
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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. During the year ended September
30, 2000, 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 $423,320 for the year ended
September 30, 2000 and has an accumulated deficit of $10,880,466
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.
F-25
<PAGE> 58
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
September 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.
F-26
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There have been no disagreements on accounting and financial
disclosures from the inception of the Company through the date of this
Registration Statement.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and position of
each Officer and Director of the Company:
Name Age Position
Howard M. Crosby 48 President, Treasurer and a member of the
Board of Directors
John Ryan 37 Vice President, Secretary and a member of
the Board of Directors
Ronald Kitching 68 Member of the Board of Directors
Kevin Stulp 43 Member of the Board of Directors
The authorized number of directors of the Company is presently fixed
at ten. Each director serves for a term of one year that expires at the
following annual shareholders' meeting. Each officer serves at the
pleasure of the Board of Directors and until a successor has been
qualified and appointed. There are no family relationships, or other
arrangements or understandings between or among any of the directors,
executive officers or other person pursuant to which such person was
selected to serve as a director or officer.
Set forth below is certain biographical information regarding each
director and executive officer of the Company:
Howard M. Crosby - President, Treasurer and a member of the Board of
Directors.
Since February 1994, Mr. Crosby is the President and a member of the
Board of Directors and since January 1998, Mr. Crosby has been the
Treasurer of Company. Since 1989, Mr. Crosby has been president of
Crosby Enterprises, Inc., a family-owned business advisory and public
relations firm. From September 1992 to May 1993, Mr. Crosby was employed
by Digitran Systems, Inc., of Logan, Utah, in the marketing department.
In May 1993, Mr. Crosby entered into a business consulting relationship
with Centurion Mines Corporation, and has served as president and
director of Mammoth Mining Company and Gold Chain Mining Company, both
Centurion subsidiaries. Mr. Crosby received a B.A. degree from the
University of Idaho in 1974.
<PAGE> 60
John Ryan - Vice President, Secretary and a member of the Board of
Directors.
Mr. Ryan has been a member of the Board of Directors since April
1997, has been Vice President of Corporate Development since September
1996 and has been Secretary since October 1998. Mr. Ryan is a
professional mining engineer. Since June 1996, Mr. Ryan has been a Vice
President and member of the Board of Directors of Metalline Mining
Company. From September 1993 to August 1994, Mr. Ryan was a registered
representative with Shearson Lehman Brothers, Inc. From August 1994 to
April 1995, Mr. Ryan has served as a consultant in mine engineering
services, and will continue in these activities during his tenure, as
well as, engage in other matters in accordance with the direction and
assignment of the Board of Directors. From April 1995 to April 1996, Mr.
Ryan was a registered representative with Pennaluna Securities Corp., a
SEC/NASD registered broker/dealer. In addition to his professional
degree in Mining Engineering, which he received from the University of
Idaho, Mr. Ryan also holds a juris doctorate (J.D.) law degree from
Boston College School of Law School.
Ronald Kitching - Member of the Board of Directors
Since August 1995, Mr. Kitching has been a member of the Board of
Directors of the Company. Prior to his retirement five years ago, Mr.
Kitching was involved in the mining industry for over 35 years holding
various positions, including serving as president of Overland Drilling
Company, an Australian exploration drilling company, and as co-founder of
Glindeman-Kitching Enterprises, an exploration drilling company. Mr.
Kitching has served as a director for Celebration Mining Company since
May 1994.
Kevin Stulp - Member of the Board of Directors
Mr. Stulp was appointed to the Board of Directors of the Company to
fill the vacancy created by the resignation of Hal Cameron. Since August
1995, Mr. Stulp has been an independent consultant in the fields of
volume electronics and manufacturing, general business consulting,
business strategy, business use of the Internet, automation and
integration through computers, and financial analysis. From July 1994 to
July 1995, Mr. Stulp was Director of Manufacturing Reengineering for
Compaq Computer Corporation, Houston, Texas. From September 1992 to June
1994, Mr. Stulp was Director of Manufacturing for Compaq Computer
Corporation. From September 1986 to September 1992, Mr. Stulp was PCA
Operations Manager for Compaq Computer Corporation. From December 1983
to September 1986, Mr. Stulp held various positions with Compaq Computer
Corporation, including industrial engineer, new products planner and
manufacturing manager. From July 1980 to December 1983, Mr. Stulp was a
financial planner with Texas Instruments, Houston, Texas. Mr. Stulp
holds the degree of Masters in Business Administration and the degree of
Bachelor of Science Mechanical Engineering, both from the University of
Michigan, and the degree of Bachelor of Science from Calvin College,
Grand Rapids, Michigan.
<PAGE> 61
Indemnification.
The Company's Bylaws provide that the Company's directors and
officers will be indemnified to the fullest extent permitted by the Utah
Corporation Code, however, such indemnification shall not apply to acts
of intentional misconduct; a knowing violation of law; or, any
transaction where an officer or director personally received a benefit in
money, property, or services to which to the director was not legally
entitled.
The Company has been advised that in the opinion of the Securities
and Exchange Commission indemnification is against public policy as
expressed in the Securities Act of 1933, as amended, and is, therefore,
unenforceable.
Compliance with Section 16(a) of the Securities Exchange Act of 1934.
Section 16(a) of the Securities and Exchange Act of 1934 requires
certain defined persons to file reports of and changes in beneficial
ownership of a registered security with the Securities and Exchange
Commission and the National Association of Securities Dealers in
accordance with the rules and regulations promulgated by the Commission
to implement the provisions of Section 16. Under the regulatory
procedure, officers, directors, and persons who own more than ten percent
of a registered class of a company's equity securities are also required
to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of Forms 3, 4, and 5 furnished
to the Company for transactions occurring between October 1, 1999 and
September 30, 2000, or with respect to transactions which occurred
between October 1, 1999 and September 30, 2000, all reports which were
required to be filed under Section 16(a) of the Exchange Act were in fact
so filed.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation.
The following table sets forth the compensation paid by the Company
during each of the last three fiscal years to its Chief Executive
Officer, and to the other four most highly compensated officers and
executive officers, but only if the total annual salary and bonus of any
such executive officer exceeded $100,000 for Fiscal 2000 (the "Named
Executive Officers"). This information includes the dollar value of base
salaries, bonus awards and number of stock options granted, and certain
other compensation, if any.
<PAGE> 62
Summary Compensation Table.
Annual Compensation
-------------------
Principal
Name Position Year Salary ($)
-------------- --------- ---- ----------
Howard Crosby President 2000 $ 25,000
1999 $ 45,000 [2]
1998 $ 78,000 [1]
1997 $ 78,000
1996 $ 78,000
1995 $ 48,000
John Ryan Vice President 2000 $ 25,000
1999 $ 42,000 [2][3]
Named Executive Officers None n/a n/a
[1] Crosby received four months salary in cash, $19,500, and the balance
in Common Stock.
[2] All compensation paid during 2000 was taken in shares of the
Company, or shares in two dormant subsidiary corporations, Summit
Silver and Tintic Corporation, or equipment.
[3] Prior to 1999, Mr. Ryan did not receive compensation as an officer.
Other than the Company's Stock Option and Award Plan, there are no
retirement, pension, or profit sharing plans for the benefit of the
Company's officers and directors.
Option/SAR Grants.
No individual grants of stock options, whether or not in tandem with
stock appreciation rights ("SARs"), and freestanding SARs were made
during Fiscal 2000 to the CEO or any Executive Officer.
No stock options were exercised by the CEO or any executive officers
in Fiscal 2000.
Long-Term Incentive Plan Awards.
The Company does not have any formalized long-term incentive plan
(excluding restricted stock, stock option and SAR plans) that provides
compensation intended to serve as incentive for performance to occur over
a period longer than one fiscal year, whether such performance is
measured by reference to financial performance of the Company or an
affiliate, the Company's stock price, or any other measure.
<PAGE> 63
Compensation of Directors.
Directors receive for their services a retainer fee payable in
shares of the Company's Common Stock, currently at the rate of 2,500
shares per quarter of completed service. During Fiscal 2000, no shares
were awarded to directors as compensation. The Board has not implemented
a plan to award options, authorized under the Company's Stock Option and
Award Plan and none have been granted. There are no contractual
arrangements with any member of the Board of Directors.
Compensation Committee Interlocks and Insider Participation.
There are no compensation committee interlocks. With respect to
insider participation, Howard Crosby, Kevin Stulp, and John Ryan,
participated in deliberations of the Company's Board of Directors during
Fiscal 2000, concerning executive officer compensation.
Board of Directors Report on Executive Compensation.
The following is a summary of the Board of Directors Report:
It is the Board's responsibility to review and set compensation
levels of the executive officers of the Company, evaluate the performance
of management and consider management appointments and related matters.
All decisions are decisions of the full Board. The Board considers the
performance of the Company and how compensation paid by the Company
compares to compensation generally in the mining industry and among
similar companies. In establishing executive compensation, the Board
bases its decisions, in part, on achievement and performance regarding
broad-based objectives and targets relating to the continued acquisition
of favorable silver properties and the progress of exploration and
development of such properties, as well as the Company's financial
performance.
For Fiscal 2000, the Company's executive compensation policy
consisted of two elements: base salary and stock awards. The policy
factors which determine the setting of these compensation elements are
largely aimed at attracting and retaining executives considered essential
to the Company's long-term success. The granting of stock is designed as
an incentive for executives to keep management's interests in close
alignment with the interests of shareholders. The Company's executive
compensation policy seeks to engender committed leadership to favorably
posture the Company for continued growth, stability and strength of
shareholder equity.
The Company paid salaries to its officers for the fiscal year- ended
September 30, 2000, as follows:
Name of Officer Position Salary
Howard Crosby President $ 25,000 yearly
John Ryan Vice President of $ 25,000 yearly
Corporate Development
<PAGE> 64
These amounts were approved by the Board in recognition of the work
and efforts prior to the end of fiscal 2000.
With respect to stock awards during fiscal 2000, the Board of
Directors did not change the amount of shares, 2,500 per quarter, which
each directors is entitled to receive as partial compensation for service
to the Company.
The Board believes that executive compensation during fiscal 2000
substantially reflects the Company's compensation policy and the Board
anticipates paying a like sum during the fiscal year ending September 30,
2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of December 15, 2000, the
outstanding Common Stock of the Company owned of record or beneficially
by each person who owned of record, or was known by the Company to own
beneficially, more than 5% of the Company's Common Stock, and the name
and shareholdings of each Officer and Director and all Officers and
Directors as a group. At December 15, 2000, the number of shares of
common stock of the Company issued and outstanding was 23,992,065.
Percentage
Shares of Common
Name Owned Stock Owned
Howard Crosby [1] 3,070,215 12.80%
105 North First
Suite 232
Sandpoint, ID 83864
John Ryan [2] 3,258,805 13.58%
200 Riverwood Court
Post Falls, ID 83854
Ronald Kitching 157,500 0.66%
P. O. Box 9809
Frenchville, QD 4701
Australia
Kevin Stulp 494,000 2.06%
5639 Doliver
Houston, TX 77056
ALL OFFICERS AND
DIRECTORS AS A GROUP 6,980,520 29.10%
(Four Individuals)
<PAGE> 65
Britannia Holdings
Ltd. [3] 3,485,000 14.53%
Kings House, The Grange
St. Peter Port
Guernsey, GY1 2QJ
Channel Island
[1] The Board approved the release of a previously authorized grant of
200,000 restricted shares to Crosby Enterprises, Inc. for its work
in putting together for the Company no fewer than five major
business proposals, culminating in the reorganization with
Celebration. Mr. Crosby holds indirect beneficial ownership of
those restricted shares as a director, executive officer and
majority shareholder of Crosby Enterprises, a private, closely-held
Washington corporation. Mr. Crosby holds all remaining shares in
his name, 15,000 shares of which he received in Fiscal 1995 as
partial compensation for his service as a director and executive
officer.
[2] Does not include Warrants to purchase 200,000 shares of Common
Stock.
[3] Does not include Warrants to purchase 2,135,000 shares of Common
Stock.
All shares are held beneficially and of record and each record
shareholder has sole voting and investment power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationships and Transactions pertaining to the Company and Celebration.
Certain of the directors and/or officers of the Company also serve
as directors and/or officers of other companies involved in natural
resource exploration and development and, consequently, there exists the
possibility for such directors and officers to be in a position of
conflict. Any decision made by such directors and officers involving the
Company, as the case may be, will be made in accordance with their duties
and obligation to deal fairly and in good faith with the Company and such
other companies. In addition, such directors and officers are
required to declare and refrain from voting on any matter in which such
directors and officers may have a conflict of interest. In this respect,
Howard Crosby, who was the President of Celebration and of the Company at
the time of the Reorganization, refrained from voting on any matter
related to the Reorganization or any other matter pertaining to both
companies.
The Company has engaged in transactions with its officers, directors
and principal shareholders, including the issuance of the initial shares
of the Company. Such transactions may be considered as not having
occurred at arm's length. The Company may be engaged in transactions
with management and others involving conflicts of interest, including
<PAGE> 66
conflicts on salaries and other payments to such parties, as well as
business opportunities which may arise. In this regard, the directors of
the Company are involved in other companies and may have conflicts of
interest in allocating time between the Company and other entities to
which they are affiliated.
Relationships and Transactions Pertaining to the Company.
From time to time, at the Company's request, Centurion may, at its
discretion, provide funds to the Company or pay certain expenses
directly. The Company is current in its payments to Centurion and
management intends to continue the immediate repayment to Centurion as
expenses are incurred.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
REPORTS ON FORM 8-K
The Company has not filed any reports on Form during the annual
period ended September 30, 2000.
INDEX TO EXHIBITS
The following documents are incorporated herein by reference to the
Company's Registration Statement on Form 10, as filed with the Securities
and Exchange Commission:
Number Document
----------------------------------------------------------------------
3.1 Articles of Incorporation.
3.2 Articles of Amendment.
3.3 Amendment to Articles of Incorporation Limiting Director
Liability.
3.4 Bylaws.
10.1 Sale of Mining Properties By Centurion Mines Corporation to
Royal Minerals, Inc. - June 1992 through September 1993.
10.2 Deed with Reservation of Mineral Royalty - January 1992 to
Kennecott.
10.3 July 1992 Purchase and Sale Agreement of 16,880 acres to
Kennecott.
10.4 July 1992 Kennecott Option to Purchase 6,320 acres.
10.5 Deed and Assignment with Reservation of Mineral Royalty -
August 1992 (16,880 acres) to Kennecott.
10.6 Deed and Assignment with Reservation of Mineral Royalty -
December 1992 (6,320 acres) to Kennecott.
<PAGE> 67
The following documents are incorporated herein by reference from
the Registrant's Current Report on Form 8-K, dated August 8, 1995, as
filed with the Securities and Exchange Commission:
2.01 Agreement and Plan of Reorganization.
3.05 Articles of Share Exchange (Utah).
3.06 Articles of Share Exchange (Washington).
4.01 Subscription and Investment Agreement.
4.02 Stock Purchase Option Certificate.
19.01 Material Furnished to Celebration Securityholders.
20.01 Letter from Royal to Share Exchange Securityholders.
The following documents are incorporated herein by reference from
the Registrant's Form S-8 Registration Statement filed with the
Commission on July 17, 1995.
4.1 1995 Stock Option and Stock Award Plan with Amendment No. 1 to
the Plan.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on February 10, 1997:
10.7 Vipoint Joint Venture Agreement.
10.8 Option to Joint Venture with Placer Mining Corporation, dated
April 19, 1996.
10.9 Amendment to Option to Joint Venture with Placer Mining
Corporation dated the 22nd day of July, 1996.
10.10 Exploration Agreement and Purchase/Joint Venture Option.
10.11 Purchase Agreement with Imperial Energy Corp.
The following documents are incorporated herein by reference from
the Registrant's Form SB-2 Registration Statement filed with the
Commission on September 12, 1997:
10.12 Unilateral option to Purchase Mining Concessions from Sociedad
de Exploarciones Y Explotaciones Mineras Oregon Limitada.
10.13 Modification of Unilateral Purchase Option Contract of Mining
Concessions.
10.14 Unilateral option to Purchase Mining Concessions from Compania
Minera San Enrique S.C.M. Y Otra.
28.1 Warrant Agreement.
28.2 Selling Agent Agreement.
The following documents are incorporated herein by reference from
the Registrant's Current Report on Form 10-K, dated December 30, 1999, as
filed with the Securities and Exchange Commission:
99.1 Settlement Agreement with Rounds et al.
99.2 Order dismissing Rounds litigation.
<PAGE> 68
The following are filed herewith:
27 Financial Data Schedule
All other schedules and exhibits are omitted, as the required
information is not applicable or is not present in amount sufficient
to require submission of the schedule or because the information
required is included in the financial statements and notes thereto.
<PAGE> 69
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the registrant has duly caused this Form 10-K to be signed on
its behalf by the undersigned, hereunto duly authorized, in Spokane,
Washington, on this 15th day of January, 2000.
ROYAL SILVER MINES, INC.
BY: /s/ Howard M. Crosby
Howard M. Crosby, President
