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, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM:
__________________________________
Commission File Number: 0-25170
__________________________________
ROYAL SILVER MINES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0306609
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
P.O. Box 2056
Walla Walla, Washington 99362
(Address of Principal Executive Offices, including zip code)
(509) 526-3491
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, 2000: 25,004,565
shares
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2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS OF ROYAL SILVER MINES, INC.
(Hereinafter referred to as Registrant or Company)
Condensed financial statements, and an accompanying independent
accountants' report, are filed as part of this Quarterly Report at
pages. In management's opinion, these financial statements present
fairly in all material respects Registrant's financial condition and
changes in condition as of December 31, 2000 and September 30, 2000,
and the results of operations, stockholders' equity and cash flows
for the three months ended December 31, 2000, 1999, 1998, and from
inception on February 17, 1994 through December 31,2000, in
conformance with generally accepted accounting principles.
The accompanying financial statements consolidate the financial
statements of Celebration Mining Company and Royal Silver Mines, Inc.
due to the Reorganization discussed in Note 1 of the financial
statements following this Report. All significant intercompany
accounts and transactions have been eliminated. Also, the
consolidation required a change in fiscal year-end, from November 30
(Celebration) to September 30 (Royal). The financial statements
account for the Reorganization using the purchase method of
accounting (see Note 1 to the financial statements). Celebration is
treated as the acquiring company for financial reporting purposes
because its shareholders constitute greater than 50 percent of the
combined shareholder group. In conformity with generally accepted
accounting principles and the Company's accounting policy,
Celebration is recognized as the predecessor entity. Consequently,
Celebration's assets and liabilities were not adjusted in the
accompanying financial statements. The financial statements for the
period from the inception of Celebration on February 17, 1994 to
November 30, 1994 ("Fiscal 1994") do not include the balance sheet
data or results of operations of Consolidated Royal Mines, Inc. The
accompanying financial statements represent the activities of Royal
Silver Mines and Celebration, but are not considered consolidated
financial statements since Royal Silver is the successor to
Celebration.
As discussed in greater detail under Item 2 below, a substantial
portion of Registrant's assets consist of investments in mineral
properties for which additional exploration is required to determine
if they contain ore reserves that are economically recoverable. The
realization of these investments is contingent to large extent upon
the success of Registrant's property transactions as a whole, the
existence of economically recoverable reserves, the ability of the
Company to obtain financing or make other arrangements for
development, and upon future profitable production. Accordingly, the
accompanying financial statements make no provision for any asset
impairment or other adjustment that might result from the outcome of
this uncertainty.
3
The Board of Directors
Royal Silver Mines, Inc.
(A Development Stage Company)
Spokane, Washington
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Royal Silver Mines, Inc.
(a development stage company) as of December 31, 2000, and the related
statements of operations and comprehensive loss, stockholders' equity, and
cash flows for the three months ended December 31, 2000, and for the period
from February 17, 1994 (inception) through December 31, 2000. All
information included in these financial statements is the representation of
the management of Royal Silver Mines, Inc.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements in order for them to
be in conformity with generally accepted accounting principles generally
accepted in the United States of America.
The financial statements for the year ended September 30, 2000 was audited by
us and we expressed an unqualified opinion on it in our report dated January
8, 2001. We have not performed any auditing procedures since that date.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company's significant operating losses raise
substantial doubt about its ability to continue as a going concern.
Management's plans are also discussed in Note 14. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Williams & Webster, P.S.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
February 8, 2001
F-1
4
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31,
2000 September 30,
(Unaudited) 2000
ASSETS
CURRENT ASSETS
Cash $ 14,782 $ 15,915
Notes receivable 14,628 14,628
Deposit 150 150
---------- ----------
TOTAL CURRENT ASSETS 29,560 30,693
---------- ----------
MINERAL PROPERTIES 698,847 698,847
---------- ----------
PROPERTY AND EQUIPMENT
Mining equipment - 8,343
Furniture and equipment 1,440 1,440
Less accumulated depreciation (1,440) (6,497)
---------- ----------
TOTAL PROPERTY AND EQUIPMENT - 3,286
---------- ----------
OTHER ASSETS
Investments 165,394 236,428
---------- ----------
TOTAL ASSETS $ 893,801 $ 969,254
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 114,849 $ 109,115
Payable to related party 1,057 -
---------- ----------
TOTAL CURRENT LIABILITIES 115,906 109,115
---------- ----------
LONG-TERM DEBT - -
---------- ----------
COMMITMENTS AND CONTINGENCIES - -
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; 40,000,000
shares authorized, 25,004,565 and
23,992,065 shares issued and outstanding,
respectively 250,045 239,920
Additional paid-in capital 11,582,849 11,540,074
Deficit accumulated during
development stage (10,957,143) (10,885,466)
Accumulated other comprehensive
income (loss) (97,856) (34,389)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 777,895 860,139
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 893,801 $ 969,254
=========== ===========
See accountant's review report and accompanying notes.
F-2
5
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
Period From
Three Months Ended February 17,
1994
December 31, (Inception) Through
2000 1999 1998 December 31, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
REVENUES $ - $ - $ - $ -
---------- ---------- ---------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES
Mineral property expense 170 - - 569,794
Depreciation and amortization 402 3,163 4,847 235,016
Officers' and directors'
compensation - 15,000 57,540 1,416,760
General and administrative 70,722 38,882 15,704 3,860,377
---------- ---------- ---------- -------------
Total expenses 71,294 57,045 78,091 6,081,947
---------- ---------- ---------- -------------
OPERATING LOSS (71,294) (57,045) (78,091) (6,081,947)
---------- ---------- ---------- -------------
OTHER INCOME (EXPENSES)
Interest income 29 83 7,058 58,984
Interest expense (2,824) - - (77,172)
Gain on property interest sold - - - 1,875,281
Gain (loss) on disposition
and impairment of assets 2,412 (109,186) - (6,732,289)
---------- ---------- ---------- -------------
Total other income (expense) (383) (109,103) 7,058 (4,875,196)
---------- ---------- ---------- -------------
LOSS BEFORE TAXES (71,677) (166,148) (71,033) (10,957,143)
INCOME TAXES - - - -
--------- ---------- ---------- -------------
NET LOSS (71,677) (166,148) (71,033) (10,957,143)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain (loss) on market
value of investments (63,467) (33,143) - (97,856)
---------- ---------- ---------- -------------
COMPREHENSIVE LOSS $ (135,144) $ (199,291) $ (71,033) $ (11,054,999)
========== ========== ========== =============
NET LOSS PER COMMON SHARE
BASIC AND DILUTED $ (0.01) $ (0.01) $ Nil $ (0.80)
========== ========== ========== =============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING,
BASIC AND DILUTED 24,344,239 20,350,581 18,708,228 13,802,374
========== ========== ========== ==========
See accountant's review report and accompanying notes.
F-3
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
--------- -------- ----------- ---------- ---------
The accompanying notes are an integral part of these financial statements.
F-4
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 29,43 - 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
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
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
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
---------- --------- ------------ ------------ -----------
The accompanying notes are an integral part of these financial statements.
F-7
10
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
11
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
12 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 $ -
Shares issued to
consultants and
others for services
at prices varying
from $0.03 to $0.07
per share 1,012,500 10,125 42,775 -
Net loss for quarter
ended December 31,
2000 - - - -
Unrealized loss on
market value of
investments - - - -
---------- --------- ------------ ----
Balance,
December 31, 2000
(Unaudited) 25,004,565 $ 250,045 $ 11,582,849 $ -
========== ========= ============ ====
The accompanying notes are an integral part of these financial statements.
F-9a
13
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
Shares issued to
consultants and
others for services
at prices varying
from $0.03 to $0.07
per share - - 52,900
Net loss for quarter
ended December 31,
2000 (71,677) - (71,677)
Unrealized loss on
market value of
investments - (63,467) (63,467)
------------ --------- ------------
Balance,
December 31, 2000
(Unaudited) $(10,957,143) $ (97,856) $ 777,895
============ ========= ============
The accompanying notes are an integral part of these financial statements.
F-9b
14
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Period From
02/17/94
Three Months Ended (Inception)
December 31, Through
2000 1999 1998 12/31/00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flows from operating activities:
Net loss $ (71,677) $ (166,148) $ (71,033) $ (10,957,143)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Investment given for officers'
compensation - - - 5,000
Loss (gain) on sale of equipment (115) 113,686 - 98,754
Gain on sale of investments (2,297) - - (2,297)
Equipment traded for services - 4,137 - 4,137
Depreciation and amortization 402 3,163 4,847 230,225
Issuance of common stock for
services 52,900 3,125 57,540 1,432,971
Write-off of option costs - - - 517,871
Write off of joint venture costs - - - 160,000
Write-off of mineral properties - - - 2,673,301
Loss on devaluation of investments - - - 3,121,060
Changes in assets and liabilities:
Note receivable - (3,000) (5,000) (14,628)
Deposit - (150) - (150)
Interest receivable - - (7,058) -
Prepaid expenses - - - (28,438)
Other assets - - - (9,801)
Mineral properties - - - (4,674)
Accounts payable 5,734 15,913 1,300 114,849
Accrued expenses - - - 43,188
Payable to related parties 1,057 32,000 - 345,057
--------- ---------- --------- -------------
Net cash provided (used) by
operating activities (13,996) 2,726 (19,404) (2,270,718)
--------- ---------- --------- -------------
Cash flows from investing activities:
Purchase of investments - (14,400) - (3,275,902)
Purchase and development of
mineral properties - - - (1,986,690)
Purchase of fixed assets - - - (325,687)
Sale of mineral properties - - - 1,093,750
Sale of investments 9,863 5,500 - 370,465
Sale of fixed assets 3,000 - - 8,685
--------- ---------- --------- -------------
Net cash provided (used) by
investing activities 12,863 (8,900) - (4,115,379)
--------- ---------- --------- -------------
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 - - - 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 - - 19,868 6,400,879
--------- ---------- --------- -------------
Net increase (decrease)
in cash $ (1,133) $ (6,174) $ 464 $ 14,782
--------- ---------- --------- -------------
See accountant's review report and accompanying notes.
F-10
15
ROYAL SILVER MINES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Period From
02/17/94
Three Months Ended (Inception)
December 31, Through
2000 1999 1998 12/31/00
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net increase (decrease) in cash
(balance forward) $ (1,133) $ (6,174) $ 464 $ 14,782
Cash, beginning of period 15,915 28,147 3,147 -
-------- -------- -------- -----------
Cash, end of period $ 14,782 $ 21,973 $ 3,611 $ 14,782
======== ======== ======== ===========
Supplemental cash flow disclosure:
Income taxes paid $ - $ - $ - $ 350
Interest paid $ - $ - $ 2,257 $ 25,655
Non-cash investing and
financing activities:
Common stock issued for
services rendered $ 52,900 $ 3,125 $ 57,540 $ 1,432,971
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 investments $ - $ - $ 7,200 $ 7,200
Common stock issued for
payment to related party $ - $ - $ - $ 88,000
Investment given for officers'
compensation $ - $ - $ - $ 5,000
See accountant's review report and accompanying notes.
F-11
16
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Royal Silver Mines, Inc. ("Royal") was incorporated in April of 1969 under
the laws of the State of Utah primarily for the purpose of acquiring and
developing mineral properties. Royal conducts its business as a "junior"
natural resource company, meaning that it intends to receive income from
property sales or joint ventures with larger companies. The Company has
elected a September 30 fiscal year-end.
Celebration Mining Company ("Celebration"), currently a wholly-owned
subsidiary of Royal, was incorporated for the purpose of identifying,
acquiring, exploring and developing mining properties. Celebration was
organized on February 17, 1994, as a Washington corporation. Celebration has
not yet realized any revenues from its planned operations.
On August 8, 1995, Royal and Celebration completed an agreement and plan of
reorganization whereby the Company issued 4,143,750 shares of its common
stock and 1,455,000 warrants in exchange for all of the outstanding common
stock of Celebration. Pursuant to the reorganization, the name of the
Company was changed to Royal Silver Mines, Inc. Immediately prior to the
agreement and plan of reorganization, the Company had 2,375,463 common shares
issued and outstanding.
The acquisition was accounted for as a purchase by Celebration of Royal,
because the shareholders of Celebration controlled the Company after the
acquisition. Therefore, Celebration is treated as the acquiring entity.
There was no adjustment to the carrying value of the assets or liabilities of
Royal in the exchange as the market value approximated the net carrying
value. Royal is the acquiring entity for legal purposes and Celebration is
the surviving entity for accounting purposes.
The $698,847 cost of mineral properties included in the accompanying balance
sheet as of December 31, 2000 is related to exploration properties. The
Company has not determined whether the exploration properties contain ore
reserves that are economically recoverable. The ultimate realization of the
Company's investment in exploration properties is dependent upon the success
of future property sales, the existence of economically recoverable reserves,
the ability of the Company to obtain financing or make other arrangements for
development and upon future profitable production. The ultimate realization
of the Company's investment in exploration properties cannot be determined at
this time and, accordingly, no provision for any asset impairment that may
result in the event the Company is not successful in developing or selling
these properties, has been made in the accompanying financial statements.
F-12
17
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 1 ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued)
The Company is seeking additional capital and management believes the
properties can ultimately be sold or developed to enable the Company to
continue its operations. However, there are inherent uncertainties in mining
operations and management cannot provide assurances that it will be
successful in this endeavor. Furthermore, the Company is in the development
stage, as it has not realized any significant revenues from its planned
operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Royal Silver Mines, Inc.
is presented to assist in understanding the Company's financial statements.
The financial statements and notes are representations of the Company's
management, which is responsible for their integrity and objectivity. These
accounting policies conform to accounting principles generally accepted in
the United States of America 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 process of preparing financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
use of estimates and assumptions regarding certain types of assets,
liabilities, revenues, and expenses. Such estimates primarily relate to
unsettled transactions and events as of the date of the financial statements.
Accordingly, upon settlement, actual results may differ from estimated
amounts.
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
18
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Mineral Properties
Costs of acquiring, exploring and developing mineral properties are
capitalized by project area. Costs to maintain the mineral rights and leases
are expensed as incurred. When a property reaches the production state, the
related capitalized costs will be amortized, using the units of production
method on the basis of periodic estimates of ore reserves.
Mineral properties are periodically assessed for impairment of value and any
losses are charged to operations at the time of impairment.
Should a property be abandoned, its capitalized costs are charged to
operations. The Company charges to operations the allocable portion of
capitalized costs attributable to properties sold. Capitalized costs are
allocated to properties sold based on the proportion of claims sold to the
claims remaining within the project area.
Provision For Taxes
At December 31, 2000, the Company had net operating loss carryforwards of
approximately $6,380,000 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 December 31, 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
19
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Principles of Consolidation
The financial statements include those of Royal Silver Mines, Inc. and
Celebration Mining Company. All significant inter-company accounts and
transactions have been eliminated. The financial statements are not
considered consolidated statements since Royal Silver Mines, Inc. was the
successor by merger to Celebration Mining Company.
Change in Accounting Policies
During the year ended September 30, 1999, the Company changed its method of
accounting for organization costs to conform to the requirements of Statement
on Position 98-5, which requires start-up and organization costs to be
expensed as incurred. The effect of the change was to increase net loss for
the year ended September 30, 1999, by $3,502 ($0.0002 per share). The change
has no effect on prior years.
Derivative Instruments
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This 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 December 31, 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.
Interim Financial Statements
The interim financial statements as of and for the three months ended
December 31, 2000 included herein have been prepared for the Company without
audit. They reflect all adjustments, which are, in the opinion of
management, necessary to present fairly the results of operations for these
periods. All such adjustments are normal recurring adjustments. The results
of operations for the periods presented are not necessarily indicative of the
results to be expected for the full fiscal year.
F-15
20
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 3 - MINERAL PROPERTIES
Utah Mining Property Joint Venture
In October 1994, Celebration and United Silver Mine, Inc., (United) entered
into a joint venture agreement, whereby Celebration could acquire up to an
80% interest in a mining property located in the State of Utah. Under the
terms of the agreement, United was to contribute real properties for an
initial 75% interest in the joint venture, and Celebration was to remove all
liens associated with the real properties by paying $175,000 to a bank which
was the primary lien holder for its initial 25% interest in the venture.
Celebration expended $175,000 to purchase the aforementioned promissory note.
The property was auctioned in a public auction in May 1995 and by virtue of
Celebration's first position lien, Celebration was able to successfully bid
the full amount of the underlying promissory note. Although additional
expenditures have been made on the property through September 30, 1998, no
further funds towards the joint venture have been expended by Celebration,
which owns an undivided 25% interest in the property.
Washington and Idaho Mineral Properties
During the year ended September 30, 1995, Celebration purchased, through the
issuance of 800,000 shares of its common stock, various mineral properties
located in the states of Washington and Idaho. The mineral properties were
recorded at the fair market value of the shares paid on the date of issuance
ranging from $3.13 to $3.25 per share for a total purchase price of
$2,538,126. In May 1996, the Company sold back the Frisco Standard Silver
Mine to its original seller in exchange for the same price (35,000 shares of
Royal stock) received by the seller when the mine was purchased. The shares
received were canceled and no gain or loss was recorded on the transaction.
Other Domestic Properties
In February 1999, in connection with the settlement agreement with Grand
Central (described in Note 12), 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
21
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Major additions and
improvements are capitalized. Minor replacements, maintenance and repairs
that do not increase the useful life of the assets are expensed as incurred.
Depreciation of property and equipment is determined using the straight-line
method over the expected useful lives of the assets of five years.
Depreciation expense for the quarters ended December 2000, 1999 and 1998 was
$402, $3,163 and $4,847, respectively.
NOTE 5 - INVESTMENTS
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 December 31, 2000 and September 30, 2000, the market values of investments
were as follows:
December 31, September 30,
2000 2000
Elite Logistics, Inc. $ 83,413 $ 150,588
Envirogold LLC 8,000 8,000
Integrated Pharmaceuticals, Inc. 1,943 -
Rigid Airship USA, Inc. 3,100 3,100
Ashington Mining Company 7,200 7,200
Metalline Mining Company 37,287 37,288
Advanced Process Technologies, Inc. - 4,301
Sterling Mining Co. 4,451 5,951
Silver Belle Mining Co. 20,000 20,000
--------- ---------
$ 165,394 $ 236,428
========= =========
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
F-17
22
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 5 INVESTMENTS (Continued)
Grand Central Silver Mines, Inc. (Continued)
from Grand Central. The promissory note was satisfied in February 1999
through a settlement agreement with Grand Central. (See Note 12.)
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, 2000, the stock had a market value of $3,100.
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. See Note 13.
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 December 31, 2000, the Company's investment in Metalline Mining Company
stock had a market value of $37,287.
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.
F-18
23
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 6 COMMON STOCK (Continued)
During the year ended September 30, 1995, the Company issued 12,750 shares of
common stock to directors and employees for services rendered, valued at
prices ranging from $2.00 to $2.50 per share, which is the fair market value
of the shares on the date of issuance.
During the year ended September 30, 1995, Celebration issued 975,000 shares
of common stock in exchange for mineral properties 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.
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
24
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 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. (See
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. See Note 12.
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.
During the quarter ended December 31, 2000, the Company issued 1,012,500
shares of common stock for services. The shares were valued at their fair
market value at the date of issuance, which ranged from $0.03 to $0.07.
F-20
25
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
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 December 31, 2000, 12,750 shares of common stock have been
awarded under the Plan.
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
December 31, 2000, 1,455,000 options have been granted under the plan
although none have been exercised in the period ending December 31, 2000.
The old existing options are attributed to the merger of Celebration Mining
Company with Royal in August 1995.
Of the total of 2,500,000 common stock shares authorized for issuance under
the plan, 179,000 shares at values ranging from $0.34 to $0.91 per share were
issued to employees and directors during the year ended September 30, 1998
and 1,259,000 shares at values ranging from $0.04 to $0.07 per share were
issued to employees and directors during the year ended September 30, 1999.
F-21
26
ROYAL SILVER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 8 COMPANY STOCK OPTION AND AWARD PLAN (Continued)
Following is a summary of the stock options during the year ended September
30, 2000 and the quarter ended December 31, 2000.
Weighted
Number Average
of Exercise
Shares Price
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 year ended 9/30/2000 $ -
=========
Outstanding at 10/1/2000 1,200,000 $ 0.93
Granted - -
Exercised - -
Forfeited - -
--------- ------
Outstanding at 12/31/2000 1,200,000 $ 0.93
========= ======
Options exercisable at 12/31/2000 1,200,000 $ 0.93
========= ======
Weighted average fair value of options
granted during the period ended 12/31/2000 $ -
=========
NOTE 9 - ADDITIONAL PAID-IN CAPITAL
The following is a summary of additional paid-in capital at December 31, 2000
and September 30, 2000:
December 31, 2000 September 30, 2000
Applicable to:
Common Stock $ 11,536,281 $ 11,493,506
Stock Warrants 46,568 46,568
------------ ------------
$ 11,582,849 $ 11,540,074
============ ============
F-22
27
ROYAL SIVLER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 10 - STOCK OPTION AGREEMENT WITH CENTURION MINES CORPORATION
In September 1996, the Company executed an agreement with Centurion Mines
Corporation ("Centurion") whereby the Company acquired an option from
Centurion to purchase up to 800,000 shares of its common stock held by
Centurion for the exercise price of $1.75 per share during the two-year
period ending September 30, 1998. The cost of this two-year stock purchase
option was $50,000 which was paid by the Company and charged to stockholders'
equity (accumulated deficit).
Effective April 15, 1997, the aforementioned stock option agreement was
renegotiated (at no cost to the Company) and amended to extend the exercise
period until September 30, 1999 and to revise the exercise price to $1.50 per
share during this same period.
At December 31, 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.
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. During
the quarter ended December 31, 2000, the Company withdrew from the lawsuit
and is no longer a party to the action.
For commitments and contingencies regarding the Company's investment in
Envirogold LLC, see Note 5.
F-23
28
ROYAL SIVLER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 12 SETTLEMENT AGREEMENTS
In February 1999, the Company entered into a settlement arrangement wherein
Grand Central Silver Mines, Inc. (hereinafter "Grand") transferred equipment,
mining claims, and securities (including 450,000 shares of Royal Silver
Mines, Inc. stock) to Royal in full settlement of a $350,000 promissory note
(and accrued interest) owed by Grand to Royal. In connection with the same
transaction, the Company transferred to an individual 154,375 shares of Grand
common stock (previously held by Royal) and in turn received from this same
individual 1,000,000 shares of Royal Silver Mines, Inc. common stock and
333,333 shares of Summit Silver, Inc. common stock. While this settlement
agreement involved mutual releases of liability for all parties affected, the
net effect of the settlement was the Company's recording 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.
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.
F-24
29
ROYAL SIVLER MINES, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2000
NOTE 14 - GOING CONCERN
As shown in the accompanying financial statement, the Company has no
revenues, has incurred a net loss of $71,677 for the quarter ended December
31, 2000 and has an accumulated deficit of $10,957,143 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
As of December 31, 2000, the Company had incurred a related party payable to
an officer in the amount of $1,057. This amount was fully paid subsequent to
the date of these financial statements.
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 quarter ended December 31, 2000 and the year
ended September 30, 2000 was $900 and $1,200, respectively.
Other related party transactions are disclosed in Notes 5 and 13.
NOTE 16 YEAR 2000 ISSUES
Like other companies, Royal Silver Mines, Inc. could be adversely affected if
the computer systems it, its suppliers or customers use do not properly
process and calculate date-related information and data from the period
surrounding and including January 1, 2000. This is commonly known as the
"Year 2000" issue. Additionally, this issue could impact non-computer
systems and devices such as production equipment, elevators, etc. At this
time there have been no known problems related to the Year 2000 issue.
The Company has reviewed its business and processing systems and believes
that the majority of its systems are already year 2000 compliant or can be
made so with software updates. Based on its assessments, the Company regards
the costs associated with Year 2000 readiness to be immaterial. All costs
associated with the Year 2000 issue will be expensed as incurred.
F-25
30
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, 2000, the Company accumulated a deficit of $10,957,143.
At December 31, 2000, $698,847 of the Company's total assets of $893,801 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, 2000, the Company had negative working capital of
$86,346. At September 30, 2000, the Company had negative working capital of
$78,422. These amounts represent general deterioration in liquidity and
capital resources from the Company's positive working capital in prior years.
The largest single element of negative working capital is accounts payable
which increased from $109,115 at September 30, 2000 to $114,849 at December
31, 2000. While sales of the Company's stock have traditionally constituted
its primary source of cash
31
generation, depressed metals prices in 1998, 1999, and 2000 have lessened the
Company's ability to obtain cash from sales of its stock. Company sales of
its stock generated the following cash amounts: $0 in the fifteen months
ending December 31, 2000, $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 2001, the Company increased its accounts
payable by $5,734 while current assets and cash balances remained almost the
same as the September 30, 2000 balances. The Company had no long-term debt
at September 30, 2000 or at December 31, 2000.
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 2001. 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.
32
The Company currently is seeking alternate sources of working capital
sufficient to increase the funding of additional general and administrative
expenses that may become necessary as the Company's business plan develops,
and to continue meeting its ongoing payment obligations for its leases to
governmental entities.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1999 AND DECEMBER 31,
2000, RESPECTIVELY. General and administrative expenses increased from
$57,045 during the first quarter of fiscal 2000 to $71,294 during the first
quarter of fiscal 2001. This increase is principally due to greater than
normal consulting expenses. 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, 2000. As
a result, during the first quarter of fiscal 2000 compared to the first
quarter of 2001, the net loss decreased from $166,148 to $71,677 while the
net loss per share decreased from a loss of $0.008 to a loss of $0.003.
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.
33
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
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.
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.
None.
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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 19th day of February, 2001.
ROYAL SILVER MINES, INC.
/s/ Howard Crosby
By: Howard Crosby,
Its: Chief Executive Officer