1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM:
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Commission File Number: 0-25170
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ROYAL SILVER MINES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0306609
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
1010 Ironwood Drive
Suite 105
Coeur d'Alene, Idaho 83814
(Address of Principal Executive Offices, including Zip Code)
(208) 769-7340
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares outstanding at December 31, 1999: 20,362,065
shares
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS OF ROYAL SILVER MINES, INC.
(Hereinafter referred to as the Company)
Condensed financial statements, and an accompanying independent
accountants' report, are filed as part of this Quarterly Report. In
management's opinion, these financial statements present fairly in all
material respects the Company's financial condition and changes in
condition as of December 31, 1999 and September 30, 1999, and the
results of operations, stockholders' equity and cash flows for the
three months ended December 31, 1999, 1998, 1997, and from inception on
February 17, 1994 through December 31, 1999, in conformance with
generally accepted accounting principles.
The accompanying financial statements consolidate the financial
statements of Celebration Mining Company and Royal Silver Mines, Inc.
due to the Reorganization discussed in Note 1 of the financial
statements following this Report. All significant intercompany
accounts and transactions have been eliminated. Also, the
consolidation required a change in fiscal year-end, from November 30
(Celebration) to September 30 (Royal). The financial statements
account for the Reorganization using the purchase method of accounting
(see Note 1 to the financial statements). Celebration is treated as
the acquiring company for financial reporting purposes because its
shareholders constitute greater than fifty percent of the combined
shareholder group. In conformity with generally accepted accounting
principles and the Company's accounting policy, Celebration is
recognized as the predecessor entity. Consequently, Celebration's
assets and liabilities were not adjusted in the accompanying financial
statements. The financial statements for the period from the inception
of Celebration on February 17, 1994 to November 30, 1994 ("Fiscal
1994") do not include the balance sheet data or results of operations
of Consolidated Royal Mines, Inc. The accompanying financial
statements represent the activities of the Company and Celebration, but
are not considered consolidated financial statements since the Company
is the successor to Celebration.
As discussed in greater detail under Item 2 below, 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 ore reserves that are economically recoverable. The
realization of these investments is contingent to large extent upon the
success of the Company's property transactions as a whole, the
existence of economically recoverable reserves, the ability of the
Company to obtain financing or make other arrangements for development,
and upon future profitable production. Accordingly, the accompanying
financial statements make no provision for any asset impairment or
other adjustment that might result from the outcome of this
uncertainty.
3
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31,
1999 September 30,
(Unaudited) 1999
ASSETS
CURRENT ASSETS
Cash $ 21,973 $ 28,147
Note receivable 3,000 -
Deposit 150 -
----------- ------------
TOTAL CURRENT ASSETS 25,123 28,147
----------- ------------
MINERAL PROPERTIES 950,794 950,794
----------- ------------
PROPERTY AND EQUIPMENT
Mining equipment 65,514 196,389
Furniture and equipment 1,440 12,761
Less accumulated depreciation (23,916) (45,127)
----------- -----------
TOTAL PROPERTY AND EQUIPMENT 43,038 164,023
----------- -----------
OTHER ASSETS
Investments 128,918 153,162
----------- -----------
TOTAL ASSETS $ 1,147,873 $ 1,296,126
=========== ===========
See accompanying notes and accountant's review report.
2
4
ROYAL SILVER MINES, INC.
(A Development Stage Company)
BALANCE SHEETS
December 31,
1999 September 30,
(Unaudited) 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 93,516 $ 77,603
Advances from related parties 76,000 44,000
------------ ------------
TOTAL CURRENT LIABILITIES 169,516 121,603
------------ ------------
LONG TERM DEBT - -
------------ ------------
COMMITMENTS AND CONTINGENCIES - -
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value;
40,000,000 shares authorized,
20,362,065 and 20,299,565
shares issued and outstanding,
respectively 203,620 202,995
Additional paid-in capital 11,431,174 11,428,674
Deficit accumulated during
development stage (10,623,294) (10,457,146)
Accumulated other
comprehensive loss (33,143) -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 978,357 1,174,523
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,147,873 $ 1,296,126
============ ============
See accompanying notes and accountant's review report.
3
5
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
Period from
02/17/94
Three months ended (Inception)
December 31, Through
1999 1998 1997 12/31/99
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES $ - $ - $ - $ -
---------- ---------- ---------- --------------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral leases - - - 559,442
Depreciation and
amortization 3,163 4,847 13,776 229,337
Officers and directors
compensation 15,000 57,540 97,041 1,409,760
General
and administrative 38,882 15,704 279,799 3,716,176
---------- ---------- ---------- --------------
Total Expenses 57,045 78,091 390,616 5,914,715
---------- ---------- ---------- --------------
OPERATING LOSS (57,045) (78,091) (390,616) (5,914,715)
---------- ---------- ---------- --------------
OTHER INCOME (EXPENSES)
Interest income 83 7,058 5,971 58,714
Interest expense - - - (74,348)
Gain on property interest
sold - - - 1,875,281
Loss on disposition and
impairment of assets (109,186) - (1,345) (6,568,226)
---------- ---------- ---------- --------------
Total Other Income
(Expenses) (109,103) 7,058 4,626 (4,708,579)
---------- ---------- ---------- --------------
NET LOSS (166,148) (71,033) (385,990) (10,623,294)
OTHER COMPREHENSIVE INCOME
Unrealized loss on market
value of investments (33,143) - - (33,143)
---------- ---------- ---------- -------------
COMPREHENSIVE LOSS $ (199,291) $ (71,033) $ (385,990) $ (10,656,437)
========== ========== ========== =============
BASIC AND DILUTED
NET LOSS PER
COMMON SHARE $ (0.008) $ (0.004) $ (0.028) $ (0.862)
========== ========== ========== =============
BASIC AND DILUTED
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 20,350,581 18,708,228 13,565,232 12,326,546
========== ========== ========== =============
See accompanying notes and accountant's review report.
4
6
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Balance
February 17, 1994 - $ - $ - $ - $ -
Issuance in May 1994
of shares at $.002 per
share to officers and
directors in exchange
for assignment of
mining property
option 2,250,000 22,500 (18,500) - 4,000
Issuance in July 1994
of shares for cash at
$.402 in private
placement, net of
costs 1,050,000 10,500 411,116 - 421,616
Issuance in August 1994
of shares to a director
in exchange for services
valued at $.417
per share 150,000 1,500 61,000 - 62,500
Net loss for the year ended
November 30, 1994 - - - (211,796) (211,796)
--------- -------- ----------- ---------- ---------
Balance November
30, 1994 3,450,000 34,500 453,616 (211,796) 276,320
Issuance of share
in debt offering at
$.03 per share 416,250 4,163 9,712 - 13,875
Issuance of shares for
mineral properties valued
at $1.00 per share 262,500 2,625 259,875 - 262,500
Issuance of shares for cash
at $1.00 per share 15,000 150 14,850 - 15,000
Stock issuance costs - - (58,202) - (58,202)
Issuance of shares to
acquire Consolidated
Royal Mines, Inc. at
$.15 per share 2,434,563 24,346 335,750 - 360,096
--------- -------- ----------- ---------- ---------
Balance forward 6,578,313 $ 65,784 $ 1,015,601 $ (211,796) $ 869,589
--------- -------- ----------- ---------- ---------
See accompanying notes and accountant's review report.
5
7
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Balance forward 6,578,313 $ 65,784 $ 1,015,601 $ (211,796) $ 869,589
Issuance of shares to
directors and employees
for services at prices
ranging from $2.00 to $2.50
per share 12,750 127 29,473 - 29,600
Issuance of shares in
exchange for mineral
properties at prices
ranging from $3.13 to
$3.25 per share 800,000 8,000 2,530,126 - 2,538,126
Issuance of shares
for cash at prices
ranging from $1.50 to
$2.00 per share 166,000 1,660 247,340 - 249,000
Issuance of shares in
exchange for debt at
$1.50 per share 200,000 2,000 298,000 - 300,000
Net loss for the
ten months ended
September 30, 1995 - - - (750,939) (750,939)
--------- -------- ----------- ---------- -----------
Balance September
30, 1995 7,757,063 77,571 4,120,540 (962,735) 3,235,376
Issuance of shares
for cash at $1.50
per share 1,176,832 11,769 1,754,010 - 1,765,779
Issuance of shares
to directors and
employees for
services at $1.50
per share 222,700 2,227 331,823 - 334,050
Issuance of shares
in exchange for
debt at $1.50 per
share 406,050 4,060 605,015 - 609,075
Issuance of shares
for cash at $2.20
per share 150,000 1,500 328,500 - 330,000
Issuance of warrants
for cash at $.05
per warrant - - 41,068 - 41,068
--------- -------- ----------- ---------- -----------
Balance forward 9,712,645 $ 97,127 $ 7,180,956 $ (962,735) $ 6,315,348
--------- -------- ----------- ---------- -----------
See accompanying notes and accountant's review report.
6
8
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Balance forward 9,712,645 $ 97,127 $ 7,180,956 $ (962,735) $ 6,315,348
Issuance of shares
for cash at $1.62
per share 65,000 650 104,650 - 105,300
Issuance of shares
for cash to directors
and employees at
prices ranging from
$1.62 to $2.08
per share 107,500 1,075 181,175 - 182,250
Issuance of shares
for cash at $0.75
per share 200,000 2,000 147,985 - 149,985
Issuance of shares
for cash at $1.70
per share 250,000 2,500 422,500 - 425,000
Cancellation of 35,000
shares received in
exchange for return of
mining property (35,000) (350) (109,025) - (109,375)
Payment to Centurion
Mines for option to
repurchase stock - - - (50,000) (50,000)
Issuance of shares for
joint venture in
mining property at
$1.50 per share 100,000 1,000 149,000 - 150,000
Repurchase of 25,000
shares issued for
joint venture at
$1.40 per share (25,000) (250) (34,750) - (35,000)
Issuance of shares for
mining property at
$1.50 per share 20,000 200 29,800 - 30,000
Issuance of shares
to noteholders for
extension of notes at
$1.50 per share 39,375 394 58,669 - 59,063
Issuance of shares
for services at
$1.50 per share 215,334 2,153 320,848 - 323,001
---------- --------- ----------- ------------ -----------
Balance forward 10,649,854 $ 106,499 $ 8,451,808 $ (1,012,735) $ 7,545,572
---------- --------- ----------- ------------ -----------
See accompanying notes and accountant's review report. statements.
7
9
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional Total
Number Paid-in Accumulated Stockholders'
of Shares Amount Capital Deficit Equity
Balance forward 10,649,854 $ 106,499 $ 8,451,808 $(1,012,735) $ 7,545,572
Stock issuance
costs - - (15,000) - (15,000)
Net loss for the
year ended September
30, 1996 - - - (2,045,082) (2,045,082)
---------- --------- ----------- ------------ -----------
Balance September
30, 1996 10,649,854 106,499 8,436,808 (3,057,817) 5,485,490
Issuance of shares
for cash at $0.75
per share 2,491,000 24,910 1,843,340 - 1,868,250
Stock issuance costs - - (30,000) - (30,000)
Issuance of shares
to directors and
employees for
services: at
$1.00 per share 110,500 1,105 109,395 - 110,500
$0.75 per share 25,000 250 18,500 - 18,750
Issuance of shares
for services at
$1.25 per share 98,250 982 121,829 - 122,811
Issuance of shares for
mining property at
$1.00 per share 60,000 600 59,400 - 60,000
Cancellation of 25,000
shares received in
exchange for return of
mining property (25,000) (250) (81,000) - (81,250)
Issuance of shares
for services: at
$1.00 per share 25,500 255 25,245 - 25,500
$0.75 per share 47,128 471 34,875 - 35,346
Payment for extension
of warrants for
one year - - 5,500 - 5,500
Net loss for the
year ended September
30, 1997 - - - (1,770,711) (1,770,711)
---------- --------- ----------- ------------ -----------
Balance September
30, 1997 13,482,232 $ 134,822 $10,543,892 $ (4,828,528) $ 5,850,186
---------- --------- ----------- ------------ -----------
See accompanying notes and accountant's review report.
8
10
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Additional
Number Paid-in
of Shares Amount Capital
Balance forward 13,482,232 $ 134,822 $ 10,543,892
Issuance of shares for
cash at $0.75 per share 10,000 100 7,400
Issuance of shares to
directors, consultants and
employees for services at
prices varying from $0.34
per share to $0.91 per share 398,000 3,980 202,680
Issuance of shares for mining
property at $0.75 per share 200,000 2,000 148,000
Issuance of shares for cash
at $0.15 per share 1,913,333 19,133 267,866
Issuance of shares in
exchange for cash and note
at $0.25 per share 3,000,000 30,000 720,000
Net loss for year ended
September 30, 1998 - - -
---------- --------- ------------
Balance
September 30, 1998 19,003,565 $ 190,035 $ 11,889,838
---------- --------- ------------
See accompanying notes and accountant's review report.
9a
11
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY (Continued)
Total
Subscription Accumulated Stockholders'
Receivable Deficit Equity
Balance forward $ - $ (4,828,528) $ 5,850,186
Issuance of shares for
cash at $0.75 per share - - 7,500
Issuance of shares to
directors, consultants
and employees for services
at prices varying from
$0.34 per share to $0.91
per share - - 206,660
Issuance of shares for
mining property at $0.75
per share - - 150,000
Issuance of shares for cash
at $0.15 per share - - 286,999
Issuance of shares in
exchange for cash and note
at $0.25 per share (700,000) - 50,000
Net loss for year ended
September 30, 1998 - (2,637,568) (2,637,568)
---------- ------------ ------------
Balance
September 30, 1998 $ (700,000) $ (7,466,096) $ 3,913,777
---------- ------------ ------------
See accompanying notes and accountant's review report.
9b
12
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional
Number Paid-in
of Shares Amount Capital
Balance forward 19,003,565 $ 190,035 $ 11,889,838
Issuance of shares to
officers, directors and
consultants for services
at prices varying from
$0.04 per share to $0.06
per share 1,876,000 18,760 89,469
Issuance of shares for
cash, investment and
receivable 1,070,000 10,700 66,500
Shares returned to
treasury for cancellation
of receivable (2,000,000) (20,000) (680,000)
Stock issuance costs - - (133)
Issuance of shares for
cash at prices varying
from $0.04 per share
to $0.07 per share 1,800,000 18,000 63,000
Payment of stock
subscription - - -
---------- ---------- ------------
Balance Forward 21,749,565 $ 217,495 $ 11,428,674
---------- ---------- ------------
See accompanying notes and accountant's review report.
10a
13
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (continued)
Total
Subscription Accumulated Stockholders'
Receivable Deficit Equity
Balance forward $ (700,000) $ (7,466,096) $ 3,913,777
Issuance of shares
to officers, directors
and consultants for
services at prices
varying from $0.04
per share to $0.06
per share - - 108,229
Issuance of shares
for cash, investment
and receivable (50,000) - 27,200
Shares returned to
treasury for cancellation
of receivable 700,000 - -
Stock issuance costs - - (133)
Issuance of shares for
cash at prices varying
from $0.04 per share
to $0.07 per share - - 81,000
Payment of stock
subscription - - 50,000
---------- ------------ -----------
Balance Forward $ - $ (7,466,096) $ 4,180,073
---------- ------------ -----------
See accompanying notes and accountant's review report.
10b
14
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Common Stock Additional
Number Paid-in
of Shares Amount Capital
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
at $0.05 per share 62,500 625 2,500
Net loss for quarter ended
December 31, 1999 - - -
Unrealized loss on market
value of investment - - -
---------- --------- ------------
Balance,
December 31, 1999
(Unaudited) 20,361,065 $ 203,620 $ 11,431,174
========== ========= ============
See accompanying notes and accountant's review report.
11a
15
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY (Continued)
Accumulated
Other Total
Subscription Accumulated Comprehensive Stockholders'
Receivable Deficit Loss Equity
Balance forward $ - $ (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 at
$0.05 per share - - - 3,125
Net loss for
quarter ended
December 31, 1999 - (166,148) - (166,148)
Unrealized loss
on market value
of investment - - (33,143) (33,143)
---- ------------- ---------- -----------
Balance,
December 31, 1999
(Unaudited) $ - $ (10,623,294) $ (33,143) $ 978,357
==== ============= ========= ===========
See accompanying notes and accountant's review report.
11b
16
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
From 02/17/94
Three months ended Inception
December 31, Through
(Unaudited) 12/31/99
1999 1998 1997 (Unaudited)
Cash flows from operating activities:
Net loss $ (166,148) $ (71,033) $ (385,990) $ (10,623,294)
Adjustments to reconcile net
loss to net cash used by
operating activities:
Loss on sale of equipment 113,686 - - 126,271
Equipment traded
for services 4,137 - - 4,137
Depreciation and
amortization 3,163 4,847 13,776 224,546
Issuance of common
stock for services 3,125 57,540 85,608 1,380,071
Write-off option costs - - - 517,871
Write-off of joint
venture costs - - - 160,000
Write-off mineral
properties - - - 2,421,354
Loss on devaluation of
investments - - - 3,121,060
Changes in assets and liabilities:
Note receivable (3,000) (5,000) - (3,000)
Interest receivable - (7,058) (1,625) -
Prepaid expenses - (6,295 ) (28,438)
Deposit (150) - - (150)
Other assets - - 317 (9,801)
Mineral properties - (4,674)
Accounts payable 15,913 1,300 (14,145) 93,516
Accrued expenses - - (4,653) 43,188
Payable to related
parties 32,000 - - 332,000
---------- --------- ---------- -------------
Net cash provided by (used in)
operating activities 2,726 (19,404) (313,007) (2,245,343)
---------- --------- ---------- -------------
Cash flows from investing activities:
Purchase of investments (14,400) - - (3,137,550)
Sale of assets - - 2,600 (1,986,690)
Purchase and development
of mineral properties - - (34,290) (325,687)
Sale of mineral properties - - - 1,093,750
Sale of investment 5,500 - - 216,929
Purchase of fixed assets - - - 5,685
---------- --------- ---------- -------------
Net cash used in investing
activities (8,900) - (31,690) (4,133,563)
---------- --------- ---------- -------------
See accompanying notes and accountants' review report.
12
17
ROYAL SILVER MINES, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
From 02/17/94
Three months ended Inception
December 31, Through
(Unaudited) 12/31/99
1999 1998 1997 (Unaudited)
Cash flows from financing activities:
Stock issuance and offering costs - 19,868 - (189,468)
Proceeds received on
long-term debt - - - 675,000
Payments made on notes payable - - - (174,206)
Issuance of common stock for cash - - 7,500 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 for cash - - - 46,568
---------- --------- ---------- -------------
Net cash provided by
financing activities - 19,868 7,500 6,400,879
---------- --------- ---------- -------------
Net increase (decrease)
in cash (6,174) 464 (337,197) 21,973
Cash, beginning of period 28,147 3,147 594,577 -
---------- --------- ---------- -------------
Cash, end of period $ 21,973 $ 3,611 $ 257,380 $ 21,973
========== ========= ========== =============
Supplemental cashflow disclosure:
Income taxes $ - $ - $ - $ 350
Interest $ - $ - $ - $ 25,655
Non-cash financing activities:
Common stock issued for
services rendered $ 3,125 $ 57,540 $ 85,608 $ 1,380,071
Common stock issued for
mineral properties $ - $ - $ - $ 3,190,626
Common stock issued for
exchange for debt $ - $ 30,000 $ - $ 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 common stock
of Ashington Mining Corp. $ - $ 7,200 $ - $ 7,200
See accompanying notes and accountant's review report.
13
18
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969
under the laws of the state of Utah primarily for the purpose of
acquiring and developing mineral properties. Royal conducts its
business as a "junior" natural resource company, meaning that it
intends to receive income from property sales or joint ventures with
larger companies.
Celebration Mining Company (Celebration), currently a wholly-owned
subsidiary of Royal, was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration was
organized on February 17, 1994 as a Washington corporation.
Celebration has not yet realized any revenues from its planned
operations.
On August 8, 1995, Royal and Celebration completed an agreement and
plan of reorganization whereby the Company issued 4,143,750 shares of
its common stock and 1,455,000 warrants in exchange for all of the
outstanding common stock of Celebration. Pursuant to the
reorganization, the name of the Company was changed to Royal Silver
Mines, Inc. Immediately prior to the agreement and plan of
reorganization, the Company had 2,375,463 common shares issued and
outstanding.
The acquisition was accounted for as a purchase by Celebration of
Royal, because the shareholders of Celebration controlled the Company
after the acquisition. Therefore, Celebration is treated as the
acquiring entity. There was no adjustment to the carrying value of the
assets or liabilities of Royal in the exchange as the market value
approximated the net carrying value. Royal is the acquiring entity for
legal purposes and Celebration is the surviving entity for accounting
purposes.
The $950,794 cost of mineral properties included in the accompanying
balance sheet as of December 31, 1999 is related to exploration
properties. The Company has not determined whether the exploration
properties contain ore reserves that are economically recoverable. The
ultimate realization of the Company's investment in exploration
properties is dependent upon the success of future property sales, the
existence of economically recoverable reserves, the ability of the
company to obtain financing or make other arrangements for development
and upon future profitable production. The ultimate realization of the
Company's investment in exploration properties cannot be determined at
this time and, accordingly, no provision for any asset impairment that
may result, in the event the Company is not successful in developing or
selling these properties, has been made in the accompanying financial
statements.
14
19
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS - continued
The Company is seeking additional capital and management believes the
properties can ultimately be sold or developed to enable the Company to
continue its operations. However, there are inherent uncertainties in
mining operations and management cannot provide assurances that it will
be successful in this endeavor. Furthermore, the Company is in the
development stage, as it has not realized any significant revenues from
its planned operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Royal Silver Mines,
Inc. is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting.
Development Stage
The company is in the development stage and has not commenced the sale
of any products.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Loss Per Share
Loss per share was computed by dividing the net loss by the weighted
average number of shares outstanding during the year. The weighted
average number of shares was calculated by taking the number of shares
outstanding and weighting them by the amount of time they were
outstanding. Outstanding warrants were not included in the computation
of loss per share because the exercise price of the outstanding
warrants is higher than the market price of the stock, thereby causing
the warrants to be antidilutive.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
15
20
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
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 December 31, 1999, the Company had net operating loss carryforwards
of approximately $11,400,000 that may be offset against future taxable
income through 2014. No tax benefit has been reported in the financial
statements as the Company believes there is a significant chance the
net operating loss carryforwards will expire unused. Accordingly, the
potential tax benefits of the net operating loss carryforwards are
offset by a valuation allowance of the same amount.
Impaired Asset Policy
In March 1995, the Financial Accounting Standards Board issued a
statement titled "Accounting for Impairment of Long-lived Assets." In
complying with this standard, the Company reviews its long-lived assets
quarterly to determine if any events or changes in circumstances have
transpired which indicate that the carrying value of its assets may not
be recoverable. Because of write-downs and write-offs taken throughout
fiscal 1998, fiscal 1999 and the quarter ended December 31, 1999, the
Company does not believe any further adjustments are needed to the
carrying value of its assets at December 31, 1999.
Financial Accounting Standards
The Company has adopted the fair value accounting rules to record all
transactions in equity instruments for goods or services.
Principles of Consolidation
The financial statements include those of Royal Silver Mines, Inc. and
Celebration Mining Company. All significant inter-company accounts and
transactions have been eliminated. The financial statements are not
considered consolidated statements since Royal Silver Mines, Inc. was
the successor by merger to Celebration Mining Company.
16
21
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
Change in Accounting Policies
During the year ended September 30, 1999, the Company changed its
method of accounting for organization costs to conform to the
requirements of Statement on Position 98-5, which requires start-up and
organization costs to be expensed as incurred. The effect of the
change was to increase net loss for the year ended September 30, 1999
by $3,502 ($0.0002 per share). The change has no effect on prior
years.
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United)
entered into a joint venture agreement, whereby Celebration could
acquire up to an 80% interest in a mining property located in the State
of Utah. Under the terms of the agreement, United was to contribute
real properties for an initial 75% interest in the joint venture, and
Celebration was to remove all liens associated with the real properties
by paying $175,000 to a bank which was the primary lien holder for its
initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned promissory
note. The property was auctioned in a public auction in May 1995 and
by virtue of Celebration's first position lien, Celebration was able to
successfully bid the full amount of the underlying promissory note.
Although additional expenditures have been made on the property through
September 30, 1998, no further funds towards the joint venture have
been expended by Celebration, which owns an undivided 25% interest in
the property.
Washington and Idaho Mineral Properties
During the year ended September 30, 1995, Celebration purchased,
through the issuance of 800,000 shares of its common stock, various
mineral properties located in the states of Washington and Idaho. The
mineral properties were recorded at the fair market value of the shares
paid on the date of issuance ranging from $3.13 to $3.25 per share for
a total purchase price of $2,538,126. In May 1996, the Company sold
back the Frisco Standard Silver Mine to its original seller in exchange
for the same price (35,000 shares of Royal stock) received by the
seller when the mine was purchased. The shares received were canceled
and no gain or loss was recorded on the transaction. In the fourth
quarter of 1998, the Company disposed of additional Idaho properties.
(See Note 4).
Other Domestic Properties
In February 1999 in connection with the settlement agreement with Grand
Central (described in Note 18), the Company received a number of
patented mining claims in Utah and a number of unpatented mining claims
in Idaho. In aggregate, these mining claims were recorded at $45,000.
* * *
17
22
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 3 - MINERAL PROPERTIES - continued
The Company's proposed future mining activities will be subject to laws
and regulations controlling not only the exploration and mining of
mineral properties, but also the effect of such activities on the
environment. Compliance with such laws and regulations may necessitate
additional capital outlays, affect the economics of a project, and
cause changes or delays in the Company's activities. The Company's
mineral properties are valued at the lower of cost or net realizable
value.
NOTE 4 - MINERAL PROPERTY DISPOSITIONS
Shoshone County Idaho Mineral Lease (Crescent Mine)
In February 1995, Celebration entered into an agreement to acquire a
fifty-year renewable mineral lease on a property in Shoshone County,
Idaho. The mining property consists of twelve patented claims and
associated Idaho unpatented claims. In connection with this lease, the
Company has incurred acquisition costs of $1,294,867. During the
fourth quarter of 1999, the Company's board of directors evaluated its
mineral holdings and elected to write off its interest in this property
and, accordingly, recorded a loss on abandonment equivalent to its cost
of acquisition. (See Note 15 on litigation regarding this lease.)
Chilean Properties
During 1997, the Company acquired options on a minerals concession and
adjacent property in northern Chile. During the third quarter of
fiscal 1998, following a decision by Teck Exploration Ltd. not to
pursue its joint venture option, the Company elected to drop its
options on the Chilean properties and recorded a loss of $403,530 on
its Chilean investments.
Argentina Properties
On February 10, 1997 the Company negotiated an option to buy 12
different potential mine sites in Argentina. During the second quarter
of fiscal 1998, the Company elected to drop the option, returned the
properties to their owner, and recorded a loss of $114,341.
Mexican Properties
On January 20, 1997, the Company executed an agreement to acquire four
mining properties in Nayarit, Mexico with stipulated annual payment to
be applied against a purchase price of $5,000,000. In the fourth
quarter of fiscal 1998, the Company elected to forfeit its interest in
the aforementioned Mexican properties and, resultantly, recorded a loss
of $74,194.
On February 19, 1998, the Company sold a working interest in a Mexican
joint venture, which resulted in a gain of $1,454,062.
18
23
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 4 - MINERAL PROPERTY DISPOSITIONS - continued
Conjecture Mine and Liberal King Mine (in U.S.)
In 1995, the Company issued 280,000 shares of its common stock to
acquire the Conjecture Mine, a silver-bearing property in the state of
Idaho. During the fourth quarter of fiscal 1998, the Company traded
the Conjecture Mine property for 10,000 shares of common stock in
SynFuels Technology, Inc., (subsequently renamed Rigid Airship) valued
at $8.00 per share. This transaction resulted in a recorded loss on
disposition of $830,700.
On June 26, 1998, the Company traded six patented mining claims (known
as the Liberal King Mine) located in Shoshone County, Idaho for 50,000
shares of SynFuels Technology, Inc. valued at $8.00 per share. No gain
or loss was recognized on this transaction.
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and
repairs that do not increase the useful life of the assets are expensed
as incurred. Depreciation of property and equipment is determined
using the straight-line method over the expected useful lives of the
assets of five years.
NOTE 6 - INVESTMENTS
Investments, consisting of equity securities of private and small
public companies, are stated at lower of cost or net realizable value.
During 1999, certain investments were written down to their estimated
realizable value. The amount of the loss, $281,498, has been charged
to operations during the year ended September 30, 1999.
At December 31, 1999 and September 30, 1999, the market values of
investments were as follows:
December 31, September 30,
1999 1999
Summit Silver Mines, Inc. $ 110,027 $ 101,127
Rigid Airship USA, Inc. 4,844 31,002
Ashington Mining Company 7,200 7,200
Tintic Coalition Mines 5,000 5,000
American Health Providers Corp. 930 6,795
Minimally Invasive Surgery 917 2,038
--------- ---------
$ 128,918 $ 153,162
========= =========
19
24
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 6 - INVESTMENTS - continued
Other information regarding the Company's investments follows:
Grand Central Silver Mines, Inc.
In the quarter ended March 31, 1998, the Company finalized the sale of
certain patented mining properties to Centurion Mines Corporation
(subsequently renamed Grand Central Silver Mines, Inc.) for 500,000
shares of Centurion's common stock then valued at $1,500,000. This
transaction resulted in a gain of $406,250.
During the quarter ended March 31, 1998, the Company sold a 35% working
interest in a joint venture (with Metalline Mining Co.) engaged in
exploration and development of the Sierra Mojada District, Coahuila,
Mexico. In connection with this transaction, the Company acquired
735,000 shares of common stock (in Grand Central Silver Mines, inc.)
which was valued at $1,424,062 and also acquired a promissory note of
$350,000 from Grand Central which is uncollateralized, bears interest
at 8%, and matures in 1999. A total gain of $1,454,062 was realized on
this transaction. The promissory note was satisfied in February 1999
through a settlement agreement with Grand Central (See Notes 17 and
18).
At September 30, 1998, the Company owned 1,235,000 shares of Grand
Central Silver Mines, Inc. common stock, which was then approximately
12% of the total outstanding shares. In the second and third quarters
of fiscal 1999, the Company disposed of all of its holdings in Grand
Central in connection with a settlement agreement.
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 December 31, 1999, the stock had
a market value of $4,844.
NOTE 7 - COMMON STOCK
During the year ended November 30, 1994, Celebration issued 1,500,000
shares of common stock to directors for services rendered, valued at
$.002 to $.625 per share, which is the fair market value of the share
on the date of issuance.
During the year ended September 30, 1995, the Company issued 12,750
shares of common stock to directors and employees for services
rendered, valued at prices ranging from $2.00 to $2.50 per share, which
is the fair market value of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000
shares of common stock in exchange for mineral properties (See Note 3)
and sold 176,000 shares of common stock for $264,000 cash.
20
25
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 7 - COMMON STOCK - continued
The Company issued 200,000 shares of its common stock during the year
ended September 30, 1995 in lieu of outstanding debt that was owed to
Centurion Mines Corporation (Centurion), a related entity. The stock
was issued at $1.50 per share in payment of $300,000 of outstanding
debt. The Company also issued 277,500 shares in connection with the
issuance of notes payable. (See Note 1 and Note 9).
During the year ended September 30, 1996, the Company sold 1,949,332
shares of its common stock for $2,958,314 in cash. The Company also
issued 222,700 share to directors and employees for services rendered
valued at $1.50 per share, which is the fair market value of the share
on the date of issuance.
Also during the year ended September 30, 1996, the Company issued
100,000 shares of its common stock for a joint venture in a mining
property and 20,000 common shares for a mining property. The stock
issued was valued at $1.50 per share, which is the fair market value of
the shares at the date of issuance.
In the same twelve-month period, the Company also issued 406,050 shares
of its common stock in payment of outstanding debt of $570,917 and
accrued interest of $38,158. The stock was issued at $1.50 per share
for a total value of $609,075. In addition, the Company issued 39,375
shares of common stock to noteholders for extending the maturity date
of their loans. Again, the shares were valued at $1.50 each, which was
the fair market value of the shares when issued.
Also during the year ended September 30, 1996, the Company issued
215,334 shares of its common stock for services received. The shares
were valued at $1.50 per share, which was the fair market value of the
shares at the date of issuance.
In the year ended September 30, 1997, the Company issued 306,378 shares
of its common stock for services received. The shares were valued at
their fair market value at the dates of issuance which ranged from
$0.75 to $1.25 per share.
During the year ended September 30, 1998, the Company issued 398,000
shares of common stock for services received. The shares were valued
at their fair market value at the date of issuance which ranged from
$0.34 to $0.91 per share. Also during the same twelve months, the
Company sold 4,923,333 shares of its common stock for $344,500 in cash
and $700,000 in stock subscriptions receivable.
21
26
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 7 - COMMON STOCK - Continued
In May 1998, the Company sold 3,000,000 shares of its common stock at
$0.25 per share in exchange for $50,000 in cash and a short-term note
in the amount of $700,000. Because of a subsequent decrease in the
market value of the Company's stock, the Company and shareholder
renegotiated the transaction. In November 1998, the aforementioned
shareholder returned 2,000,000 shares of stock to the Company for
cancellation and in return the company rescinded the $700,000 note,
which was recorded as stock subscriptions receivable at September 30,
1998. The net effect of the renegotiated stock transaction was a sale
of common stock at $0.05 per share for cash only.
In November 1998, the Company sold 220,000 shares of its common stock
at $0.06 per share to Ashington Mining for a short-term note in the
amount of $5,000 and 100,000 shares of Ashington Mining stock valued at
$7,200 (Note 6). An additional 1,500,000 shares of common stock were
sold in January 1999 at $0.04 per share.
During the year ended September 30, 1999, the Company issued 1,876,000
shares of common stock for services received. The shares were valued
at their fair market value at the date of issuance, which ranged from
$0.04 to $0.07.
As part of a settlement agreement with Grand Central Silver Mines, Inc.
and other parties, Royal received 1,450,000 shares of Royal Silver
Mines, Inc. stock, which was returned to treasury and cancelled.
During the quarter ended December 31, 1999, the Company issued 62,500
shares of its common stock for consulting fees. The shares were valued
at their market value at the dates of issuance which was $0.05.
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS
In January 1992, the shareholders of Royal approved a 1992 Stock Option
and Stock Award Plan under which up to ten percent of the issued and
outstanding shares of the Company's common stock could be awarded based
on merit of work performed. As of September 30, 1999, 12,750 shares of
common stock have been awarded under the Plan.
Celebration, prior to the exchange agreement with Royal, had granted
securities to certain shareholders, which represented rights to
purchase or receive shares of Celebration's common stock. These
options were assumed by the Company after the merger at a rate of 1.5
shares for each option still outstanding. Thus, the Company has
granted options, with varying conditions and requirements, to purchase
a total of 1,455,000 shares of its common stock. Of these stock
options 255,000 exercisable at $1.50 per share will expire March 21,
2000. The remaining 1,200,000 stock options are exercisable at $0.93
per share and expire on August 31, 2001. As of September 30, 1999,
none of these options have been exercised.
22
27
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS - Continued
On January 9, 1996, the Board of Directors approved the issuance of
warrants to two of its officers to purchase a total of 300,000 shares
for a purchase price of $2.50 per share, exercisable from the date of
issuance until January 9, 1999. As of September 30, 1999 none of these
warrants have been exercised.
On March 22, 1996, the Board of Directors approved the issuance of
warrants to purchase 625,000 shares of common stock of the Company to
an investor in partial completion of a private placement of stock.
These warrants were exercisable until September 30, 1998, at which time
they expired unused.
On April 10, 1996, following the close of the second quarter of fiscal
1996, the Board of Directors authorized the issuance of 420,666
warrants to unaffiliated investors as part of the private placement of
stock. These warrants were exercisable until April 12, 1998 at prices
ranging from $2.50 to $2.625 per share. As of March 31, 1998, 320,666
warrants have been issued (but not exercised) for a total amount of
$46,568, with the balance of 100,000 warrants expiring unused.
In the quarter ending March 31, 1997, the Company sold 2,491,000
"units" to unaffiliated investors as part of a private placement of
stock. Each unit consisted of a share of the Company's common stock
and one warrant enabling the investor to purchase one additional share
of common stock for a purchase price of $1.25 per share during the next
two years. At December 31, 1999, none of the warrants had been
exercised.
NOTE 9 - COMPANY STOCK OPTION AND AWARD PLAN
The Company has a stock-based compensation plan whereby the Company's
board of directors may grant common stock to its employees and
directors. At September 30, 1999, 1,455,000 options have been granted
under the plan although none have been exercised or forfeited in the
two years ending September 30, 1999. The old existing options are
attributed to the merger of Celebration mining Company with Royal in
August 1995.
Of the total of 2,500,000 common stock shares authorized for issuance
under the plan, 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 quarter ended
December 31, 1999 and the year ended September 30, 1999.
23
28
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 9 - COMPANY STOCK OPTION AND AWARD PLAN - Continued
Weighted
Number Average
of Exercise
Shares Price
Outstanding at 10/1/98 1,455,000 $ 1.03
Granted - -
Exercised - -
Forfeited - -
Outstanding at 9/30/99 1,455,000 $ 1.03
--------- ------
Options exercisable at 9/30/99 1,455,000 $ 1.03
========= ======
Weighted average fair value of
options granted during 1999 $ -
=========
Outstanding at 10/1/99 1,455,000 $ 1.03
Granted - -
Exercised - -
Forfeited - -
--------- ------
Outstanding at 12/31/99 1,455,000 $ 1.03
========= ======
Options exercisable at 12/31/99 1,455,000 $ 1.03
========= ======
NOTE 10 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid in capital at December
31, 1999, and September 30, 1999:
December 31, September 30,
1999 1999
Applicable to:
Common Stock $ 11,384,606 $ 11,382,106
Stock Warrants 46,568 46,568
------------ ------------
$ 11,431,174 $ 11,428,674
============ ============
24
29
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 11 - OPTIONS INVOLVING MINERAL PROPERTIES
Option for Joint Venture
On June 19, 1998, the Company executed an option agreement with
Eastfield Resources (USA) Inc. and Prism Resources Inc. Under the
terms of the three month agreement expiring September 30, 1998,
Eastfield and Prism granted an option to the company to enter into a
joint venture arrangement with these two firms for the exploration and
development of certain mining properties within the Three Hills project
in the Tonopah mining district of Nevada. At the end of the option
period, the Company dropped its option to acquire a 50% interest in the
joint venture and recorded a loss of $10,000 on its option deposit.
Option with Placer Mining
In April 1996, the Company entered into an option with Placer Mining
Corporation ("Placer") of Kellogg, Idaho whereby the Company could
acquire a joint venture interest in the Bunker Hill Mine, a silver-
lead-zinc mine in Shoshone County, Idaho. After issuing 100,000 shares
valued at $1.50 per share and spending a nonrefundable $50,000 on the
option, the Company elected to renegotiate this option agreement and
entered into a second option agreement with Placer on September 18,
1996 for the nonassignable option of acquiring a 100% interest in the
Bunker Hill Mine. In the second agreement, the Company paid $100,000
in September 1996 for the nonassignable option of acquiring a 100%
interest in the Bunker Hill Mine. In order to exercise this option,
the Company must issue 500,000 shares of its common stock to Placer by
May 10, 1997 and pay Placer either $7,000,000 by that date or
$4,000,000 by that date and $3,500,000 by May 10, 1998. Under the
terms of this agreement, the Company will pay Placer a 2 % net smelter
return royalty in perpetuity with stipulated annual advance minimum
royalty payments to Placer ranging from $100,000 (in 1999) to $250,000
(in year 2002 through 2010). All advance minimum royalties paid are to
be credited against actual production royalties.
Subsequent to March 31, 1997, due to regional environmental concerns
and the prospect of related litigation, the Company concluded that it
would not exercise its option on the Bunker Hill Mine. Accordingly,
the $238,887 in option costs and related expenses toward the purchase
of this property were written off during the quarter ended March 31,
1997.
NOTE 12 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion
Mines Corporation ("Centurion") whereby the Company acquired an option
from Centurion to purchase up to 800,000 shares of its common stock
held by Centurion for the exercise price of $1.75 per share during the
two-year period ending September 30, 1998. The cost of this two-year
stock purchase option was $50,000 which was paid by the Company and
charged to stockholders' equity (accumulated deficit).
25
30
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 12 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION -
continued
Effective April 15, 1997, the aforementioned stock option agreement was
renegotiated (at no cost to the Company) and amended to extend the
exercise period until September 30, 1999 and to revise the exercise
price to $1.50 per share during this same period.
At September 30, 1999, no shares were acquired from Centurion under
this option agreement which lapsed. (See Note 14).
NOTE 13 - LETTER OF INTENT WITH TECK EXPLORATION LTD.
In October, 1997, the Company signed a letter of intent with Teck
Corporation (dba Teck Exploration, Ltd.) of Vancouver, B.C. to jointly
explore and develop the Mocha porphyry copper prospect in Region I of
northern Chile. The agreement contemplated an initial drilling program
funded by Teck. In July 1998, the Company and Teck mutually agreed to
terminate their option agreement. (See Note 4 for related disclosures
on Chilean options.)
NOTE 14 - PROSPECTIVE COMBINATION (MERGER) WITH CENTURION MINES
CORPORATION
On November 24, 1997, Royal and Centurion Mines Corporation,
headquartered in Salt Lake City, announced plans to combine the two
companies. Centurion (subsequently renamed Grand Central Silver Mines,
Inc.) is a significant owner of gold, silver, and copper mining
properties in Utah.
As a first stage in the combination of the companies, Centurion
purchased certain Coeur d'Alene, Idaho silver properties plus other
patented mining properties owned by Royal in exchange for Centurion
shares then valued at $1,500,000. (See Note 6).
As a result of differences in determining fair valuations, the
directors of the two companies have decided to postpone merger plans
for the foreseeable future. The two companies shared one common
director and a common officer until February 1999, at which time mutual
differences changed this arrangement. (See Note 17).
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit alleging that the Company
failed to transfer common stock in exchange for a mining property
interest. In June 1999, Box Elder County Superior Court rejected the
plaintiff's lawsuit and let stand the Company's countersuit alleging
fraudulent misrepresentation. Although the plaintiff has filed an
appeal (regarding the originally filed lawsuit) with the Utah Supreme
Court, the Company believes that the appeal is completely without merit
and will not be sustained.
26
31
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 15 - COMMITMENTS AND CONTINGENCIES (Continued)
In its countersuit, the Company is seeking both full title to the
aforementioned mineral property and punitive damages. The Company
believes its countersuit will prevail.
In July 1998, the Company filed an action in Federal Court in Boise,
Idaho for declaratory judgment regarding the validity of its Crescent
Mine mineral lease. Defendants in the action include the U.S.
Environmental Protection Agency, Shoshone County, and Fawcett
International. Although the Company has recently decided to write down
its interest in the Crescent Mine mineral lease, the Company has
elected to pursue this lawsuit, which is in the discovery phase.
The Company sublets office space on a month to month basis from one of
its officers in Coeur d'Alene Idaho for $200 per month. Total rent
paid for this office space in during the quarter ended December 31,
1999 and the year ended September 30, 1999 was $600 and $1,800,
respectively.
NOTE 16 - WORKING INTEREST IN JOINT VENTURE WITH METALLINE MINING CO.
On January 15, 1998, the Company acquired a 35% working interest in a
joint venture with Metalline Mining Co. for exploration and development
of the Sierra Mojada District, Coahuila, Mexico. The project was
formerly a joint venture between Metalline and Dakota Mining Corp.
Royal acquired the interest from Dakota in exchange for $100,000 cash,
200,000 shares of Metalline common stock, which Royal carried on its
books as an investment, and 200,000 shares of Royal Silver common
stock. Dakota retained a net smelter return royalty on future
production from the project. (See Note 6).
On February 19, 1998, the Company sold the 35% working interest for
exploration and development of the Sierra Mojada District, Coahuila,
Mexico to Grand Central Silver Mines (GSLM) in exchange for a note
receivable of $350,000, payable within one year and bearing interest of
8% per annum, and 735,000 shares of GSLM valued at $1,424,062. (See
Note 4). A total gain of $1,454,062 was recognized on this
transaction.
NOTE 17 - SETTLEMENT AGREEMENTS
In February 1999, the Company entered into a settlement arrangement
wherein Grand Central Silver Mines, Inc. (hereinafter "Grand")
transferred equipment, mining claims, and securities (including 450,000
shares of Royal Silver Mines, Inc. stock) to Royal in full settlement
of the $350,000 promissory note (and accrued interest) owed by Grand to
Royal. In connection with the same transaction, the Company
transferred to an individual 154,375 shares of Grand common stock
(previously held by Royal) and in turn received from this same
individual 1,000,000 shares of Royal Silver Mines, Inc. common stock
and 333,333 shares of Summit Silver, Inc. common stock. While this
settlement agreement involved mutual releases of liability for all
27
32
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 17 - SETTLEMENT AGREEMENTS (Continued)
parties affected, the net effect of the settlement was the Company's
recording a loss of $247,112 from assets disposed in the second quarter
and $810,469 in the third quarter of 1999 as this transaction was
finalized. (See Note 6, Note 14, and Note 17).
The Company was a defendant in a lawsuit filed by some of its
shareholders for alleged financial improprieties. Although the
directors of the Company vigorously disputed the plaintiffs' claims,
the directors elected to settle this matter out of court in September
1999 after receiving advice from counsel that the costs of defending
the litigation would exceed the costs of settling out of court. In the
resulting settlement, the Company agreed to pay the plaintiffs $60,000
in cash and two Company officers agreed to transfer personally owned
investments to the plaintiffs. Accordingly, in turn, the Company
indemnified the aforementioned corporate officers by transferring to
them stock in Summit Silver Mines, Inc. and a mineral property interest
in the Imperial Mine. The transaction resulted in a charge to
operations of $103,950 during the fourth quarter of 1999.
NOTE 18 - LICENSING AGREEMENT
In January 1999, the Company entered into a technology licensing
agreement with Integrated Environmental Technologies, LLC (IET), a New
York limited liability company, to acquire, develop and exploit mineral
deposits using IET technology. IET technology involves high
temperature systems that utilize plasma technology for processing
materials and includes trade secrets, inventions, (whether patented or
unpatented), information, data and experience. Upon completion of
agreed upon conditions, the Company will be granted a worldwide
exclusive license to practice IET technologies necessary for the
extraction and recovery of copper from enargite ores and gold and
silver from arsenic rich ores or residual process streams from milling
and smelting operations not to include certain properties in and around
the Yuma, Arizona region. At December 31, 1999, the Company was in the
process of renegotiating the terms and conditions of the licensing
agreement.
NOTE 19 - GOING CONCERN
As shown in the accompanying financial statement, the Company has no
revenues, has incurred a net loss of $166,148 for the quarter ending
December 31, 1999 and an accumulated deficit of $10,623,294 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.
28
33
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 1999 and September 30, 1999
NOTE 19 - GOING CONCERN (Continued)
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 20 - RELATED PARTIES
At September 30, 1999, and December 31, 1999 the Company was indebted
to two of its officers for the sum of $44,000 and $76,000,
respectively. These funds were advanced to the Company from September
through December 1999 for payment of operating expenses. The advances
are unsecured, non-interest bearing, and are expected to be repaid in
the next few months.
Other related party transactions are disclosed in Notes 15 and 17.
NOTE 21 - YEAR 2000 ISSUES
Like other companies, Royal Silver Mines, Inc. could be adversely
affected if the computer systems the Company, its suppliers or
customers use do not properly process and calculate date-related
information and data from the period surrounding and including January
1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices
such as production equipment and elevators, etc. At this time the
Company does not have any evidence of problems associated with the year
2000 issue. Any costs associated with Year 2000 compliance are
expensed when incurred.
NOTE 22 - SUBSEQUENT EVENTS
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 to be acquired over the next 36 months and 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 agreement, the Company will provide the license
agreement and supply concentrates needed for bulk tests required to
acquire the exclusive rights. Nuvotec will pay for the costs of the
test and provide technical and management expertise to oversee the
project. Upon successful completion of the tests, each party will be
responsible for one-half of all future costs.
29
34
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES.
There is considerable risk in any mining venture, and there can be
no assurance that the Company's operations will be successful or
profitable. Exploration for commercially minable ore deposits is
highly speculative and involves risks greater than those involved in
the discovery of mineralization. Mining companies use the evaluation
work of professional geologists, geophysicists, and engineers in
determining whether to acquire an interest in a specific property, or
whether or not to commence exploration or development work. These
estimates are not always scientifically exact, and in some instances
result in the expenditure of substantial amount of money on a property
before it is possible to make a final determination as to whether or
not the property contains economically minable ore bodies. The
economic viability of a property cannot be finally determined until
extensive exploration and development work, plus a detailed economic
feasibility study, has been performed. Also, the market prices for
mineralization produced are subject to fluctuation and uncertainty,
which may negatively affect the economic viability of properties on
which expenditures have been made. During the development stage of the
Company, from inception to December 31, 1999, the Company accumulated
a deficit of $10,623,294.
At December 31, 1999, $950,794 of the Company's total assets of
$1,147,873 were investments in mineral properties. Additional
exploration is required to substantiate or determine whether these
mineral properties contain ore reserves that are economically
recoverable. The realization of these investments is dependent upon
the success of future property sales, the existence of economically
recoverable reserves, the ability of the Company to obtain financing,
the Company's success in carrying out its present plans or making other
arrangements for development, and upon future profitable production.
The ultimate outcome of these investments cannot be determined at this
time; accordingly, no provision for any asset impairment that may
result, in the event the Company is not successful in developing or
selling these properties, has been made in the Company's financial
statements.
LIQUIDITY AND CAPITAL RESOURCES.
The Company currently has no revenues and, as explained above, has
an accumulated deficit. Because it has sustained recurring losses from
operations, the Company cannot assure that it will be able to fully
carry out its plans as budgeted without additional operating capital.
At December 31, 1999, the Company had negative working capital of
$144,393. At September 30, 1999, the Company had negative working
capital of $93,456. These amounts represent deterioration in liquidity
and capital resources from the Company's working capital position of
$303,600 at September 30, 1998 and represents further deterioration
from working capital of $357,646 at September 30, 1997. The largest
single element of negative working capital is accounts payable which
increased from $77,603 at September 30, 1999 to $93,516 at December 31,
1999. While sales of the Company's stock have traditionally
constituted its primary source of cash generation, depressed metals
prices in 1998 and 1999 have lessened the Company's recent ability to
obtain cash from sales of its stock. Company sales of its stock
35
generated the following cash amounts: $0 in the quarter ending
December 31, 1999, $158,200 in the year ending September 30, 1999; and
$344,500 in the year ending September 30, 1998. In adjusting to
smaller cash resources, the Company has substantially decreased its
expenses for office, personnel and compensation, and consulting
expenses.
In the first quarter of fiscal 2000, the Company increased its
accounts payable by $15,913 while advances from related parties climbed
from $44,000 to $76,000. Accordingly, the Company's current
liabilities moved from $121,603 at September 30, 1999 to $169,516 at
December 31, 1999. The Company had no long-term debt at September 30,
1999 or at December 31, 1999.
The Company has estimated that it will need minimal capital
resources of approximately $20,000-25,000 per month to meet its
estimated expenditures for fiscal 1999. In recent years, several key
members of management, met with experienced financial and investment
firms throughout Europe and North America and negotiated preliminary
terms and arrangements for capital fund raising. During the fiscal
year ending September 30, 1999, the Company raised $158,200 in funds,
(primarily through the private placement of shares) and during the
fiscal year
ending September 30, 1998, the Company raised $344,500 in funds from
private placement of its shares. The Company is continuing with the
previously described negotiations and various alternatives to raise
capital.
The Board of Directors reasonably believes that the Company is
able to engage in nearly any size operation or scope of mining activity
depending on the circumstances and merits of each proposed operation or
mining activity. Accordingly, the Board has not limited the size of
operation or scope of project which it believes is reasonable for
management to consider in achieving the Company's business plan.
Therefore, management has been authorized to consider and review
numerous proposals and, upon satisfactory assessment, to then make a
specific determination as to an estimated range of funding amounts that
each such proposal reasonably might require.
Inasmuch as the Company has not yet determined in detail the
specifications of the project, operation or mining activity that it
intends to undertake, management is not able at this time to provide a
detailed listing or exact range of operation costs, including increases
in general and administrative expense, if any. However, the Company
plans to fund any increases in general and administrative expense
principally from joint venture revenues or funds it may receive or
savings it may realize through corporate restructuring or business
combination arrangements. Funds required to finance the Company's
exploration and development of mineral properties are expected to come
primarily from the contributions of its joint venture participants, and
from the funds generated from such joint ventures and other lease or
royalty arrangements.
The Company currently is seeking alternate sources of working
capital sufficient to increase the funding of additional general and
administrative expenses that may become necessary as the Company's
business plan develops, and to continue meeting its ongoing payment
obligations for its leases to governmental entities.
36
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1998 AND DECEMBER 31,
1999, RESPECTIVELY.
General and administrative expenses decreased from $78,091 during
the first quarter of fiscal 1999 to $57,045 during the first quarter of
fiscal 2000. This increase is principally due to greatly reduced
compensation to officers and directors. In the quarter ended December
31, 1999, the Company recorded a loss on disposition of equipment of
$109,186, although there was no corresponding loss in the period ending
December 31, 1998. As a result, during the first quarter of fiscal
1999 compared to the first quarter of 2000, the net loss increased from
$71,033 to $166,148 while the net loss per share increased from a loss
of $0.004 to a loss of $0.008.
The Company is unable to fully determine the impact of future
transactions on its operating capital. Hence, the Company has
determined not to incur and does not have any commitments or plans for
material capital expenditures during the remainder of its current
fiscal year for which it does not have a reasonably available source of
payment. It is uncertain what effect this decision may have with
respect to restricting capital expenditures.
On the one hand, if the Company were to continue such restriction,
the likely effect might be adverse to the preservation of its assets
and capital base, thereby narrowing the scope of plans for future
operations and constricting liquidity. On the other hand, if the
Company were to discontinue such restriction without an increase in
sustained cash flow, the likely effect of that might be an increase in
accumulated deficits which could be adverse to the Company's financial
condition with respect to liabilities and stockholders' equity.
Therefore, while the Company continues to seek a joint venture
participant and additional sources of capital for financing operations
during the remainder of its current fiscal year, the Company will
continue to carefully monitor its capital expenditures.
37
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
EXHIBITS
Exhibit No. Document
27 Financial Data Schedule.
There were no reports of Form 8-K filed during the period ending
December 31, 1999.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Dated this 14th of February, 2000.
ROYAL SILVER MINES, INC.
BY: /s/ Howard Crosby
Howard Crosby, President, Treasurer
Chief Financial Officer and a
member of the Board of Directors