-----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, CUmdwK+XYmkteTOiCHiYNPzl6A6xuR0e28XGQosYWZUTkbIoA6oIbwrN3YUrNP9O +/DOfFgD8XQhPm/J5ZQ6DQ== 0000933157-99-000002.txt : 19990303 0000933157-99-000002.hdr.sgml : 19990303 ACCESSION NUMBER: 0000933157-99-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990216 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL SILVER MINES INC CENTRAL INDEX KEY: 0000933157 STANDARD INDUSTRIAL CLASSIFICATION: 1000 IRS NUMBER: 870306609 STATE OF INCORPORATION: UT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-25170 FILM NUMBER: 99539710 BUSINESS ADDRESS: STREET 1: 10220 N NEVADA STREET 2: SUITE 207 CITY: SPOKANE STATE: WA ZIP: 99218 BUSINESS PHONE: 5094663144 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: December 31, 1998 [ ] 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) 1010 Ironwood Drive, Suite 105, Coeur, d'Alene, Idaho 83814 (Address of Principal Executive Offices, including Zip Code) (208) 769-7340 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] The number of shares outstanding at December 31, 1998: 19,003,565 shares. ====================================================================== 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. 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, 1998 and September 30, 1998, and the results of operations, stockholders' equity and cash flows for the three months ended December 31, 1998, 1997, 1996, and from inception on February 17, 1994 through December 31, 1998, 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 3 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. ROYAL SILVER MINES, INC. (A Development Stage Company) Financial Statements December 31, and September 30, 1998 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-30 4 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, 1998, and the related statements of operations, shareholders' equity, and cash flows for the three months ended December 31, 1998, and for the period from February 17, 1994 (inception) through December 31, 1998. The review was conducted in 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, 1998 was audited by us and we expressed an unqualified opinion on it in our report dated December 21, 1998. 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 19 to the financial statements, the company's significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Williams & Webster, P.S. Certified Public Accountants Spokane, Washington February 8, 1998 5 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
December 31, September 30, 1998 1998 (Unaudited) (Audited) ASSETS CURRENT ASSETS Cash $ 3,611 $ 3,147 Note receivable 355,000 350,000 Interest receivable 24,163 17,106 Prepaid expenses 1,415 2,162 ----------- ----------- TOTAL CURRENT ASSETS 384,189 372,415 ----------- ----------- MINERAL PROPERTIES 2,229,411 2,229,411 ----------- ----------- PROPERTY AND EQUIPMENT Mining equipment 83,889 83,889 Furniture and equipment 12,761 12,761 Less - accumulated depreciation (23,651) (19,868) ----------- ----------- TOTAL PROPERTY AND EQUIPMENT 72,999 76,782 ----------- ----------- OTHER ASSETS Investments 1,305,950 1,298,750 Organization costs, net 4,917 5,234 ----------- ----------- TOTAL OTHER ASSETS 1,310,867 1,303,984 ----------- ----------- TOTAL ASSETS $ 3,997,466 $ 3,982,592 =========== ===========
The accompanying notes are an integral part of these financial statements. F-2 6 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
December 31, September 30, 1998 1998 (Unaudited) (Audited) CURRENT LIABILITIES Accounts payable $ 67,115 $ 65,815 Accrued expenses 3,000 3,000 ------------ ------------ TOTAL CURRENT LIABILITIES 70,115 68,815 ------------ ------------ LONG-TERM DEBT - - ------------ ------------ COMMITMENTS AND CONTINGENCIES - - ------------ ------------ SHAREHOLDERS' EQUITY Common stock, $.01 par value; 40,000,000 shares authorized, 18,932,565 and 19,003,565 shares issued and outstanding, respectively 189,325 190,035 Additional paid-in capital 11,305,155 11,889,838 Stock subscriptions receivable (30,000) (700,000) Deficit accumulated during development stage (7,537,129) (7,466,096) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 3,927,351 3,913,777 ------------ ------------ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,997,466 $ 3,982,592 ============ ============
The accompanying notes are an integral part of these financial statements. F-3 7 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS
Three months ended December 31, December 31, December 1998 1997 31, 1996 REVENUES $ - $ - $ - --------- --------- --------- GENERAL AND ADMINISTRATIVE EXPENSES Mineral leases - - - --------- --------- --------- Depreciation and amortization 4,847 13,776 9,587 Officers and directors compensation 57,540 97,041 73,625 General and administrative 15,704 279,799 257,250 --------- --------- --------- Total expenses 78,091 390,616 340,462 --------- --------- --------- OPERATING (LOSS) (78,091) (390,616) (340,462) --------- --------- --------- OTHER INCOME (EXPENSES) Interest income 7,058 5,971 3,833 Interest expense - - (1,215) --------- --------- --------- Gain on property interest sold - - - --------- --------- --------- Loss on disposition and impairment of assets - (1,345) (1,769) --------- --------- --------- Total other income (expenses) 7,058 4,626 849 --------- --------- --------- NET LOSS $ (71,033) $(385,990) $(339,613) --------- --------- --------- NET LOSS PER COMMON SHARE $ (0.004) $ (0.028) $ (0.032) ========== ========= ========= WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 18,708,228 13,565,232 10,701,742 ========== ========== ========== The accompanying notes are an integral part of these financial statements. F-4a 8 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS Period from February 17, 1994 (Inception) Through December 31, 1997 REVENUES $ - ------------ GENERAL AND ADMINISTRATIVE EXPENSES Mineral leases 555,706 Depreciation and amortization 200,528 Officers and directors compensation 1,410,800 General and administrative 3,413,469 ------------ Total expenses 5,580,503 ------------ OPERATING (LOSS) (5,580,503) ------------ OTHER INCOME (EXPENSES) Interest income 65,665 Interest expense (74,348) Gain on property interest sold 1,875,281 Loss on disposition and impairment of assets (3,823,223) ------------ Total other income (expenses) (1,956,625) ------------ NET LOSS $ (7,537,128) ------------ NET LOSS PER COMMON SHARE $ (0.704) ============ WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 10,710,609 ============
The accompanying notes are an integral part of these financial statements. F-4b 9 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Number of Shares Amount Balance, 02/17/94 - $ - 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 Issuance in July 1994 of shares for cash at $.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 $.417 per share 150,000 1,500 Net loss for the year ended November 30, 1994 - - --------- -------- Balance, 11/30/94 3,450,000 34,500 Issuance of shares in debt offering at $.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 - - Issuance of shares to acquire Consolidated Royal Mines, Inc. at $.15 per share 2,434,563 24,346 --------- -------- Balance forward 6,578,313 $ 65,784 --------- -------- The accompanying notes are an integral part of these financial statements. F-5a 10 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance, 02/17/94 $ - $ - $ - 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 August 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 per share 61,000 - 62,500 Net loss for the year ended November 30, 1994 - (211,796) (211,796) ---------- --------- --------- Balance, 11/30/94 453,616 (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) Issuance of shares to acquired Consolidated Royal Mines, Inc. at $.15 per share 335,750 - 360,096 ---------- --------- --------- Balance forward $1,015,601 $(211,796) $ 869,589 ---------- --------- ---------
The accompanying notes are an integral part of these financial statements. F-5b 11 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Number of Shares Amount Balance forward 6,578,313 $ 65,784 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 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 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 $.05 per warrant - - --------- -------- Balance Forward 9,712,645 $ 97,127 _________ ________ The accompanying notes are an integral part of these financial statements. F-6a 12 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 1,015,601 $ (211,796) $ 869,598 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 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 09/30/95 - (750,939) (750,939) ----------- ---------- ----------- Balance, 09/30/95 $ 4,120,540 $ (962,735) $ 3,235,376 Issuance of shares for cash-$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 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 $.05 per warrant 41,068 - 41,068 ----------- ---------- ----------- Balance Forward $ 7,180,956 $ (962,735) $ 6,315,348 ----------- ---------- -----------
The accompanying notes are an integral part of these financial statements. F-6b 13 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Number of Shares Amount Balance forward 9,712,645 $ 97,127 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 Cancellation of 35,000 shares received in exchange for return of mining property (35,000) (350) Payment to Centurion Mines for option 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 ---------- -------- Balance forward 10,649,854 $106,499 ---------- -------- The accompanying notes are an integral part of these financial statements. F-7a 14 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 7,180,956 $ (962,735) $ 6,315,348 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 Cancellation of 35,000 shares received in exchange for return of mining property (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 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 ----------- ---------- ----------- Balance forward $ 8,451,808 $(1,012,735) $ 7,545,572 ----------- ---------- -----------
The accompanying notes are an integral part of these financial statements. F-7b 15 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY
Common Stock Number of Shares Amount Balance forward 10,649,854 $ 106,499 Stock issuance costs - - Net loss for the year ended September 30, 1996 - - ---------- --------- Balance, 09/30/96 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 110,500 1,105 at $1.75 per share 25,000 250 Issuance of shares for services at $1.25 per share 98,250 982 Issuance of shares for mining property at $1.00 per share 60,000 600 Cancellation of 25,000 shares received in exchange for return of mining property (25,000) (250) Issuance of shares for services: at $1.00 per share 25,500 255 at $0.75 per share 47,128 471 Payment for extension of warrants for one year - - Net loss for the year ended September 30, 1997 - - ---------- --------- Balance, September 30, 1997 13,482,232 $ 134,822 ---------- --------- The accompanying notes are an integral part of these financial statements. F-8a 16 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' EQUITY Additional Total Paid-in Accumulated Stockholders' Capital Deficit Equity Balance forward $ 8,451,808 $(1,012,735) $ 7,545,572 Stock issuance costs (15,000) - (15,000) Net loss for the year ended 09/30/96 - (2,045,082) (2,045,082) ----------- ----------- ----------- Balance, 09/30/96 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 109,395 - 110,500 at $1.75 per share 18,500 - 18,750 Issuance of shares for services at $1.25 per share 121,829 - 122,811 Issuance of shares for mining property at $1.00 per share 59,400 - 60,000 Cancellation of 25,000 shares received in exchange for return of mining property (81,000) - (81,250) Issuance of shares for services: at $1.00 per share 25,245 - 25,550 at $0.75 per share 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 - (1,770,771) (1,770,711) ----------- ----------- ----------- Balance, 09/30/97 $10,543,892 $(4,828,528) $ 5,850,186 ----------- ----------- -----------
The accompanying notes are an integral part of these financial statements. F-8b 17 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' 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 shares 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 at 09/30/98 19,003,565 $ 190,035 $ 11,889,838 Issuance of shares to directors for services at $0.06 per share 959,000 9,590 47,950 Issuance of shares for cash investment and receivable 970,000 9,700 47,500 Shares returned to treasury for cancellation of receivable (2,000,000) (20,000) (680,000) Stock issuance costs - - (133) Net loss for quarter ended December 31, 1998 - - - ---------- --------- ------------ Balance at 12/31/98 18,932,565 $ 189,325 $ 11,305,155 ========== ========= ============ The accompanying notes are an integral part of these financial statements. F-9a 18 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENT OF SHAREHOLDERS' 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 shares 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 at 09/30/98 $ (700,000) $ (7,466,096) $ 3,913,777 Issuance of shares to directors for services at $0.06 per share - - 57,540 Issuance of shares for cash investment and receivable (30,000) - 27,200 Shares returned to treasury for cancellation of receivable 700,000 - - Stock issuance costs - - (133) Net loss for quarter ended December 31, 1998 - (71,033) (71,033) ---------- ------------ ------------ Balance at 12/31/98 (30,000) $ (7,537,129) $ 3,927,351 ========== ============ ============
The accompanying notes are an integral part of these financial statements. F-9b 19 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
Three months ended December 31, December 31, 1998 1997 Cash flows from operating activities: Net loss $ (71,033) $ (385,990) Adjustments to reconcile net loss to net cash used by operating activities: Loss on sale of equipment Depreciation and amortization 4,847 13,776 Issuance of common stock for services 57,540 85,608 Write-off of option costs Write-off of joint venture costs - Write-off of mineral properties Loss on devaluation of investments Changes in assets and liabilities: Note receivable (5,000) - Interest receivable (7,058) (1,625) Prepaid expenses (6,295) Other assets - 317 Mineral properties Accounts payable 1,300 (14,145) Accrued expenses - (4,653) --------- ---------- Net cash used in operating activities (19,404) (313,007) --------- ---------- Cash flows from investing activities: Purchase of investments - - Sale of assets - 2,600 Purchase and development of mineral properties - (34,290) Sale of mineral properties - Sale of investment - Purchase of fixed assets - - --------- ---------- Net cash provided by (used in) investing activities 0 (31,690) --------- ---------- The accompanying notes are an integral part of these financial statements. F-10a 20 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS Three months ended December 31, December 31, 1998 1997 Cash flows from financing activities: Stock issuance and offering costs 19,868 - Proceeds received on long-term debt - - Payments made on notes payable - - Issuance of common stock for cash 7,500 Payment for option to repurchase stock Issuance of common stock for accrued interest - - Issuance of common stock for extension of notes payable maturation - - Payment for return of stock issued for mining property interest - - Payment of joint venture costs - - Issuances of warrants for cash - - --------- ---------- Net cash provided by (used in) financing activities: 19,868 7,500 --------- ---------- Net increase (decrease) in cash $ 464 $ (337,197) --------- ---------- The accompanying notes are an integral part of these financial statements. F-10b 21 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS From Three months 02/17/94 ended Inception December 31, Through 1998 12/31/98 Cash flows from operating activities: Net loss $ (339,613) $ (7,537,128) Adjustments to reconcile net loss to net cash used by operating activities: Loss on sale of equipment 12,585 Depreciation and amortization 9,587 195,737 Issuance of common stock for services 89,061 1,326,256 Write-off of option costs 517,871 Write-off of joint venture costs - 160,000 Write-off of mineral properties 1,097,737 Loss on devaluation of investments 1,997,813 Changes in assets and liabilities: Note receivable - (5,000) Interest receivable (3,833) (24,164) Prepaid expenses (11,241) (30,600) Other assets - (9,801) Mineral properties (4,674) Accounts payable (10,053) 67,115 Accrued expenses (3,282) 2,188 ---------- ------------ Net cash used in operating activities (269,374) (2,234,065) ---------- ------------ Cash flows from investing activities: Purchase of investments - (3,004,062) Sale of assets 500 5,685 Purchase and development of mineral properties (16,276) (1,941,690) Sale of mineral properties 1,093,750 Sale of investment 70,000 Purchase of fixed assets (2,830) (213,187) ---------- ------------ Net cash provided by (used in) investing activities (18,606) (3,989,504) ---------- ------------ The accompanying notes are an integral part of these financial statements. F-10c 22 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS From Three months 02/17/94 ended Inception December 31, Through 1998 12/31/98 Cash flows from financing activities: Stock issuance and offering costs (30,000) (154,967) Proceeds received on long-term debt - 675,000 Payments made on notes payable (25,000) (174,206) Issuance of common stock for cash - 5,872,564 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) Issuances of warrants for cash - 46,568 ---------- ------------ Net cash provided by (used in) financing activities: (55,000) 6,227,180 ---------- ------------ Net increase (decrease) in cash $ (342,980) $ 3,611 ---------- ------------
The accompanying notes are an integral part of these financial statements. F-10d 23 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS
Three months ended December 31, December 31, 1998 1997 Net increase in cash (balance forward) $ 464 $ (337,197) Cash, beginning of period 3,147 594,577 -------- ---------- Cash, end of period $ 3,611 $ 257,380 ======== ========== Supplemental cashflow disclosure: Income taxes $ - $ - Interest $ - $ - Non-cash financing activities: Common stock issued for services rendered $ 57,540 $ 85,608 Common stock issued for mineral properties $ - $ - Common stock issued for exchange for debt $ 30,000 $ - Common stock issued in acquisition of Consolidated Royal Mines, Inc. $ - $ - Option rights acquired in exchange for a payable $ - $ - Common stock issued for assignment of mining property options $ - $ - Common stock issued in exchange for common stock of Ashington Mining Corp. $ 7,200 $ - The accompanying notes are an integral part of these financial statements F-11a 24 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF CASH FLOWS From Three months 02/17/94 ended Inception December 31, Through 1998 12/31/98 Net increase in cash (balance forward) $ (342,980) $ 3,611 Cash, beginning of period 688,716 - ---------- ----------- Cash, end of period $ 345,736 $ 3,611 ========== =========== Supplemental cashflow disclosure: Income taxes $ - $ 350 Interest $ 5,000 $ 25,655 Non-cash financing activities: Common stock issued for services rendered $ 89,061 $ 1,326,258 Common stock issued for mineral properties $ - $ 3,190,626 Common stock issued for exchange for debt $ - $ 952,950 Common stock issued in acquisition of Consolidated Royal Mines, Inc. $ - $ 360,096 Option rights acquired in exchange for a payable $ - $ 79,000 Common stock issued for assignment of mining property options $ - $ 4,000 Common stock issued in exchange for common stock of Ashington Mining Corp. $ - $ 7,200
The accompanying notes are an integral part of these financial statements. F-11b 25 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 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. F-12 26 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS (Continued) The $2,229,411 cost of mineral properties included in the accompanying balance sheet as of December 31, 1998 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. 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 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 weighting them by the amount of time they were outstanding. F-13 27 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) 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. Estimates The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 charges 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. 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. F-14 28 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Provision For Taxes At December 31, 1998, the Company had net operating loss carryforwards of approximately $7,400,000 that may be offset against future taxable income through 2012. 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. Impaired Asset Policy In March 1995, the Financial Accounting Standards Board issued a statement titled "Accounting for Impairment of Long-lived Assets." This standard is effective for years beginning after December 15, 1995. In complying with this, 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 in the fourth quarter of fiscal 1998, the Company does not believe any adjustments are needed to the carrying value of its assets at December 31, 1998. Financial Accounting Standards In October 1995, the Financial Accounting Standards Board issued a statement titled "Accounting for Stock-Based Compensation" (FAS 123). The 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. The Company has adopted the fair value accounting rules to record all transactions in equity instruments for goods or services. Principles of Consolidation The financial statements include those of Royal Silver Mines, Inc. and Celebration Mining Company. All significant inter-company accounts and transactions have been eliminated. The financial statements are not considered consolidated statements since Royal Silver Mines, Inc. was the successor by merger to Celebration Mining Company. F-15 29 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 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 December 31, 1998, no further funds towards the joint venture have been expended by Celebration, which owns an undivided 25% interest in the property. See Note 16 on related litigation. Washington and Idaho Mineral Properties During the year ended September 30, 1995, Celebration purchased through the issuance of 800,000 shares of its common stock, various mineral properties located in the states of Washington and Idaho. The Mineral Properties were recorded at the fair market value of the shares paid on the date of issuance ranging from $3.13 to $3.25 per share for a total purchase price of $2,538,126. In May 1996, the Company sold back the Frisco Standard Silver Mine to its original seller in exchange for the same price (35,000 shares of Royal stock) received by the seller when the mine was purchased. The shares received were canceled and no gain or loss was recorded on the transaction. In the fourth quarter of 1998, the Company disposed of additional Idaho properties. See Note 4. F-16 30 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 3 - MINERAL PROPERTIES (Continued) Shoshone County Idaho Mineral Lease (Crescent Mine) In February 1995, Celebration entered into an agreement to acquire a fifty-year renewable mineral lease on a property in Shoshone County, Idaho. The mining property consists of twelve patented claims and associated Idaho unpatented claims. In connection with this lease, Celebration has paid $50,000 and issued 175,000 share of common stock. In addition, 10,000 shares were issued to a new director for his assistance in obtaining this lease. Celebration was originally obligated to pay $950,000 by September 1, 1995 as "an advance royalty." The original due date was extended and the Company paid the aforementioned $950,000 and has 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. See Note 16 on litigation regarding this lease. 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 could acquire a 10% interest by paying $100,000 in April 1995. No additional funds were paid or required to be paid subsequent to the initial payment. * * * F-17 31 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 3 - MINERAL PROPERTIES (Continued) Australian Mineral Property Joint Venture (Continued) The Company's proposed future mining activities will be subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays, affect the economics of a project, and cause changes or delays in the Company's activities. The Company's mineral properties are valued at the lower of cost of net realizable value. NOTE 4 - MINERAL PROPERTY DISPOSITIONS Chilean Properties During 1997, the Company acquired options on a minerals concession and adjacent property in northern Chile. During the third quarter of fiscal 1998, following a decision by Teck Exploration Ltd. not to pursue its joint venture option, the Company elected to drop its options on the Chilean properties and recorded a loss of $403,530 on its Chilean investments. Argentina Properties On February 10, 1997 the Company negotiated an option to buy 12 different potential mine sites in Argentina. During the second quarter of fiscal 1998, the Company elected to drop the option, returned the properties to their owner, and recorded a loss of $114,341. Mexico Properties On January 20, 1997, the Company executed an agreement to acquire four mining properties in Nayarit, Mexico with stipulated annual payment to be applied against a purchase price of $5,000,000. In the fourth quarter of fiscal 1998, the Company elected to forfeit its interest in the aforementioned Mexican properties and, resultantly, recorded a loss of $74,194. On February 19, 1998, the Company sold a working interest in a Mexican joint venture that resulted in a gain of $1,454,062. F-18 32 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 4 - MINERAL PROPERTY DISPOSITIONS (Continued) Conjecture Mine and Liberal King Mine (in U.S.) On June 26, 1998, the Company traded six patented mining claims (known as the Liberal King Mine) located in Shoshone County, Idaho for 50,000 shares of SynFuels Technology, Inc. valued at $8.00 per share. No gain or loss was recognized on this transaction. In 1995, the Company issued 280,000 shares of its common stock to acquire the Conjecture Mine, a silver-bearing property in the state of Idaho. During the fourth quarter of fiscal 1998, the Company traded the Conjecture Mine property for 10,000 shares of common stock in SynFuels Technology, Inc., (subsequently renamed Rigid Airship) valued at $8.00 per share. This transaction resulted in a recorded loss on disposition of $830,700. NOTE 5 - PROPERTY AND EQUIPMENT Property and equipment are recorded at cost. Major additions and improvements are capitalized. Minor replacements, maintenance and repairs that do not increase the useful life of the assets are expensed as incurred. Depreciation of property and equipment is determined using the straight-line method over the expected useful lives of the assets of five years. NOTE 6 - INVESTMENTS Metalline Mining Company During the quarter ended June 30, 1997, the Company invested $70,000 in 200,000 shares of Metalline Mining Stock. This investment represented approximately 5.7% of the total outstanding stock in Metalline Mining at the time of purchase. This stock was valued at cost, which is substantially less than the market value of $1.68 per share at December 31, 1997. F-19 33 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 6 - INVESTMENTS (Continued) Metalline Mining Company (Continued) On January 12, 1998, this stock was transferred to Dakota Mining Corporation plus $100,000 cash in exchange for a 35% working interest in a joint venture with Metalline Mining co. for exploration and development of the Sierra Mojada District, Coahuila, Mexico. No gain or loss was recognized on this transaction. See information below and Note 20. Grand Central Silver Mines, Inc. In the quarter ended March 31, 1998, the Company finalized the sale of certain patented mining properties to Centurion Mines Corporation (subsequently renamed Grand Central Silver Mines, Inc.) for 500,000 shares of Centurion's common stock then valued at $1,500,000. This transaction resulted in a gain of $406,250. During the quarter ended March 31, 1998, the Company sold a 35% working interest in a joint venture (with Metalline Mining Co.) engaged in exploration and development of the Sierra Mojada District, Coahuila, Mexico. In connection with this transaction, the Company acquired 735,000 shares of common stock (in Grand Central Silver Mines, inc.) which was valued at $1,424,062 and also acquired a promissory note of $350,000 from Grand Central which is uncollateralized, bears interest at 8%, and matures in 1999. A total gain of $1,454,062 was realized on this transaction. See Note 15. he Company currently owns 1,235,000 shares of Grand Central Silver Mines, Inc. common stock, which is approximately 12% of the total outstanding shares at September 30, 1998. On September 30, 1998, the market value of the Company's investment in Grand Central had dropped to $926,250 ($0.75 per share), at which time the Company recorded a loss on its investment of $1,997,812. F-20 34 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 6 - INVESTMENTS (Continued) SynFuels Technology, 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 4). The Company's cost of $392,000 is the recorded value of this investment at September 30, 1998. SynFuels Technology, Inc. changed its name to Rigid Airship in November 1998. Summit Silver, Inc. In July, 1998, the Company acquired 400,000 shares of Summit Silver common stock valued at $0.15 per share in exchange for transferring mining equipment with an original cost of $98,767. This transaction resulted in a loss of $11,233. Ashington Mining Corporation In November 1998, the Company acquired 100,000 shares of Ashington Mining Corporation in exchange for 120,000 shares of its common stock, which was then trading at $0.06 per share. The Company recorded the Ashington stock at $7,200. NOTE 7 - 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 Life Deferred debt issuance costs 1 year Organization costs 5 years F-21 35 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) NOTE 8 - 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 share on the date of issuance. During the year ended September 30, 1995, the Company issued 12,750 shares of common stock to directors and employees for services rendered, valued at prices ranging from $2.00 to $2.50 per share, which is the fair market value of the shares on the date of issuance. During the year ended September 30, 1995, Celebration issued 975,000 shares of common stock in exchange for mineral properties (See Note 3) and sold 176,000 shares of common stock for $264,000 cash. The Company issued 200,000 shares of its common stock during the year ended September 30, 1995 in lieu of outstanding debt that was owed to Centurion Mines Corporation (Centurion), a related entity. The stock was issued at $1.50 per share in payment of $300,000 of outstanding debt (See Note 11). The Company also issued 277,500 shares in connection with the issuance of notes payable (See Note 11). (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 of $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. F-22 36 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 8 - COMMON STOCK (Continued) In the same twelve-month period, the Company also issued 406,050 shares of its common stock in payment of outstanding debt of $570,917 and accrued interest of $38,158. The stock was issued at $1.50 per share for a total value of $609,075. In addition, the Company issued 39,375 shares of common stock to noteholders for extending the maturity date of their loans. Again, the shares were valued at $1.50 each, which was the fair market value of the shares when issued. Also during the year ended September 30, 1996, the Company issued 215,334 shares of its common stock for services received. The shares were valued at $1.50 per share, which was the fair market value of the shares at the date of issuance. In the year ended September 30, 1997, the Company issued 306,378 shares of its common stock for services received. The shares were valued at their fair market value at the dates of issuance which ranged from $0.75 to $1.25 per share. During the year ended September 30, 1998, the Company issued 398,000 shares of common stock for services received. The shares were valued at their fair market value at the date of issuance which ranged from $0.34 to $0.91 per share. Also during the same twelve months, the Company sold 4,923,333 shares of its common stock for $344,500 in cash and $700,000 in stock subscriptions receivable. 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. F-23 37 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 8 - COMMON STOCK (Continued) In November 1998, the Company sold 220,000 shares of its common stock at $0.06 per share to Ashington Mining for a short-term note in the amount of $5,000 and 100,000 shares of Ashington Mining stock valued at $7,200 (Note 6). In October 1998, the Company issued 959,000 shares of common stock for services received. The shares were valued at their fair market value at the date of issuance which was $0.06. NOTE 9 - 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, 1998, 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 that 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 share 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 $0.93 per share and expire on August 31, 2001. As of December 31, 1998, 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. F-24 38 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 9 - COMMON STOCK OPTIONS AND WARRANTS (Continued) 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 expired unexercised on September 30, 1998. 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 expired unexercised on April 12, 1998. 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. As of December 31, 1998, none of the warrants had been exercised. NOTE 10 - 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, 1998, no options have been granted under the plan. Of the total of 1,064,650 common stock shares authorized for issuance under the plan, 110,500 shares valued at $1.00 per share were issued to employees and directors during the twelve months ended September 30, 1997 and 179,000 shares at values ranging from $0.34 to $0.91 per share were issued to employees and directors during the twelve months ended September 30, 1998. No shares were granted during the three-month period ended December 31, 1998. F-25 39 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 11 - ADDITIONAL PAID-IN CAPITAL The following is a summary of additional paid in capital at December 31, 1998 and September 30, 1998: December 31, September 30, 1998 1998 Applicable to: Common stock $ 11,258,587 $ 11,843,270 Stock Warrants 46,568 46,568 ------------ ------------ $ 11,305,155 $ 11,889,838 ============ ============ NOTE 12 - OPTIONS INVOLVING MINERAL PROPERTIES Option with Placer Mining In April 1996, the Company entered into an option with Placer Mining Corporation ("Placer") of Kellogg, Idaho whereby the Company could acquire a joint venture interest in the Bunker Hill Mine, a silver- lead-zinc mine in Shoshone County, Idaho. After issuing 100,000 shares valued at $1.50 per share and spending a nonrefundable $50,000 on the option, the Company elected to renegotiate this option agreement and entered into a second option agreement with Placer on September 18, 1996 for the nonassignable option of acquiring a 100% interest in the Bunker Hill Mine. In the second agreement, the Company paid $100,000 in September 1996 for the nonassignable option of acquiring a 100% interest in the Bunker Hill Mine. In order to exercise this option, the company must issue 500,000 shares of its common stock to placer by May 10, 1997 and pay Placer either $7,000,000 by that date or $4,000,000 by that date and $3,500,000 by May 10, 1998. Under the terms of this agreement, the Company will pay Placer a 2 % net smelter return royalty in perpetuity with stipulated annual advance minimum royalty payments to Placer ranging from $100,000 (in 1999) to $250,000 (in year 2002 through 2010). All advance minimum royalties paid are to be credited against actual production royalties. F-26 40 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 12 - OPTIONS INVOLVING MINERAL PROPERTIES (Continued) 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. Option for Joint Venture On June 19, 1998, the Company executed an option agreement with Eastfield Resources (USA) Inc. and Prism Resources Inc. Under the terms of the three month agreement expiring September 30, 1998, Eastfield and Prism granted an option to the Company to enter into a joint venture arrangement with these two firms for the exploration and development of certain mining properties within the Three Hills project in the Tonopah mining district of Nevada. At the end of the option period, the Company dropped its option to acquire a 50% interest in the joint venture and recorded a loss of $10,000 on its option deposit. NOTE 13 - 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, 1998, no shares were acquired from Centurion under this option agreement. See Note 15. F-27 41 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 14 - LETTER OF INTENT WITH TECK EXPLORATION LTD. On October, 1997, the Company signed a letter of intent with Teck Corporation (dba Teck Exploration, Ltd.) of Vancouver, B.C. to jointly explore and develop the Mocha porphyry copper prospect in region I of northern Chile. The agreement contemplated initial drilling program funded by Teck. In July 1998, the Company and Teck mutually agreed to terminate their option agreement. See Note 4 for related disclosures on Chilean options. NOTE 15 - PROSPECTIVE COMBINATION (MERGER) WITH CENTURION MINES CORPORATION On November 24, 1997, Royal and Centurion Mines Corporation, headquartered in Salt Lake City, announced plans to combine the two companies. Centurion (subsequently renamed Grand Central Silver Mines, Inc.) is a significant owner of gold, silver, and copper mining properties in Utah. As a first stage in the combination of the companies, Centurion purchased certain Coeur d'Alene, Idaho silver properties plus other patented mining properties owned by Royal in exchange for Centurion shares then valued at $1,500,000. See Note 6. As a result of differences in determining fair valuations, the directors of the two companies have decided to postpone merger plans for the foreseeable future; however, the two companies continue to share one common director and a common officer. NOTE 16 - COMMITMENTS AND CONTINGENCIES The Company is a defendant in a lawsuit filed by some of its shareholders for alleged violations of securities laws. The suit asks for actual damages. The Company believes the suit is completely without merit and intends to vigorously defend its position. F-28 42 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 16 - COMMITMENTS AND CONTINGENCIES (Continued) The Company is also a defendant in a lawsuit alleging that the Company failed to transfer common stock in exchange for a mining property interest. The suit asks for actual and punitive damages. The Company believes the suit is completely without merit and has filed a countersuit alleging fraudulent misrepresentation. The Company is seeking both full title to the aforementioned mineral property and punitive damages, and believes its countersuit will prevail. In 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. Management believes that there is a good likelihood of prevailing in this matter. NOTE 17 - WORKING INTEREST IN JOINT VENTURE WITH METALLINE MINING CO. On January 15, 1998, the Company acquired a 35% working interest in a joint venture with Metalline Mining Co. for exploration and development of the Sierra Mojada District, Coahuila, Mexico. The project was formerly a joint venture between Metalline and Dakota Mining Corp. Royal acquired the interest from Dakota in exchange for $100,000 cash, 200,000 shares of Metalline common stock, which Royal carried on its books as an investment, and 200,000 shares of Royal Silver common stock. Dakota retained a net smelter return royalty on future production from the project. See Note 6. On February 19, 1998, the Company sold the 35% working interest for exploration and development of the Sierra Mojada District, Coahuila, Mexico to Grand Central Silver Mines (GSLM) in exchange for a note receivable of $350,000, payable within one year and bearing interest of 8% per annum, and 735,000 share of GSLM valued at $1,424,062. (See Note 4). A total gain of $1,454,062 was recognized on this transaction. F-29 43 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS December 31, 1998 NOTE 18 - NOTES RECEIVABLE At December 31, 1998, the Company's note receivable consisted primarily of a $350,000 receivable from Grand Central Silver Mines, Inc. This note bears interest at 8%, is uncollateralized, and matures February 15, 1999. NOTE 19 - GOING CONCERN As shown in the financial statement, the Company incurred a net loss of $71,033 for the quarter ending December 31, 1998 and an accumulated deficit of $7,537,129 since inception. Cash to accumulated deficits has decreased from a ratio of 12.31% as of September 30, 1997 to 0.05% as of December 31, 1998. 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 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. NOTE 20 - SUBSEQUENT EVENT 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 world wide 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. F-30 44 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, 1998, the Company accumulated a deficit of $7,537,129. At December 31, 1998, $2,229,411 of the Company's total assets of $3,997,466 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. 45 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, 1998, the Company had working capital of $314,074. This amount is a slight improvement in liquidity and capital resources from its working capital position of $303,600 at September 30, 1998 but represents some deterioration from working capital of $357,646 at September 30, 1997. The largest single element of working capital is a promissory note for $350,000 (from Grand Central Silver Mines, Inc.) which matures in 1999. While sales of the Company's stock have traditionally constituted its primary source of cash generation, depressed metals prices in 1998 have lessened the Company's recent ability to obtain cash from sales of its stock. Company sales of its stock generated the following cash amounts: $20,000 in the quarter ending December 31, 1998, $303,600 in the year ending September 30, 1998; and $1,843,750 in the year ending September 30, 1997. In adjusting to smaller cash resources, the Company has substantially decreased its expenses for office, personnel and compensation, and consulting expenses. In the first quarter of fiscal 1998, the Company slightly increased its accounts payable while accrued expenses and accounts payable remained steady. Accordingly, the Company's current liabilities moved from $68,815 at September 30, 1998 to $70,115 at December 31, 1998. The Company had no long-term debt at September 30, 1998 or at December 31, 1998. The Company has estimated that it will need minimal capital resources of approximately $20,000-25,000 per month to meet its estimated expenditures for fiscal 1999. In recent years, several key members of management, met with experienced financial and investment firms throughout Europe and North America and negotiated preliminary terms and arrangements for capital fund raising. During the fiscal year ending September 30, 1997, the Company raised $1,843,750 in funds, (primarily through the private placement of shares and warrants) 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. 46 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 principally from joint venture revenues or private placement funds. Financing for the Company's exploration and development of mineral properties is expected to come primarily from the contributions of its joint venture participants and from the funds generated form such joint ventures and other lease or royalty arrangements. The Company consistently has made full and timely payment of its expenses, in particular to the various governmental payees it interacts with, and has met its obligations to the entities which provide its personnel, office space, and equipment needs. The Company currently is seeking alternate sources of working capital sufficient to increase the funding of additional general and administrative expenses that may become necessary as the Company's business plan develops, and to continue meeting its ongoing payment obligations for its leases to governmental entities. RESULTS OF OPERATIONS COMPARISON OF THE THREE MONTHS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1998, RESPECTIVELY. General and administrative expenses plummeted from $390,616 during the first quarter of fiscal 1998 to $78,091 during the first quarter of fiscal 1999. This increase is principally due to greatly reduced consulting expenses and compensation to officers and directors. As a result, during the first quarter of fiscal 1998 compared to the first quarter of 1999, the net loss decreased from $385,990 to $71,033 while the net loss per share improved from a loss of $0.028 to a loss of $0.004. 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. 47 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. PART II. OTHER INFORMATION Item 1. Legal Proceedings. The Officers and Directors of the Company certify that to the best of their knowledge, neither the Company nor any of its Officers and Directors are parties to any legal proceeding or litigation. Further, the Officers and Directors know of no threatened or contemplated legal proceedings or litigation with the exception of the following: 1. The Company is a defendant in a lawsuit filed by some of its shareholders for alleged violations of securities laws. The suit was filed in the U.S. District Court in Denver on January 22, 1998 with Rounds et al as plaintiffs vs. Royal Silver Mines, Inc. et al as defendants. Plaintiffs seek damages and attorneys' fees in their lawsuit, which alleges that defendants made false/misleading statements and omitted material disclosures in connection with public trading of Royal's common stock during the period May 1996 to August 1997. The Company believes that this lawsuit is completely without merit. The Company is not aware of any similar action(s) contemplated or instituted by governmental authorities. The trial court sustained the Company's motion for summary judgment dismissing claims against it for omissions of material fact. 2. The Company is also a defendant in a lawsuit filed by Thomas F. Miller (et al.), in the First Judicial Court in and for Box Elder County, State of Utah. The suit, which alleges that the Company failed to transfer common stock in exchange for a mining interest, asks for actual and punitive damages. The Company believes that this lawsuit is without merit and has filed a countersuit alleging fraudulent misrepresentation. The Company is seeking both full title to the aforementioned mineral property and punitive damages, and believes its countersuit will prevail. 3. 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. Management believes that there is a good likelihood of prevailing in this matter. 48 None of the Officers and Directors have been convicted of a felony or none have been convicted of any criminal offense, felony and misdemeanor relating to securities or performance of corporate office. To the best knowledge of the Officers and Directors, no investigations of felonies, misfeasance in office or securities investigations are either pending or threatened at the present time. Item 2. Changes in Securities. None. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. Exhibits Item Number Document 10.15 Integrated Environmental Technologies - Technology Licensing Agreement. 27 Financial Data Schedule. ======================================================================= 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 11th day of February, 1999. ROYAL SILVER MINES, INC. BY: /s/ Howard Crosby Howard Crosby, President, Treasurer and member of the Board of Directors EX-10 2 51 INTEGRATED ENVIRONMENTAL TECHNOLOGIES TECHNOLOGY LICENSING AGREEMENT NO. 9801 This Technology Licensing Agreement (hereinafter called the "Agreement") is entered into between Integrated Environmental Technologies, LLC, a New York limited liability company, registered tin the State of Washington located at 1935 Bulter Loop, Richland, Washington 99352 (hereinafter called "IET", and Royal Silver Mines, Inc., a Utah corporation having its principal place of business located at 1010 Ironwood Drive, Suite 105, Coeur d"Alene, Idaho 83814 (hereinafter called "Royal") (IET and Royal hereinafter collectively called the "parties"). WHEREAS, IET is in the business of manufacturing high temperatur3e systems which utilize plasma technology for processing materials and has developed certain intellectual property include trade secrets, inventions, whether patented or unpatented, information, data, and experience (hereinafter called "IET" Technology") which are confidential, proprietary and a valuable commercial assets to IET; WHEREAS, Royal is in the business of developing mining properties and Royal represents that Royal is a publicly traded corporation having the capability to acquire rights in mineral deposits which can be exploited through the application of IET technology; and WHEREAS, Royal desires to obtain a license to IET Technology to allow Royal to acquire, develop and exploit such mineral deposits using IET Technology; NOW, THEREFORE, in consideration of the mutual covenants, terms and conditions contained herein and intending to be legally bound thereby, the parties agree as follows: 1. Conditions Precedent A. The grant of rights hereunder shall not take effect until Royal has funded at direct cost, and IET has performed, a one tone test in IET's facilities to demonstrate the technical efficacy of the IET Technology in the processing of suitable ores. B. The grant of rights hereunder shall not take effect until Royal has purchase, and IET has sold, a ten ton per day system for installation in Benton or Franklin County, Washington, or such other location as the parties may mutually agree, and the parties have commenced a one hundred ton test in this ten ton per day system to demonstrate the efficacy of the IET Technology in the processing of suitable ores. Such purchase and sale shall be completed within one (1) year of the completion of the test set forth in paragraph 1.A. and that such shall be pursuant to IET's standard terms and conditions. The parties agree that as a condition of Royal's purchase, Royal shall be given the option to return 52 the ten ton per day system for a refund of the purchase price (exclusive of installation, transport, taxes and related costs) within one year of such return, in the event that the system is unable to process ores. C. The grants of rights hereunder shall not take effect until Royal has acquired the rights in patented mining claims, unpatented mining claims, long term leases (10 years or more) of patented and unpatented mining claims, or in such form as shall be reasonably acceptable to IET, to extract, process and sell mineral deposits and residual process streams from milling and smelting operations containing copper, gold and/or silver having a minimum fair market value of two hundred fifty million dollars ($250,000,000) after processing. As used in this agreement "fair market value" shall mean the highest bid price of any commodity or security on the date the commodity or security was acquired ro sold by the parties as listed on the Chicago Mercantile Exchange, the NYSE, the NASDAQ or, if not listed on those exchange making markets in the commodity or security. Royal shall acquire such rights within eighteen (18) months of the completion of the test set forth in paragraph 1.A. 2. Grant of Rights Under completion of the conditions precedent set forth in paragraph 1, above, IET hereby grants to Royal a world wide exclusive license to practice those 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. This license shall not include properties in and around the Yuma, Arizona region currently owned or controlled by Wayne Childs. The license granted hereunder shall be strictly limited to the operation of systems or equipment purchased from IET for the extraction and recovery of copper from enargite ores and gold and silver from arsenic rich ores. IET does not grant Royal the right to manufacture or sell systems or equipment which utilize or practice IET technology in systems manufactured or sold by persons or entities other than IET, and Royal shall not endeavor to purchase or utilize systems manufactured or sold by persons or entities other than IET which practice the IET technology. IET does not grant Royal the right to practice to IET technology in fields other than the extraction and recovery of copper from enargite ores and gold and silver from arsenic rich ores, and Royal shall not endeavor to utilize the IET technology or systems sold by IET for purposes other than the extraction and recovery of copper from enargite ores and gold and silver from arsenic rich ores. 3. Payment In consideration of the rights granted herein, Royal grants IET irrevocable warrants to purchase nineteen million nine hundred thirty two thousand five hundred sixty five (19,932,565) shares of the common stock of Royal Silver Mines, Inc. (which Royal represents is a number equivalent to the issued and outstanding shares of Royal as of the 53 effective date of this agreement) at a price of fourteen and four tenth cents ($0.144) per share. Royal further agrees that in the event of any sale or offer for sale of any shares of any type of Royal Silver Mines, Inc., IET shall be given a right of first refusal for a period of not less than forty five (45 days) to purchase up to one half of any such shares under the same terms and conditions of such sale or offer. Royal further agrees that the warrants granted hereunder shall remain fully exercisable at IET's sole discretion for a period of not less than ten years beginning the effective date of this agreement. Royal further agrees to take all actions necessary, including without limitation the filing of any required forms, papers and reports, with the SEC, IRS and any and all other stgate4 and federal agencies, which may be required to maintain Royal's status as a fully reporting, publicly traded company during the period that the warrants granted hereunder shall remain exercisable. In addition to the warrants granted hereunder, Royal agrees that Royal shall pay IET royalties for any and all precious metals extracted or processed by Royal utilizing either the IET Technology or IET furnished equipment accordingly to the following schedule: Zinc twenty five dollars ($25) per ton Lead ten dollars ($10) per ton Copper forty dollars ($40) per ton Gold forty dollars ($40) per ounce Silver ten cents ($0.10) per ounce In the event that IET shall exercise any of the warrants granted hereunder, Royal shall have no further obligation for the payment of the royalties set forth within this paragraph 3. 4. Sublicensing Royal shall have no right to sublicense the IET Technology until and unless IET shall exercise the warrants granted in the preceding paragraph 3. In the event that IET shall exercise the warrants shall exercise the warrants granted in the preceding paragraph 3, Royal shall have the right to sublicense the IET Technology provided that any such license shall REQUIRE, in addition to any other payment contained within such sublicense, direct payment to IET of royalties for any and all precious metals extracted or processed by Royal's sublicensee utilizing either the IET Technology or IET furnished equipment according to the following schedule: Zinc eight dollars ($8) per ton Lead three dollars twenty five cents ($3.25) per ton Copper fourteen dollars ($14) per ton Gold fourteen dollars ($14) per ounce Silver three cents ($0.03) per ounce Additionally, any such sublicense by Royal shall name IET as a third party beneficiary of such license and shall contain the provisions, and provide IET with the benefits of, paragraphs 3, 6, 7, 8, 9, 10, 11, and 12 of this agreement. 54 5. Diligence Requirements Royal's license under this agreement shall remain exclusive provided that the diligence requirements set forth in this paragraph 5, are met. In the event the diligence requirements are not met, Royal's license under this agreement shall become non-exclusive. In each year, Royal shall utilize the IET Technology to process copper, gold or silver, having a total fair market value according to the following schedule Calendar Year Total fair market value 2000 $ 1,000,000 2001 $ 2,000,000 2002, and each year thereafter $12,000,000 For purpose of this paragraph, the fair market value of copper, gold or silver processed by Royal shall be calculated as the total weight of copper, gold and silver recovered from ores owned or controlled by Royal using the IET Technology each quarter of Royal's financial year, multiplied by the respective closing bid spot price of copper, gold or silver as reported in the Wall Street Journal on the closing date of each quarter of Royal's fiscal year. 6. Confidential Information A. The parties recognize that IET is the owner or licensee of certain Proprietary Information (as defined herein-below) regarding applications of plasma and related technologies, the unauthorized disclosure of which could have material adverse effects upon the business prospects and advantages of IET. B. The term "Proprietary Information" shall mean any and all data and information furnished by IET to Royal or by Royal to IET related to the IET Technology by any means, including but not limited to orally, in writing, or by electronic transmission, which IET deems to be confidential or proprietary to IET. Proprietary Information thus includes, but is not limited to, business plans, financial information, product concepts, patent applications, trade secrets, know how, computer software, documentation, manuals, models, mock- ups, data, reports, drawings, diagrams, design specifications and any reproductions, in any form whatsoever, including verbal disclosure, made thereof. C. Any Proprietary Information furnished under this agreement, or which may otherwise come into the possession of Royal, shall remain the exclusive property of IET and Royal shall not use any Proprietary Information for any purpose except as contemplated by this agreement. 55 D. Royal shall keep all Proprietary Information in strictest confidence and shall not disclose any Proprietary Information to any party whomsoever without first obtaining the written consent of IET. Royal understands and agrees that no such consent is given or shall be deemed to be have been given through the provisions of this Agreement. E. Royal shall avoid any unnecessary copying or other reproductions of any Proprietary Information and shall protect the confidentiality of all such copies to the same extent required hereunder of original information. All copies made of Proprietary Information shall be labeled by Royal to include any proprietary notice delivered by IET with the Proprietary Information. Upon request by IET, Royal shall promptly return to IET, without further demand or other request therefor, all Proprietary Information and copies thereof. Royal shall further deliver to IET its certificate stating that all Proprietary Information (and copies thereof) has been delivered in accordance with the requirements of this agreement. F. Notwithstanding anything to the contrary contained in this Agreement, Royal shall have no liability for the use or disclosure of Proprietary Information which was: (i) in the public domain prior to the execution of this agreement or which, after such execution, became a part of the public domain by means other than the disclosure thereof by Royal in violation of this agreement; or (ii) in Royal's possession at the time of disclosure to Royal hereunder and was not acquired directly or indirectly by Royal under an obligation of secrecy; or (iii) received by Royal from a third party without obligation of secrecy and which Royal did not know or have reason to know was obtained by such third party under an obligation of secrecy; or (iv) developed by Royal independent of this agreement and independent of any Proprietary Information furnished under this agreement, as evidenced by written documentation of the development effects, and without violation of this agreement. G. No Proprietary Information shall be deemed to be within the exceptions set forth in paragraph F above solely by virtue of the fact that such Proprietary Information is contained in more general information then in the public domain or in Royal's possession. Furthermore, any combination of 56 characteristics peculiar to the Proprietary Information shall not be deemed to fall within the exceptions set forth in paragraph F above unless such combination of characteristics is itself in the public domain or in Royal's possession. H. Nothing contained in this agreement shall be deemed to grant any right or license to Royal except as explicitly set forth herein. I. If Royal shall fail to comply with any of the provisions of this agreement or fail to remedy any such failure within ten (10) business days after notice from IET, then IET shall be entitled to pursue any and all legal and equitable remedies available against Royal. In such event, IET shall have the right to require the immediate return of any or all Proprietary Information (and copies thereof) furnished to Royal under the protection of this agreement. J. The obligations set forth in this Section 6, of this agreement shall survive the expiration of this agreement for a period of five years after the date first written above. 7. Payments A. Method of Payment All payments required under this Agreement should be made payable to "Integrated Environmental Technology, LLC" and sent to: Integrated Environmental Technology, LLC Attn: Accounts Payable 1935 Bulter Loop Richland, WA 99352 Each payment should reference this Agreement and identify the obligation under this agreement that the payment satisfies. B. Payments in U.S. Dollars All payments due under this agreement shall be payable in United States dollars within ten days of the receipt of the quarterly report as set forth in paragraph. C. Late Payments Any payments by Royal that are not paid on or before the date such payments are due under this agreement shall bear interest, to the extent permitted by law, at two percentage points above the Prime Rate of interest as reported in the Wall Street Journal on the date payment is due. 57 8. Report and Record-Keeping 8.1 Frequency of Reports A. Before commercial use of the IET Technology Prior to the first commercial use of the IET Technology for the processing of any copper, gold or silver bearing ores, Royal shall deliver reports to IET annually, within sixty (60) days of the end of each calendar year, containing information concerning the immediately preceding calendar year, as further described in Section 8.2. B. Upon first commercial use of the IET Technology for the processing of any copper, gold, or silver bearing ores, at any property owned or controlled by Royal, Royal shall report to IET the date of such first commercial use of the IET Technology for the processing of any copper, gold, or silver bearing ores, within sixty (60) days of occurrence in each property owned or controlled by Royal. C. After commencing the commercial use of the IET Technology for the processing of any copper, gold, or silver bearing ores, at any property owned or controlled by Royal, Royal shall deliver reports to IET within sixty (60) days of the end of each quarter of Royal's fiscal year (hereinafter "Quarter"), containing information concerning the immediately preceding Quarter, as further described in Section 8.2. 8.2 Content of Reports and Payments Each report delivered by Royal to IET shall contain at least the following information for the immediately preceding quarter: A. The weight of all copper, gold, or silver bearing ores processed for each property owned or controlled by Royal, together with the weight of copper, gold, or silver recovered from such ores using the IET Technology, together with the respective closing bid price of copper, gold or silver as reported in the Wall Street Journal on the closing date of each Quarter. B. The total royalty payable in U.S. dollars, together with the exchange rates used for conversion. If no amounts are due to IET for any reporting period, the report shall so state. 8.3 Financial Statements On or before the ninetieth (90th) day following the close of Royal's fiscal year, Royal shall provide IET with Royal's financial statements for the preceding year including, at a minimum, a balance sheet and an income statement, certified by Royal's independent auditor. 58 8.4 Record keeping Royal shall maintain, and shall cause its sublicensees to maintain, complete and accurate records relating to the rights and obligations under this agreement and any amounts payable to IET in relation to this agreement, which records shall contain sufficient information to permit IET to confirm the accuracy of any reports delivered to IET and compliance in other respects with this agreement. The relevant party shall retain such records for at least five (5) years following the end of the calendar year to which they pertain, during which time IET, or IET's appointed agents, shall have the right, at IET's expense, to inspect such records during normal business hours to verify any reports and payments made or compliance in other respects under this Agreement. In the event that any audit performed under this Section reveals an underpayment in excess of ten percent (10%), Royal shall bear the full costs of such audit and shall remit any amounts due to IET within thirty (30) days of receiving notice thereof from IET. 9. Patent Prosecution IET shall prepare, file, prosecute, and maintain all patent rights contained within the IET Technology. Royal shall have reasonable opportunities to advise IET and shall cooperate with IET in such filing, prosecution and maintenance of such patent rights. Payment of all fees and costs, including attorneys fees relating to the filing, prosecution and maintenance of the patent rights shall be the responsibility of IET. 10. Infringement 10.1 Notification of Infringement Each party agrees to provide written notice to the other party promptly after becoming aware of any infringement of the patent rights. 10.2 Right to Prosecute Infringements 1. Royal Right to Prosecute. So long as Royal remains the exclusive licensee of the patent rights for the extraction and recovery of copper from enargite ores and gold and silver form arsenic rich ores Royal, to the extent permitted by law, shall have the right, under its own control and at its own expense, to prosecute any third party infringement of the patent rights in the field licensed exclusively to Royal. If required by law, IET shall permit any action under this paragraph to be brought in its name, including being joined as a party-plaintiff, provided that Royal shall hold IET harmless form, and indemnify IET against, any costs, expenses, or liability that IET incurs in connection with such action. Prior to commencing any such action, Royal shall consult with IET and shall consider the views to IET 59 regarding the advisability of the proposed action. Royal shall not enter into nay settlement, consent, judgment, or other voluntary final disposition of any infringement action under this paragraph without the prior written consent of IET. 2. IET Right to Prosecute. In the event that Royal is unsuccessful in persuading the alleged infringer to desist or fails to have initiated an infringement action within a reasonable time after Royal first becomes aware of the basis for such action, IET shall have the right, at its sole discretion, to prosecute such infringement under its sold control and at its sold expense, and any recovery obtained shall belong to IET. 10.3 Declaratory Actions In the event that a declaratory judgment action is brought against IET or Royal by a third party alleging invalidity, unenforceability, or non-infringement of the patent rights, IET, at its option, shall have the right within twenty (20) days after commencement of such action to take over the sole defense of the action at its own expense. If IET does no exercise this right, Royal may take over the sole defense of the action at Royal's sole expense, subject to Section 10.4. 10.4 Recovery An recovery obtained in an action brought by Royal under paragraph 10.2 or 10.3 shall be distributed as follows: (i) each party shall be reimbursed for any expenses incurred in the action (including the amount of any royalty or other payments withheld from IET as described below), (ii) as to ordinary damages, Royal shall receive an amount equal to its lost profits or a reasonable royalty on the infringing sales, or whichever measure of damages the court shall have applied, and Royal shall pay to IET based upon such amount a reasonable approximation of the royalties and other amounts that Royal would have paid to IET if Royal had sold the infringing products, processes and services rather than the infringer, and (iii) as to special or punitive damages, the parties shall shares equally in any award. Royal may offset a total of fifty percent (50%) of any expenses incurred under paragraph 10.2 and 10.3 against any payment due to IET under paragraph 3 and 4, provided that in no event shall the such payments under paragraph 3 and 4, when aggregated with any other offsets and credits allowed under this Agreement, be reduced by more than fifty percent (50%) in any reporting period. 10.5 Cooperation Each party agrees to cooperate in any action under this paragraph which is controlled by the other party, provided that the controlling party reimburses the cooperating party promptly for any costs and expenses incurred by the cooperating party in connection with providing such assistance. 60 11. No Representations of Warranties EXCEPT AS MAY OTHERWISE BE EXPRESSLY SET FORTH IN THIS AGREEMENT, IET MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND CONCERNING THE PATENT RIGHTS, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OR MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NONINFRINGEMENT, VALIDITY OR PATENT RIGHTS CLAIMS, WHETHER ISSUED O0R PENDING, AND THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. Specifically, and not to limit the foregoing, IET makes no warranty or representation (i) regarding the validity or scope of any patent rights, and (ii) that the exploitation of the patent rights or any licensed product or licensed process will not infringe any patents or other intellectual property rights of a third party. IN NO EVENT SHALL IET, ITS TRUSTEES, DIRECTORS, OFFICERS, EMPLOYEES AND AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGES OR INJURY TO PROPERTY AND LOST PROFITS, REGARDLESS OF WHETHER IET SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING. 12. Assignment The agreement is personal to Royal and no rights or obligations may be assigned by Royal without the prior written consent of IET. A purchase of a majority of Royal's outstanding voting securities by a third party without IET's prior written consent shall terminate this agreement effective on the date of such purchase. 13. Remedies The parties acknowledge that the damages suffered by the Company for Royal's breach of certain covenants of this Agreement are not ascertainable. Accordingly, if there is a breach or threatened breach of the provisions of section 6 of this agreement, the Company shall be entitled to injunctive relief restraining Royal from such breach, or to specific performance. Nothing herein shall be constructed as prohibiting the Company from pursuing any other remedies for such breach or threatened breach. 14. Waiver of Breach A waiver by IET or Royal of a breach of any provision of this agreement by the other party shall not operate or be constructed as a waiver of any subsequent breach by the other party. 15. Governing Law/Jurisdiction The parties acknowledge that this Agreement is made in the State of Washington. This agreement, including the validity hereof and the rights and obligations of the parties hereunder and all 61 amendments and supplements hereof shall be constructed in accordance with and governed by the laws of the State of Washington without giving effect to any choice of the law or conflicts of law of any other jurisdiction. The Benton County Superior Court and Benton County District Court of the State of Washington and the United States District Court for the Eastern District of Washington shall have exclusive jurisdiction of all suits and proceedings arising out of or in connection with this agreement. Each of IET and Royal hereby submits to the jurisdiction of said courts for purposes of any such suit or proceeding. 16. Integration The Agreement contains the entire understanding between the parties, and there are no understandings or representations not set forth or incorporated by reference herein. No subsequent modifications of this agreement shall be of any force or effect unless in writing signed by the party claimed to be bound thereby. No communications, written or oral, by other than a IET Contract Representative shall be effective to modify or otherwise affect the provision of the agreement. Integrated Environmental Technologies Royal Silver Mines, Inc. BY: /s/ Jeffrey Z. S(illegible) BY: /s/ Howard Crosby Title: Executive Vice President Title: President Date: 1/7/99 Date: January 7, 1999. EX-27 3
5 This schedule contains summary financial information extracted from the Consolidated Statement of Financial Condition at December 31, 1998 of Royal Silver Mines, Inc. (Unaudited) and the Consolidated Statement of Income for the three months ended December 31, 1998 (Unaudited) and is qualified in its entirety by reference to such financial statements. 3-MOS SEP-30-1999 DEC-31-1998 3,611 0 379,163 0 0 384,189 96,650 23,651 3,997,466 70,115 0 0 0 189,325 3,738,026 3,997,466 0 0 0 78,091 0 0 0 (71,033) 0 (71,033) 0 0 0 (71,033) (0.004) (0.004)
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