ITEM 1. BUSINESS
GENERAL (Please refer to the glossary at the end of Item 1 for definitions of certain mining terms used in this annual report.)
Royal Silver Mines, Inc. (generally referred to as 'Royal' or 'the Company'), formerly known as Consolidated Royal Mines, Inc., and also, Royal Minerals, Inc., is a U.S. mineral resource company incorporated under the laws of the State of Utah. The Company is engaged in the business of acquiring and exploring mineral properties containing silver, gold, copper, and other mineralization, with a primary emphasis on silver. Prior to September 30, 1995, Royal acquired all of the outstanding securities of Celebration Mining Company ('Celebration'), a development stage company, pursuant to a share exchange agreement and plan of reorganization ('Reorganization'). Unless indicated differently by the context, all references to 'the Company' and 'Royal' in this report shall be read to refer to Royal Silver Mines, Inc., the corporate entity that resulted from the business combination of Consolidated Royal Mines, Inc. and Celebration Mining Company.
Prior to the Reorganization, Celebration was a non-public, closely held Washington corporation. It was formed in February 1994 to identify and acquire mineral properties for subsequent exploration and development, if warranted, through equity financing and joint venture arrangements. The Reorganization has been accounted for as a purchase by Celebration of Royal. Celebration was treated as the acquiring company for financial reporting purposes because its shareholders constituted greater than 50 percent of the combined shareholder group at the time of reorganization. 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. On the other hand, for purposes of reporting statutory and corporate authority, Royal is deemed to be the acquiring corporation, and Celebration is now a wholly-owned subsidiary of Royal. Prior to the Reorganization, Royal had been a majority-owned subsidiary of Centurion Mines Corporation ('Centurion'). Currently, however, Centurion holds an approximate 14 percent shareholder interest in Royal and is an affiliate and related party of the Company.
The Company operates its business as an exploration stage company, meaning that it intends to receive income from property sales, joint ventures, or other business arrangements with larger companies, rather than developing and placing its properties into production on its own. There currently are several business arrangements, joint venture prospects, and potential property sales from which the Company expects to receive income. The Company has owned royalty interests in properties situated in Utah's Gold Belt. There has been and is no assurance that the Company will receive royalties from these properties; it received no royalty income during the fiscal year ended September 30, 1996 ("Fiscal 1996").
The Company currently has no revenues. At September 30, 1996, the Company's accumulated deficit was $3,057,817. Although it has recurring losses from operations, the Company has increased its operating capital and improved its financial condition and ability. Regarding its losses from operations, the Company cannot assure that it will be able to fully carry out its plans as budgeted without additional operating capital. At September 30, 1996, the Company had a cash balance of $688,716 and working capital of $686,573, as compared to a cash balance of
$151,698 and a working capital deficit of $665,274 at September 30, 1995. Royal will need capital resources of approximately $40,000 per month to meet its estimated expenditures for the ensuing twelve months. The Board of Directors has instructed management to consult with experienced financial and investment advisory firms to formulate arrangements for such capital fund raising. Currently, the Company is pursuing various alternatives, including, if necessary, the private placement of stock.
During the twelve months ended September 30, 1996, the Company placed 1,949,332 shares of its common stock for $2,958,314 in cash. The Company also issued 406,050 shares of its common stock in lieu of outstanding debt. The stock was issued at $1.50 per share for a total value of $609,075. At the end of September, 1996, the Company reached an agreement with Centurion Mines Corporation, a related affiliate, for an option to purchase or assign up to 800,000 shares of Royal common stock, presently owned by Centurion Mines and representing approximately seven and one-half percent of currently outstanding shares, at an exercise price of $1.75 per share. The re-purchase option, which is assignable to third parties, expires October 1, 1998.
As discussed in greater detail below in the section entitled 'The Company's Strategy and Business Plan,' a substantial portion of Royal's assets consist of investments in mineral properties for which additional exploration is required to determine if they contain mineralization that is economically recoverable. The realization of these investments is contingent to a large extent upon the success of Royal's property transactions as a whole, the existence of economically recoverable metals and other mineralized material, the ability of the Company to obtain financing or make other arrangements for development, and upon future profitable production. The likelihood and extent to which these contingencies may be material is uncertain, and Royal cannot assure that the outcome of these uncertain events will not have a material impact and result in adverse consequences to the Company. If Royal does not receive suitable financing or funds from its present or future business arrangements to develop these properties, and continues to suffer losses from operations, the Company will revise its business activities accordingly.
HISTORY The Company was incorporated in Utah on April 6, 1969 as Royal Resources, Inc. for the purpose of acquiring and developing mineral properties. The Company changed its name to Royal Minerals, Inc., on January 6, 1983, and became a public company in July 1984. Royal complied with the Securities and Exchange Commission reporting requirements until August 1986, at which time Royal filed Form 15 with the Commission and suspended further reporting requirements. On January 31, 1992, Centurion owned 82.3 percent of the Company's common stock (see the section entitled 'Centurion's Acquisition and Control of the Company,' below.) Also on January 31, 1992, the Company shareholders authorized a 5-for-1 reverse stock split, and on March 4, 1994, authorized a 4-for-1 reverse stock split of the common stock of the Company. On March 17, 1994, the Company changed its name to Consolidated Royal Mines, Inc. On November 22, 1994, the Company filed a registration statement on Form 10 and renewed its reporting requirements, effective January 23, 1995. During the fourth quarter of Fiscal 1995, the Company revised its business plan to concentrate on the acquisition of silver properties. That change in focus prompted Consolidated Royal Mines, Inc. and Celebration Mining Company to implement the Reorganization, which closed on August 8, 1995, and to change the Company's name to Royal Silver Mines, Inc., effective September 18, 1995.
THE COMPANY'S STRATEGY AND BUSINESS PLAN Royal's management believes that control of land and mineral rights is the key ingredient for financial success in the exploration and development phases of the mining business. Previously, Royal had concentrated its main exploration efforts in the northern Utah Gold Belt because of that area's history of profitable metal production and because of Royal's exploration experience in the western United States. After the Reorganization, the Company acquired a number of significant mineral properties focusing on silver resources. The Company expects to concentrate its main exploration efforts during Fiscal 1997 in Idaho's Coeur d' Alene Mining District and to a much lesser extent in the Lakeview Mining District, and Utah's Ashbrook Mining District where the Company owns a 25% interest in the Vipont Mine property. The Company was involved in a joint venture in Australia through an agreement between Celebration and an Australian company. A deep test exploration hole was drilled in search of a buried massive sulfide target; however the hole encountered only weak mineralization.
Royal's corporate strategy is directed toward the acquisition of land positions for the exploration of mineralization in established mining districts that have had large and profitable production histories. This approach is referred to in the mining industry as 'headframe geology,' which is defined as concentrating efforts near previously known, profitable ore deposits. Royal does not currently have sufficient capital of its own to carry out its strategy and business plan.
The Company's plan of operation for Fiscal 1997 is to proceed with its exploration efforts and to seek business arrangements that, in conjunction with the funds of other companies or business entities, will provide sufficient funding to meet the initial expenditures required for the exploration of mineralization on such properties and to acquire land positions or other interests in mineral properties. It expects in this way to achieve an increase in the value of its assets and to obtain production income with less risk of its own funds for development expenditures and capital investment in production facilities. As a consequence of the Company's plans, management expects a reversal of the current trend of diminishing cash flow. However, because it currently does not have sufficient capital, if the Company is not successful in obtaining suitable joint venture commitments and funds, there is no assurance that the Company otherwise will obtain the capital it would need to achieve its business plan. During September 1996, the Company completed its initial due diligence review and signed a revised option agreement with the Placer Mining Corporation of Kellogg, Idaho, to purchase a 100 percent ownership interest in the Bunker Hill Mine, a silver-lead-zinc mine in Shoshone County, Idaho. The Bunker Hill Mine is the largest mine in northern Idaho's historic Coeur d'Alene Mining District, which currently has four major silver mines in production. The Bunker Hill Mine has produced over 35 million tons of ore over a one hundred year period.
Under the terms of the option, the Company can acquire the mine by making payment through one of two alternative purchase arrangements: the Company may either (1) pay $7 million and issue 500,000 shares of its restricted common stock to Placer Mining on or before May 10, 1997; or (2) pay $4 million and issue 500,000 shares to Placer Mining on or before May 10, 1997, and then pay an additional $3.5 million on or before May 10, 1998. Under either alternative, Placer Mining will retain a 2-3/4 percent net smelter return royalty on the property. The Company intends to raise the necessary funds via equity and/or debt financing, or through a possible joint venture with a major partner.
The Bunker Hill Mine, which was originally discovered in 1881, was last operated on a large scale in 1990. Placer Mining has reestablished small production of high grade lead-silver ore from stopes on 10 level and 11 level, but has lacked the requisite capital to properly redevelop the mine. In order to achieve the necessary economies of scale, and to benefit from low cost, bulk underground mining methods, the Company's engineers believe that a capital investment in excess of $50 million will be required over and above the purchase price. However, the Company believes that if the technical due diligence is favorable and the ongoing environmental issues can be satisfactorily resolved, an investment of that magnitude may be possible to obtain.
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. Following that direction, management of the Company pursued a vigorous and fruitful program during the last quarter of Fiscal 1995, acquiring interests in seven distinct parcels of mineral property. Further, management has been authorized to consider and review all reasonable 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.
By further direction of the Board of Directors, management may enter into new mining arrangements with joint venturers, partners, or other third parties. Such arrangements may be multi-party ventures to which the Company will contribute stock, cash, and/or mineral interests. In such arrangements, the Company's participation in revenues and profits, if any, will be reduced. At this time, the Company has no agreement or understanding with any third parties for the formation of a joint venture mining operation other than those described herein. The Company will encounter significant competition from firms currently engaged in the mining industry. In general, all of these companies are substantially larger than the Company, and have substantially greater resources and operating histories. (See 'Risk Factors,' below.)
Management, together with such professional advisors which the Company deems appropriate, will investigate prospective properties through on-site examination, reviewing available geologic reports or publications relating to the property, and a general field reconnaissance to secure preliminary information regarding characteristics of the property. If, from such preliminary reviews, management deems it advisable to further investigate the property, the Company may determine the condition of title and ownership by using abstractors or title companies, and may obtain a preliminary feasibility study by one or more geologists, mining engineers, or accountants. If, after the foregoing preliminary investigation, management determines that the property does not meet the Company's acquisition criteria, efforts to acquire the property will be abandoned, in which case costs incurred in conducting the investigation would not be recoverable. It should be noted, however, that the Company has only a limited amount of funds available for working capital which could be used for future exploration expenditures. Thus, if future exploration is desired, additional funds would be needed. Only a limited amount of such funds have currently been identified and there can be no assurance that such funds would be available at an acceptable cost, if at all.
Inasmuch as the eventual project, operation or mining activity could be of any size or scope, management is not able at this time to provide more exact amounts or a detailed listing 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, fees it may receive, or additional funds it may receive from debt or equity financing. Funds required to finance the Company's exploration and development of mineral properties are expected to come primarily from joint venture participant contributions with the remainder provided by funds generated from such joint venture and other lease or royalty arrangements.
Management has budgeted approximately $480,000 for Fiscal 1997 for general and administrative expenses and other operating costs. To date, the Company 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 and contractors that provide its personnel, office space, and equipment needs. The Company currently is seeking additional sources of working capital sufficient to continue its present level of funding its general and administrative expenses and meet ongoing payment obligations for its leases to governmental bodies. Operating costs are largely dependent upon the level of exploration and development activity engaged in, which, in turn, is dependent upon availability of funds. The Company has determined not to incur any operating costs related to exploration and development until sufficient funds are available for payment.
PRIVATE PLACEMENTS. In July, 1995, the Company completed a private placement of 8,700 shares through two Regulation S offerings, both at a price of $2.00 per share, for a total of $17,400. During September 1995, the Company completed a private placement of 179,000 shares of common stock through a domestic offering at a price of $1.50 per share for a total of $241,650 after expenses. During the twelve months ended September 30, 1996, the Company placed 1,949,332 shares of its common stock for $2,958,314 in cash. The Company also issued 406,050 shares of its common stock in lieu of outstanding debt of $570,919, plus accrued interest. The stock was issued at $1.50 per share for a total value of $609,075.
COMPETITION The mining industry is very competitive. There is a high degree of competition to obtain favorable mining properties and suitable mining prospects for drilling, exploration, development and mining operations. The Company encounters competition from a handful of other similarly-situated mining companies in the silver mining industry in connection with the acquisition of properties capable of profitably producing silver and other mineralization. The Company is unable to ascertain the exact number of such competitor companies, however, the Company believes that with the acquisition of significant properties in the Coeur d'Alene Mining District of Northern Idaho, USA, its competitive position for exploring and developing such properties for silver mineralization should improve. Nevertheless, the Company may be unable to acquire attractive mining properties on terms it considers acceptable. Accordingly, there can be no assurance that the Company's programs will yield commercially minable reserves.
RISK FACTORS
The following risk factors with respect to the Company and its operations may affect its strategy and business plan:
1. Recent Status as a Public Reporting Company. The Company became a fully reporting public company on January 23, 1995. The Company has no current operating history and is subject to all risks inherent in a developing business enterprise. The likelihood of success of the Company must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered in connection with a new business in general and those specific to the natural resource industry and the competitive and regulatory environment in which the Company will operate.
2. Exploration Stage Company. Mineral exploration, particularly for gold and silver, is highly speculative in nature, frequently is nonproductive, and involves many risks, often greater than those involved in the discovery of mineralization. Such risks can be considerable and may add unexpected expenditures or delays to the Company's plans. There can be no assurance that the Company's mineral exploration activities will be successful or profitable.
Once mineralization is discovered, it may take a number of years from the initial phase of drilling until production is possible, during which time the economic feasibility of production may change.
A related factor is that exploration stage companies use the evaluation work of professional geologists, geophysicists, and engineers for estimates in determining whether to acquire an interest in property or to commence exploration or development work. These estimates generally rely on scientific estimates and economic assumptions, and in some instances may not be correct, and could result in the expenditure of substantial amounts of money on a property before it can be determined whether or not the property contains economically recoverable mineralization.
The economic viability of a property cannot be determined until extensive exploration and development has been conducted and a comprehensive feasibility study performed. The Company currently does not have any such feasibility studies, and has not yet prepared feasibility studies on any of its properties. Moreover, the market prices of any minerals produced are subject to fluctuation, which may negatively affect the economic viability of properties on which expenditures have been made. The Company is not able to determine at present whether or not, or the extent to which, such risks may adversely affect the Company's strategy and business plans.
3. Lack of Revenue. The Company needs additional capital but currently has no revenues. Substantial expenditures are required to establish ore reserves through drilling, to determine metallurgical processes to extract the mineralization from the ore and, in the case of new properties, to construct mining and processing facilities. The Company lacks a constant and continual flow of revenue. The Company currently holds certain royalty interests in several mining properties previously sold, but there is no assurance that the Company will receive royalty payments, or that the Company will otherwise receive adequate funding to be able to finance its exploration activities. The Company is looking for revenue sources on an on-going basis, but there can be no assurance that such sources can be found or that, if available, the terms of such financing will be commercially acceptable to the Company. Because of the Company's need for additional capital to fund its present operations, to complete the acquisition of certain mineral rights, and to provide for further exploration and development, the lack of consistent revenue could be a detrimental factor in the progress of the Company.
4. Realization of Investments in Mineral Properties and Additional Capital Needs. The ultimate realization of the Company's investments in mineral 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 Company expects to finance its operations for Fiscal 1997 through the sale of equity securities, joint venture arrangements (including project financing), and the sale of interests in mineral properties. The Company does not have sufficient capital of its own to explore and develop its mineral properties and there can be no assurance that the Company will be successful in obtaining the required funds to finance its long-term capital needs.
5. Retention and Attraction of Key Personnel. The Company's success will depend, in large part, on its ability to retain and attract highly qualified personnel. The Company's success in retaining its present staff and in attracting additional qualified personnel will depend on many factors, including its ability to provide them with competitive compensation arrangements, equity participation and other benefits. There is no assurance that the Company will be successful in retaining or attracting highly qualified individuals in key management positions.
6. Regulatory Concerns. Environmental and other government regulations at the federal, state and local level pertaining to the Company's business and properties may include: 1) Surface Impact, 2) Water Acquisition, 3) Site Access, 4) Reclamation, 5) Wildlife Preservation, 6) Licenses and Permits, and 7) Maintaining the Fees for unpatented mining claims. See the section below entitled 'Government Regulation and Environmental Concerns,' for a comprehensive discussion of the risks related to this factor.
TRANSACTIONS WITH CENTURION The Company has disclosed pertinent information and financial data with respect to its transactions with Centurion in its presentation found at Item 13 of this Report, entitled 'Certain Relationships and Related Transactions.'
PATENTS, TRADEMARKS, LICENSES, FRANCHISES The Company does not own any patents, trademarks, licenses, franchises, or concessions, except for patented mining claims granted by governmental authorities and private land owners.
SEASONABILITY The Company's business is generally not seasonal in nature except to the extent that weather conditions at certain times of the year may affect the Company's access to its properties.
GOVERNMENT REGULATION AND ENVIRONMENTAL CONCERNS The Company is committed to complying and, to its knowledge, is in compliance with all governmental and environmental regulations. The Company's activities are subject to extensive federal, state, and local laws and regulations controlling not only the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. The Company cannot predict the extent to which future legislation and regulation could cause additional expense, capital expenditures, restrictions and delays in the development of the Company's properties, including those with respect to unpatented mining claims.
As used in this Annual Report, the term 'unpatented mining claim' refers to a mining claim on federal lands which has not been converted into full fee ownership in the name of a private person or entity. The process of converting ownership was established under the (U.S.) General Mining Law of 1872, as amended (the 'General Mining Law'), and requires that certain conditions be met. Once met, and all other requirements are satisfied, the U.S. government transfers ownership of the underlying property (held to that point in the public trust) to the private person or entity by granting fee simple and conveying full private ownership of the subject mineral property, including mineral rights, surface, subsurface and appurtenant rights, subject to any vested and accrued water rights. The act of granting full fee ownership is accomplished by a duly endorsed instrument referred to as a 'patent.' Until such time as a mining claim on federal land may be 'patented,' the claim is deemed an 'unpatented mining claim' and ownership is held in the public trust by the U.S. government subject to existing federal mining laws and other applicable statutory or regulatory provisions as may be implemented by the federal bureaucracy.
In 1992, the U.S. Congress passed a number of amendments to the General Mining Law which governs mining claims and related activities on federal lands. A holding fee of $100 and a filing assessment of $35 per claim was imposed upon unpatented mining claims located on federal lands. Since 1992, a variety of legislation has been proposed to further amend the General Mining Law. The proposed legislation would, among other things, impose royalties and add requirements affecting reclamation, environmental controls, and restoration. Although such legislative proposals are not currently in effect, the likelihood or extent of subsequent enactments is not presently known and the potential impact on the Company as a result of future congressional action cannot be predicted.
The Company's activities are not only subject to extensive federal, state, and local regulations controlling the mining of and exploration for mineral properties, but also the possible effects of such activities upon the environment. Future legislation and regulations could cause additional expense, capital expenditures, restrictions and delays in the development of the Company's properties, the extent of which cannot be predicted. Also, as discussed above, permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. In the context of environmental permitting, including the approval of reclamation plans, the Company must comply with known standards, existing laws and regulations that may entail greater or lesser costs and delays depending on the nature of the activity to be permitted and how stringently the regulations are implemented by the permitting authority. While it is possible that the costs and delays associated with the compliance of such laws, regulations, and permits could become such that the Company would not proceed with the development or operation of a mine, the Company is not presently aware of any material environmental constraint affecting its properties that would preclude the economic development or operation of any specific property, other than those relating to the Bunker Hill Mine (described in Item 2.

ITEM 2. PROPERTIES
OVERVIEW
The properties in which the Company has an interest are divided into the following areas:
A. CRESCENT MINE B. OPTION TO PURCHASE BUNKER HILL MINE C. CONJECTURE MINE D. VIPONT MINE E. OTHER IDAHO PROPERTIES F. OTHER PROPERTIES G. UTAH GOLD BELT AND ROYALTY INTERESTS H. OFFICES
A. CRESCENT MINE
In February 1995, Celebration entered into an agreement to acquire a mineral lease on the Crescent Mine. The Crescent Mine is an underground mine, located in the Coeur d'Alene Mining District of Shoshone County, Idaho, about five miles east of Kellogg, Idaho.
Operations of the Crescent Mine began prior to 1917 and, according to records available to the Company, approximately 25 million ounces of silver have been produced from the Crescent Mine. The mine is not currently in operation and is flooded to approximately the 1200 foot level. The most current ore reserve report that the Company has been able to obtain was prepared in 1985 by Norman A. Radford, a registered professional geologist. That report, based on an assumption that silver prices would remain below ten dollars ($10) per ounce, indicated that the Crescent Mine contained 141,000 tons of probable reserves averaging 31 ounces of silver per ton of mineralized material. At current prices of under five dollars ($5.00), the Company cannot assure that any of the mineralization could be mined at a profit.
Host rocks in the Crescent Mine, in common with the rest of the District, are members of the Precambrian Belt Super Group. Within the Crescent Mine area, three formations are present, in descending order: Wallace, St. Regis, and Revett. The most favorable rocks in the Crescent Mine are the Lower St. Regis and Upper Revett quartzites. These rocks occur in the Crescent Mine from the 1,200-foot level downward. The Coeur d'Alene 'Silver Belt' ore structures are frequently narrow, fragmented, and sinuous, and have exhibited great vertical continuity. For this reason, they have been discovered and mined at levels deeper than is generally the case in other mining districts. The ore at the Crescent Mine occurs in thin veins steeply dipping to the south. These veins may vary in thickness from several inches to several feet. The Alhambra and the Syndicate Faults are major reverse faults and both are present in the Crescent Mine.
The Crescent Mine property consists of 12 patented mining claims and two Idaho state leases located immediately adjacent to and west of the world-famous Sunshine Mine (Sunshine Mining Company, SSC-NYSE). The Sunshine Mine has produced nearly 400 million ounces of silver since its inception, making it the largest primary silver mine in the world. The major structural and stratigraphic features which have produced the major ore deposits in the Sunshine Mine are also present in the Crescent Mine.
The Crescent is developed to a vertical depth of 5,100 feet by two vertical shafts. The majority of past production from the Crescent Mine occurred in the Revett formation over 1,200 feet of dip between the 3,100 level and the 4,300 level. In the mid-1980's, the No. 2 shaft was deepened to the 5,100 level, which opened an additional 800 feet of favorable Revett quartzites for development of the downward extensions of the East Footwall and Hook veins, which have been the most productive veins in the Crescent Mine.
The Company's plans to reestablish significant silver production from the Crescent Mine will be dependent upon silver prices. Management estimates that a price of at least $6.00 per ounce would need to be sustained for a period of six months to justify the capital investment necessary to de-water the lower workings of the mine and rehabilitate the stopes. At December 17, 1996, the Comex Spot price for silver was $4.89. Absent a $6.00 silver price, the Company intends to pursue development and exploration efforts in the upper Crescent. The workings of the upper Crescent Mine are above the water table, and therefore can be developed without major capital investment. The Company believes that a processing agreement for Crescent ore can be negotiated with the neighboring Sunshine Mine on a favorable basis.
During the 1996 fiscal year, the Company's field activities at the Crescent Mine were limited to are unsuccessful attempt to re-open the #3 level portal. The portal was filled with unconsolidated glacial till and it was determined that a much more expensive program will be required given the bad ground. Due to the low silver price, no attempt to dewater the lower mine was contemplated during the 1996 fiscal year. Further developments on the Crescent Mine for fiscal 1997 will depend upon the price of silver, as well as the Company's available capital.
B. OPTION TO PURCHASE THE BUNKER HILL MINE
In September 1996, the Company completed its due diligence review and successfully renegotiated its option with Placer Mining Corporation of Kellogg, Idaho, to purchase a 100 percent ownership interest in the Bunker Hill Mine, a silver-lead-zinc mine in Shoshone County, Idaho and the largest mine in northern Idaho's historic Coeur d'Alene Mining District. In pursuing the due diligence effort during fiscal 1996 with respect to the Bunker Hill option, the Company engaged outside legal counsel and Fulcrum Environmental, an independent environmental consulting firm, to assist with the review. The major environmental issues which must be considered include possible successor liabilities to the Bunker Hill Superfund Site, the operation and maintenance of the Central Water Treatment Plant (which handles acid mine drainage from the portal), and other revegetation and restoration efforts in Milo gulch and elsewhere on the property. As of the date of this filing, discussions are ongoing with the U.S. Environmental Protection Agency and the State of Idaho with respect to these issues. The Company believes that it may be possible to negotiate a satisfactory solution to these issues; however, there can be no assurance of this.
The Bunker Hill Mine has produced over 35 million tons of ore over a one hundred year period. Option terms and financing alternatives regarding the purchase are explained above in more detail in the section within Item 1 entitled "The Company's Strategy and Business Plan."
The Bunker Hill complements Royal's silver focus. The Bunker Hill has historically produced in excess of 165 million ounces of silver, making it the second most productive silver mine in United States history. Preliminarily, the Company has identified seven near-term exploration-development projects of potentially high-grade silver zones. These targets were also identified by past operators. Detailed exploration plans for these projects are available to the Company in the records at the mine.
The Bunker Hill Mine property consists of over 6,500 acres of patented mining claims, much of which is completely unexplored. The largest deposit of zinc mineralization in the mine, the Quill, is open on strike to the west and down dip. The largest and highest grade deposits of lead-silver mineralization, the Francis, the "J", and the Emery are all open to depth. Given the extensive vertical continuity of mineralized material in the Coeur d' Alene Mining District, the Company believes that the existence of additional mineralized material at depth that may be economically profitable is a rational basis for conducting further exploration and development. Management of the Company notes that the other four largest mines in the district have been mined and developed at least one thousand feet deeper, in reference to sea level, than the Bunker Hill Mine.
The Bunker Hill Mine was discovered in 1885 and produced continuously until its first closure in 1981. Historical production from the mine exceeded 39,600,000 tons at a grade of 4.5 ounces per ton of silver, 8.6 percent lead and 3.7 percent zinc. At present metal prices, this prior production would have exceeded approximately five billion dollars.
Placer Mining acquired the Bunker Hill Mine in 1991 and is currently producing approximately 50 tons per day of high-grade lead-silver ore. Upon exercising its option, the Company intends to expand production to approximately 500 tons per day of lead-zinc-silver ores, as well as to undertake its underground diamond drilling program to better define, evaluate, and expand reserves and other mineralized material.
The mineralized material is contained within 18 known ore zones. Historically, the Bunker Hill Mine has been mined from over 60 individual ore zones extending within a broad area approximately 1500 feet wide, 11,000 feet long, and 7000 feet deep. Substantial inferred resources and potential extensions are believed to be present within the mine complex. The Company believes also that projected mining activities at the Bunker Hill Mine will benefit from the presence of three workable shafts and over 150 miles of drifts, crosscuts and raises, which in today's dollars represents an infrastructure that could cost in excess of $300 million dollars to duplicate.
During Royal's extensive due diligence review, of more than six months, technical staff of the Company completed an extensive review of mine maps, drill logs, and other technical data which presents a preliminary overview that approximately eight million tons of silver and other mineralized material may be present and economically recoverable from within the mine. Thus, the Company is preparing plans to implement exploration activities should the Company elect to exercise its option to purchase the mine.
Exploration targets are believed to consist of large tonnage, bulk-minable deposits as well as high-grade vein deposits. According to consulting Royal geologist Daniel Gorski, extensive, minable bulk tonnages may be indicated by prior drilling results. Management believes that implementation of the option purchase agreement will allow the Company to extend its exploration strategy for silver and other mineralized material in a known mining district.
C. CONJECTURE MINE
In late August of 1995, the Company completed two acquisitions which included six patented and six unpatented mining claims comprising the Conjecture Mine property.
The Conjecture property is located in the Lakeview Mining District of Idaho, some 30 miles to the northwest of the Coeur d'Alene mining district. The rock groups of the Lakeview District are the same Precambrian belt series associated with the world-class silver deposits of the Coeur d' Alene mining district to the south.
The history of the Lakeview District in general, and the Conjecture Mine in particular, has shown sporadic high grade silver production from shallow workings since the late 1800's. Most recent production on a neighboring property occurred as recently as 1987. However, within the District, only the Conjecture Mine itself has been developed to any significant depth.
In the late 1950's and early 1960's, Federal Resources of Salt Lake City, Utah invested approximately $3 million in shaft sinking and underground development at the Conjecture Mine. In all, Federal Resources completed a 2,000 foot deep, concrete lined, three compartment vertical shaft and nearly 12,000 feet of drifts, cross-cuts and raises to establish a block of mineralized material of 336,000 tons at a grade of 11 ounces per ton of silver, and .03 ounces of gold, with some lead and zinc.
An additional block of 370,000 tons of similar grade was listed as a possible block of mineralization between the levels. Since obtaining the property, the Company has not been able to re-confirm these reserve estimates of mineralized material, although an independent reserve report done in 1981 essentially verified the earlier numbers.
That independent reserve report was prepared by Richard W. Morris, a registered professional geologist, for a company known as Minerals Management, Inc. Nevertheless, no assurance can be made that this mineralized material constitutes a proven or probable 'ore reserve', if at all, until it can be reverified.
The Company's geologists have noted the striking similarities between the Lakeview District and the nearby Coeur d'Alene District. High grade silver mineralization has been shown to extend laterally for over two miles, and vertically for over 3,000 feet in the Conjecture Mine. The same rock unit sequence (i.e., Wallace, St. Regis, Revett) is found in both districts, with the same important ore minerals (tetrahedrite, galena, sphalerite) defining productive ore shoots. However, within the Lakeview District, only the conjecture shaft has penetrated the less favorable Wallace formation into the better quartzite units.
Because of heavy snows in the winter of 1995 and spring of 1996, the Company's planned exploration activities at the Conjecture were delayed. With the Company's resources currently being devoted to its due diligence and financing activities for the Bunker Hill Mine, no further work is planned at the Conjecture Mine in fiscal year 1997.
D. VIPONT MINE
The Vipont Mine is located in the Ashbrook Mining District, a remote area in the extreme northwestern corner of Box Elder County, Utah, approximately ten miles east of the Nevada state line and one mile south of the Idaho state line near the headwaters of the Little Birch Creek. It is accessible by asphalt, gravel, and dirt roads. The mine property consists of 53 patented (deeded) mining claims covering nearly 1,000 acres with a 25% undivided interest owned by Celebration Mining Company (a wholly-owned subsidiary of the Company.)
The Vipont Mine was at one time one of the foremost silver-producing mines in the State of Utah. Its greatest period of activity was from 1919 through mid- 1923 after the passage of the Pittman Silver Purchase Act ('Pittman Act') which authorized the purchase of 200,000,000 ounces of silver. The Mine closed in August 1923 with the expiration of the Pittman Act after producing nearly 1,000,000 ounces of silver per year. Some leasing was done in the 1930's and the Mine was closed in 1942 when Congress passed War Order L-208 closing all gold and silver mines. From 1977 through 1987, United Silver Mines began further development and leached the old mill tailings.
The mineralization in the Mine occurs predominantly as the mineral argentite in the Vipont limestone. Two other units, the Phelan limestone, and the Sentinel limestone have produced high-grade ore. Neither the Phelan nor the Sentinel have been seriously explored for additional ore.
The mineralization in the Vipont limestone occurs as a continuous tabular 'manto' mineralization body in the crests of folds (crenulations) superimposed upon a shallowly dipping (22 degrees) syncline. The continuity of the mineralization down-dip has been shown by past mining operations and by a line of drill holes below the old workings. It is thought by geologists that the mineralization will continue to down-dip toward an igneous intrusive 4,600 feet southwest of the old mine.
There are two distinct mineralization deposits on the Vipont Property: the oxide deposit and the sulfide deposit. The characteristics of each are unique and require different approaches to development and exploration. According to a 1994 report by Dr. Armond H. Beers, the oxide deposit contains 1,100,000 tons of mineralized material grading 6.9 ounces per ton in silver and with a small gold credit. The Company has not independently re-verified those findings and cannot and does not make any assurance as to their accuracy or compliance with regulatory standards.
The report of Marston and Marston, completed in 1981, provides different grades and tonnage. Marston and Marston did not have access to additional drilling results completed subsequent to their report; however, based on the information then available, Marston and Marston reported 1.5 million tons of mineralized material at a silver grade of 4.47 ounces per ton. Because the mineralization is oxidized, it is believed that recovery of the precious metals can be achieved with cyanide heap leaching. It is also believed that mining can be accomplished with open pit methods. The Company will evaluate its plans for development of the Vipont Property after further review of all technical data. Any development is anticipated to require amendments to the United Silver Mines permits to allow construction of leaching pads, completion of engineering design of the leach pads and recovery plant, selection of a mining contractor, building and installing crushing circuits, agglomerating unit, leach pads, and recovery plant.
The sulfide deposit is currently defined in the Beers Report as 478,000 tons of mineralized material at an estimated average grade of 13.52 ounces per ton in silver. Geologic interpretation of the manto-type replacement deposit, however, may establish upon further exploration that this mineralized resource may be larger. The Company's management and professional staff believe that the sulfide deposits will represent the long-term future of the Vipont Mine.
During the 1996 fiscal year, the Company elected not to proceed further with the Vipont joint venture, but as a result of the Company's successful effort at removing all liens on the property at a Box Elder County Sheriff's sale, the Company's wholly-owned subsidiary now owns a 25% undivided interest in the property. The company has no plans to proceed further with the Vipont joint venture until such time as silver prices improve.
E. OTHER IDAHO PROPERTIES
BISMARK MINE PROPERTY. In September of 1995, the Company obtained a 10-year lease on three patented mining claims in Shoshone County, known as the Bismark claims. The claims lie about one mile south of the main shaft of the Sunshine Mine and are surrounded by Sunshine holdings. The property is developed by a 1,500 foot adit which was driven to the northwest to intersect the Bismark vein. Royal has re-opened and re-timbered the portal of the Bismark adit to permit accessing and sampling of the Bismark vein. This work was planned for the 1996 field season, however, due to other priorities it was deferred.
The geology of the Bismark claims, given the proximity to the Sunshine Mine, is highly favorable to ore deposition. The Bismark vein lies entirely with the Revett formation, which is the most favorable rock unit for ore emplacement in the Coeur d'Alene mining district. Limited exploration by Sunshine Mining Company on the 2,600 level established the downward projection of mineralization in the Bismark vein structure.
Bismark Mining Company, the property owner and lessor, will receive a 2.5 percent net smelter return on commercial production from the claims, under the terms of the Company's lease.
COEUR D' ALENE SYNDICATE PROPERTY. No significant mineral production has to date occurred on the Coeur d'Alene Syndicate property and there are no known proven or probable reserves. In September of 1995, the Company acquired fee simple ownership of the 24 patented mining claims that comprise the Coeur d'Alene Syndicate property, located in Burke Canyon some six miles northeast of Wallace, Idaho. The property is near the eastern end of the Coeur d'Alene mining district, and is an undeveloped portion of a major mineralized trend running through the Star-Morning Mines and on to the Frisco and Black Bear Mines.
Geologists have long considered the Syndicate property to be an outstanding exploration target where the highly productive Star fault turns to the southwest and intersects the Commander fault. This structural anomaly, occurring in favorable Revett and Burke formation quartzite rocks is exactly what develops major ore shoots within the Coeur d'Alene district.
The property is currently developed by an adit from the Black Bear property, but could ultimately be accessed by deep shafts on either end of the strike.
Subsequent to September 30, 1995, the Company entered into an agreement with an independent timber company to sell the mature timber for cash. The transaction was expected to close in Fiscal 1996, but was not concluded as a timber consultant recommended allowing the timber crop to achieve greater maturity prior to harvesting.
THE LIBERAL KING MINE. In the fourth quarter of Fiscal 1995, the Company acquired fee simple ownership of the Liberal King Mine, consisting of five patented claims located southwest of the famous Bunker Hill Mine in the Pine Creek area of the Coeur d'Alene Mining District. At the time the mine was last operated by Spokane National in the 1960's, that company reported a defined block of mineralized material totaling 81,000 tons at 12 percent zinc and 2.5 ounces of silver. In the early 1980's, Cominco-American conducted an exploration program on the Liberal King property in search of a large, stratabound zinc-silver deposit. Such potential has not been fully explored at this time. Royal has not been able to evaluate this property as of the date of this filing, and no current reserve estimates can be given.
F. OTHER PROPERTIES
FRISCO STANDARD SILVER MINE. As of the first quarter of fiscal 1997, the Company has fully divested itself of any ownership in the Frisco Standard Mine. In September 1995, the Company had acquired fee simple ownership of the seven patented claims that comprised this property.
NEW DEPARTURE MINE. There are no known proven or probable reserves identified at the New Departure Mine. In August 1995, the Company acquired a long term mineral lease for the New Departure Mine in Beaverhead County, Montana. This property is located in southeastern Montana near the town of Bannock. The property consists of eight patented claims and has a history of very high grade silver production. Royal management has not as yet developed an exploration plan for the property, which was acquired by lease in September 1995, subject to a three percent net smelter return.
AUSTRALIA JOINT VENTURE PROPERTY. There are no known proven or probable reserves identified at the Australia Joint Venture Property. On March 21, 1995, Celebration entered into a joint venture with Metallurgical Refining & Development PTY, LTD. ('Metallurgical'), of Brisbane, Queensland, Australia, for the exploration of EL 3854, a prospecting license in western New South Wales. For the three prior years, Metallurgical was engaged in an active program of geophysics, geochemistry, satellite reconnaissance, and other proprietary exploration methods seeking to identify large, buried, polymetallic deposits. In July of 1995, the joint venture completed an exploratory diamond drill hole to a depth of 700 meters (2100 feet). While the hole did not encounter significant mineralization, there was geologic indication that a large porphyry system may be nearby. Results of additional scientific testing of the core are being evaluated before conducting further magnetics and geophysics to determine plans for further drilling.
G. UTAH GOLD BELT AND ROYALTY INTERESTS
The Company is not currently involved in active exploration with respect to any of the property holdings or royalty interests within the Utah Gold Belt. Subject to the progress of Royal's plan for Fiscal 1997 regarding its mineral properties, the Company does not anticipate pursuing significant exploration activities within the Utah Gold Belt properties during Fiscal 1997.
The Utah Gold Belt is a major mineralized north-south zone, including the Oquirrh Mountain range, situated on the west side of the Salt Lake valley. The Utah Gold Belt is close to Salt Lake City, and major highways and railroads make up a well-developed infrastructure. The Utah Gold Belt includes the well-known Bingham and Mercur mining districts, plus smaller Ophir, Stockton, and Greeley districts.
The Utah Gold Belt has been a major producer of copper, gold, silver, and other metals since the late 1800's. Discovery and profitable production of new ore bodies has continued up to the present time. Indeed, important new gold mines have been developed within the last decade. Centurion initiated a land acquisition program in 1987 and Royal subsequently purchased Utah Gold Belt properties because management recognized that these properties had not been fully explored and it offered excellent potential for the discovery of new gold ore bodies.
The Company sold various Utah Gold Belt mining properties to Kennecott during 1992, and has retained production royalty interests on these properties. These sold properties are contiguous to or near properties held previously by Kennecott in the Utah Gold Belt.
Management of the Company believed it was to the Company's advantage to allow the ownership of these properties to pass to Kennecott, with the Company retaining a production royalty interest. There is no assurance that the Company will receive or continue to receive royalties from these properties, or of the amount, if any, of such royalties.
The Company's land holdings in the Utah Gold Belt consist of Utah State mineral leases, fee leases and unpatented lode mining claims totaling over 12,000 acres. The Company did not undertake any exploration efforts on these holdings during fiscal 1996 and does not plan any activities during fiscal 1997.
H. OFFICES
The Company's executive office is located at 10220 North Nevada, Suite 230, Spokane, Washington 99218. In addition, the Company maintains its registered corporate office at 331 South Rio Grande Street, Suite 208, Salt Lake City, Utah 84101. The Company leases its principal office in Spokane, Washington, on a renewable one-year term with rental costs of $988 per month, including basic maintenance and janitorial services. The Company does not currently have any other branch offices.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending legal proceedings incidental to the Company or any of its properties.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the solicitation of proxies or otherwise during the Fiscal 1996.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common shares are traded on the NASDAQ Bulletin Board under the symbol RSMI. The prices listed below were obtained from the National Quotation Bureau, Inc., and are the highest and lowest bids reported during each fiscal quarter for the period December 31, 1994, through September 30, 1996. These bid prices are over-the-counter market quotations based on interdealer bid prices, without markup, markdown, or commission and may not necessarily represent actual transactions:
On December 17, 1996, the average of the high bid and low ask quotation for the Company's common shares as quoted on the NASDAQ Bulletin Board was $0.83.
The approximate number of holders of common stock of record on December 17, 1996, was approximately 390.
Since its inception, the Company has not paid any dividends on its common shares. The Company does not anticipate that dividends will be paid in the foreseeable future.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included in the following table have been derived from and should be read in conjunction with and are qualified by the Company's financial statements and notes set forth elsewhere in this report. Historical financial data for certain periods may be derived from financial statements not included herein.
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL Pursuant to the Reorganization discussed above in Item 1 of this Report, the accompanying consolidated financial statements include those of Celebration Mining Company and Royal Silver Mines, Inc., which was known as Consolidated Royal Mines, Inc. before the Reorganization. All significant intercompany accounts and transactions have been eliminated. The accounting of financial statements following the Reorganization also required a change in fiscal year- end date, namely, from November 30 (Celebration's) to September 30 (Royal's).
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.
There is considerable risk in any mining venture, and there can be no assurance that the Company's operations will be successful or profitable. From inception of the Company to September 30, 1996, the Company has an accumulated deficit of $3,057,817. 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 often based on scientific estimates and economic assumptions, 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.
As of September 30, 1996, $4,785,665 of the Company's total assets of $5,605,357 are investments in mineral properties for which additional exploration is required to substantiate or determine whether they 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 this matter 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. At September 30, 1996, the Company's accumulated deficit was $3,057,817. Although it has recurring losses from operations, the Company has increased its operating capital and improved its financial condition and ability. Regarding its losses from operations, the Company cannot assure that it will be able to fully carry out its plans as budgeted without additional operating capital. At September 30, 1995, the Company had negative working capital of $665,274. However, at September 30, 1996, the company had positive working capital of $686,573. The following factors explain the principal increase in working capital during Fiscal 1996.
The change in working capital from a negative $665,274 at September 30, 1995 to a positive $686,573 at September 30, 1996 was due to the successful conversion of $570,920 of debt into 406,050 shares of common stock as well as the successful placement of 1,949,332 shares of common stock for $2,958,314 in cash. The Company's cash balance increased significantly from $151,698 at September 30, 1995 to $688,716 at September 30, 1996. However, during fiscal 1996 the Company continued to incur more in expenses as a result of increased activity in evaluating and acquiring mineral properties.
The Company has estimated that it will need capital resources of approximately $40,000 per month to meet its estimated expenditures for the ensuing twelve months. The Board of Directors has instructed management to consult with experienced financial and investment advisory firms to formulate arrangements for such capital fund raising. Currently, the Company is pursuing various alternatives, including the possible private placement of equity.
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 all reasonable 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 eventual project, operation or mining activity could be of any size and scope, 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 from debt or equity financing. Funds required to finance the Company's exploration and development of mineral properties are expected to come primarily from joint venture participant contributions with the remainder provided by funds generated from such joint venture 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 bodies.
RESULTS OF OPERATIONS FISCAL 1996 AS COMPARED TO FISCAL 1995. General and administrative expenses increased from $543,644 during fiscal 1995 to $1,835,548 during fiscal 1996. The increase is principally due to additional staff and outside technical and environmental consultants and legal fees associated with the Company's due diligence related to the Bunker Hill Mine option. As a result, from Fiscal 1995, to Fiscal 1996, the net loss increased from $(750,939) to $(2,045,082) and the net loss per share increased from $(0.17) to $(0.22).
The Company is unable to fully determine the impact of its current lack of adequate operating capital. Other than as described herein, in particular with respect to the option to purchase the Bunker Hill Mine, the Company has determined not to incur and does not have any commitments or plans for material capital expenditures during Fiscal 1997 for which it does not have a reasonably available source or basis for making payment. For additional information regarding the Company's present commitments and plans for which it does have reasonably definable and available payment sources, for example the option to purchase the Bunker Hill Mine, please refer to the "Properties" discussion under Item 2 above, at Section B, entitled "Option to Purchase The Bunker Hill Mine".
It is uncertain what the scope or impact will be of the Company's decision to restrict capital expenditures. On the one hand, if the Company were to continue such restriction, the likely effect might be adverse to the preservation of its assets and capital base, thereby narrowing the scope of plans for future operations and constricting liquidity. On the other hand, if
the Company were to discontinue such restriction without an increase in sustained cash flow, the likely effect of that might be an increase in accumulated deficits which could be adverse to the Company's financial condition with respect to liabilities and stockholders' equity. Therefore, the Company's plan for the next twelve months is to closely monitor its capital expenditures while it pursues a joint venture participant or other sources of capital for financing operations.
FISCAL 1995 AS COMPARED TO FISCAL 1994. General and administrative expenses increased from $211,796 during Fiscal 1994 to $543,644 during Fiscal 1995. The increase was principally due to an increase in the amount of stock issued to officers, directors, and a consultant as compensation for services and bonus. As a result, from Fiscal 1994 to Fiscal 1995, the net loss increased from $(211,796) to $(750,939) and the net loss per share increased from $(.09) to $(.17), respectively.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and the Report of Independent Public Accountants are filed as part of this report on pages through.
C O N T E N T S
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
A. CHANGES OR DISAGREEMENTS WITH PRINCIPAL ACCOUNTANT. There have been no disagreements with the Company's independent public accountants.
B. CHANGE IN PRINCIPAL ACCOUNTANT. As a result of increased activity at its executive office in Spokane, the Company changed the engagement of its principal independent accountant to audit its financial statements. The former principal accountant, Jones, Jensen & Company, was replaced by Williams & Webster, P.S. as principal independent accountant. This decision was not based on any disagreement between Royal or Jones, Jensen and Company nor was it based on any information that would have led Jones, Jensen and Company to resign or decline to stand for reelection.
Jones, Jensen and Company's report on the financial statements of Royal at September 30, 1995 did not contain an adverse opinion or a disclaimer of opinion, nor was its report qualified as to uncertainty, audit scope, or accounting principles. During the period described above and up through September 30, 1995, for the period preceding such dismissal:
(1) The Company had no disagreements with Jones, Jensen and Company on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure;
(2) Jones, Jensen and Company did not advise the Company that the internal controls necessary for the Company to develop financial statements do not exist;
(3) Jones, Jensen and Company did not advise the Company of any information leading Jones, Jensen and Company to be unable to rely on management's representations, or unwilling to be associated with the financial statements prepared by management;
(4) Jones, Jensen and Company did not advise the Company of any need to significantly expand the scope of its audit, or of any information that may or would (i) materially affect the fairness or reliability of, or prevent it from rendering an unqualified opinion regarding, its audit report or any of the underlying financial statements, or (ii) cause Jones, Jensen and Company to be unwilling to rely on management's representations or be associated with the Company's financial statements; and
(5) Jones, Jensen and Company did not, as a result of its dismissal, expand its audit or conduct any investigation of information that came to its attention of the type referred to above in subparagraph (4), or have any issues that were unresolved to its satisfaction prior to dismissal.
The Company has provided Jones, Jensen and Company with a copy of the above disclosures in a timely manner and requested and received from Jones, Jensen and Company a letter addressed to the Commission stating Jones, Jensen and Company's agreement with these disclosures. A copy of such letter is attached to this registration statement and filed as Exhibit 16.2.
C. DESIGNATION OF NEW ACCOUNTANT. The Company has designated the continuing services of the accounting firm of Williams and Webster, P.S. to serve as principal independent accountant for the Company effective November 8, 1996. During the period of Jones, Jensen and Company engagement as principal independent accountant and up to November 8, 1996, prior to designating Williams and Webster, P.S. as principal accountant:
(1) Neither the Company nor any person or entity acting on its behalf has consulted Williams and Webster, P.S. regarding the application of accounting principles to any specified transaction, or the type of audit opinion that might be rendered on the Company's financial statements, or any matter characterized as a 'disagreement' or 'reportable event' (as defined by Regulation S-K, Item 304(a)(1)(iv) and (v)); and
(2) Williams and Webster, P.S. did not provide the Company with either a written report or oral advice containing any conclusions by Williams and Webster, P.S. of any important factors considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issues.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
On March 31, 1995, the Company restructured its Board of Directors and management. The Board formally named Howard Crosby as President, Hal Cameron as Vice President, LaRoy Orr as Treasurer and Carlos M. Chavez as Secretary. On August 8, 1995, in accordance with the terms of the Reorganization with Celebration, the Board appointed Robert E. Jorgensen as Director and Executive Vice President; Ronald Kitching and James W. Prier as Directors; and Jerry Stacey as Vice President of Operations. On August 31, 1995, upon receiving the resignation of Mr. Orr, the Board appointed Mr. Jorgensen to the position of Treasurer. In September 1996, the Board appointed John Ryan to the position of Vice President, Corporate Development.
INFORMATION REGARDING DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth the name, age, position, and length of service for each of Royal's present directors and executive officers:
The authorized number of directors of the Company is presently fixed at ten. Each director serves for a term of one year that expires at the following annual shareholders' meeting. Each officer serves at the pleasure of the Board of Directors and until a successor has been qualified and appointed. There are no family relationships, or other arrangements or understandings between or among any of the directors, executive officers or other person pursuant to which such person was selected to serve as a director or officer.
Set forth below is certain biographical information regarding each director and executive officer of the Company:
HOWARD M. CROSBY received a B.A. degree from the University of Idaho in 1974. Since 1989, Mr. Crosby has been president of Crosby Enterprises, Inc., a family-owned business advisory and public relations firm. From September 1992 to May 1993, Mr. Crosby was employed by Digitran Systems, Inc., of Logan, Utah, in the marketing department. In May of 1993, Mr. Crosby entered into a business consulting relationship with Centurion Mines Corporation, and has served as president and director of Mammoth Mining Company and Gold Chain Mining Company, both Centurion subsidiaries. In July, 1992, Mr. Crosby filed a Chapter 13 petition for bankruptcy. The reorganization plan was approved in October, 1992.
HAL CAMERON founded the Company in 1969, has held the position of President and Director, and was engaged, virtually full-time, in the business affairs of the Company from May 1983 up through November 1991. Mr. Cameron is a graduate of West High School in Salt Lake City, Utah, and has been involved in the natural resource field since 1953, including the active management of publicly-held natural resource exploration and development companies. In 1953, Mr. Cameron was one of the founders of Federal Uranium Corp., now a publicly-held Nevada corporation known as Federal Resources Corporation, and served as an independent consultant to Federal Resources from 1955 to 1960. He was also one of the founders and a director of Cherokee Utah Uranium, a publicly-held Utah corporation, in 1954, and served as a consultant until 1960 to its successor, Beaver Mesa Uranium. From 1964 until 1974, Mr. Cameron was the vice-president and a licensed commercial real estate salesman for Meeks- Wirthlin Real Estate Company in Salt Lake City, Utah. From 1974 to the present, Mr. Cameron has been engaged in commercial real estate acquisitions, sales, and development for himself. Mr. Cameron was president of Cameo Minerals, Inc., a publicly-held Utah corporation, from its inception in 1969 until its merger in 1981 with Hendon Exploration, Inc., a Texas oil and gas company.
SPENST HANSEN was awarded a Ph.D. degree in geology from the University of Missouri, Columbia, Missouri; a Masters degree in mining engineering from the Missouri School of Mines, Rolla, Missouri; and a Bachelor of Science degree in geological engineering from the University of Utah, Salt Lake City, Utah. Dr. Hansen is a registered professional geologist in California (#2067) and Idaho (#38). Dr. Hansen has been principally employed by Centurion Mines Corporation since November, 1984, where he is currently President, Chief Executive Officer, a Director, and Chairman of the Board of Directors. Dr. Hansen has worked on mining projects in the western United States for more than 20 years. From 1982 to 1989, he also conducted an independent geophysical and geologic contracting business as a sole proprietorship under the name Axis Geophysics Company. Dr. Hansen still retains ownership of this company.
CARLOS M. CHAVEZ has been principally employed as Centurion's in-house legal counsel since March 1994. Mr. Chavez received his J.D. in 1980 from Stanford Law School, Palo Alto, California, and has been admitted to the Utah State Bar and the Bar of the District of Columbia. From 1991 to his employment with Centurion, Mr. Chavez was employed with Suitter, Axland & Hanson and Jay Gurmankin, Esq., P.C., law firms in Salt Lake City, Utah. During 1989 and 1990, Mr. Chavez taught full-time as a Visiting Assistant Professor of Law on the faculty of the Whittier College School of Law, Los Angeles, California. Prior to that position, Mr. Chavez taught and supervised the academic support program as Adjunct Professor of Law on the faculty of the University of Utah College of Law, and also served in the dual capacity as assistant attorney general for Higher Education and as associate legal counsel for the University of Utah. Mr. Chavez also serves as a director of Dotson Exploration Company.
ROBERT E. JORGENSEN received a degree in Business Administration from the University of Idaho. He has served as vice-president, secretary and director of Celebration Mining Company since its inception. In May 1992, Mr. Jorgensen retired from the brokerage business and has since been a private investor. From 1987 to 1991, Mr. Jorgensen was an investment broker and owner of RCL Northwest, Inc., a regional investment firm. He was a broker with Cohig & Associates, Inc., from January 1992 to May 1992. Mr. Jorgensen filed for protection under Chapter 7 of the Bankruptcy Code in August 1992.
JERRY STACEY is a professional mining engineer with over 20 years experience in open pit and underground mining. He earned a B.S. Degree in Mining Engineering from Montana Tech in 1974 while working in Butte, Montana mines. Between 1974 and 1981, Mr. Stacey worked in senior supervisory positions as a Shift Foreman for the Anaconda Company; as mine superintendent for Day Mines at the Sherman Mine, mining 1,000 tons per day of silver ore; as mine manager for Choctaw Mining supervising the construction and operation of a tungsten mine and mill complex; as mine manager for Mountain Mineral's barite mines in British Columbia; and as a mine manager at the Goodnews Bay platinum placer operation. In 1981, Mr. Stacey formed General Mine Services Corp., a mine consulting and contracting firm for junior mining and exploration companies, where he continued as CEO until 1994, when he joined with Celebration and has continued full time as Vice President of Operations with Royal. His current responsibilities focus on the engineering, design, installation, and operation of complete mine and metallurgical plants involving base and precious metals and industrial minerals.
JOHN RYAN, a professional mining engineer, was recently appointed to the position of Vice President of Corporate Development for the Company. Up through his appointment, Mr. Ryan has served most recently as a consultant in mine engineering services, and will continue in these activities during his tenure as Vice President of Corporate Development, as well as engage in other matters in accordance with the direction and assignment of the Board of Directors. In addition to his professional degree in
Mining Engineering, which he received from the University of Idaho, Mr. Ryan also holds a juris doctorate (J.D.) law degree from the Boston College School of Law.
RONALD KITCHING resides in Australia. Prior to his retirement five years ago, Mr. Kitching was involved in he mining industry from over 35 years holding various positions, including serving as president of Overland Drilling Company, an Australian exploration drilling company, and as co-founder of Glindeman-Kitching Enterprises, an exploration drilling company. He has served as a director for Celebration Mining Company since May 1994.
JAMES W. PRIER has been active in the Canadian resource industry for the past 14 years as a principal and through his consulting firm, James Prier & Associates, Ltd. From 1986 to 1990, Mr. Prier was associated with Energex Minerals, Ltd., a natural resource company listed on the Toronto Stock Exchange, serving as vice-president of corporate development from 1987 to 1990. While with Energex, Mr. Prior participated in the development, evaluation and sale of an open-pit gold deposit in northern British Columbia and the subsequent acquisition of a Houston-based oil and gas company.
Mr. Prier was a founding director of Minerex Resources Ltd., a gold producer listed on the Toronto Stock Exchange. He served as vice-president of corporate development for Black Swan Gold Mines Ltd., a Toronto Stock Exchange listed resource company, from 1991 to 1993. He is a principal and director of Argosy Mining Corp., a Vancouver-based resource company engaged in a US $8.5 million diamond exploration joint venture in Zimbabwe and Tanzania. Mr. Prier is a director and corporate secretary of Urandel Minerals Corporation, listed on the Vancouver Stock Exchange. Prior to 1979, Mr. Prier was a financial analyst for a private Ontario investment group.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934. Section 16(a) of the Securities and Exchange Act of 1934 requires certain defined persons to file reports of and changes in beneficial ownership of a registered security with the Securities and Exchange Commission and the National Association of Securities Dealers in accordance with the rules and regulations promulgated by the Commission to implement the provisions of Section 16. Under the regulatory procedure, officers, directors, and persons who own more than ten percent of a registered class of a company's equity securities are also required to furnish the Company with copies of all Section 16(a) forms they file.
Based solely on review of the copies of Forms 3, 4, and 5 furnished to the Company for transactions occurring between October 1, 1995, and September 30, 1996, or with respect to transactions which occurred between October 1, 1994, and September 30, 1995, and should have been reported in Fiscal 1995 but were not, or were untimely reported and that untimeliness was not disclosed in the Form 10-K for Fiscal 1995, and on representations that no other transactions were required to be reported and no other Forms were required to be filed, the Company has determined that the pertinent officers, directors, and principal shareholders have complied with all applicable Section 16(a) requirements, except as follows:
Howard Crosby, President, CEO and a Director of the Company, filed Form 5 for Fiscal 1995 on December 22, 1995. That form should have been filed by November 14, 1995. The Form 5 reported two September 1995 transactions.
Robert E. Jorgensen, Executive Vice President, Treasurer and a Director of the Company, filed Form 3 on December 22, 1995. That Form 3 should have been filed by August 18, 1995. A Form 5 for Fiscal 1995 was filed on December 22, 1995. That Form 5 should have been filed by November 14, 1995. The Form 5 reported two September 1995 transactions.
Jerry Stacey, a Vice President and a Director of the Company, filed Form 3 on December 22, 1995. The Form 3 should have been filed by August 18, 1995.
Carlos M. Chavez, Secretary and a Director of the Company, filed Form 5 for Fiscal 1995 on December 22, 1995. That form and the two exempt transactions it reported should have been filed and disclosed by November 14, 1995.
Spenst Hansen, a Director of the Company, should have filed a Form 5 for Fiscal 1995 by November 14, 1995. Registrant believes that the Form 5 has not been filed, but is unaware of any other Form 4 or Form 5 transactions that should be reported on that Form 5 or that otherwise have not been filed.
Ronald Kitching, a Director of the Company, should have filed a Form 3 for Fiscal 1995 by November 14, 1995. Registrant believes the that Form 3 has not been filed, but is unaware of any Form 4 or Form 5 transactions that have not been filed.
James W. Prier, a Director of the Company, filed Form 3 on December 22, 1995. That form should have been filed by August 18, 1995.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth the compensation paid by Royal during each of the last three fiscal years to its Chief Executive Officer, and to the other four most highly compensated officers and executive officers, but only if the total annual salary and bonus of any such executive officer exceeded $100,000 for Fiscal 1995 (the 'Named Executive Officers'). This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any.
(1) The above shares were issued for Directors fees, for service to Royal. No awards were made for service to Celebration.
(2) This represents salary received as an officer of Celebration, $4,000 per month, beginning with June 1994.
Other than the Company's Stock Option and Award Plan, there are no retirement, pension, or profit sharing plans for the benefit of the Company's officers and directors.
Option/SAR Grants Table. Information concerning individual grants of stock options, whether or not in tandem with stock appreciation rights ('SARs'), and freestanding SARs made during Fiscal 1996 to the CEO and each of the Named Executive Officers, if any, is reflected in the table below.
Aggregated Option/SAR Exercises and Fiscal 1996 Year-End Option/SAR Value Table. The following table sets forth certain information with respect to each exercise, if any, of stock options and SARs during Fiscal 1996 by the CEO and each of the Named Executive Officers, if any, and the Fiscal 1996 year-end value of unexercised options and SARs. The dollar values in columns (c) and (e) are calculated by determining the difference between the fair market value of the underlying stock and the exercise price or base price of the options at exercise or Fiscal 1996 year-end, respectively. The stock's fair market value on September 30, 1996 was $1.1875 per share. There are no outstanding option awards to management. Even if there were, it is possible they might never be exercised. Actual gains realized, if any, on stock option exercises and Common Stock holdings are dependent on the future performance and value of the Common Stock and overall stock market conditions. There can be no assurance that projected gains and values would be realized.
LONG-TERM INCENTIVE PLAN AWARDS. The Company does not have any formalized long-term incentive plan (excluding restricted stock, stock option and SAR plans) that provides compensation intended to serve as incentive for performance to occur over a period longer than one fiscal year, whether such performance is measured by reference to financial performance of the Company or an affiliate, the Company's stock price, or any other measure.
COMPENSATION OF DIRECTORS. Directors receive for their services a retainer fee payable in shares of the Company's Common Stock, currently at the rate of 2,500 shares per quarter of completed service. During Fiscal 1996, 150,000 shares were awarded to directors as compensation. The Board has not implemented a plan to award options, authorized under the Company's Stock Option and Award Plan and none have been granted. There are no contractual arrangements with any member of the Board of Directors, other than the employment and salary arrangements for compensating two of its members for their service as executive officers: Howard Crosby as President and CEO, and Robert Jorgensen as Executive Vice President and Treasurer.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. There are no compensation committee interlocks. With respect to insider participation, Howard Crosby, Hal Cameron and Carlos Chavez, participated in deliberations of the Company's Board of Directors during Fiscal 1996, concerning executive officer compensation.
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION. The following is a summary of the Board of Directors Report:
It is the Board's responsibility to review and set compensation levels of the executive officers of the Company, evaluate the performance of management and consider management appointments and related matters. All decisions are decisions of the full Board. The Board considers the performance of the Company and how compensation paid by the Company compares to compensation generally in the mining industry and among similar companies. In establishing executive compensation, the Board bases its decisions, in part, on achievement and performance regarding broad-based objectives and targets relating to the continued acquisition of favorable silver properties and the progress of exploration and development of such properties, as well as the Company's financial performance.
For Fiscal 1996, the Company's executive compensation policy consisted of two elements: base salary and stock awards. The policy factors which determine the setting of these compensation elements are largely aimed at attracting and retaining executives considered essential to the Company's long-term success. The granting of stock is designed as an incentive for executives to keep management's interests in close alignment with the interests of shareholders. The Company's executive compensation policy seeks to engender committed leadership to favorably posture the Company for continued growth, stability and strength of shareholder equity.
The Company paid salaries to its officers for the fiscal year-ended September 30, 1996, as follows: President and CEO, Howard Crosby, $78,000 yearly; Executive Vice President and Treasurer, Robert Jorgensen, $72,000 yearly; Vice President of Operations, Jerry Stacey, $70,000 yearly; and Vice President of Development, John Ryan, $48,000 yearly. These amounts were approved by the Board in recognition of the work and efforts and in completing the acquisition of a large number of silver mining properties prior to the end of Fiscal 1996.
Further, the Board recognized the significant role of these four individuals in managing the Company's principal office in Spokane, Washington and in raising funds for the Company's exploration and development activities. Finally, the Board of Directors took into account the reasonableness of these salaries in comparison with Executive salaries within the mining region. On the basis of the above factors, the Board determined that these salaries were proper and fitting. No other officers received a salary during Fiscal 1996.
With respect to stock awards during Fiscal 1996, the Board of Directors did not change the amount of shares, 2,500 per quarter, which each director is entitled to receive as partial compensation for service to the Company.
The Board believes that executive compensation during Fiscal 1996 substantially reflects the Company's compensation policy.
PERFORMANCE GRAPH. The Company is not presently able to provide a line graph covering five consecutive years that compares (1) the yearly percentage change in the Company's cumulative total shareholder return on its Common Stock with (2) the cumulative total return of a broad equity market index and (3) the cumulative total return of an industry index, peer line-of-business index, or a group of similarly capitalized issuer companies. The Company continues every reasonable effort to compile or locate commercially available and reliable data of its historical stock price for the period required by the SEC, or to compile such data for a lesser period of sufficient range in time from which the Company could be able to prepare a meaningful performance graph. However, the Company has been unable to obtain this information or prepare such a performance graph. Nevertheless, the Company continues its search for such data.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management. The following table sets forth as of October 4, 1996, the beneficial ownership of Common Stock with respect to: (1) All persons known to the Company to be the beneficial owners of more than five percent of the outstanding shares of Common Stock (the 'Principal Shareholders'); (2) Each director and director nominee of the Company; (3) Each Named Executive Officer (as that term is defined in the section entitled 'Executive Compensation', below) who is listed in the 'Summary Compensation Table', below, and (4) All directors and executive officers as a group. At October 4, 1996, the number of shares of common stock of the Company issued and outstanding was 10,649,854.
All shares are owned beneficially and of record, unless otherwise noted. Percentage ownership of less than 1% is marked with an asterisk (*).
(1) Mr. Crosby is a director, executive officer and 50% shareholder of Extol International Corp., a privately-held Washington corporation. As a 50% shareholder, Mr. Crosby holds indirect beneficial ownership of one-half of the restricted shares retained by Extol following the closing of the share exchange with Celebration. Also, the Board approved the release of a previously authorized grant of 200,000 restricted shares to Crosby Enterprises, Inc. for its work in putting together for the Company no fewer than five major business proposals, culminating in the reorganization with Celebration. Mr. Crosby holds indirect beneficial ownership of those restricted shares as a director, executive officer and majority shareholder of Crosby Enterprises, a private, closely-held Washington corporation. Mr. Crosby holds all remaining shares in his name, 15,000 shares of which he received in Fiscal 1995 as partial compensation for his service as a director and executive officer.
(2) Mr. Kontes owns 35,000 issued and outstanding shares, but received options to purchase 600,000 restricted shares in exchange for the options he had held in Celebration. None of these options have been exercised, but are exercisable within 60 days. For purposes of reporting beneficial ownership in this Item 12 only, the securities underlying Mr. Kontes' options are deemed outstanding and have been added to the 10,649,854 actual shares outstanding to compute the percentage owned.
(3) Mr. Miller does not own any of the actual shares that are outstanding, but received options to purchase 600,000 restricted shares in exchange for the options he had held in Celebration. None of these options have been exercised, but are exercisable within 60 days. For purposes of reporting beneficial ownership in this Item 12 only, the securities underlying Mr. Miller's options are deemed outstanding and have been added to the 10,649,854 actual shares outstanding to compute the percentage owned.
(4) The Company notes that in addition to the awards of shares for his service as a director and officer of the Company, Mr. Jorgensen initially received 550,000 restricted shares as part of the share exchange with Celebration.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS AND TRANSACTIONS PERTAINING TO ROYAL AND CELEBRATION. Certain of the directors and/or officers of the Company also serve as directors and/or officers of other companies involved in natural resource exploration and development and, consequently, there exists the possibility for such directors and officers to be in a position of conflict. Any decision made by such directors and officers involving the Company, as the case may be, will be made in accordance with their duties and obligation to deal fairly and in good faith with the Company and such other companies. In addition, such directors and officers are required to declare and refrain from voting on any matter in which such directors and officers may have a conflict of interest. In this respect, Howard Crosby, who was the President of Celebration and of Royal at the time of the Reorganization, refrained from voting on any matter related to the Reorganization or any other matter pertaining to both companies.
The Company has engaged in transactions with its officers, directors and principal shareholders, including the issuance of the initial shares of the Company. Such transactions may be considered as not having occurred at arm's length. The Company may be engaged in transactions with management and others involving conflicts of interest, including conflicts on salaries and other
payments to such parties, as well as business opportunities which may arise. In this regard, the directors of the Company are involved in other companies and may have conflicts of interest in allocating time between the Company and other entities to which they are affiliated.
RELATIONSHIPS AND TRANSACTIONS PERTAINING TO ROYAL. From time to time, at the Company's request, Centurion may, at its discretion, provide funds to the Company or pay certain expenses directly. The Company is current in its payments to Centurion and management intends to continue the immediate repayment to Centurion as expenses are incurred.
During Fiscal 1994, Royal carried over the previous balance owed by Centurion of $5,055 and loaned Centurion $8,075, resulting in cumulative total advances made by Royal to Centurion of $13,130. Also during Fiscal 1994, Centurion accrued $54,335 of Royal taxes, loaned $83,700 to Royal, and paid $140,932 of Royal expenses (including certain land costs of Royal), resulting in total advances made by Centurion to Royal of $278,967. Centurion repaid these and previous amounts by paying certain of the Company's expenses and by transferring to the Company $467,236 of mineral properties. Thus, for Fiscal 1994 transactions between Royal and Centurion, including balance carryovers, the net cumulative result was a balance of $265,838 owed by Royal to Centurion.
During Fiscal 1995, Centurion made net total advances to the Company of $38,086. The net result was a balance of approximately $300,000 owed by Royal to Centurion, which Royal repaid prior to the end of Fiscal 1995 by issuing 200,000 shares of its common stock to Centurion at the then prevailing market price of $1.50 per share. At September 30, 1995, and at September 30, 1996, the Company owed $289 to Centurion.
RELATIONSHIPS AND TRANSACTIONS PERTAINING TO CELEBRATION. In May 1994, Celebration issued, pursuant to Board resolution, an aggregate of 1,000,000 shares of common stock to Extol International Corporation, an affiliate of Howard M. Crosby, an officer and director of the Company, and 500,000 shares of Common Stock to Robert Jorgensen, an officer and director of the Company, in exchange for a transfer of the rights under an option on the Montana Property. Mr. Crosby and Mr. Jorgensen are considered founders of the Company. The Company has not received a fairness opinion or other valuation of the rights transferred in exchange for the shares issued to Mr. Jorgensen and Extol International Corporation. The cost basis of the rights under the Montana Property was estimated to be $4,000. The perceived value of the shares issued was determined as of the time of transfer by Mr. Crosby and Mr. Jorgensen as sole officers and directors of the Company. The determination was not based on arms length negotiations. In June 1994, the Company repaid to Crosby Enterprises, Inc., an affiliate of Howard M. Crosby, $20,000 for funds advanced on the Montana Property prior to the transfer of the rights under the option to the Company.
In August 1994, Celebration issued 100,000 shares of Common Stock to Ronald Kitching, a director, as compensation for his services as a director. Mr. Crosby and Mr. Jorgensen also received compensation from the Company as executive officers.
In August 1994, Thomas Miller, a director of Celebration up to August 8, 1995, received options to purchase up to 400,000 shares as compensation for his consulting services in field exploration management through August 1995. Mr. Miller was also an officer, director and principal shareholder of United Silver Mines, Inc., the Company's Joint Venture Partner on the Vipont Property and its subsidiary, Bannock Silver Mining Company.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
A. INDEX TO SUPPLEMENTAL SCHEDULES AND EXHIBITS. 1. Supplemental Schedule Number I -- Weighted Average Shares for the Year Ended September 30, 1996
2. Supplemental Schedule No. II -- Weighted Average Shares, For the Year Ended September 30, 1995
3. Supplemental Schedule No. III -- Weighted Average Shares, For the Period From Inception on February 17, 1994, Through November 30, 1994
4. Supplemental Schedule No. IV -- Weighted Average Shares, For the Period From Inception on February 17, Through September 30, 1996
All other schedules have been omitted because they are not applicable or the required information is included in the financial statements, or notes thereto, or in the above schedules.
B. REPORTS ON FORM 8-K
Royal filed one report on Form 8-K, dated August 8, 1995, during the last quarter of the period covered by this report.
C. INDEX TO EXHIBITS
The following documents are incorporated herein by reference to Royal's Registration Statement on Form 10, as filed with the Securities and Exchange Commission:
POWER OF ATTORNEY
The Registrant and each person whose signature appears below has designated and appointed Howard M. Crosby and Robert E. Jorgensen and each of them as its or his true attorneys-in-fact ('Attorneys-in-Fact') with full power to act alone and authority to execute in the name of each such person, and to file with the Securities and Exchange Commission, together with any exhibits thereto and other documents therewith, any and all amendments to this Form 10- K that may be necessary or advisable to enable the Registrant to comply with the Securities Exchange Act of 1934, as amended, and all rules, regulations and requirements pertaining thereto, which amendments may make such other changes in the Form 10-K as the aforesaid Attorneys-in-Fact executing the same deem appropriate.
- - ------------------------------------------------------------------------------ SIGNATURES - - ------------------------------------------------------------------------------ Pursuant to the requirements of Section 13 or 15(d) 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: October 4, 1996 ROYAL SILVER MINES, INC.
By: /s/ Howard Crosby -------------------------------- Howard Crosby, President Principal Executive Officer
By: /s/ Robert E. Jorgensen -------------------------------- Robert E. Jorgensen, Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
DATED: October 4, 1996
ROYAL SILVER MINES, INC.
By: /s/ Howard M. Crosby -------------------------------------- Howard M. Crosby, Director and Chairman
By: /s/ Robert E. Jorgensen -------------------------------------- Robert E. Jorgensen, Director
By: /s/ Robert E. Jorgensen -------------------------------------- E. Hal Cameron, Director
By: /s/ Robert E. Jorgensen -------------------------------------- Spenst Hansen, Director
By: /s/ Robert E. Jorgensen -------------------------------------- Carlos M. Chavez, Director
By: /s/ Robert E. Jorgensen -------------------------------------- Ronald Kitching, Director
By: /s/ Robert E. Jorgensen -------------------------------------- James W. Prier, Director