-----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, Macvjb1oLoiGju0N6U4TTowyH7h/crrpFdSeCFJqNUsf5gv/Ud0nIlygF2cufL/M pRrdf+Mr3PJnTq0ai/mt5w== 0000933157-99-000005.txt : 19990624 0000933157-99-000005.hdr.sgml : 19990624 ACCESSION NUMBER: 0000933157-99-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: 99626127 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: March 31, 1999 [ ] 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 March 31, 1999: 19,432,565 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 at pages 3-36. In management's opinion, these financial statements present fairly in all material respects Registrant's financial condition and changes in condition as of March 31, 1999 and September 30, 1998, and the results of operations, stockholders' equity and cash flows for the six months and three months ended March 31, 1999, and 1998, and from inception on February 17, 1994 through March 31,1999, in conformance with generally accepted accounting principles. The accompanying financial statements consolidate the financial statements of Celebration Mining Company and Royal Silver Mines, Inc. due to the Reorganization discussed in Note 1 of the financial statements following this Report. All significant intercompany accounts and transactions have been eliminated. Also, the consolidation required a change in fiscal year-end, from November 30 (Celebration) to September 30 (Royal). The financial statements account for the Reorganization using the purchase method of accounting (see Note 1 to the financial statements). Celebration is treated as the acquiring company for financial reporting purposes because its shareholders constitute greater than 50 percent of the combined shareholder group. In conformity with generally accepted accounting principles and the Company's accounting policy, Celebration is recognized as the predecessor entity. Consequently, Celebration's assets and liabilities were not adjusted in the accompanying financial statements. The financial statements for the period from the inception of Celebration on February 17, 1994 to November 30, 1994 ("Fiscal 1994") do not include the balance sheet data or results of operations of Consolidated Royal Mines, Inc. The accompanying financial statements represent the activities of Royal Silver Mines and Celebration, but are not considered consolidated financial statements since Royal Silver is the successor to Celebration. As discussed in greater detail under Item 2 below, a substantial portion of Registrant's assets consist of investments in mineral properties for which additional exploration is required to determine if they contain ore reserves that are economically recoverable. The realization of these investments is contingent to large extent upon the success of Registrant's property transactions as a whole, the existence of economically recoverable reserves, the ability of the Company to obtain financing or make other arrangements for development, and upon future profitable production. Accordingly, the accompanying financial statements make no provision for any asset impairment or other adjustment that might result from the outcome of this uncertainty. 3 The Board of Directors Royal Silver Mines, Inc. (A Development Stage Company) Spokane, Washington ACCOUNTANT'S REVIEW REPORT We have reviewed the accompanying balance sheet of Royal Silver Mines, Inc. (a development stage company) as of March 31, 1999, and the related statements of operations, stockholders' equity, and cash flows for the six months ended March 31, 1999, and for the period from February 17, 1994 (inception) through March 31, 1999. 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 21 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 May 10, 1999 F-1 4 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
March 31, September 30, 1999 1998 ASSETS (Unaudited) (Audited) CURRENT ASSETS Cash $ 35,048 $ 3,147 Note receivable - 350,000 Interest receivable - 17,106 Prepaid expenses 415 2,162 ----------- ----------- TOTAL CURRENT ASSETS 35,463 372,415 ----------- ----------- MINERAL PROPERTIES 2,274,411 2,229,411 ----------- ----------- PROPERTY AND EQUIPMENT Mining equipment 183,889 83,889 Furniture and equipment 12,761 12,761 Less accumulated depreciation (32,434) (19,868) ----------- ----------- TOTAL PROPERTY AND EQUIPMENT 164,216 76,782 ----------- ----------- OTHER ASSETS Investments 1,273,502 1,298,750 Organization costs, net 3,501 5,234 ----------- ----------- TOTAL OTHER ASSETS 1,277,003 1,303,984 ----------- ----------- TOTAL ASSETS $ 3,751,093 $ 3,982,592 =========== ===========
The accompanying notes are an integral part of these financial statements. F-2 5 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) BALANCE SHEETS
March 31, September 30, 1999 1998 (Unaudited) (Audited) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 70,615 $ 65,815 Accrued expenses 500 3,000 ----------- ----------- TOTAL CURRENT LIABILITIES 71,115 68,815 ----------- ----------- LONG TERM DEBT - - ----------- ----------- COMMITMENTS AND CONTINGENCIES - - ----------- ----------- STOCKHOLDERS' EQUITY Common stock, $.01 par value; 40,000,000 shares authorized, 19,432,565 and 19,003,565 shares issued and outstanding, respectively 194,325 190,035 Additional paid-in capital 11,363,655 11,889,838 Stock subscriptions receivable (30,000) (700,000) Deficit accumulated during development stage (7,848,002) (7,466,096) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 3,679,978 3,913,777 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,751,093 $ 3,982,592 =========== ===========
The accompanying notes are an integral part of these financial statements. F-3 6 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (Unaudited)
Three months ended Six months ended March 31, March 31, March 31, 1998 1999 1998 REVENUES $ - $ - $ - ----------- ------------ ----------- GENERAL AND ADMINISTRATIVE EXPENSES Mineral property expense 193,697 0 193,697 Depreciation and amortization 13,890 10,200 27,666 Officers' and directors' compensation 8,236 2,000 105,277 General and administrative 21,090 51,562 300,890 ----------- ------------ ----------- TOTAL EXPENSES 236,913 63,762 627,530 ----------- ------------ ----------- OPERATING LOSS (236,913) (63,762) (627,530) ----------- ------------ ----------- OTHER INCOME (EXPENSES) Interest income 5,611 - 11,582 Interest expense - - - Gain on property interest sold 2,010,313 - 2,010,313 Loss on disposition and impairment of assets (116,396) (247,111) (115,051) ----------- ----------- ----------- Total other income (expense) 1,899,528 (247,111) 1,906,844 ----------- ----------- ----------- NET INCOME (LOSS) $ 1,662,615 $ (310,873) $ 1,279,314 =========== =========== =========== NET INCOME (LOSS) PER COMMON SHARE $ 0.11 $ (0.02) $ 0.09 =========== =========== =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 14,620,121 19,833,121 14,120,676 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. F-4a 7 ROYAL SILVER MINES, INC. (A DEVELOPMENT STAGE COMPANY) STATEMENTS OF OPERATIONS (Unaudited)
Period from February 17, 1994 (inception) Six months ended through March 31, 1999 March 31, 1999 REVENUES $ - $ - ------------ ----------- GENERAL AND ADMINISTRATIVE EXPENSES Mineral property expense - 555,706 Depreciation and amortization 15,047 210,728 Officers' and directors' compensation 59,540 1,412,800 General and administrative 67,266 3,465,031 ------------ ----------- TOTAL EXPENSES 141,853 5,644,265 ------------ ----------- OPERATING LOSS (141,853) (5,644,265) ------------ ----------- OTHER INCOME (EXPENSES) Interest income 7,058 65,665 Interest expense - (74,348) Gain on property interest sold - 1,875,281 Loss on disposition and impairment of assets (247,112) (4,070,335) ------------ ----------- Total other income (expense) (240,054) (2,203,737) ------------ ----------- NET INCOME (LOSS) $ (381,907) $(7,848,002) ============ =========== NET INCOME (LOSS) PER COMMON SHARE $ (0.02) $ (0.70) ============ =========== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 19,260,323 11,174,576 ============ ===========
The accompanying notes are an integral part of these financial statements. F-4b 8 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 9 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 10 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 11 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 12 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 13 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 14 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 15 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 16 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) Issuance of shares for cash at $0.04 per share 1,500,000 15,000 45,000 Issuance of shares for consulting services at $0.04 per share 400,000 4,000 12,000 Issuance of shares to directors or services at $0.04 per share 50,000 500 1,500 Shares returned to treasury for cancellation of receivable and exchange of investment (1,450,000) (14,500) - Net loss for six months ended 03/31/99 - - - ---------- --------- ------------ Balance at 12/31/98 18,932,565 $ 189,325 $ 11,305,155 ========== ========= ============ F-9a 17 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) Issuance of shares for cash at $0.04 per share - - 60,000 Issuance of shares for consulting services at $0.04 per share - - 16,000 Issuance of shares to directors or services at $0.04 per share - - 2,000 Shares returned to treasury for cancellation of receivable and exchange of investment - - (14,500) Net loss for quarter ended December 31, 1998 - (381,906) (381,906) ---------- ------------ ------------ Balance at 12/31/98 $ (30,000) $ (7,848,002) $ 3,679,978 ========== ============ ============
18 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS (Unaudited)
From February 17, 1994 Six months ended (Inception) March 31, March 31, Through 1999 1998 March 31, 1999 Cash flows from operating activities: Net income (loss) $ (381,907) $ 1,279,314 $ (7,848,002) Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Loss on sale of equipment - - 12,585 Depreciation and amortization 15,047 27,666 205,937 Issuance of common stock for services 75,540 85,608 1,344,256 Write-off of option costs - 114,341 517,871 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 350,000 (350,000) 350,000 Accounts receivable - (620) - Prepaid expenses 1,747 (8,121) (28,853) Other assets - - (9,801) Interest receivable 17,106 (6,319) - Mineral properties - (4,674) (4,674) Accounts payable 4,800 (9,038) 70,615 Accrued expenses (2,500) (3,941) (312) ---------- ----------- ------------ Net cash provided (used) in operating activities 79,833 1,124,216 (2,134,828) ---------- ----------- ------------ Cash flows from investing activities: Sale of assets - 2,685 5,685 Sale of investment 100,533 70,000 170,533 Sale of mineral properties - 1,093,750 1,093,750 Purchase of investments (83,333) (2,924,062) (3,087,395) Purchase and development of mineral properties (45,000) (160,290) (1,986,690) Purchase of fixed assets (100,000) (1,513) (313,187) ---------- ----------- ------------ Net cash provided (used) in investing activities (127,800) (1,919,430) (4,117,304) ---------- ----------- ------------ The accompanying notes are an integral part of these financial statements. F-10a 19 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS (Unaudited) From February 17, 1994 Six months ended (Inception) March 31, March 31, Through 1999 1998 March 31, 1999 Net cash provided (used) in investing activities (Balance forward) (127,800) (1,919,430) (4,117,304) ---------- ----------- ------------ Cash flows from financing activities: Stock issuance and offering costs 19,868 - (154,967) Proceeds received on long-term debt - - 675,000 Payments made on notes payable - - (174,206) Issuance of common stock for cash 60,000 257,000 5,932,564 Payment for extension of warrants - - Payment for option to repurchase stock - - (50,000) Issuance of common stock for accrued interest - - 38,158 Issuance of common stock for extension of notes payable maturation - - 59,063 Payment for return of stock issued for mining property interest - - (35,000) Payment of joint venture costs - - (50,000) Issuance of warrants for cash - - 46,568 ---------- ----------- ------------ Net cash provided by financing activities 79,868 257,000 6,287,180 ---------- ----------- ------------ Net increase (decrease) in cash $ 31,901 $ (538,214) $ 35,048 ---------- ----------- ------------
These accompanying notes are an integral part of these financial statements. F-10b 20 ROYAL SILVER MINES, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS (Unaudited)
From February 17, 1994 Six months ended (Inception) March 31, March 31, Through 1999 1998 March 31, 1999 Net increase (decrease) in cash (balance forward) $ 31,901 $ (538,214) $ 35,048 -------- ---------- ----------- Cash, beginning of period 3,147 594,577 - -------- ---------- ----------- Cash, end of period $ 35,048 $ 56,363 $ 35,048 ======== ========== =========== Supplemental cash flow disclosure: Income taxes $ - $ - $ 350 Interest $ - $ - $ 25,655 Non-cash financing activities: Common stock issued for services rendered $ 75,540 $ 85,608 $ 1,344,256 Common stock issued for mineral properties $ - $ - $ - Common stock issued in 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 investments $ 7,200 $ - $ 7,200
The accompanying notes are an integral part of these financial statements. F-11 21 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS Royal Silver Mines, Inc. (Royal) was incorporated in April of 1969 under the laws of the state of Utah primarily for the purpose of acquiring and developing mineral properties. Royal conducts its business as a "junior" natural resource company, meaning that it intends to receive income from property sales or joint ventures with larger companies. Celebration Mining Company (Celebration), currently a wholly-owned subsidiary of Royal, was incorporated for the purpose of identifying, acquiring, exploring and developing mining properties. Celebration was organized on February 17, 1994 as a Washington corporation. Celebration has not yet realized any revenues from its planned operations. On August 8, 1995, Royal and Celebration completed an Agreement and plan of reorganization whereby the Company issued 4,143,750 shares of its common stock and 1,455,000 warrants in exchange for all of the outstanding common stock of Celebration. Pursuant to the reorganization, the name of the Company was changed to Royal Silver Mines, Inc. Immediately prior to the Agreement and Plan of Reorganization, the Company had 2,375,463 common shares issued and outstanding. The acquisition was accounted for as a purchase by Celebration of Royal, because the shareholders of Celebration control the Company after the acquisition. Therefore, Celebration is treated as the acquiring entity. There was no adjustment to the carrying value of the assets or liabilities of Royal in the exchange as the market value approximated the net carrying value. Royal is the acquiring entity for legal purposes and Celebration is the surviving entity for accounting purposes. The $2,274,411 cost of mineral properties included in the accompanying balance sheet as of March 31, 1999 is related to exploration properties. The Company has not determined whether the exploration properties contain ore reserves that are economically recoverable. The ultimate realization of the Company's investment in exploration properties is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the company to obtain financing or make other arrangements for development and upon future profitable production. The ultimate realization of the Company's investment in exploration properties cannot be determined at F-12 22 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS . . . continued 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. 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. F-13 23 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES . . . continued Mineral Properties Costs of acquiring, exploring and developing mineral properties are capitalized by project area. Costs to maintain the mineral rights and leases are expensed as incurred. When a property reaches the production state, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves. Mineral properties are periodically assessed for impairment of value and any losses are 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. Provision For Taxes At March 31, 1999, 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 substantial 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 March 31, 1999. F-14 24 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES. . . continued 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. 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 March 31, 1999, 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. F-15 25 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 3 - MINERAL PROPERTIES . . . continued Washington and Idaho Mineral Properties . . . continued 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. 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 shares 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. Other Domestic Properties In February 1999 in connection with the settlement agreement with Grand Central (described in Note 19), the Company received a number of patented mining claims in Utah and a number of unpatented mining claims in Idaho. In aggregate, these mining claims were recorded at $45,000. * * * F-16 26 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 3 - MINERAL PROPERTIES . . . continued Other Domestic Properties . . . continued The Company's proposed future mining activities will be subject to laws and regulations controlling not only the exploration and mining of mineral properties, but also the effect of such activities on the environment. Compliance with such laws and regulations may necessitate additional capital outlays, affect the economics of a project, and cause changes or delays in the Company's activities. The Company's mineral properties are valued at the lower of cost or net realizable value. NOTE 4 - MINERAL PROPERTY DISPOSITIONS 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 payments 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. 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. F-17 27 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 4 - MINERAL PROPERTY DISPOSITIONS . . . continued Conjecture Mine and Liberal King Mine (in U.S.) In 1995, the Company issued 280,000 shares of its common stock to acquire the Conjecture Mine, a silver-bearing property in the state of Idaho. During the fourth quarter of fiscal 1998, the Company traded the Conjecture Mine property for 10,000 shares of common stock in SynFuels Technology, Inc., (subsequently renamed Rigid Airship) valued at $8.00 per share. This transaction resulted in a recorded loss on disposition of $830,700. 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 market value. On January 12, 1998, this stock plus $100,000 cash was transferred to Dakota Mining Corporation 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. F-18 28 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 6 - INVESTMENTS . . . continued Grand Central Silver Mines, Inc. . . . continued 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. At September 30, 1998, the Company owned 1,235,000 shares of Grand Central Silver Mines, Inc. common stock, which was then approximately 12% of the total outstanding shares. Because the market value of the Company's investment in Grand Central had dropped to $926,250 ($0.75 per share), the Company recorded a loss on its investment of $1,997,812 at September 30, 1998. In February 1999, the Company transferred 154,375 shares of its holdings to Grand Central in connection with a settlement agreement. See Note 19. 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, Inc. 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. As part of a settlement agreement in February 1999, the Company received an additional 333,333 shares of Summit Silver Stock. See Note 19. Ashington Mining Corportion 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. F-19 29 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 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 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 shares on the date of issuance. During the year ended September 30, 1995, the Company issued 12,750 shares of common stock to directors and employees for services rendered, valued at prices ranging from $2.00 to $2.50 per share, which is the fair market value of the shares on the date of issuance. During the year ended September 30, 1995, Celebration issued 975,000 shares of common stock in exchange for mineral properties (See Note 3) and sold 176,000 shares of common stock for $264,000 cash. The Company issued 200,000 shares of its common stock during the year ended September 30, 1995 in lieu of outstanding debt that was owed to Centurion Mines Corporation (Centurion), a related entity. The stock was issued at $1.50 per share in payment of $300,000 of outstanding debt (See Note 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 for $2,958,314 in cash. The Company also issued 222,700 shares to directors and employees for services rendered valued at $1.50 per share, which is the fair market value of the 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-20 30 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 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. In November 1998, the Company sold 220,000 shares of its common stock at $0.06 per share to Ashington Mining for a short-term note in the amount of $5,000 and 100,000 shares of Ashington Mining stock valued at $7,200 (Note 6). An additional 1,500,000 shares of common stock were sold in January 1999 at $0.04 per share. During the first and second quarters of fiscal 1999, the Company issued 1,409,000 shares of common stock for services received. The shares were valued at their fair market value at the date of issuance which ranged from $0.04 to $0.06. F-21 31 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 8 - COMMON STOCK . . . continued As part of a settlement agreement with Grand Central Silver Mines, Inc. and other parties, Royal received 1,450,000 shares of Royal Silver Mines, Inc. stock which was returned to treasury and cancelled. 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 shares of its common stock. There are 255,000 of the stock options exercisable at $1.50 per share which expire March 21, 2000. The remaining 1,200,000 stock options are exercisable at $0.93 per share and expire on August 31, 2001. As of March 31, 1999, 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. These warrants expired unused. 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 March 31, 1999, none of the warrants had been exercised. F-22 32 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 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 six-month period ended March 31, 1999. NOTE 11 - ADDITIONAL PAID-IN CAPITAL The following is a summary of additional paid in capital at March 31, 1999 and September 30, 1998: March 31, September 30, 1999 1998 Applicable to: Common stock $ 11,317,087 $ 11,843,270 Stock Warrants 46,568 46,568 ------------ ------------ $ 11,363,655 $ 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 F-23 33 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 12 - OPTIONS INVOLVING MINERAL PROPERTIES . . .continued Option with Placer Mining . . . continued pay Placer a 2 3/4% net smelter return royalty in perpetuity with stipulated annual advance minimum royalty payments to Placer ranging from $100,000 (in 1999) to $250,000 (in year 2002 through 2010). All advance minimum royalties paid are to be credited against actual production royalties. Subsequent to March 31, 1997, due to regional environmental concerns and the prospect of related litigation, the Company concluded that it would not exercise its option on the Bunker Hill Mine. Accordingly, the $238,887 in option costs and related expenses toward the purchase of this property were written off during the quarter ended March 31, 1997. 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 March 31, 1999, no shares were acquired from Centurion under this option agreement. See Note 15. F-24 34 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 14 - LETTER OF INTENT WITH TECK EXPLORATION LTD. In October, 1997, the Company signed a letter of intent with Teck Corporation (dba Teck Exploration, Ltd.) of Vancouver, B.C. to jointly explore and develop the Mocha porphyry copper prospect in region I of northern Chile. The agreement contemplated 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. The two companies shared one common director and a common officer until February 1999, at which time mutual differences changed this arrangement. See Note 19. 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. The Company was a defendant in a lawsuit alleging that the Company failed to transfer common stock in exchange for a mining property interest. While this lawsuit was dismissed, the Company 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. F-25 35 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 16 - COMMITMENTS AND CONTINGENCIES . . . continued 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 shares of GSLM valued at $1,424,062. (See Note 4). A total gain of $1,454,062 was recognized on this transaction. NOTE 18 - NOTE RECEIVABLE At September 30, 1998, the Company's note receivable consisted primarily of a $350,000 receivable from Grand Central Silver Mines, Inc. This note, bearing interest at 8%, and uncollateralized, was exchanged for equipment and mining claims in February 1999. See Note 19. F-26 36 ROYAL SILVER MINES, INC. (A Development Stage Company) NOTES TO THE FINANCIAL STATEMENTS March 31, 1999 NOTE 19 - SETTLEMENT AGREEMENT In February 1999, the Company entered into a settlement arrangement wherein Grand Central Silver Mines, Inc. (hereinafter "Grand") transferred equipment, mining claims, and securities (including 450,000 shares of Royal Silver Mines, Inc. stock) to Royal in full settlement of the $350,000 promissory note (and accrued interest) owed by Grand to Royal. In connection with the same transaction, the Company transferred to an individual 154,375 shares of Grand Central common stock (previously held by Royal) and in turn received from this same individual 1,000,000 shares of Royal Silver Mines, Inc. common stock and 333,333 shares of Summit Silver, Inc. common stock. While this settlement agreement involved mutual releases of liability for all parties affected, the net effect of the settlement was the Company's recording a loss of $247,112 from assets disposed. See Note 6, Note 15, and Note 18. NOTE 20 - LICENSING AGREEMENT In January 1999, the Company entered into a technology licensing agreement with Integrated Environmental Technologies, LLC (IET), a New York limited liability company, to acquire, develop and exploit mineral deposits using IET technology. IET technology involves high temperature systems that utilize plasma technology for processing materials and includes trade secrets, inventions (whether patented or unpatented), information, data and experience. Upon completion of agreed upon conditions, the Company will be granted a 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. NOTE 21 - GOING CONCERN As shown in the financial statements, the Company incurred a net loss of $310,873 for the quarter ending March 31, 1999 and an accumulated deficit of $7,848,002 since inception. These factors indicate that the Company may be unable to continue in existence. The financial statements do not include any adjustments related to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue 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. F-27 37 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 March 31, 1999, the Company accumulated a deficit of $7,848,002. At March 31, 1999, $2,274,411 of the Company's total assets of $3,751,093 were investments in mineral properties. Additional exploration is required to substantiate or determine whether these mineral properties contain ore reserves that are economically recoverable. The realization of these investments is dependent upon the success of future property sales, the existence of economically recoverable reserves, the ability of the Company to obtain financing, the Company's success in carrying out its present plans or making other arrangements for development, and upon future profitable production. The ultimate outcome of these investments cannot be determined at this time; accordingly, no provision for any asset impairment that may result, in the event the Company is not successful in developing or selling these properties, has been made in the Company's financial statements. LIQUIDITY AND CAPITAL RESOURCES. The Company currently has no revenues and, as explained above, has an accumulated deficit. Because it has sustained recurring losses from operations, the Company cannot assure that it will be able to fully carry out its plans as budgeted without additional operating capital. At March 31, 1999, the Company had negative working capital of $35,652. This amount represents a substantial deterioration in liquidity and capital resources from its working capital position of $303,600 at September 30, 1998 and represents more deterioration from working capital of $357,646 at September 30, 1997. While the largest single element of working capital at September 30, 1998 and December 31, 1998 38 was a promissory note of $350,000 (from Grand Central Silver Mines, Inc.), this note was redeemed in February 1999 at a loss in exchange for mining properties and other investments. This transaction greatly reduced the Company's current assets and liquidity. While sales of the Company's stock have traditionally constituted its primary source of cash generation, depressed metals prices in 1998 and 1999 have lessened the Company's recent ability to obtain cash from sales of its stock. Company sales of its stock generated the following cash amounts: $60,000 in the quarter ending March 31, 1999, $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 six months of fiscal 1999, the Company increased its accounts payable while accrued expenses dropped slightly. Accordingly, the Company's current liabilities moved from $68,815 at September 30, 1998 to $71,115 at March 31, 1999. The Company had no long-term debt at September 30, 1998 or at March 31, 1999. The Company has estimated that it will need minimal capital resources of approximately $20,000-25,000 per month to meet its estimated expenditures for fiscal 1999. In recent years, several key members of management, met with experienced financial and investment firms throughout Europe and North America and negotiated preliminary terms and arrangements for capital fund raising. During the fiscal year ending September 30, 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. The Board of Directors reasonably believes that the Company is able to engage in nearly any size operation or scope of mining activity depending on the circumstances and merits of each proposed operation or mining activity. Accordingly, the Board has not limited the size of operation or scope of project which it believes is reasonable for management to consider in achieving the Company's business plan. Therefore, management has been authorized to consider and review numerous proposals and, upon satisfactory assessment, to then make a specific determination as to an estimated range of funding amounts that each such proposal reasonably might require. Inasmuch as the Company has not yet determined in detail the specifications of the project, operation or mining activity that it intends to undertake, management is not able at this time to provide a detailed listing or exact range of operation costs, including increases in general and administrative expense, if any. However, the Company plans to fund any increases in general and administrative expense principally from joint venture revenues or funds it may receive or savings it may realize through corporate restructuring or business combination arrangements. Funds required to finance the Company's 39 exploration and development of mineral properties are expected to come primarily from the contributions of its joint venture participants, and from the funds generated from such joint ventures and other lease or royalty arrangements. The Company 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 SIX MONTHS ENDED MARCH 31, 1998 AND MARCH 31, 1999, RESPECTIVELY. General and administrative expenses plummeted from $627,530 during the two quarters of fiscal 1998 to $141,853 during the first half of fiscal 1999. This decrease is principally due to greatly reduced consulting expenses and compensation to officers and directors. As a result, during the first half of fiscal 1998 compared to the first half of 1999, the Company's loss from operations decreased correspondingly. In the first six months of 1998, the Company experienced a gain of $2,010,313 on property sold, which had the effect of giving the Company net income of $1,279,314 (or $0.09 per share) for the first half of 1998. Without this favorable gain in 1999 and with an unfavorable negotiated settlement of a promissory note which resulted in a loss of $247,112 on this transaction in the second quarter of fiscal 1999, the Company experienced a net loss of $381,907 (or $0.02 per share) for the first six months of 1999. The Company is unable to fully determine the impact of future transactions on its operating capital. Hence, the Company has determined not to incur and does not have any commitments or plans for material capital expenditures during the remainder of its current fiscal year for which it does not have a reasonably available source of payment. It is uncertain what effect this decision may have with respect to restricting capital expenditures. On the one hand, if the Company were to continue such restriction, the likely effect might be adverse to the preservation of its assets and capital base, thereby narrowing the scope of plans for future operations and constricting liquidity. On the other hand, if the Company were to discontinue such restriction without an increase in sustained cash flow, the likely effect of that might be an increase in accumulated deficits which could be adverse to the Company's financial condition with respect to liabilities and stockholders' equity. 40 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. 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. 41 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. (a) Exhibits EXHIBIT INDEX Exhibit Number Description 27 Financial Data Schedule 42 - - - - - - - - - - - - - --------------------------------------------------------------------- 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 10th day of May, 1999. ROYAL SILVER MINES, INC. BY: /s/ Howard Crosby Howard Crosby, President, Treasurer Chief Financial Officer and a member of the Board of Directors EX-27 2
5 This schedule contains summary financial information extracted from the Consolidated Statement of Financial Condition at March 31, 1999 (Unaudited) and the Consolidated Statement of Income for the six months ended March 31, 1999 (Unaudited) and is qualified in its entirety by reference to such financial statements. 6-MOS SEP-30-1999 MAR-31-1999 35,408 0 0 0 0 35,463 196,650 (32,434) 3,751,093 71,115 0 0 0 194,325 3,485,653 3,751,093 0 0 0 0 141,853 0 0 (381,907) 0 (381,907) 0 0 0 (381,907) (0.02) (0.02)
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