-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OqKtBuac+sTXhKKt32t699VVxAyxpjlfS7iuDryczTGMdtHs27Qw3lS4XgByuL1l MwtkLxJkpnmBdqtPCWePQg== 0000933157-97-000025.txt : 19970815 0000933157-97-000025.hdr.sgml : 19970815 ACCESSION NUMBER: 0000933157-97-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL SILVER MINES INC CENTRAL INDEX KEY: 0000933157 STANDARD INDUSTRIAL CLASSIFICATION: 1000 IRS NUMBER: 912938293 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25170 FILM NUMBER: 97656715 BUSINESS ADDRESS: STREET 1: 10220 N. NEVADA STREET 2: SUITE 207 CITY: SPOKANE STATE: WA ZIP: 99218 BUSINESS PHONE: (509) 466-3144 MAIL ADDRESS: STREET 1: 10220 N NEVADA STREET 2: STE 230 CITY: SPOKANE STATE: WA ZIP: 99218 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED ROYAL MINES INC DATE OF NAME CHANGE: 19950908 10-Q 1 1 ================================================================= SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: June 30, 1997 ( ) 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) 10220 N. Nevada, Suite 230, Spokane, WA 99218 (Address of Principal Executive Offices) (Zip Code) (509) 466-3144 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ______ The number of shares outstanding at June 30, 1997: 13,423,904 ================================================================= 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 F-1 to F-22. In management's opinion, these financial statements present fairly in all material respects Registrant's financial condition and changes in condition as of June 30, 1997 and September 30, 1996, and the results of operations, stockholders' equity and cash flows for the nine months ended June 30, 1997 and 1996, and from inception on February 17, 1994 through June 30, 1997, 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 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 June 30, 1997, the Company accumulated a deficit of $4,455,108. At June 30, 1997, $4,472,096 of the Company's total assets of $6,174,102 were investments in mineral properties. Additional exploration is required to substantiate or determine whether these mineral properties contain ore reserves that are economically recoverable. The realization of these investments is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the Company to obtain financing, the Company's success in carrying out its present plans or making other arrangements for development, and upon future profitable production. The ultimate outcome of these investments cannot be determined at this time; accordingly, no provision for any asset impairment that may result, in the event the Company is not successful in developing or selling these properties, has been made in the Company's financial statements. LIQUIDITY AND CAPITAL RESOURCES. The Company currently has no revenues but, as explained above, has an accumulated deficit. Although it has recurring losses from operations, the Company has increased its operating capital and improved its financial condition and ability. Regarding its losses from operations, the Company cannot assure that it will be able to fully carry out its plans as budgeted without additional operating capital. At June 30, 1997, the Company had working capital of $1,201,371. This amount is a significant improvement in liquidity and capital resources from its working capital position of $390,852 at December 31, 1996 and of $686,573 at September 30, 1996. In the nine months ending June 30, 1997, the Company's working capital has 4 increased by $514,798 primarily because of the cash stock sales of $1,868,250 in the second quarter and the reduction of all remaining short-term debt, which are partially offset by funding of the Company's general and administrative expenses. During the same nine month period, the Company's cash increased from $688,716 to $1,123,602. In the second quarter of fiscal 1997, the Company reduced its short-term debt position to $0 by paying off a $35,000 promissory note. The Company has continued to reduce its accrued expenses and accounts payable. Accordingly, the Company's current liabilities shrank from $119,867 at September 30, 1996 to $33,342 at June 30, 1997. The Company has no long-term debt. The Company has estimated that it will need minimal capital resources of approximately $40,000-50,000 per month to meet its estimated expenditures for fiscal 1997. In 1996, acting on instructions from the Board, several key members of management, in particular the CEO of the Company, met with experienced financial and investment firms through out Europe and North America and negotiated preliminary terms and arrangements for such capital fund raising. During the second fiscal quarter of 1997, the Company raised $1,871,250 in funds, primarily through the private placement of shares and warrants. 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 substantial 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. 5 The Company consistently has made full and timely payment of its expenses, in particular to the various governmental payees it interacts with, and has met its obligations to the entities which provide its personnel, office space, and equipment needs. The Company currently is seeking alternate sources of working capital sufficient to increase the funding of additional general and administrative expenses that may become necessary as the Company's business plan develops, and to continue meeting its ongoing payment obligations for its leases to governmental entities. RESULTS OF OPERATIONS COMPARISON OF THE NINE MONTHS ENDED JUNE 30, 1996 AND JUNE 30, 1997, RESPECTIVELY. General and administrative expenses increased from $929,984 during the first three quarters of fiscal 1996 to $1,463,455 during the first three quarters of fiscal 1997. This increase is principally due to an increased level of expenditures in acquiring and exploring the Company's recent acquisitions in Argentina and Chile. Also, during the second quarter of fiscal 1997 the Company wrote off $238,887 of mineral properties associated with its investment in the Bunker Hill Mine. As a result, during the nine months of fiscal 1996 compared to the first nine months of fiscal 1997, the Company's net loss increased from $937,393 to $1,447,291, while the net loss per share increased from $0.11 to $0.12 per share. 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. 6 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. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated this 5th day of August, 1997. ROYAL SILVER MINES, INC. By: /s/ Howard Crosby Its: Chief Executive Officer By: /s/ Robert Jorgensen Its: Principal Accounting Officer 7 ROYAL SILVER MINES, INC. (A Development Stage Company) FINANCIAL STATEMENTS June 30, 1997 and September 30, 1996 8 C O N T E N T S Accountant's Review Report F-1 Balance Sheets F-2 - F-3 Statements of Operations F-4 Statements of Stockholders' Equity F-5 - F-9 Statements of Cash Flows F-10 - F-11 Notes to the Financial Statements F-12 - F-24 9 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 June 30, 1997, and the related statements of operations, shareholders' equity, and cash flows for the nine months ended June 30, 1997 and 1996, and for the period from February 17, 1994 (inception) through June 30, 1997. The review was conducted in a accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Royal Silver Mines, Inc. A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements 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. The balance sheet for the year ended September 30, 1996 was audited by us and we expressed an unqualified opinion on it in our report dated December 13, 1996. We have not performed any auditing procedures since that date. Williams & Webster, P.S. Certified Public Accountants Spokane, Washington July 23, 1997 F-1 10 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
June 30, September 30, 1997 1996 (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash $ 1,123,602 $ 688,716 Note receivable 100,000 100,000 Interest receivable 5,958 333 Prepaid expenses 5,153 17,391 ----------- ----------- TOTAL CURRENT ASSETS 1,234,713 806,440 ----------- ----------- MINERAL PROPERTIES 4,727,096 4,785,665 ----------- ----------- PROPERTY AND EQUIPMENT Mining equipment 133,534 - Furniture and equipment 15,185 15,802 Less accumulated depreciation (6,610) (2,809) ----------- ----------- TOTAL PROPERTY AND EQUIPMENT 142,109 12,993 ----------- ----------- OTHER ASSETS Investments 70,000 - Organization costs, net 184 259 ----------- ----------- TOTAL OTHER ASSETS 70,184 259 ----------- ----------- TOTAL ASSETS $ 6,174,102 $ 5,605,357 =========== ===========
The accompanying notes are an integral part of these financial statements. F-2 11 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
June 30, September 30, 1997 1996 (Unaudited) (Audited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 15,355 $ 25,135 Payable to related parties - 289 Accrued expenses 17,987 34,443 Notes payable - 60,000 ----------- ----------- TOTAL CURRENT LIABILITIES 33,342 119,867 ----------- ----------- LONG-TERM DEBT - - ----------- ----------- COMMITMENTS AND CONTINGENCIES - - ----------- ----------- SHAREHOLDERS' EQUITY Common stock, $.01 par value; 40,000,000 shares authorized, 13,423,904 and 10,649,854 shares issued and outstanding, respectively 133,751 106,499 Additional paid-in capital 10,512,117 8,436,808 Deficit accumulated during development stage (4,505,108) (3,057,817) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 6,140,760 5,485,490 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,174,102 $ 5,605,357 =========== ===========
The accompanying notes are an integral part of these financial statements. F-3 12 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Operations, has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
Three months ended June 30, June 30, 1997 1996 REVENUES $ - $ - GENERAL AND ADMINISTRATIVE EXPENSES Mineral properties 22,732 2,758 Depreciation and amortization 10,683 616 Officers and directors compensation 85,499 54,999 Other general and administrative 272,799 219,682 ------------ ----------- Total expenses 391,713 278,055 ------------ ----------- OPERATING (LOSS) (391,713) (278,055) ------------ ----------- OTHER INCOME (EXPENSES) Interest income 16,190 Interest expense - (2,159) Loss on disposition of assets - - ------------ ----------- Total other income (expenses) 16,190 (2,159) ------------ ----------- NET LOSS $ (375,523) $ (280,214) ------------ ----------- NET LOSS PER COMMON SHARE $ (0.03) $ (0.03) ============ =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 13,423,904 9,396,915 ============ =========== The accompanying notes are an integral part of these financial statements. F-4a 13 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Operations, has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF OPERATIONS (Continued) February 17, Nine months ended 1994 (inception) June 30, June 30, through 1997 1996 June 30, 1997 REVENUES $ - $ - $ - ------------ ----------- ------------ GENERAL AND ADMINISTRATIVE EXPENSES Mineral properties 261,619 8,122 270,584 Depreciation and amortization 28,855 21,776 126,924 Officers and directors compensation 329,911 266,215 1,161,859 Other general and administrative 843,070 633,871 2,495,076 ------------- ----------- ------------ Total expenses 1,463,455 929,984 4,054,443 ------------- ----------- ------------ OPERATING (LOSS) (1,463,455) (929,984) (4,054,443) ------------- ----------- ------------ OTHER INCOME (EXPENSES) Interest income 20,190 20,190 Interest expense (2,257) (7,409) (74,348) Loss on disposition of assets (1,769) - (346,507) ------------- ----------- ------------ Total other income (expenses) 16,164 (7,409) (400,665) ------------- ----------- ------------ NET LOSS $ (1,447,291) $ (937,393) $ (4,455,108) ------------- ----------- ------------ NET LOSS PER COMMON SHARE $ (0.12) $ (0.11) $ (0.64) ============= =========== ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 11,804,654 8,742,325 6,974,672 ============= =========== ============
F-4b 14 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance February 17, 1994 - $ - Issuance in May 1994 of shares at $0.002 per share to officers and directors in exchange for assignment of mining property option 2,250,000 22,500 Issuance in July 1994 of shares for cash at $0.402 in private placement, net of costs. 1,050,000 10,500 Issuance in August 1994 of shares to a director in exchange for services, valued at $0.417 150,000 1,500 Net loss for the year ended November 30, 1994 - - --------- -------- Balance, November 30, 1994 3,450,000 34,500 Issuance of shares in debt offering at $0.03 per share 416,250 4,163 Issuance of shares for mineral properties valued at $1.00 per share 262,500 2,625 Issuance of shares for cash at $1.00 per share 15,000 150 Stock issuance costs - - --------- -------- Balance forward 4,143,750 41,438 --------- -------- The accompanying notes are an integral part of these financial statements. F-5a 15 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance February 17, 1994 $ - $ - $ - Issuance in May 1994 of shares at $0.002 per share to officers and directors in exchange for assignment of mining property option (18,500) - 4,000 Issuance in July 1994 of shares for cash at $0.402 in private placement, net of costs. 411,116 - 421,616 Issuance in August 1994 of shares to a director in exchange for services, valued at $0.417 61,000 - 62,500 Net loss for the year ended November 30, 1994 - (211,796) (211,796) --------- ---------- ---------- Balance, November 30, 1994 453,616 (211,796) 276,320 Issuance of shares in debt offering at $0.03 per share 9,712 - 13,875 Issuance of shares for mineral properties valued at $1.00 per share 259,875 - 262,500 Issuance of shares for cash at $1.00 per share 14,850 - 15,000 Stock issuance costs (58,202) - (58,202) --------- ---------- ---------- Balance forward $ 679,851 $ (211,796) $ 509,493 --------- ---------- ----------
F-5b 16 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance forward 4,143,750 $ 41,438 Issuance of shares to acquire Consolidated Royal Mines, Inc. at $0.15 per share 2,434,563 24,346 Issuance of shares to directors and employees for services at prices ranging from $2.00 to $2.50 per share 12,750 127 Issuance of shares in exchange for mineral properties at prices ranging from $3.13 to $3.25 per share 800,000 8,000 Issuance of shares for cash at prices ranging from $1.50 to $2.00 per share 166,000 1,660 Issuance of shares in exchange for debt at $1.50 per share 200,000 2,000 Net loss for the ten months ended September 30, 1995 - - --------- -------- Balance, September 30, 1995 7,757,063 $ 77,571 --------- -------- The accompanying notes are an integral part of these financial statements. F-6a 17 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 679,851 $ (211,796) $ 509,493 Issuance of shares to acquire Consolidated Royal Mines, Inc. at $0.15 per share 335,750 - 360,096 Issuance of shares to directors and employees for services at prices ranging from $2.00 to $2.50 per share 29,473 - 29,600 Issuance of shares in exchange for mineral properties at prices ranging from $3.13 to $3.25 per share 2,530,126 - 2,538,126 Issuance of shares for cash at prices ranging from $1.50 to $2.00 per share 247,340 - 249,000 Issuance of shares in exchange for debt at $1.50 per share 298,000 - 300,000 Net loss for the ten months ended September 30, 1995 - (750,939) (750,939) ----------- ---------- ----------- Balance, September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376 ----------- ---------- -----------
F-6b 18 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance forward September 30, 1995 7,757,063 $ 77,571 Issuance of shares for cash at $1.50 per share 1,176,832 11,769 Issuance of shares to directors and employees for services at $1.50 per share 222,700 2,227 Issuance of shares in exchange for debt and accrued interest at $1.50 per share 406,050 4,060 Issuance of shares for cash at $2.20 per share 150,000 1,500 Issuance of warrants for cash at $0.05 per warrant - - Issuance of shares for cash at $1.62 per share 65,000 650 Issuance of shares for cash to directors and employees at prices ranging from $1.62 to $2.08 per share 107,500 1,075 Issuance of shares for cash at $0.75 per share 200,000 2,000 Issuance of shares for cash at $1.70 per share 250,000 2,500 ---------- --------- Balance forward 10,335,145 $ 103,352 ---------- --------- The accompanying notes are an integral part of these financial statements. F-7a 19 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward September 30, 1995 $ 4,120,540 $ (962,735) $ 3,235,376 Issuance of shares for cash at $1.50 per share 1,754,010 - 1,765,779 Issuance of shares to directors and employees for services at $1.50 per share 331,823 - 334,050 Issuance of shares in exchange for debt and accrued interest at $1.50 per share 605,015 - 609,075 Issuance of shares for cash at $2.20 per share 328,500 - 330,000 Issuance of warrants for cash at $0.05 per warrant 41,068 - 41,068 Issuance of shares for cash at $1.62 per share 104,650 - 105,300 Issuance of shares for cash to directors and employees at prices ranging from $1.62 to $2.08 per share 181,175 - 182,250 Issuance of shares for cash at $0.75 per share 147,985 - 149,985 Issuance of shares for cash at $1.70 per share 422,500 - 425,000 ----------- ---------- ----------- Balance forward $ 8,037,266 $ (962,735) $ 7,177,883 ----------- ---------- -----------
F-7b 20 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance forward 10,335,145 $ 103,352 Cancellation of 35,000 shares received in exchange for return of mining property (35,000) (350) Payment to Centurion Mines for options to repurchase stock - - Issuance of shares for joint venture in mining property at $1.50 per share 100,000 1,000 Repurchase of 25,000 shares issued for joint venture at $1.40 per share (25,000) (250) Issuance of shares for mining property at $1.50 per share 20,000 200 Issuance of shares to noteholders for extension of notes at $1.50 per share 39,375 394 Issuance of shares for services at $1.50 per share 215,334 2,153 Stock issuance costs - - Net loss for the year ended September 30, 1996 - - ---------- --------- Balance, September 30, 1996 10,649,854 $ 106,499 ---------- --------- The accompanying notes are an integral part of these financial statements. F-8a 21 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 8,037,266 $ (962,735) $ 7,177,883 Cancellation of 35,000 shares received in exchange for return of mining property (109,025) - (109,375) Payment to Centurion Mines for options to repurchase stock - (50,000) (50,000) Issuance of shares for joint venture in mining property at $1.50 per share 149,000 - 150,000 Repurchase of 25,000 shares issued for joint venture at $1.40 per share (34,750) - (35,000) Issuance of shares for mining property at $1.50 per share 29,800 - 30,000 Issuance of shares to noteholders for extension of notes at $1.50 per share 58,669 - 59,063 Issuance of shares for services at $1.50 per share 320,848 - 323,001 Stock issuance costs (15,000) - (15,000) Net loss for the year ended September 30, 1996 - (2,045,082) (2,045,082) ----------- ------------ ------------ Balance, 09/30/96 $ 8,436,808 $(3,057,817) $ 5,485,490 ----------- ----------- -----------
F-8b 22 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (Unaudited)
Common Stock Number of Shares Amount Balance forward 10,649,854 $ 106,499 Issuance of shares for cash at $0.75 per share 2,491,000 24,910 Stock issuance costs - - Issuance of shares to directors and employees for services at $1.00 per share 80,000 800 Issuance of shares for services at $1.25 per share 98,250 982 Payment for extension of warrants for one year - - Issuance of shares to directors and employees for services at $1.00 per share 30,500 305 Issuance of shares for services at $1.00 per share 25,500 255 Payment for extension of warrants for one year - - Net loss for the nine months ended June 30, 1997 - - ---------- --------- Balance, June 30, 1997 13,375,104 $ 133,751 ========== ========= The accompanying notes are an integral part of these financial statements. F-9a 23 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Shareholders' Equity (Deficit), has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENT OF SHAREHOLDER'S EQUITY (DEFICIT) (Continued) (Unaudited) Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 8,436,808 $ (3,057,817) $ 5,485,490 Issuance of shares for cash at $0.75 per share 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 79,200 - 80,000 Issuance of shares for services at $1.25 per share 121,829 - 122,811 Payment for extension of warrants for one year 3,000 - 3,000 Issuance of shares to directors and employees for services at $1.00 per share 30,195 - 30,500 Issuance of shares for services at $1.00 per share 25,245 - 25,500 Payment for extension of warrants for one year 2,500 - 2,500 Net loss for the nine months ended June 30, 1997 - (1,447,291) (1,447,291) ------------ ------------ ----------- Balance, June 30, 1997 $ 10,512,117 $ (4,505,108) $ 6,140,760 ============ ============ ===========
F-9b 24 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Cash Flows, has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS
Period from February 17, Nine months ended 1994 (inception) June 30, June 30, through 1997 1996 June 30, 1997 Cash flows from operating activities: Net loss $ (1,447,291) $ (937,393) $ (4,455,108) Adjustments to reconcile net loss to net cash used by operating activities: Loss on sale of equipment 1,769 - 1,769 Depreciation and amortization 28,855 21,776 129,471 Issuance of common stock for services 258,811 239,850 1,007,964 Write-off of joint venture costs - - 150,000 Changes in assets and liabilities: Note receivable - - (100,000) Prepaid expenses (11,563) 547 (28,956) Interest receivable (5,625) - (5,958) Mineral properties 238,887 - 238,887 Other assets - - (3,801) Accounts payable (9,780) (56,489) 15,355 Accrued expenses (16,456) (15,622) 17,987 Payable to related parties (289) - 300,000 ------------ ----------- ------------ Net cash used in operating activities (962,682) (747,331) (2,732,390) ------------ ----------- ------------ Cash flows from investing activities: Sale of assets 500 - 500 Purchase and development of mineral properties (180,318) (975,851) (1,785,154) Purchase of investments (70,000) - (70,000) Purchase of fixed assets (136,364) (3,003) (152,166) ------------ ----------- ------------ Net cash provided used in investing activities (386,182) (978,854) (2,006,820) ------------ ----------- ------------ The accompanying notes are an integral part of these financial statements. F-10a 25 In order to transmit these documents to the SEC via EDGAR, Royal Silver Mines, Inc., a development stage enterprise, Statements of Cash Flows, has been formatted to fit across two pages. ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF CASH FLOWS Period from February 17, Nine months ended 1994 (inception) June 30, June 30, through 1997 1996 June 30, 1997 Cash flows from financing activities: Stock issuance and offering costs (30,000) (15,000) (174,835) Proceeds received on long-term debt - - 675,000 Payments made on notes payable (60,000) (15,000) (174,206) Issuance of common stock for cash 1,868,250 1,945,779 5,528,064 Payment for extension of warrants 5,500 - 5,500 Payment for option to repurchase stock - - (50,000) 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 - 41,068 41,068 ------------ ------------ ------------ Net cash provided by financing activities 1,783,750 1,956,847 5,862,812 ------------ ------------ ------------ Net increase in cash $ 434,886 $ 230,662 $ 1,123,602 ------------ ------------ ------------
F-10b 26 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS
Period from February 17, Nine months ended 1994 (inception) June 30, June 30, through 1997 1996 June 30, 1997 Net increase in cash (balance forward) $ 434,886 $ 230,662 $ 1,123,602 Cash, beginning of period 688,716 151,698 - ----------- --------- ----------- Cash, end of period $ 1,123,602 $ 382,360 $ 1,123,602 =========== ========= =========== Supplemental cashflow disclosure: Income taxes $ - $ - $ 350 Interest $ 6,042 $ - $ 29,440 Non-cash financing activities: Common stock issued for services rendered $ 258,811 $ 239,850 $ 1,007,964 Common stock issued for mineral properties $ - $ - $ 2,980,626 Common stock issued for exchange for debt $ - $ 609,075 $ 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
The accompanying notes are an integral part of these financial statements. F-11 27 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 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 control 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 $4,727,096 cost of mineral properties included in the accompanying balance sheet as of June 30, 1997 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 28 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued) The Company is actively 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 Accounting Method The Company's financial statements are prepared using the accrual method of accounting. 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 weighing them by the amount of time they were outstanding. The 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. 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 stage, 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. F-13 29 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. Concentration of Risk The Company maintains its cash accounts in primarily one commercial bank in Spokane, Washington. Accounts are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. One of the Company's cash accounts is a business checking account with a balance of $104,037 and a certificate of deposit in the amount of $5,000 at June 30, 1997 which in aggregate exceed the FDIC threshold by $9,037. The remaining cash account is a "liquid asset account" in the amount of $1,014,565, which is invested in a portfolio of U.S. Treasury notes/bonds. Provision For Taxes At June 30, 1997, the Company had net operating loss carryforwards of approximately $4,100,000 that may be offset against future taxable income through 2011. No tax benefit has been reported in the financial statements as the Company believes there is a 50% or greater 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. Recently Issued Accounting Standards In March 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Impairment of Long-Lived Assets." This new standard is effective for years beginning after December 15, 1995. In complying with this standard, the Company has reviewed its long-lived assets at June 30, 1997 and concluded that no events or changes in circumstances have transpired which indicate that the carrying value of its assets may not be recoverable. The Company does not believe that adoption of the new standard will have a material effect on its financial statements in the current fiscal year. F-14 30 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 2 -SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In October 1995, the Financial Accounting Standards Board issued a new statement titled "Accounting for Stock-Based Compensation" (FAS 123). The new statement is effective for fiscal years beginning after December 15, 1995. FAS 123 encourages, but does not require, companies to recognize compensation expense for grants of stock, stock options, and other equity instruments to employees based on fair value. Companies that do not adopt the fair value accounting rules must disclose the impact of adopting the new method in the notes to the financial statements. Transactions in equity instruments with non-employees for goods or services must be accounted for on the fair value method. The Company currently intends to adopt the fair value accounting prescribed by FAS 123. However, the Company intends to continue its analysis of FAS 123 to determine its ultimate effect in the future. 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 contributed 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 June 30, 1997, no further funds toward the joint venture have been expended by Celebration, which owns an undivided 25% interest in the property. 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 state leases. In connection with this lease, Celebration paid $50,000 and issued 175,000 shares of common stock. In addition, 10,000 shares were issued to a new director for his assistance in obtaining this lease. Celebration subsequently paid F-15 31 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 3 - MINERAL PROPERTIES (Continued) $950,000 for the option of extending its lease for an additional forty-nine years. When, and if, the property achieves gross sales of $40,000,000, Celebration will be obligated to pay an additional 0.5% royalty on future sales. Furthermore, beginning after September 1, 1995, and at such time as the average price of silver has reached $6.00 per ounce for a 30-day period, Celebration is obligated to spend not less than $2,000,000 during the subsequent 36 months to de-water and repair the mine. Thereafter, Celebration will be required to maintain the mine in a condition to allow it to be put into production within sixty days. There are certain claims by the U.S. Environmental Protection Agency and the County on this property for which the lessor is obligated to pay. In the event these claims are not satisfactorily resolved, they may effect Celebration's rights to the property. Australian Mineral Property Joint Venture In March 1995, Celebration entered into a joint venture agreement with an Australian company for exploration of a certain mineral property in Australia. Under the original terms of the joint venture agreement, Celebration acquired a 10% interest by paying $100,000 in April 1995. No additional funds where paid or required to be paid subsequent to the initial payment. 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. 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. F-16 32 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 3 - MINERAL PROPERTIES (Continued) Chilean Properties During the quarter ended June 30, 1997, the Company acquired options on a 100-square mile concession in northern Chile known as Mocha. The Mocha prospect is a large porphyry copper system at the northern end of one of the world's most prolific copper belts. Under the terms of the first of the option agreements, the Company can acquire a 100% interest in the concession by cash payments of $371,000 and work commitments of $200,000 on or before August 1, 2000. In another agreement on an adjoining privately owned property, which covers the bulk of the known resource at Mocha, Royal Silver has the option to acquire a 100% interest in the property, less a 2% retained net smelter return royalty, for cash payments of $5,000,000 in a series of payments ending June 23, 2002. Argentina Properties On February 10, 1997 the Company announced that it has negotiated an option to buy 12 different potential mine sites in Argentina. Under the agreement, the Company can buy the properties on or before March 1, 2000, by paying $4,500,000 in cash or $5,500,000 in Royal Silver common stock, subject to certain conditions including the Seller's retention of a 1.95% net smelter royalty on the mines. To date, none of the properties have been acquired. Mexico Properties On January 20, 1997, the Company executed an agreement to acquire four mining concessions in Nayarit, Mexico. The agreement calls for a purchase price of $5,000,000 to be paid at the rate of 10% of pre-tax net profits from production. Under the agreement, the Company is obligated to pay the property owner $50,000 per year or, alternatively, to spend $250,000 on exploration and development annually until the properties are brought into production or forfeited. At June 30, 1997, no funds had been expended to maintain, acquire, explore or develop the aforementioned Mexican properties. F-17 33 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 3 - MINERAL PROPERTIES (Continued) Mexico Properties (continued) The total mineral properties of the Company at June 30, 1997 are classified as follows: Mineral properties under joint ventures $ 366,510 Other mineral properties 4,360,586 Total Mineral Properties $ 4,727,096 The Company's mineral properties are valued at the lower of cost or net realizable value. NOTE 4 - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. Depreciation of property and equipment is determined using the straight-line method over the expected useful lives of the assets of five years. NOTE 5 - INVESTMENTS During the quarter ended June 30, 1997, the Company invested $70,000 in 200,000 shares of Metalline Mining stock. This investment represents approximately 5.7% of the total outstanding stock in Metalline Mining at the time of purchase. This stock is being valued at cost, which is substantially less than the market value of $1.68 per share at June 30, 1997. NOTE 6 - INTANGIBLE ASSETS Deferred debt issuance costs and organization costs are recorded at cost. Amortization of these intangible assets is determined using the straight-line method over the expected useful lives of the assets as follows: Description Useful Lives Deferred debt issuance costs 1 year Organization costs 5 years F-18 34 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 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 $.003 to $.625 per share, which is the fair market value of the shares on the date of issuance. During the year ended September 30, 1995, the Company issued 12,750 shares of common stock to directors and employees for services rendered, valued at prices ranging from $2.00 to $2.50 per share, which is the fair market value of the shares on the date of issuance. During the year ended September 30, 1995, Celebration issued 975,000 shares of common stock in exchange for mineral properties (See Note 3) and sold 176,000 shares of common stock for $264,000 cash. The Company issued 200,000 shares of its common stock during the year ended September 30, 1995 in lieu of outstanding debt that was owed to Centurion Mines Corporation (Centurion), a related entity. The stock was issued at $1.50 per share in payment of $300,000 of outstanding debt (See Note 9). The Company also issued 277,500 shares in connection with the issuance of notes payable (See Note 9). (See also the disclosure in Note 1). 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 shares to directors and employees for services rendered valued at $1.50 per share, which is the fair market value of the shares 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 (See Note 11.) 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 is 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. F-19 35 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 7 - COMMON STOCK (Continued) On January 30, 1997, the Company sold 200,000 "units" at $0.75 per unit for $150,000 cash. Each unit consists of one share of common stock and one warrant to purchase one additional share of common stock at $1.25 per share within the next two years. The Company also granted the purchaser an option to purchase an additional 335,000 units, which were exercised on February 14, 1997 for $0.75 per unit, and an additional 1,600,000 units which were exercised on March 17, 1997 for $0.75 per unit. On February 7, 1997, The Company filed Form SB-2 with the Securities and Exchange Commission in order to register 625,000 warrants, 625,000 common stock shares issuable upon the exercise of those warrants, and 166,000 shares of common stock held outside the Company. During the nine months ended June 30, 1997, the Company issued 234,250 shares of its common stock for services received. The shares were valued at prices ranging from $1.00 to $1.25 per share, which was the fair market value of the shares at the date of issuance. 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 June 30, 1997, 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. There are 255,000 of the stock options exercisable at $1.50 per share which expire March 21, 2000. The remaining 1,200,000 stock options are exercisable at $0.42 per share and expire on August 31, 2001. As of June 30, 1997, none of these options have been exercised. On January 9, 1996, the Board of Directors approved the issuance of warrants to two of its officers to purchase a total of 300,000 shares for a purchase price of $2.50 per share, exercisable from the date of issuance until January 9, 1999. As of June 30, 1997, none of these warrants have been exercised. F-20 36 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 8 - COMMON STOCK OPTIONS AND WARRANTS (Continued) On March 22, 1996, the Board of Directors approved the issuance of warrants to an investor to purchase 625,000 shares of common stock of the Company in partial completion of a private placement of stock. These warrants are exercisable until September 30, 1998, at a price of $1.50 per share, which is 67% of the closing price on March 22, 1996. 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 originally exercisable until April 12, 1997 at prices ranging from $2.50 to $2.625 per share. 120,000 of these warrants were extended for one year (until April 12, 1998) in exchange for cash payments received of $3,000 in March and April 1997. The balance of these warrants expired unexercised at April 12, 1997. On October 15, 1996, the Board of Directors approved the issuance of warrants to employees and consultants to purchase 600,000 shares of the Company's common stock at a price of $1.50 per share. The warrants, which are exercisable for a five-year period , were issued as compensation for services performed. As of June 30, 1997, none of the warrants have been exercised. On February 15, 1997, the Board of Directors approved the issuance of warrants to employees and consultants to purchase 750,000 shares of the Company's common stock at a price of $1.20 per share. As of June 30, 1997, none of the warrants have been exercised. In the three months ended March 31, 1997, the Board of Directors approved the issuance of warrants to investors to purchase 2,491,000 shares of the Company's common stock as part of the private placement of stock. These warrants are exercisable until March 26, 1999 at a price of $1.25 per share. None of these warrant have been exercised as of June 30, 1997. On April 25, 1997, the Board of Directors approved the issuance of warrants to consultants to purchase 200,000 shares of the Company's common stock at a price of $1.125 per share during the three-year period ending April 30, 2000. As of June 30, 1997, none of these warrants have been exercised. F-21 37 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 9 - ADDITIONAL PAID-IN CAPITAL The following is a summary of additional paid-in capital at June 30, 1997 and September 30, 1996: June 30, September 30, 1997 1996 Applicable to: Common stock $ 10,465,549 $ 8,395,740 Stock warrants 46,568 41,068 ------------ ----------- $ 10,512,117 $ 8,436,808 ============ =========== NOTE 10 - NOTES PAYABLE In February 1995, Celebration raised $555,000 through the issuance of promissory notes. During the second quarter ended March 31, 1996, $470,000 of the total amount plus accrued interest of $29,265 was converted into 332,800 shares of the Company's common stock, leaving an amount owing of $85,000, which was further reduced by cash payments to $35,000 at December 31, 1996. The notes bear interest at 10% per annum and are payable upon demand. The note holders also received 277,500 shares of Celebration's common stock. A 10% commission was charged by an underwriter on the sale of almost all of the notes. In April 1995, Celebration raised $120,000 in 10% convertible debentures. In late 1995, $105,000 of the total amount plus accrued interest of $4,810 was converted into 73,250 shares of the Company's common stock, leaving an amount owing of $15,000. During the fourth quarter ended September 30, 1996, this remaining $15,000 plus accrued interest was paid. NOTE 11 - RELATED PARTY TRANSACTIONS After receiving advances from a related party for payment of operating expenses, the Company approved the issuance of 200,000 shares of common stock in payment of $300,000 of the then outstanding balance (See Note 6). The balance outstanding at June 30, 1997 was $0. F-22 38 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 12 - FUTURE LEASE OBLIGATIONS The Company is obligated under its lease arrangements to make additional lease payments subsequent to June 30, 1997 as follows: Year Ended September 30, Amount 1997 $ 5,351 1998 4,500 1999 4,500 2000 and thereafter 22,500 -------- Total $ 36,851 ======== NOTE 13- OPTIONS WITH PLACER MINING CORPORATION 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 non-refundable $50,000 on this option, the Company elected to re-negotiate this option agreement and entered into a second option agreement with Placer on September 18, 1996. In the second agreement, the Company paid $100,000 in September 1996 for the non-assignable 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 3/4% 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 years 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. F-23 39 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS June 30, 1997 NOTE 14 - 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 June 30, 1997, no shares were acquired from Centurion under this option agreement. F-24 EX-27 2
5 This schedule contains summary financial information extracted from the Statement of Financial Condition at June 30, 1997 (Unaudited) and the Statement of Income for the nine months ended June 30, 1997 (Unaudited) and is qualified in its entirety by reference to such financial statements. 9-MOS SEP-30-1997 JUN-30-1997 1,123,602 70,000 105,958 0 0 1,234,713 148,719 6,610 6,174,102 33,342 0 0 0 133,751 6,007,009 6,174,760 0 0 0 0 1,463,455 0 2,257 (1,447,291) 0 (1,447,291) 0 0 0 (1,447,291) (0.12) (0.12)
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