SEC Info - Horn Silver Mines Inc - 10KSB

SEC Info

Home

My Interests

Help

Please Sign In

Horn Silver Mines Inc · 10KSB · For 12/31/97

Filed On 4/14/98 · SEC File 1-08757 · Accession Number 96313-98-53

  As Of               Filer                 Filing     On/For/As Docs:Pgs              Issuer               Agent

 4/14/98  Horn Silver Mines Inc             10KSB      12/31/97    3:43                                     96313

Annual Report -- Small Business · Form 10-KSB
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10KSB       Annual Report -- Small Business                       33    190K 
 2: EX-10       Material Contract                                      9     36K 
 3: EX-27       Financial Data Schedule                                1      8K

10KSB · Annual Report -- Small Business
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (RTF, XML, et al.) Certain Relationships and Related Transactions Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Description of Business Description of Properties Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Executive Compensation Exhibits and Reports on Form 8-K Exploration and Development Activities in 1989 Exploration and Development Activities in 1990 Exploration and Development Activities in 1991 Exploration and Development Activities in 1994 Exploration and Development Activities in 1995 Exploration and Development Activities in 1996 Financial Statements and Supplementary Data Legal Proceedings Management's Discussion and Analysis or Plan of Operations Notes to Financial Statements Option Agreement with PAB Oil & Mining, Inc Osage Oil Field, Osage County, Oklahoma Security Ownership of Certain Beneficial Owners and Management Submission of Matters to a Vote of Security Holders
1	1st Page
2	Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
3	Item 1. Description of Business
5	Option Agreement with PAB Oil & Mining, Inc
6	Exploration and Development Activities in 1989
7	Exploration and Development Activities in 1990
8	Exploration and Development Activities in 1991
9	Exploration and Development Activities in 1994
"	Exploration and Development Activities in 1995
10	Exploration and Development Activities in 1996
11	Item 2. Description of Properties
13	Osage Oil Field, Osage County, Oklahoma
14	Item 3. Legal Proceedings
"	Item 4. Submission of Matters to a Vote of Security Holders
15	Item 6. Management's Discussion and Analysis or Plan of Operations
17	Item 7. Financial Statements and Supplementary Data
"	Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act
18	Item 10. Executive Compensation
19	Item 11. Security Ownership of Certain Beneficial Owners and Management
"	Item 12. Certain Relationships and Related Transactions
20	Item 13. Exhibits and Reports on Form 8-K
"	Notes to Financial Statements

10KSB 1st Page of 33 TOC Top Previous Next Bottom Just 1st
Sponsored Ads...

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997, or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from to

Commission File Number 0-9739

Horn Silver Mines, Inc.
(Name of small business issuer in its charter)

UTAH 87-0299832
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)

4444 South 700 East, Suite 204 84107
Salt Lake City, Utah (Zip Code)
(Address of principal executive offices)

Registrant's telephone number,
including area code: (801) 281-5656

Securities to be registered under Section 12(g) of the Act:

Name of each exchange
Title of each Class on which registered
------------------- ---------------------
None None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.001 Par Value
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]

Registrant's revenues for its most recent fiscal year were $42,629. The
aggregate market value of the voting stock held by non-affiliates of the
Registrant as of March 31, 1998 was approximately $680,000 calculated using a
per share price of $.16. As of March 31, 1997, Registrant had outstanding
6,088,966 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

List hereunder the following documents if incorporated by reference and
the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the
document is incorporated:

None.

Transitional Small Business Disclosure Format (check one):
Yes [ ] No [X]

10KSB 2nd Page of 33 TOC 1st Previous Next Bottom Just 2nd

HORN SILVER MINES, INC.
INDEX-FORM 10-KSB

PART I
Page
----
Item 1. Description of Business . . . . . . . . . . . . . 1

Item 2. Description of Properties . . . . . . . . . . . . 9

Item 3. Legal Proceedings . . . . . . . . . . . . . . . .12

Item 4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . .12

PART II

Item 5. Market for the Common Equity and
Related Stockholder Matters. . . . . . . . . . . .13

Item 6. Management's Discussion and Analysis
or Plan of Operations . . . . . . . . . . . . . .13

Item 7. Financial Statements and Supplementary Data . . .15

Item 8. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure. . . . . . . . . . . . . . . 15

PART III

Item 9. Directors, Executive Officers,
Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act . . . . . .15

Item 10. Executive Compensation . . . . . . . . . . . . . .16

Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . . 17

Item 12. Certain Relationships and Related Transactions . .17

PART IV

Item 13. Exhibits and Reports on Form 8-K . . . . . . . . .18

Signatures

Index to Financial Statements and Schedules

-i-

10KSB 3rd Page of 33 TOC 1st Previous Next Bottom Just 3rd

PART I

ITEM 1. Description of Business

Organization and General Development

Horn Silver Mines, Inc. (hereinafter referred to as the "Company") engages
principally in mining and in the acquisition, exploration, and development of
interests in mineral properties located primarily in Utah and Nevada. In
addition, the Company has a royalty interest in developed oil and gas properties
located in Oklahoma. The Company was incorporated under the laws of the State of
Utah in 1971. The executive offices of the Company are located at 4444 South 700
East, Suite 204, Salt Lake City, Utah 84107.

From the time of its incorporation in 1971 until mid 1974, the Company was
essentially inactive. During that period of time, negotiations were carried out
to acquire mining properties, but none of the transactions was concluded. In
July, 1974, the Company negotiated the acquisition of two mining contracts to
mine and operate the old Horn Silver Mine properties consisting of 244 patented
mining claims located near Frisco, Utah, in the San Francisco Mining District in
Beaver County, Utah (the "Horn Silver Mine properties") from Cameron Mining
Company ("Cameron"), an affiliated corporation. Cameron agreed to transfer its
contract rights to operate these properties consisting of approximately 4,100
acres and the results of its exploration efforts to the Company in exchange for
the issuance of 75,000 shares of the Company's common stock (the "Common
Stock").

The Horn Silver Mine properties were formerly owned 60% by Tintic Mineral
Resources, Inc. ("Tintic"), a Utah corporation, and 40% by Wangenheim and
Wanger, a California limited partnership. The Company obtained an option to
purchase the Wangenheim's 40% interest in the properties for $200,000 and used
the proceeds from a public offering of the Company's Common Stock in August,
1980, to exercise the option. The Company acquired the remaining 60% interest in
the properties from Tintic as a result of a merger with Tintic which was
completed in June, 1983.

The Company purchased milling equipment and a right to lease a patented
millsite adjoining the Horn Silver Mine properties from Tintic in 1974. The
Company also acquired the right to use a mineshaft in an adjoining mine owed by
Tintic to the 800 foot level where a crosscut provides access to the old Horn
Silver Mine. In exchange for these rights, the Company issued 200,000 shares of
Common Stock to Tintic.

On August 12, 1980, the Company completed a Regulation A offering of its
Common Stock. The Company sold the entire offering of 2,500,000 shares at a
price of $0.40 per share. From this offering, the net cash proceeds to the
Company, after deducting underwriting commissions and other expenses of the
offering, was $815,800. The Company used $200,000 of the net proceeds to
exercise the option to purchase a 40% interest in 244 mining claims from
Wangenheim & Wanger.

On June 30, 1983, the stockholders of the Company approved a proposed
merger between the Company and Tintic. As a result of the approval of the
merger, Tintic was merged into the Company. The Company became the surviving
corporation and, under the terms of the merger agreement, the holders of Tintic
Common Stock became entitled to five shares of the Company Common Stock for each
of their shares of Tintic Common Stock. The principal asset of Tintic was a 60%
interest in the Horn Silver Mine properties.

On December 5, 1988, the Company entered into a mining lease and operating
agreement with Arapahoe Mining Corporation ("Arapahoe"), a Canadian mining
company, which provides for the exploration and, if warranted, the development
and mining on the patented mining claims which comprise the Horn Silver Mine
properties. On February 1, 1991, the Company entered into an amended mining
lease and operating agreement with Arapahoe, the terms of which are identical in
most respects to the initial agreement. The Company terminated the amended
mining lease and operating agreement as of September 1, 1992, due to Arapahoe's
failure to make the required lease payments to the Company thereunder. During
the period from December 5, 1988 to September 1, 1992, Arapahoe expended over
$1,200,000 for exploration and development work on the Horn Silver Mine
properties. See "Item 1. Business - Mining Lease and Operating Agreement with
Arapahoe Mining Corporation," "Exploration and Development Activities in 1989,"
"Exploration and Development Activities in 1990," and "Exploration and
Development Activities in 1991."

10KSB 4th Page of 33 TOC 1st Previous Next Bottom Just 4th

In 1989, the Company acquired a one-half interest in the Imperial Mine and
adjacent patented mining claims that adjoin the Horn Silver Mine properties and
located approximately 200 new mining claims covering approximately 4,000 acres
which are contiguous to the Horn Silver Mine properties. The Imperial Mine
consists of seven patented mining claims covering 105 acres. In 1990, the
Company located an additional 25 new mining claims covering approximately 500
acres, which are also contiguous to the Horn Silver Mine properties. See "Item
1. Business Exploration and Development Activities in 1989" and "Exploration and
Development Activities in 1990."

With the addition of the mining claims that were located in 1989 and 1990,
there were approximately 8,600 acres comprising the Horn Silver Mine properties
and adjoining properties. However, as of August 1993, the Company abandoned
approximately 230 of its unpatented mining claims, thereby reducing the total
acres of patented and unpatented mining claims comprising the Horn Silver Mine
properties to approximately 6,000 acres. There are no proven or probable
reserves on any of the Company's properties.

On April 28, 1994, the Company entered into a mining lease with Dotson
Exploration Company ("Dotson Exploration"), a Utah mining company, which
conveyed to Dotson Exploration the right to conduct exploration and, if
warranted, development and mining activities on 13 patented lode mining claims
covering 219 acres located in Beaver Lake Mining District. In the event any ore
is mined from the mining properties, Dotson Exploration agrees to pay to the
Company a 5% royalty on all ore mined from the properties. Dotson Exploration
also agrees to pay the Company $10,000 in advance royalties upon execution of
the lease, with annual payments thereafter of $7,500 per year. The lease was
subsequently transferred by Dotson Exploration to Centurion Mines Corporation
("Centurion"). Centurion has conducted an extensive drilling program on the
mining properties in 1994, 1995 and 1996. See "Item I. Business - Exploration
and Development Activities in 1994," "Exploration and Development Activities in
1995," and "Exploration and Development Activities in 1996."

On October 8, 1996, the Company entered into an option agreement (the
"Option Agreement") with PAB Oil & Mining, Inc. ("PAB"), a Utah-based mining
company. Under the terms of an Option Agreement, which was approved at the
Company's Annual Meeting of Shareholders held on March 28, 1997, PAB was granted
the right to purchase shares of the Company's Common Stock for $850,000, such
that after the issuance of the shares PAB would hold 75% of the Company's
outstanding Common Stock. The proceeds from the sale of the Company's stock to
PAB will be used to finance a major exploration and development program on the
Company's mining properties.

The planned exploration and development program includes reopening and
repairing the main access shaft of the Horn Silver Mine located on the Company's
mining properties and reopening the main 650-foot haulage level of the mine.
Specific exploration and development activities planned include the installation
of a double drum hoist, rehabilitation of the existing headframe, installation
of piping for water and compressed air in the main access shaft and the main
650-foot haulage level, replacement of the underground track, replacement of
timber in the main 650-foot haulage level, and any additional work required to
place the access shaft and 650-foot haulage level in an operable condition. See
"Item 1. Business - Option Agreement with PAB Oil & Mining, Inc."

At the Company's Annual Meeting of Shareholders held on March 28, 1997,
the shareholders approved a 1-for-20 reverse stock split of the Company's Common
Stock and amendments to the Company's Articles of Incorporation to reduce the
authorized shares of Common Stock from 200,000,000 shares to 30,000,000 shares,
and to exchange the par value of Common Stock from no par value to $.001 par
value. All references in this Form 10-KSB to number of shares of Common Stock,
except as otherwise indicated, have been adjusted to reflect the 1-for-20 stock
split. References in the Form 10-KSB also reflect the approval of the amendments
to the Company's Articles of Incorporation at the Annual Meeting.

On September 1, 1997, the Company entered into a mining lease with World
Hydrocarbons, Inc. ("World Hydrocarbons") and Minerals Processing, Inc.
("Minerals Processing"), which granted World Hydrocarbons and Minerals
Processing the right to conduct exploration and, if warranted, mining activities
on the wollastonite reserves located on five patented and one unpatented mining
claims covering approximately 100 acres on the Horn Silver Mine properties. If
wollastonite or any other minerals is mined from the wollastonite reserves,
World Hydrocarbons and Minerals Processing agree to pay to the Company a 6%
production royalty on net returns. World Hydrocarbons and Minerals Processing

-2-

10KSB 5th Page of 33 TOC 1st Previous Next Bottom Just 5th

also agree to pay to the Company minimum royalties of $1,500 per month. The
minimum royalties are to be credited toward any future production royalties. See
"Item 1. Business -Mining Lease with World Hydrocarbons, Inc. and Minerals
Processing, Inc.

In addition to the Horn Silver Mine and adjoining
properties and the carried working interest in undeveloped
properties located in Nevada, the Company owns a royalty interest
in developed oil and gas properties in Oklahoma. See "Item 2.
Properties - Osage Oil Field, Osage County, Oklahoma."

Ore Occurrences and Possible Metallurgical Treatment Methods

The principal property of the Company is a wholly-owned interest in the
Horn Silver Mine properties located in Beaver County, Utah, which includes the
Company and Cactus Mines, as well as several smaller mines that were productive
in the past. These mines have produced significant amounts of silver, lead,
copper, zinc and gold. These minerals, which have been mined in the past from
the properties, exist in both the oxidized and sulfide state. Treatment of a
given mineral is dependent upon its physical and chemical character.

Silver ores, together with lead, zinc and copper ores, have been produced
in the past from several localities on the Horn Silver Mine properties. The
sulfide lead-silver ores, such as those previously mined in the hypogene portion
of the properties, are ordinarily ground in a mill, after which the lead and
zinc are separated by selective flotation with the silver often accompanying the
lead. The oxidized lead-silver ores are sent directly to smelters. Bonification
of oxidized lead-silver ores generally result in low recovery and known
hydrometallurgical methods are complex and expensive.

Crude non-sulfide zinc ores are not directly saleable, except to lead
smelters having a fuming plant where crude ore is charged with hot slag. Various
hydrometallurgical procedures have been suggested by the U.S. Bureau of Mines;
however, such processes are thus far only employed in smelters located in Europe
and Japan.

In the past, gold ores occurring in lead-silver ores have been shipped to
lead smelters for processing, whereas siliceous gold-silver ores have been
shipped to copper smelters for processing. Where the siliceous gold-silver ores
are free of cyanicides, they are treated by cyanidation in which most of the
silver contents in the ores are also recovered.

Copper ores have been mined at the Cactus locality in Copper Gulch. The
only copper mineral known to exist in the past in commercial quantities and
grade is chalcopyrite or copper iron sulfide, which is recoverable by grinding
and flotation. The flotation concentrates are then sold to a copper smelter.
There is presently considerable demand for copper concentrates and the
prevailing price of copper, primarily due to foreign imports, renders many
domestic operations non-economic.

Option Agreement with PAB Oil & Mining, Inc.

On October 8, 1996, the Company entered into an Option Agreement with PAB
Oil & Mining, Inc. ("PAB"). Upon execution of the Option Agreement, PAB paid
$25,000 to the Company to be used for general and administrative expenses,
including expenses related to a shareholders meeting to approve the Option
Agreement. Under the terms of the Option Agreement, PAB is granted the right to
purchase shares of the Company's Common Stock, in consideration for the payment
of an additional $175,000, so that after the issuance of the shares, PAB will
own 25% of the Company's outstanding Common Stock. PAB is required to exercise
this initial option within 18 months from the date of the Option Agreement, or
on or before April 7, 1998.

In the event that PAB exercises the initial option by paying the
additional $175,000 to the Company, the Company is required to use the funds, to
the extent of not more than $100,000, to rehabilitate the main access shaft of
the Horn Silver Mine located on the Company's mining properties in Milford,
Utah, and the main 600 foot haulage level, including the installation of an
approved double-drum hoist, rehabilitation of the existing headframe,
installation of piping for water and compressed air in the shaft and the main
650 foot haulage level, replacement of the underground track where needed,
replacing any timbering in the main 650 foot haulage level where required, and
whatever additional work is required to place the shaft and the main 650 foot

-3-

10KSB 6th Page of 33 TOC 1st Previous Next Bottom Just 6th

haulage level in an operable condition. The required work to rehabilitate the
main access shaft of the Horn Silver Mine must be performed by reputable
independent mining contractors selected by the Company's Board of Directors on
the basis of experience, ability and cost.

The Option Agreement also grants to PAB a second option to purchase
additional shares of the Company's Common Stock from the Company, in
consideration for the payment to the Company of an additional $650,000, so that
after the issuance to PAB of the initial shares and these additional shares of
Common Stock, PAB will hold 75% of the Company's issued and outstanding Common
Stock. This additional option must be exercised within 66 months from the date
of the Option Agreement, or on or before April 7, 2002.

The Option Agreement further provides that PAB may make partial payments
toward the second option and PAB shall be issued, on a quarterly basis, shares
of the Company's Common Stock commensurate with the degree to which PAB has
provided the entirety of the option payment. All shares of the Company's Common
stock issued to PAB under the two options are restricted and issued for
investment purposes only, with each certificate issued bearing an appropriate
legend to that effect.

As PAB makes payments to the Company under the second option, the Company
is required to use the funds to further explore and develop the Horn Silver Mine
properties. Finally, the terms of the Option Agreement allow PAB to appoint at
least two of the six members of the Company's Board of Directors, one of whom
shall also be named as an officer of the Company. This right shall continue
throughout the option periods unless PAB decides to terminate the Option
Agreement.

The proceeds from the sale of Common Stock to PAB will be used to finance
a major exploration development program on the Company's mining properties. The
planned exploration and development program will include reopening and repairing
the main access shaft of the Horn Silver Mine located on the Company's mining
properties in Milford, Utah and reopening the main 650-foot haulage level of the
mine.

Specific exploration and development activities planned for fiscal 1997
include the installation of a double drum hoist, rehabilitation of the existing
headframe, installation of piping for water and compressed air in the main
access shaft and the main 650-foot haulage level, replacement of the underground
track, replacement of timber in the main 650-foot haulage level, and any
additional work required to place the access shaft and 650-foot haulage level in
an operable condition.

Mining Lease with World Hydrocarbons, Inc. and Minerals
Processing, Inc.

On September 1, 1997, the Company entered into a mining lease with World
Hydrocarbons, Inc. ("World Hydrocarbons") and Minerals Processing, Inc.
("Minerals Processing"), which provides World Hydrocarbons and Minerals
Processing with the right to explore and mine the wollastonite reserves found on
five patented and one unpatented mining claims covering approximately 100 acres
on the Horn Silver Mine properties. The term of the lease is for five years,
with four additional five-year renewal periods. World Hydrocarbons and Minerals
Processing can elect to extend the lease for additional five-year periods after
the initial term by giving notice to the Company prior to the expiration of the
initial term or any additional term as the case may be.

The lease requires minimum royalty payments in the amount of $1,500 per
month, with the first payment to be made on the date the lease is executed.
World Hydrocarbons and Minerals Processing are also required to pay a production
royalty to the Company equal to 6% of net returns. Net returns is defined as the
gross amount received from any product derived from wollastonite or other
minerals obtained from the wollastonite reserves. All minimum royalty payments
are to be credited toward any future production royalties. The lease can be
terminated by World Hydrocarbons and Minerals Processing by giving the Company
60 days' advance notice of termination.

Exploration and Development Activities in 1989

During 1989, Arapahoe Mining Corporation ("Arapahoe") expended over
$700,000 for exploration and development activities on the south end of the Horn

-4-

10KSB 7th Page of 33 TOC 1st Previous Next Bottom Just 7th

Silver Mine properties. This work included the preparation of new topographic
and aerial maps, the construction of several miles of new roads, drill site
preparations, the excavation of test trenches, drilling, geophysical exploration
and sampling. New mining properties covering approximately 4,000 acres were
located by the Company contiguous to the Horn Silver Mine properties. These
mining properties consisted at the time of approximately 200 unpatented mining
claims and two Utah State mineral leases. These new properties have been
included with the mining claims which are subject to the Amended Mining Lease
and Operating Agreement with Arapahoe.

The drilling that was performed by Arapahoe in 1989 occurred on a series
of five geophysical anomalies. The holes totalled over 1,500 feet in cumulative
length. More than 1,000 surface and underground samples were taken and analyzed.
The most promising drilling results were obtained from the holes drilled in the
Washington-Double Barrel Tunnel vicinity where mineralization of up to 365 feet
in thickness was found containing several intercepts of commercial lead zinc
silver ore up to 20 feet thick. This discovery was made in the Frisco Silver
area about one mile west of the Horn Silver Mine. The two holes drilled by
Arapahoe in the limestone footwall of the Horn Silver Mine failed to intersect
any significant mineralization. It is management's opinion that the holes were
bottomed at an insufficient depth to encounter the bedded ore expected. These
holes have been left open for possible re-entry and deepening at a later time.

One additional major development in 1989 was the acquisition by the
Company for cash of a one-half interest in the Imperial Mine and adjacent
patented mining claims. This group of claims is enclosed by the Horn Silver Mine
properties and contains large reserves of sulfide copper ore, as well as
important tunnel sites which provide an opportunity to initiate bulk mining
operations into the adjoining Horn Silver Mine properties. The new road that was
constructed by Arapahoe links the Horn Silver Mine with the Imperial Mine and
adjacent claims affording access and drill sites on properties previously
accessible only by horseback.

Exploration and Development Activities in 1990

During 1990, Arapahoe expended over $350,000 for exploration and
development activities on the Horn Silver Mine properties. The work included
continued preparation of topographic and aerial maps, drill site preparations,
excavation of test trenches, drilling, geophysical exploration and sampling, and
the construction of a new road. The new road is from the Frisco town site over
the Frisco summit south of Frisco Peak to the access road near the Cactus Mine.
The new road crosses an area where there is a significant magnetic low. While
constructing the new road, Arapahoe discovered an extensive mineralized area of
altered quartz monzonite with many of the surface expressions which are typical
of sulfide porphyry. Several drill holes are planned in 1991 for the purpose of
exploring this mineralized area.

New mining properties covering approximately 500 acres were located in
1990 by the Company contiguous to the Horn Silver Mine properties. These new
mining properties consist of 25 unpatented mining claims. These new properties
have been included with the mining claims which are subject to the Amended
Mining Lease and Operating Agreement. As a result of the new mining properties,
the Company's claim-acreage has increased to approximately 8,600 acres.

The drilling that was performed by Arapahoe during 1990 consisted of a
series of shallow inclined holes in the breccia zone at the south end of the
Horn Silver Mine properties. Five of the holes drilled intersected commercial
grade mineralization, three of which penetrated a gold bearing breccia pipe. The
next phase of the drilling program planned by Arapahoe in 1991 will consist of
additional drilling at the south end of the Horn Silver Mine properties and of
drilling in the Cactus Mine area and in the mineralized area which was
discovered when the new road was constructed.

Other exploration activities during 1990 included drilling and surface
mapping of the Washington claim, which contains a large amount of wollastonite
(fibrous calcium silicate). The claim was delineated and found to contain in
excess of one million tons of wollastonite. Wollastonite is in considerable
demand as a substitute for asbestos.

-5-

10KSB 8th Page of 33 TOC 1st Previous Next Bottom Just 8th

Exploration and Development Activities in 1991

During 1991, Arapahoe expended over $150,000 for exploration and
development activities on the Horn Silver Mine properties. The work included
preparation of geological maps, drill site preparations, excavation of test
trenches, extensive geochemical sampling, and construction of a new road. In
addition, Page P. Blakemore, Sr., who was then President of the Company,
personally spent an additional $10,000 for the preparation of four drill sites
and for the drilling of three rotary holes in the altered intrusive area east of
the Cactus ore body (at the northwest corner of the Horn Silver Mine
properties). This work was performed at Mr. Blakemore's expense without
reimbursement by the Company. All three of the holes that were drilled exhibited
large amounts of pyrite and were anomalous in copper, zinc, gold, silver and
other heavy metals, but contained no commercial grade mineralization.

In constructing the new road from Frisco Pass south to Indian Grave Peak,
numerous structures were cut that eventually will be explored. These new
structures contain copper and gold mineralization in quartz veins, veins of
specularite, bodies of jasperoid in limestone and considerable amounts of
contact metamorphic rocks developed between blocks of limestone and the late
intrusive quartz monzonite. None of these exposures had previously been mapped
because of the vegetation and scree. The new road will give access to several
previously discovered but unexplored mineralized breccia pipes that are planned
as drilling targets during 1992.

Exploration and Development Activities in 1992

During 1992, Great Basin Exploration & Mining Co., Inc. ("Great Basin")
drilled two deep diamond core holes on properties located on the east side of
the San Francisco Range on the Horn Silver Mine properties. These holes were
drilled in order to establish the presence of a different and separate intrusive
on the properties. The core analysis revealed that the properties which were
drilled are anomalous in copper, lead, zinc, silver and gold, but the analysis
did not reach ore grade in any of the metals. The Company's management regards
the results of the drilling as very favorable but not conclusive. In addition to
drilling, Great Basin completed geochemical sampling and geological mapping on
the properties during this period.

Exploration work was also completed in 1992 by Crown Resources Corp. on
properties located on the west side of the San Francisco Range known as the
Loeber Gulch area. As a result of these exploration activities by Crown
Resources, an important gold and silver anomaly was discovered in the Washington
shaft area. During the same period, Great Basin also drilled and abandoned the
Shauntee Hills claims, located southwest of the San Francisco Range on the Horn
Silver Mine properties, and Gold Fields Consolidated drilled and abandoned the
Hidden Treasure claims, located south of the Shauntee Hills claims.

Exploration and Development Activities in 1993

During 1993, the Company conducted exploration work on its mining
properties in the Beaver Lake Mining District and the San Francisco Mining
District. The exploration activities conducted in the Beaver Lake Mining
District included construction of approximately three miles of access roads,
preparation of four drill sites, stripping of various copper bearing outcrops,
and drilling of a hole about 500 feet in depth. The hole was drilled in order to
establish the presence of copper on the properties. The core analysis revealed
copper mineralization from the surface to about 500 feet in depth. The
exploration activities conducted in the San Francisco Mining District included
the rehabilitation of the two main trans-montane roads that cross the San
Francisco Mountain Range, which had been damaged by the winter weather.

Also in 1993, Dotson Exploration Company ("Dotson Exploration"), which has
performed exploration and development work on the Horn Silver Mine properties in
the past for Arapahoe, performed exploration work on the mining properties in
the Beaver Lake Mining District. Included among the exploration activities by
Dotson Exploration during this period were the construction of about three miles
of access roads to an otherwise inaccessible group of mining claims and the
drilling of three holes three miles northwest of the OK Copper Mine. All three
of the holes that were drilled exhibited copper mineralization.

-6-

10KSB 9th Page of 33 TOC 1st Previous Next Bottom Just 9th

In addition to exploration activities in the Beaver Lake Mining District,
the Company conducted excavation work during 1993 at the north end of the open
pit area on the Horn Silver Mine properties, which is located near the King
David Mine shaft. The excavation work revealed a flat fault that displaced the
mineral zone to the north and east suggesting the possible existence of near
surface mineralization, which has been previously undiscovered.

In addition to the above exploration activities, the Company also examined
more than 50 gold prospects in the states of Arizona, Nevada and California in
1993. The Company desires to acquire additional mining properties at favorable
terms which can, in turn, be leased or sold to major mining companies, with the
Company receiving advanced payments and retaining a royalty interest.
Negotiations are currently in process to obtain leases under such terms and
conditions on two mining properties the Company had examined in Mohave County,
Arizona. Metallurgical testing was conducted during 1993 on ores from the Horn
Silver Mine properties and on the ore samples gathered from the various
properties examined in Arizona, Nevada and California.

Exploration and Development Activities in 1994

During 1994, exploration work continued on the Company's mining properties
in the Beaver Lake Mining District. The Company entered into a mining lease with
Dotson Exploration covering certain patented lode mining claims owned by the
Company within this mining district. Under this lease, Dotson Exploration was
granted the right to perform exploration and development work on the mining
properties covered by the lease. The lease was subsequently assigned by Dotson
Exploration to Centurion Mines Corporation ("Centurion"). After conducting an
extensive drilling program on the mining properties covered by the lease, as
well as on properties surrounding the Company's other mining properties in the
Beaver Lake Mining District, Centurion announced a major discovery of ore in the
form of a copper porphyry deposit. The discovery is reported to be a large ore
body open in several directions. Centurion also announced plans to conduct a
leaching operation to extract the ore using a solvent extraction-electrowinning
method to produce high grade copper from the mine.

The Company conducted very limited exploratory and development activities
during 1994 on the Horn Silver Mine properties. This decrease in activity was
due to the limited funds available to the Company. The Company has also
discovered what may be a near surface faulted segment of original, high grade
lead silver ore at the north end of the caved surface area of the Horn Silver
Mine properties. However, no additional work was accomplished on these
properties during 1994 due to limited resources.

In addition to the above activities, the Company continued examining
various properties for gold prospects in the states of Arizona, Nevada, and
California in 1994. The Company also negotiated with different companies
interested in the zinc deposits on the Horn Silver Mine properties, the
wollastonite deposits in Loeber Gulch, the marble quarry owned by the Company,
and the copper porphyry possibilities southeast and northwest of the Cactus
Mine. The Company actively sought joint venture opportunities with other
companies interested in developing the mining properties owned by the Company.

Exploration and Development Activities in 1995.

During 1995, Centurion continued its drilling program on the Company's
mining properties in the Beaver Lake Mining District, including the OK Copper
Mine as well as on other properties surrounding the Company's Beaver Lake mining
properties. The Company's mining properties on which Centurion conducted its
drilling activities are covered by the lease originally entered into with Dotson
Exploration that was later assigned to Centurion. As a result of the drilling
program, Centurion has announced the discovery of a major porphyry ore body on
its properties in the Beaver Lake Mining District containing more than 50
million pounds of copper. Also during 1995, Centurion continued with its plans
to construct a treatment plant on its Beaver Lake mining properties to extract
copper from the ore using a solvent extraction-electrowinning method to produce
high grade copper. Centurion has filed applications with federal and state
agencies to obtain the requisite permits to construct a treatment plant.

The Company was unable to conduct any exploratory or development
activities on its other properties during 1995 on account of the limited funds
the Company has available for any further exploration or development activities.
The Company continued to examine various properties for gold prospects in the
states of Arizona, Nevada and California in 1995. The Company also continued to

-7-

10KSB 10th Page of 33 TOC 1st Previous Next Bottom Just 10th

actively seek joint venture opportunities with other companies interested in
developing the mining properties owned by the Company.

Exploration and Development Activities in 1996.

During 1996, the Company was unable to conduct any significant exploration
or development activities on its mining properties due to the lack of sufficient
funds. However, Centurion continued its exploration activities on the Company's
mining properties during the year, where it had previously announced the
discovery of a major porphyry ore body. Centurion has filed applications with
federal and state agencies to obtain the requisite permits to begin open pit
mining operations and to construct a treatment plant on its Beaver Lake mining
property to extract copper from the ore using a solvent
extraction-electrowinning method to produce high grade copper. About 80% of the
ore Centurion has developed to date on its Beaver Lake properties is located
within the Company's mining properties in the Beaver Lake Mining District.

Also during 1996, the Company entered into an option agreement (the
"Option Agreement") with PAB Oil & Mining, Inc., which was approved by the
Company's shareholders at the Annual Meeting of Shareholders held on March 28,
1997. The Option Agreement grants PAB an option to purchase shares of the
Company's Common Stock. The proceeds from the sale of the Company's stock will
be used to finance a major exploration and development program on the Company's
mining properties. See "Item 1. Business - Option Agreement with PAB Oil &
Mining."

Exploration and Development Activities in 1997

During 1997, the Company performed rehabilitation work on the King David
shaft, the main access shaft of the Horn Silver Mine, utilizing the payments it
received from PAB pursuant to the Option Agreement. The rehabilitation work was
conducted by Dotson Exploration and included the completion of surface work
around the head frame of the King David shaft. In addition, the Company began
construction of a 80,000 square foot leach pad on the Horn Silver Mine
properties.

The Company also arranged for Charles M. Ross, a consulting geologist, to
conduct soil grid samples on the western part of the Horn Silver Mine
properties. About 540 samples were taken from the properties and analyzed for
gold content. The exploration work and the progress report that Mr. Ross
prepared revealed the occurrence of substantial low grade gold values in the
soil samples. The Company is planning follow up work on this sampling program in
1998.

Finally, the Company commissioned a study on the potential of the oxide
zinc deposits on the Horn Silver Mine properties. The study was completed by
Robert Shantz, a metallurgist, and entitled, "Potential Treatment of Oxide Zinc
Ores from the Horn Silver Mine." The study concluded that there was a promising
potential for marketing a zinc oxide precipitate from the oxide zinc deposits on
the Horn Silver Mine properties for use as fertilizer and an animal feed
additive.

The most profitable approach for treating the Company's oxide zinc
deposits, according to the report, is an ammonia leach in which the oxide zinc
deposits are bleached and purified, then the loaded solution is heated with
steam to precipitate a basic zinc carbonate, and finally the zinc carbonate is
calcined to produce zinc oxide. The Company is encouraged by the results of this
report and a review of the report will be made by the Company in 1998.

Competition

There is considerable competition for mining prospects on federal lands
due to recent major discoveries of gold deposits, particularly in Nevada. Costs
of mining, milling, transportation, labor and other costs have risen
dramatically. These costs would be a factor in determining whether the discovery
of minerals, if any, would be commercial or not, and could render a discovery
unprofitable, even if made.

-8-

10KSB 11th Page of 33 TOC 1st Previous Next Bottom Just 11th

Commencing in 1972, various federal, state and local environmental laws
and regulations began to have a significant impact on the mining industry in
Utah, where the Horn Silver Mine properties are located, and elsewhere in the
Western States. At the present time, there is only one smelter in the Western
States, which is operating at full capacity. Several smelters, which had been
buyers of custom mineralization from independent mines located in Utah, are now
closed. Thus, there presently exists no nearby market for the types of ore which
the Company is seeking to develop.

In addition to the uncertainty surrounding the eventual development of
commercial mineralization on the Company's properties, the success of any mining
operation which might be conducted is dependent upon the price of minerals on
the domestic and world markets, which is subject to fluctuation, in part as a
result of actions by central banks and government policies.

Government Regulation

Any exploration, rehabilitation, and development programs of the Company,
as well as any commercial production which might be warranted, will be subject
to extensive federal, state and local laws and regulations controlling not only
the exploration for viable minerals in the ground, the condition of the shafts
and the nature of milling and leaching operations, but also the possible
environmental effects of water and particle contaminant discharges resulting
from the Company's activities. No environmental impact studies have been
performed by the Company, and there is no assurance that environmental or safety
standards more stringent than those presently in effect will not be imposed in
the future. At present, in the opinion of the Company, the current and
immediately proposed activities of the Company are such that no compliance
problems are anticipated.

Employees

As of March 31, 1998, the Company had one part-time employee, a secretary,
who performs clerical work for the Company. All other work, legal and
accounting, is performed on a fee basis. The Company's activities in connection
with the acquisition, exploration and development of mining and other mineral
properties and the negotiation with potential joint venture partners are now
conducted principally by John P. Bogdanich, the newly elected President, Chief
Executive Officer and Treasurer of the Company, who also serves as President of
PAB Oil & Mining, Inc. See "Item 10. Directors and Executive Officers of the
Registrant." Murray C. Godbe, III, Vice President and a director of the Company,
will assist Mr. Bogdanich from time to time with the planned exploration and
development program on the Company's mining properties. The Company presently
has no plans to expand its staff.

ITEM 2. Description of Properties

General

The Company currently owns 244 patented mining claims and approximately 20
unpatented mining claims covering approximately 6,000 acres located in Beaver
County, Utah. The claims comprise most of the San Francisco Mining District. The
two principal mines on the properties, which were productive in the past, are
the Horn Silver and Cactus Mines. The Horn Silver Mine, which represents a very
small part of the overall acreage, shipped silver, gold, copper and lead from
one breccia pipe and was one of the largest producers of silver in the United
States until about 1930. The Cactus Mine, with a production history dating from
1910, shipped significant amounts of copper, gold and silver until about 1913.
The Company also owns a one-half interest in the Imperial Mine, a once
productive mine, and adjacent patented mining claims located in the San
Francisco Mining District. In addition to the foregoing mining properties, the
Company has a carried working interest in undeveloped mining properties located
in Nevada and a royalty interest in developed oil and gas properties located in
Oklahoma. There are no proven reserves on any of the Company's properties.

-9-

10KSB 12th Page of 33 TOC 1st Previous Next Bottom Just 12th

Horn Silver Mine Properties, Milford County, Utah

The Horn Silver Mine properties consist of patented and unpatented mining
claims, which are currently wholly owned by the Company. The properties are
located in the San Francisco Mining District in Beaver County, Utah,
approximately 15 miles west of the town of Milford. The San Francisco Mining
District was formed in the 1880's. It consists of a mountain range about 15
miles long and three to five miles wide trending in a north-south direction
located some 230 miles south of Salt Lake City, Utah, and about 15 miles west of
Milford, Utah. The Company's primary property interests are located in this
district and were originally mined for their silver, gold, lead, zinc and copper
content. Production lasted from the 1880's until about the early 1920's when
economic circumstances stopped production. Less significant production occurred
after that time on an intermittent basis and during World War II when metals
were produced under government subsidies. No significant production has occurred
since 1947.

The Horn Silver Mine

The San Francisco Mining District was organized in 1871, but attracted
little attention until the discovery of the Horn Silver Mine by James Ryan and
Samuel Hawkes in 1875. Ryan and Hawkes subsequently sold the mine to Campbell,
Cullen, Ryan and Byram. They extracted 25,000 tons of high grade lead silver ore
and had developed the mine to a depth of about 280 feet. They then sold the mine
to Horn Silver Mining Company, which was incorporated under Utah law in 1879.
Two smelters were constructed near Frisco, a townsite near the mine. The mine
operated continuously until 1885, with the mineralization material being smelted
at the two plants.

In 1885, a cave-in from the 700 foot level to the surface caused
considerable damage, requiring that a new shaft be sunk to a depth of 1,600
feet, unfortunately again in the volcanic rocks east of the ore zone. The mine
was operated through the new shaft until 1919 when the mine was closed for
economic reasons.

In 1929, the mine was leased to Albert E. Kipps who began a program of
rehabilitation of the underground workings to develop the lower levels. This
program led to discovery of substantial tonnages of ore. In 1944, Mr. Kipps
assigned his lease to Metal Producers, Inc. The 1,600 foot production shaft had
to be abandoned due to subsidence of the hanging wall of the vein structure. A
connection was then driven from the existing King David mine shaft located in
the stable limestone footwall about 900 feet in distance to connect with the 650
foot level of the mine.

Mine Development

The mine is presently served by the 816 foot King David or Knight timbered
shaft sunk in the limestone footwall some 1,200 feet from the old mineral
deposit and an interior shaft sunk to the 1,100 foot level from the 700 foot
level. All other shafts fitted for hoisting ore or waste were sunk in the highly
altered volcanic hanging wall and have caved in many years ago. A manway serving
as an escape route is open in the south end of the mineralized zone.

The mine has been explored along the fault line to the 1,600 foot level,
but only very limited lateral work has been attempted below the 1,100 foot level
or into the limestone footwall for any significant distance. Minable ore
bottomed in the main fault zone and only insignificant amounts of mineralized
material have been discovered below the 1,000 foot level.

The Cactus Mine

The Cactus Mine is located on the Company's patented claims near the
northern boundary of the properties. It was discovered in 1870. During the
1880's, a French company constructed a charcoal fired smelter near the outcrop
which produced an unknown amount of blister copper. The ore was mainly primary
sulfides with refractory achieved at the relatively low temperatures, leading to
abandonment of the operation.

In 1900, the mine was acquired by Samuel Newhouse, who built an 1,000 ton
per day concentrator, and mined and treated nearly one million tons of ore mined

-10-

10KSB 13th Page of 33 TOC 1st Previous Next Bottom Just 13th

underground from the timbered square-set stopes. The mine was developed to the
900 foot level. Ore was mined from an elongate breccia pipe enclosed in the main
granodiorite stock. The breccia filling consisted of quartz, tourmaline,
siderite, specularite and chalcopyrite, the latter constituting the only
commercial mineral as an ore of copper containing minor amounts of gold and
silver.

The Cactus Mine has not been operated since 1913. Due to the caved
condition of the timbered stopes, it is impossible to estimate the tonnage and
grade of any mineralized material left in the stopes in prior operations, or to
examine any blocks of mineralized material left unmined, if any. No proven
reserves of commercial mineralized rock are known to exist in the Cactus Mine.

Geology

The San Francisco Mountains form a small north-south mountain range in
West Central Utah. The range is typical of Great Basin mountain ranges with
Paleozoic carbonates and quartzite intruded by a granitic stock. The limestone
is host for numerous mineral deposits of various types. Faults with considerable
displacement particularly on the range's east side bring volcanic flow rocks in
contact with both intrusive and sedimentary rocks of the range proper. In
addition, the area is in part overlain by several ages of other flow rocks. In
the process of mountain building through the folding and faulting, the various
layers or strata have been disrupted. There are several fault systems apparent
in the San Francisco Mountains. Moreover, vulcanism in the area has resulted in
extensive flows of molten rocks and ash.

The principal mineral deposits in the range are lead, silver, zinc, copper
and gold deposits occurring as fault fissure, breccia filing, stratabound
limestone replacements deposits, pipe-like deposits emplaced at the intersection
of fissures and favorable beds, gold mineralized breccia pipes in limestone,
tungsten deposits in sharn, copper deposits in quartz, and tourmaline filled
breccia pipes in intrusive rocks.

Mineralization in the San Francisco Mountains has been largely
contemporaneous with the cooling of molten rocks which have intruded into
various strata. The minerals are localized in close relationship with areas
where faulting and fracturing have allowed mineralized solutions access to
favorable host rocks. All known mineralization of the area is associated with
fissures and favorable bed intersections in the sedimentary rocks or in breccia
pipes. Fissure intersections particularly influence localization of minerals
whether in sediments, flow rocks or intrusive rocks.

The Horn Silver Mine is located on the Horn Silver Fault. The fault is on
the east side of the range and brings flow rocks in contact with the limestone.
Limestone replacement formations of this type have frequently been found to be
favorable areas for exploration for lead and silver. The fault is traced from
Squaw Springs Pass northerly for nearly two miles where it is concealed just
north of the Horn Silver Mine. It is apparent that in addition to the Horn
Silver Fault at least two thrust faults exist in the area which are as yet
unmapped in detail and aerial photographs reveal the existence of a second
north-south fault of considerable magnitude.

Osage Oil Field, Osage County, Oklahoma

On February 6, 1981, the Company acquired a working interest in two
developed oil and gas leases in Osage County, Oklahoma. On September 1, 1986,
the Company entered into an agreement with Golden Oil Company to exchange its
working interest in the leases for a 1-1/2% overriding royalty interest in all
oil and gas production from the leases. The two leases are named the Long-B
lease and the Reed lease. The Long-B lease covers approximately 160 gross acres
(20 net acres) and contains four producing walls. The Reed lease also covers
approximately 160 gross acres (20 net acres) and contains five producing wells.
The Company paid $20,000 and issued 500,000 shares of its Common Stock for its
working interests in the leases.

The leases are for a term of five years commencing in 1972. However, if
production is established, the leases continue so long as oil or gas or other
minerals are produced in commercial quantities. The leases are subject to a
landowner's royalty interest of 16-2/3%, increasing to 21% in the event
producing wells average 100 or more barrels per well per day. The Company is not
aware of any current plans for drilling of any additional oil and gas wells on
the properties.

-11-

10KSB 14th Page of 33 TOC 1st Previous Next Bottom Just 14th

The Company has not undertaken an evaluation of the oil and gas properties
in order to determine the estimated net proved reserves of oil or gas and the
future net revenue attributable thereto. In management's opinion, the revenues
received from the Company's interest in the oil and gas properties and the
estimated total value of its interest are not substantial enough to warrant the
expenditure necessary to provide a disclosure of proved oil and gas reserves.
From January 1, 1997 to December 31, 1997, the Company received $800 in
production payments from its royalty interest in the leases. The Company
received $431 in production payments in fiscal 1996 from the leases.

Title to Mining Properties

The Company's most important property interest at the present time
consists of its ownership of the Horn Silver Mine properties. The patented
claims involved were originally obtained by deed from the federal government.
The Company's ownership rights in the properties is dependent upon the validity
of title to the claims which is vested in other entities and upon the validity
of the Company's contracts with the entities holding such title. The Company has
not received any warranties of title, title opinions nor policies of title
insurance. The Company now owns the patented claims through its purchase of the
Wangenheim's 40% interest in the claims in 1980 and its acquisition of Tintic's
60% interest in the claims as a result of a merger with Tintic in 1983.

The validity of all unpatented mining claims is dependent upon the
inherent uncertainties and conditions that may prevent a fee title in the usual
sense from existing or vesting. Unpatented claims when properly located, staked
and posted according to regulation give the claimant possessory right only.
Possessory title to an unpatented claim, when validly initiated, endures unless
lost through abandonment or through a forfeiture which results from an adverse
location made while the prior location is in default with respect to the
performance of annual assessment work. Because many of these factors involve
findings of fact, title validity cannot be determined solely from an examination
of the record.

The continuing validity of the Company's unpatented claims is subject to
many contingencies, including the availability of land for location at the time
location is made, the making of valid mineral discoveries within the boundary of
each claim, the compliance with all regulations, both state and federal, for
locating claims, and the making of annual payments of $100 per claim. Failing
satisfaction of these requirements, the claims are subject to cancellation by
the United States upon a finding of no valid discovery and, perhaps, upon
failure to perform annual assessment work. Failure to perform annual work
subjects the claimant to the risk of forfeiture of rights through valid
subsequent locations by others or through cancellation by the government agency
involved.

ITEM 3. Legal Proceedings

The Company is not aware of any threatened or pending litigation.

ITEM 4. Submission of Matters to a Vote of Security Holders

At the Company's Annual Meeting of Shareholders held on March 28, 1997,
the shareholders of the Company elected directors and transacted certain other
business coming before the meeting. Such matters included the approval of the
following proposals: (i) the option agreement with PAB Oil & Mining, Inc. in
which PAB was granted an option to purchase shares of the Company's Common Stock
for the sum of $200,000, so that after the issuance of such shares PAB will then
own 25% of the outstanding shares of the Company's Common Stock, and a second
option to purchase additional shares of the Company's Common Stock for the sum
of $650,000, so that after the issuance of such shares PAB will then own 75% of
the outstanding shares of the Company's Common Stock; (ii) a 1-for-20 reverse
stock split of the Company's Common Stock; (iii) an amendment to the Company's
Articles of Incorporation to reduce the authorized shares of Common Stock from
200,000,000 shares to 30,000,000 shares, and to change the par value of the
Common Stock from no par value to $.001 par value; and (iv) the appointment of
Tanner & Co., as the Company's auditors for the fiscal year ending December 31,
1996.

-12-

10KSB 15th Page of 33 TOC 1st Previous Next Bottom Just 15th

PART II

ITEM 5. Market for Common Equity and Related Stockholder Matters

The Company's Common Stock is currently traded in the over-the-counter
market under the trading symbol "HRNS." Prior to April 30, 1997, the Company's
trading symbol was "HORN." The following are the high and low closing bid prices
of the Common Stock on the OTC Bulletin Board and pink sheets as reported by the
National Quotation Bureau, LLC for the periods indicated.

· Download Table

Period Bid Price

Calendar Year High Low

1996<F1>
First Quarter .01 .01
Second Quarter .01 .01
Third Quarter .005 .005
Fourth Quarter .005 .005

1997<F1><F2>
First Quarter .005 .0025
Second Quarter .39 .0025
Third Quarter .51 .22
Fourth Quarter .41 .25

1998<F2>
First Quarter .28 .13

----------------------
<FN>
<F1> The bid prices for calendar year 1996 and the first quarter of calendar
year 1997 reflect the trading of the Common Stock prior to the approval of the
1-for-20 reverse stock split at the Annual Meeting of Shareholders held on March
28, 1997.

<F2> The bid prices for the second, third and fourth quarters of calendar year
1997 and the first quarter of calendar 1998 reflect the trading of the Common
Stock following the approval of the 1-for-20 reverse stock split.

</FN>

The bid prices represent quotations between dealers without retail
markups, markdowns or commissions and do not necessarily represent actual
transactions.

At March 31, 1998, there were 6,853 record holders of the Company's Common
Stock.

The Company has never paid any cash dividends on its Common Stock and does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. The Company currently intends to retain future earnings, if any, to fund
the development and growth of the Company's proposed business and operations.

ITEM 6. Management's Discussion and Analysis or Plan of
Operations

Liquidity and Capital Resources

Cash decreased by $22,315 during the 1997 fiscal year. The principal loss
of cash during 1997 was from the net loss from operations of $33,984. However,
the Company received $17,500 in payments from PAB during 1997 pursuant to the
Option Agreement. The Company is currently unable to finance its operations from

-13-

10KSB 16th Page of 33 TOC 1st Previous Next Bottom Just 16th

its operating revenues and cash flow. Moreover, the Company currently has no
credit facility with a lending institution. There remains only $2,216 in cash as
of December 31, 1997 from the proceeds of the Company's 1980 Regulation A stock
offering.

The Company does not anticipate spending any of its remaining cash
reserves during the 1998 fiscal year for exploration or development activities.
However, in the event PAB exercises the initial option under the Option
Agreement by paying additional funds to the Company, the Company is required to
use the funds for exploration and development activities on its mining
properties. See "Item 1. Business - Option Agreement with PAB Oil & Mining,
Inc." The Company plans to continue to actively seek joint ventures for
exploration and development activities during 1998.

Results of Operations

Year Ended December 31, 1997 Compared to Year Ended
December 31, 1996

Revenues increased by $28,537, or 203%, to $42,629 for the year ended
December 31, 1997, from $14,092 for the year ended December 31, 1996. Mineral
royalties increased by $28,581, or 218%, to $41,681 in fiscal 1995 from $17,200
in fiscal 1994. The increase was primarily due to an increase in the royalty
payments the Company received from Centurion, Minerals Processing and Arapahoe.
The $41,680 in mineral royalties in 1997 included $9,000 in advance royalty
payments from the mining lease assigned to Centurion, $7,500 in royalty payments
from the mining lease with World Hydrocarbons and Minerals Processing and
$25,139 from the sale of the Arapahoe stock that the Company received through a
prior agreement with Arapahoe.

Interest income from investment of funds decreased by $413, or 74%, to
$148 in fiscal 1997 from $561 in fiscal 1996 due to a decrease in the amount of
funds invested than in the preceding year. The Company received $800 in other
income in fiscal 1997 representing royalty payments from its interest in two oil
and gas leases in Osage County, Oklahoma. These payments represented an increase
of $369, or 86%, in the royalty payments the Company received in fiscal 1997
over fiscal 1996 due to an increase in production from the oil wells on the
leases.

Expenses increased by $21,337, or 39%, to $76,613 in fiscal 1997 from
$55,276 in fiscal 1996. Contributing to this reduction in expenses was a $22,627
increase in general and administrative expenses to $76,332 in fiscal 1997 from
$53,705 in fiscal 1996. The increase in general and administrative expenses
reflected the cost of the Company moving its executive offices, payment of the
remaining costs associated with the transaction with PAB, including legal and
accounting expenses, the cost of an independent contractor to locate lost
shareholders, and the increased level of the Company's mining activities in
fiscal 1997.

Year Ended December 31, 1996 Compared to Year Ended
December 31, 1995

Revenues decreased by $3,057, or 17.8%, to $14,092 for the year ended
December 31, 1996, from $17,149 for the year ended December 31, 1995. Mineral
royalties decreased by $2,800, or 17.6%, to $13,100 in fiscal 1996 from $15,900
in fiscal 1995. This reduction was primarily due to the termination of the
mining lease with Frisco Rock, Inc. in 1996. The $13,100 in mineral royalties in
1996 included $9,900 in advance royalty payments from the mining lease assigned
to Centurion and $3,200 in royalty payments from the mining lease with Frisco
Rock, Inc.

Interest income from investment of funds increased by $11, or 2.0%, to
$561 in fiscal 1996 from $550 in fiscal 1995 due to an increase in the amount of
funds invested over the preceding year. The Company received $431 in other
income in fiscal 1996 primarily representing royalty payments from its interest
in two oil and gas leases in Osage County, Oklahoma. The payments represented a
decrease of $268, or 38.3% in the royalty payments the Company received in
fiscal 1996 over fiscal 1995 due to a reduction in production from the oil wells
on the leases.

Expenses increased by $3,609, or 7.0%, to $55,276 in fiscal 1996 from
$51,667 in fiscal 1995. Contributing to this increase in expenses was a $2,395
increase in general and administrative expenses to $53,705 in fiscal 1996 from
$51,310 in fiscal 1995. The increase in general and administrative expenses
reflected an increase in legal and accounting expenses in fiscal 1996 due to the
transaction with PAB, including preparation of proxy materials filed with the

-14-

10KSB 17th Page of 33 TOC 1st Previous Next Bottom Just 17th

Securities and Exchange Commission to obtain shareholder approval of the
transaction at the Annual Meeting of Shareholders. Carrying costs for mineral
leases increased by $1,216 in fiscal 1996 over fiscal 1995 due to the additional
costs of maintaining the Company's unpatented mining claims under new federal
mining regulations.

ITEM 7. Financial Statements and Supplementary Data

The financial statements of the Company and supplementary data are
included beginning immediately following the signature page to this report. See
Item 13 for a list of the financial statements and financial statement schedules
included.

ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure

None.

PART III

ITEM 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act

The Company's Board of Directors currently consists of five persons. The
following table sets forth certain information with respect to the directors and
executive officers of the Company:

· Download Table

Director or Position with
Name Age Officer Since the Company
---- --- ------------- --------------

John P. Bogdanich 44 September 1995 Chairman of the
Board, President,
Chief Executive
Officer and
Treasurer

Murray C. Godbe, III 72 July 1984 Vice President
and Director
Melvin E. Leslie 69 April 1997 Secretary and
Director
Randall A. Mackey 52 July 1998 Director
Jeff D. Gentry 39 April 1997 Director

The following biographical information is furnished with respect to each
of the directors and executive officers.

John P. Bogdanich has served as Chairman of the Board,
President, Chief Executive Officer and Treasurer of the Company
since April 1997 and a director of the Company since September
1995. He has been President since 1981 of PAB Oil & Mining,
Inc., which engages in the mining and oil and gas business. See
"Item 12. Certain Relationships and Related Transactions."

Murray C. Godbe has served as the Vice President and a
director of the Company since July 1984. He has been the
President since 1974 of M.C. Godbe Consultants, Inc. which has
performed geological consulting work for a number of mining
companies. From 1969 to 1974, he was the President of East Utah
Mining Company, a Utah mining and oil and gas company. Mr. Godbe
received a B.Sc. degree in geology from the University of Utah in
1948, where he also did graduate work in geology in 1949.

Melvin E. Leslie has served as Secretary and a director of
the Company since April 1997. He is an attorney who has
practiced law in Utah since 1955. From 1968 to 1982, Mr. Leslie
was Legislative General Counsel to the Utah State Legislature.
Mr. Leslie received a B.S. degree from Northwestern University in
1951 and a Juris Doctor degree from Northwestern University in
1995. He is also a director of PAB Oil & Mining, Inc., which
engages in the mining and oil and gas business. See "Item 12.
Certain Relationships and Related Transactions."

-15-

10KSB 18th Page of 33 TOC 1st Previous Next Bottom Just 18th

Randall A. Mackey has served as director of the Company since July 1981.
He has been a shareholder in the Salt Lake City law firm of Mackey Price &
Williams since May 1989. From 1979 to 1989, he practiced law with the Salt Lake
City law firm of Fabian & Clendenin, where he was a shareholder and director of
the firm from 1982 to 1989. From 1977 to 1979, Mr. Mackey was associated with
the Washington, D.C. law firm of Hogan & Hartson. Mr. Mackey received a B.S.
degree in economics from the University of Utah in 1968, a M.B.A. degree from
Harvard University in 1970, a Juris Doctor degree from Columbia University in
1975, and a B.C.L. degree from Oxford University in 1977. Mr. Mackey has also
served as a director of Paradigm Medical Industries, Inc., which develops and
manufactures ophthalmic surgical systems, since November 1995 and as a director
of Cimetrix Incorporated, a software development company, since January 1998.

Jeff D. Gentry has been a director of the Company since April 1997. He has
been President of Emerald Oil & Mining Company since 1987, which acquires and
manages oil, gas and mineral interests. From 1985 to 1987, Mr. Gentry was a
director of G.T.B., Inc., an investment banking firm specializing in financing
oil and gas companies. Mr. Gentry received B.S. degrees in geological
engineering and geology from the University of Utah.

All directors of the Company hold office until the next annual meeting of
the shareholders and until their successors have been duly elected and has
qualified. All of the officers serve at the pleasure of the Board of Directors.

The Board of Directors of the Company held one meeting in 1997. No
director attended fewer than 75% of all meetings of the Board of Directors in
1997.

ITEM 10. Executive Compensation

Executive Officer Compensation

The following table sets forth, for each of the last three fiscal years,
the compensation received by John P. Bogdanich, the Company's President, Chief
Executive Officer and Treasurer, and all other executive officers (collectively,
the "Named Executive Officers") at December 31, 1997 whose salary and bonus for
all services in all capacities exceed $100,000 for the fiscal year ended
December 31, 1997.

· Download Table

Summary Compensation Table

Annual Compensation
--------------------------------------------

Other
Annual
Name and Compensa-
Principal Position Year Salary($) Bonus($) tion($)
------------------ ---- --------- -------- ---------
John P. Bogdanich 1997 $ 0 0 0
Chairman of the 1996 0 0 0
Board, President, 1995 0 0 0
Chief Executive
Officer, Treasurer

Long-Term Compensation
---------------------------------------------

Restricted Securities Long-term All Other
Stock Underlying Incentive Compensa-
Awards($) Options/SAR(#) Payout($) tion($)
----------- -------------- --------- -------
1997 0 0 0 $0
1996 0<F1> 0 0 0
1995 0<F1> 0 0 0

--------------------
<FN>
<F1> Does not include 25,000 shares of the Company's Common
Stock issued to Mr. Bogdanich in both fiscal 1995 and fiscal 1996
for serving as a director of the Company. Mr. Bogdanich was
elected President, Chief Executive Officer and Treasurer of the
Company on April 4, 1997. No shares of Common Stock were issued
to Mr. Bogdanich in fiscal 1997 for serving as an officer and a
director of the Company.
</FN>

The following table sets forth information concerning the exercise of
options to acquire shares of the Company's Common Stock by the Named Executive
Officers during the fiscal year ended December 31, 1997, as well as the
aggregate number and value of unexercised options held by the Named Executive
Officers on December 31, 1997.

-16-

10KSB 19th Page of 33 TOC 1st Previous Next Bottom Just 19th
· Download Table

Aggregated Option/SAR Exercises in Last Fiscal Year and
Fiscal Year-End Option/SAR Values

Number of Securities
Underlying Unexercised
Options/SARs at
December 31, 1997(#)
Shares -----------------------
Acquired on Value
Name Exercise(#) Realized($) Exercisable Unexercisable
---- ----------- ----------- ----------- -------------

John P.
Bogdanich -0- -0- -0- -0-

Murray C.
Godbe, III -0- -0- -0- -0-

Melvin E.
Leslie -0- -0- -0- -0-

Value of Unexercised
In-the-Money Options/SARs at
December 31, 1997($)
-----------------------------
Name Exercisable Unexercisable
---- ----------- -------------

John P. Bogdanich -0- -0-
Murray C. Godbe, III -0- -0-
Melvin E. Leslie -0- -0-

Director Compensation

Directors of the Company were not paid any director's fees for their
services during fiscal 1997. However, the directors were who served on the Board
of Directors during fiscal 1995 and 1996 were each issued 25,000 shares of the
Company's Common Stock for each of the years they served as a director.

ITEM 11. Security Ownership of Certain Beneficial Owners and
Management

The following table sets forth, as of March 31, 1998, the beneficial
ownership of the Company's Common Stock by each person known by the Company to
be the beneficial owner of more than five percent of the Company's Common Stock,
by each director, and by all directors and executive officers as a group.

· Download Table

Name and Address<F1> Number of Shares Percent of Ownership
------------------- ---------------- --------------------

John P. Bogdanich 50,000 *
Estate of Page P.
Blakemore, Sr 1,373,574 22.6%
Murray C. Godbe, III 206,775 3.4%
Melvin E. Leslie --
Randall A. Mackey 186,500 3.1%
Jeff D. Gentry -- *
All directors and
executive officers
as a group (5 persons) 1,816,849 29.8%

----------------------
* Less than 1% of outstanding shares

<FN>
<F1> The address for Mr. Bogdanich is 2667 East Capricorn Way, Salt Lake
City, Utah 84124. The address for Mr. Godbe is 1530 West Stansfield Drive,
Kanab, Utah 84741. The address for Mr. Leslie is 1947 East Orchard Drive, Salt
Lake City, Utah 84106. The address for Mr. Mackey is 1474 Harvard Avenue, Salt
Lake City, Utah 84105. The address for Mr. Gentry is P.O. Box 920078, Snowbird,
Utah 84092. </FN>

ITEM 12. Certain Relationships and Related Transactions

In October 1996, the Company entered into an option agreement (the "Option
Agreement") with PAB, which was approved at the Company's Annual Shareholders
Meeting held on March 28, 1997. Under the terms of the Option Agreement, PAB is
granted options to purchase shares of the Company's Common Stock for $850,000,
such that after the issuance of the shares PAB will hold 75% of the Company's
outstanding Common Stock. Mr. Bogdanich, Chairman of the Board, President, Chief
Executive Officer and Treasurer of the Company, also serves as President and a
director of PAB. Mr. Leslie, Secretary and a director of the Company, also
serves as a director of PAB. See "Item 1. Business - Option Agreement with PAB
Oil & Mining, Inc."

-17-

10KSB 20th Page of 33 TOC 1st Previous Next Bottom Just 20th

Randall A. Mackey, a director of the Company, is a shareholder of the law
firm of Mackey Price & Williams, which has rendered legal services to the
Company. Legal fees and expenses paid to the firm for the years ended December
31, 1996 and 1997, totaled $9,222 and $9,507, respectively.

PART IV

ITEM 13. Exhibits and Reports on Form 8-K.

(a) Financial Statements Filed

Report of Independent Accountants

Balance Sheet - December 31, 1997

Statement of Operations - Years Ended December 31,
1996, and 1997

Statement of Stockholders Equity - January 1, 1996 to
December 31, 1997

Notes to Financial Statements

(b) Exhibits

3. A.* Articles of Incorporation (Exhibit 3A to
Registration Statement on Form S-14, No 2-78284, filed
March 29, 1983)

B.* Bylaws (Exhibit 3A to Registration Statement on Form
S-14, No 2-78284, filed March 29, 1983)

C.* Specimen Stock Certificate (Exhibit 3A to Registration
Statement on Form S-14, No 2-78284, filed March 29,
1983)

10. A.* Mining Lease with Dotson Exploration
Company (Exhibit 10B to Annual Report on
Form 10-K, No. 0-9739, November 24, 1995)

B.* Option Agreement with PAB Oil & Mining,
Inc. (Exhibit to Preliminary Proxy
Statement, No. 1-8757, February 7, 1997)

C. Mining Lease with World Hydrocarbons,
Inc. and Minerals Processing, Inc.

* Exhibits so marked have heretofore been filed with the
Securities and Exchange Commission as part of the filing
indicated and are incorporated herein by this reference.

The Company has not filed any report on Form 8-K during the
quarter for which this report is filed.

-18-

10KSB 21st Page of 33 TOC 1st Previous Next Bottom Just 21st

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES

Page
----
Independent Auditor's Report . . . . . . . . . F-1

Balance Sheet . . . . . . . . . . . . . . . . F-2

Statement of Operations . . . . . . . . . . . F-3

Statement of Stockholders' deficit . . . . . . F-4

Statement of Cash Flows . . . . . . . . . . . F-5

Notes to Financial Statements. . . . . . . . . F-6

-19-

10KSB 22nd Page of 33 TOC 1st Previous Next Bottom Just 22nd

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 in Salt Lake City,
Utah, on this 13th day of April, 1998.

HORN SILVER MINES, INC.

By: /s/ John P. Bogdanich
--------------------------------
John P. Bogdanich
Chairman of the Board, President,
Chief Executive Officer, and
Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated:

SIGNATURE TITLE DATE

/s/ John P. Bogdanich Chairman of the Board, April 13, 1998
------------------------- President, Chief Executive
John P. Bogdanich Officer and Treasurer
(Principal Executive,
Financial and Accounting
Officer)

/s/ Murray C. Godbe, III Vice President and Director April 13, 1998
-------------------------
Murray C. Godbe, III

/s/ Melvin E. Leslie Secretary and Director April 13, 1998
-------------------------
Melvin E. Leslie

/s/ Randall A. Mackey Director April 13, 1998
-------------------------
Randall A. Mackey

/s/ Jeff D. Gentry Director April 13, 1998
-------------------------
Jeff D. Gentry

-20-

10KSB 23rd Page of 33 TOC 1st Previous Next Bottom Just 23rd

HORN SILVER MINES, INC.

Index to Financial Statements

--------------------------------------------------------------------------------

Page

Independent auditors' report F-1

Balance sheet F-2

Statement of operations F-3

Statement of stockholders' deficit F-4

Statement of cash flows F-5

Notes to financial statements F-6

10KSB 24th Page of 33 TOC 1st Previous Next Bottom Just 24th

HORN SILVER MINES, INC.

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Horn Silver Mines, Inc.

We have audited the balance sheet of Horn Silver Mines, Inc., as of December 31,
1997 and 1996, and the related statements of operations, stockholders' deficit
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Horn Silver Mines, Inc., as of
December 31, 1997 and 1996, and the results of operations and cash flows for the
years then ended, in conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, there is substantial doubt about the ability
of the Company to continue as a going concern. Management's plans in regard to
that matter are also described in note 2. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

TANNER+Co.

Salt Lake City, Utah
March 16, 1998

F-1

10KSB 25th Page of 33 TOC 1st Previous Next Bottom Just 25th
· Enlarge/Download Table

HORN SILVER MINES, INC.
Balance Sheet

December 31,
----------------------------------------------------------------------------------------------------------

Assets 1997 1996
------
-----------------------------------

Current assets - cash $ 2,216 $ 24,531
-----------------------------------

Property and equipment:
Leasehold improvements 5,634 5,634
Structures and equipment 8,441 8,441
-----------------------------------

14,075 14,075

Less accumulated depreciation and amortization (14,075) (13,794)
-----------------------------------

Net property and equipment - 281
-----------------------------------

Other assets 1,211 1,211
-----------------------------------

Total assets $ 3,427 $ 26,023
===================================

----------------------------------------------------------------------------------------------------------

Liabilities and Stockholders' Deficit

Current liabilities:
Accounts payable $ 8,625 $ 19,212
Related party payables 31,043 31,043
Accrued expenses 29 284
-----------------------------------

Total current liabilities 39,697 50,539
-----------------------------------

Commitments - -

Stockholders' deficit:
Common stock, par value $.001, 30,000,000 shares
authorized and 6,088,966 shares issued
and outstanding for 1997 and 1996, respectively 6,089 6,089
Additional paid-in capital 1,691,239 1,669,009
Accumulated deficit (1,733,598) (1,699,614)
-----------------------------------

Total stockholders' deficit (36,270) (24,516)
-----------------------------------

Total liabilities and stockholders' deficit $ 3,427 $ 26,023
===================================

----------------------------------------------------------------------------------------------------------

See accompanying notes to financial statements.
F-2

10KSB 26th Page of 33 TOC 1st Previous Next Bottom Just 26th
· Enlarge/Download Table

HORN SILVER MINES, INC.
Statement of Operations

Years Ended December 31,
----------------------------------------------------------------------------------------------------------

1997 1996
-----------------------------------

Revenues:
Mineral royalties $ 41,681 $ 13,100
Interest 148 561
Other income 800 431
-----------------------------------

Total revenues 42,629 14,092
-----------------------------------

Expenses:
General, administrative and exploration 76,332 53,705
Carrying costs for mineral leases - 1,216
Depreciation 281 355
-----------------------------------

Total expenses 76,613 55,276
-----------------------------------

Loss before benefit for income taxes (33,984) (41,184)

Benefit for income taxes - -
-----------------------------------

Net loss $ (33,984) $ (41,184)
===================================

Loss per common share $ (.01) $ (.01)
===================================

-----------------------------------------------------------------------------------------------------------

See accompanying notes to financial statements.
F-3

10KSB 27th Page of 33 TOC 1st Previous Next Bottom Just 27th
· Enlarge/Download Table

HORN SILVER MINES, INC.
Statement of Stockholders' Deficit

Years Ended December 31, 1997 and 1996
-------------------------------------------------------------------------------------------------------------------

Additional
Common Stock Paid-In Accumulated
------------------------------
Shares Amount Capital Deficit Total
--------------------------------------------------------------------------

Balance,
January 1, 1996 5,863,966 $ 5,864 $ 1,621,709 $ (1,658,430)$ (30,857)

Common stock issued for
officers' compensation and
directors' fee 225,000 225 22,300 - 22,525

Contributed capital in
exchange for the option to
purchase company stock - - 25,000 - 25,000

Net loss - - (41,184) (41,184)
--------------------------------------------------------------------------

Balance,
December 31, 1996 6,088,966 6,089 1,669,009 (1,699,614) (24,516)

Contributed capital in
exchange for the option to
purchase company stock - - 22,230 - 22,230

Net loss - - - (33,984) (33,984)
--------------------------------------------------------------------------

Balance,
December 31, 1997 6,088,966 $ 6,089 $ 1,691,239 $ (1,733,598)$ (36,270)
==========================================================================

----------------------------------------------------------------------------------------------------------

See accompanying notes to financial statements.
F-4

10KSB 28th Page of 33 TOC 1st Previous Next Bottom Just 28th
· Enlarge/Download Table

HORN SILVER MINES, INC.
Statement of Cash Flows

Years Ended December 31,
-------------------------------------------------------------------------------------------------------------------

1997 1996
-----------------------------------

Cash flows from operating activities:
Net loss $ (33,984)$ (41,184)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 281 355
Stock issued for services - 22,525
Decrease in other assets - 360
Decrease in:
Accounts payable (10,842) (772)
Accrued liabilities - (390)
-----------------------------------

Net cash used in
Operating activities (44,545) (19,106)
-----------------------------------

Cash flows from investing activities - -
-----------------------------------

Cash flows from financing activities-
proceeds from option agreement 22,230 25,000
-----------------------------------

Net (decrease) increase in cash (22,315) 5,894

Cash, beginning of year 24,531 18,637
-----------------------------------

Cash, end of year $ 2,216 $ 24,531
===================================

----------------------------------------------------------------------------------------------------------

See accompanying notes to financial statements.
F-5

10KSB 29th Page of 33 TOC 1st Previous Next Bottom Just 29th

HORN SILVER MINES, INC.
Notes to Financial Statements

December 31, 1997 and 1996
--------------------------------------------------------------------------------

1. Summary of Significant Accounting Policies
Organization
The Company was incorporated in 1971 under the laws of the State of Utah. The
Company is a "junior" natural resource Company whose activities are primarily
acquisition, exploration and development of natural resources.

Cash and Cash Equivalents
For financial statement purposes, the Company considers all instruments with a
maturity of less than three months to be cash equivalents.

Property, Equipment and Mining Costs
Expenditures for exploration of mineral properties are charged against income as
incurred. Property acquisition costs and mine development costs incurred to
expand capacity of operating mines, develop new ore bodies or develop new areas
substantially in advance of current production are capitalized and charged to
operations on the units-of-production method. Capitalized costs of abandoned
projects or impaired properties are charged to operations in the year of
abandonment.

Corporate property and equipment are stated at cost. Acquisitions having a
useful life in excess of one year are capitalized. Maintenance and repairs are
expensed in the year incurred. Capitalized assets are depreciated by the
straight-line method over estimated useful lives of the related assets, ranging
from three to ten years.

Income Taxes
Deferred income taxes are provided in amounts sufficient to give effect to
temporary differences between financial and tax reporting, principally related
to accounting for mining properties.

Stock Split
During the year 1997, the Company's shareholders approved a reverse stock split
of 1 share for each 20 shares held. The financial statements have been restated
to reflect the reverse stock split as if it had taken place at January 1, 1996.

Loss Per Common Share
Loss per common share is calculated based on the weighted average number of
shares of common stock outstanding during the period. Per share amounts assuming
dilution would be the same due to the antidilutive effect of common stock
equivalents.

--------------------------------------------------------------------------------

F-6

10KSB 30th Page of 33 TOC 1st Previous Next Bottom Just 30th

HORN SILVER MINES, INC.
Notes to Financial Statements
Continued

--------------------------------------------------------------------------------

1. Summary of Significant Accounting Policies
Use of Estimates in the Preparation of Financial Statements The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.

Reclassification
Certain amounts in the 1996 financial statements have been reclassified to
conform with the 1997 presentation.

2. Going Concern
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As of December 31, 1997, the
Company had a deficit in working capital of $6,438, an accumulated deficit of
$1,733,598 and incurred a net loss of $33,984 for the year ended December 31,
1997. These conditions raise substantial doubt about the ability of the Company
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

The Company's ability to continue as a going concern is subject to the
attainment of profitable operations or obtaining necessary funding from outside
sources. Management anticipates that equity funding, resulting from the
agreement described in note 3 will provide positive cash flow. However, there
can be no assurance such funding will be received.

3. Related Party Transactions
Related party payables consist of amounts due to officers and directors related
to compensation, fees, and expense reimbursements.

In October 1996, the Company entered into an Option Agreement with PAB Oil &
Mining, Inc. ("PAB") which grants to PAB the right to purchase up to 75% of the
outstanding shares of the Company's common stock for the sum of $850,000. The
President, Chief Executive Officer, and Treasurer of the Company, served as a
director of PAB from September 1993 to September 1996. A director of the
Company, currently serves as President and Chief Executive Officer of PAB.

--------------------------------------------------------------------------------

F-7

10KSB 31st Page of 33 TOC 1st Previous Next Bottom Just 31st

HORN SILVER MINES, INC.
Notes to Financial Statements
Continued

--------------------------------------------------------------------------------

3. Related Party Transactions Continued
A director of the Company, is President and a shareholder of a law firm which
has rendered legal services to the Company. Legal fees and related costs paid to
the firm for the year ended December 31, 1997 and 1996 totaled $14,007 and
$9,177, respectively.

4. Income Taxes
The benefit for income taxes is different than amounts which would be provided
by applying the statutory federal income tax rate to loss before benefit for
income taxes for the following reasons:

Years Ended
December 31,
-----------------------------------
1997 1996
-----------------------------------

Benefit for income taxes at
statutory rate $ 11,000 $ 14,000
Change in valuation allowance (11,000) (14,000)
-----------------------------------

$ - $ -
===================================

Deferred tax assets consist of the following:

December 31,
-----------------------------------
1997 1996
-----------------------------------

Operating loss carryforwards $ 588,000 $ 577,000
Valuation allowance (588,000) (577,000)
-----------------------------------

$ - $ -
===================================

The Company has net operating loss carryforwards of approximately $1,731,000,
which begin to expire in the year 2000. The amount of net operating loss
carryforwards that can be used in any one year will be limited by significant
changes in the ownership of the Company and by the applicable tax laws which are
in effect at the time such carryforward can utilized.

--------------------------------------------------------------------------------

F-8

10KSB 32nd Page of 33 TOC 1st Previous Next Bottom Just 32nd

HORN SILVER MINES, INC.
Notes to Financial Statements
Continued

--------------------------------------------------------------------------------

5. Supplemental Cash Flow Disclosure
There were no amounts paid for interest and income taxes for the years ended
December 31, 1997 and 1996.

During the year ended December 31, 1997, the Company issued 225,000 shares of
common stock in exchange for reduction of related party payable of $31,043.

6. Loss Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per Share," which
requires companies to present basic earnings per share (EPS) and diluted
earnings per share, instead of the primary and fully diluted EPS as previously
required. The new standard also requires additional informational disclosures,
and makes certain modifications to the previously applicable EPS calculations
defined in Accounting Principles Board No. 15. The new standard is required to
be adopted by all public companies for reporting periods ending after December
15, 1997, and requires restatement of EPS for all prior periods reported. During
the year ended December 31, 1997, the Company adopted this standard.

Loss per share information in accordance with SFAS 128 is as follows:

Year Ended December 31, 1997
-----------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------

Net loss $ (33,984)
Less preferred stock
dividends -
----------------
Basic EPS
Loss available to
common stockholders (33,984) 6,295,000 $ (.01)
==============
Effect of Dilutive Securities
Stock options - -
---------------------------------
Diluted EPS
Loss available to common
stockholders plus assumed
conversions $ (33,984) 6,295,000 $ (.01)
===============================================

--------------------------------------------------------------------------------

F-9

10KSB Last Page of 33 TOC 1st Previous Next Bottom Just 33rd

HORN SILVER MINES, INC.
Notes to Financial Statements
Continued

--------------------------------------------------------------------------------

6. Loss Per Share Continued

Year Ended December 31, 1996
-----------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
-----------------------------------------------

Net loss $ (41,184)
Less preferred stock
dividends -
----------------
Basic EPS
Loss available to
common stockholders (41,184) 5,976,000 $ (.01)
==============
Effect of Dilutive Securities
Stock options - -
---------------------------------
Diluted EPS
Loss available to common
stockholders plus assumed
conversions $ (41,184) 5,976,000 $ (.01)
===============================================

7. Commitments
The Company has entered into various cancelable mining leases and royalty
agreements as a lessee and lessor. Future minimum lease and royalty payments
received and paid under the Company's current agreements are minimal. In
addition to the lease payments required above, certain leases also require
minimum payments of approximately $100 per claim. Certain leases also have
provisions allowing the Company to purchase all rights to the properties thereby
reducing future commitments for royalty payments. The leases are cancelable at
the Company's option at any time which would terminate any further lease
payments or work commitments. The lease agreements also provide that the lease
will remain in effect as long as exploration or development is being conducted
with reasonable diligence or production continues in commercial quantities.

--------------------------------------------------------------------------------

F-10

10KSB	1st Page of 33	TOC	Top	Previous	Next	Bottom	Just 1st

10KSB	2nd Page of 33	TOC	1st	Previous	Next	Bottom	Just 2nd

10KSB	3rd Page of 33	TOC	1st	Previous	Next	Bottom	Just 3rd

10KSB	4th Page of 33	TOC	1st	Previous	Next	Bottom	Just 4th

10KSB	5th Page of 33	TOC	1st	Previous	Next	Bottom	Just 5th

10KSB	6th Page of 33	TOC	1st	Previous	Next	Bottom	Just 6th

10KSB	7th Page of 33	TOC	1st	Previous	Next	Bottom	Just 7th

10KSB	8th Page of 33	TOC	1st	Previous	Next	Bottom	Just 8th

10KSB	9th Page of 33	TOC	1st	Previous	Next	Bottom	Just 9th

10KSB	10th Page of 33	TOC	1st	Previous	Next	Bottom	Just 10th

10KSB	11th Page of 33	TOC	1st	Previous	Next	Bottom	Just 11th

10KSB	12th Page of 33	TOC	1st	Previous	Next	Bottom	Just 12th

10KSB	13th Page of 33	TOC	1st	Previous	Next	Bottom	Just 13th

10KSB	14th Page of 33	TOC	1st	Previous	Next	Bottom	Just 14th

10KSB	15th Page of 33	TOC	1st	Previous	Next	Bottom	Just 15th

10KSB	16th Page of 33	TOC	1st	Previous	Next	Bottom	Just 16th

10KSB	17th Page of 33	TOC	1st	Previous	Next	Bottom	Just 17th

10KSB	18th Page of 33	TOC	1st	Previous	Next	Bottom	Just 18th

10KSB	19th Page of 33	TOC	1st	Previous	Next	Bottom	Just 19th

10KSB	20th Page of 33	TOC	1st	Previous	Next	Bottom	Just 20th

10KSB	21st Page of 33	TOC	1st	Previous	Next	Bottom	Just 21st

10KSB	22nd Page of 33	TOC	1st	Previous	Next	Bottom	Just 22nd

10KSB	23rd Page of 33	TOC	1st	Previous	Next	Bottom	Just 23rd

10KSB	24th Page of 33	TOC	1st	Previous	Next	Bottom	Just 24th

10KSB	25th Page of 33	TOC	1st	Previous	Next	Bottom	Just 25th

10KSB	26th Page of 33	TOC	1st	Previous	Next	Bottom	Just 26th

10KSB	27th Page of 33	TOC	1st	Previous	Next	Bottom	Just 27th

10KSB	28th Page of 33	TOC	1st	Previous	Next	Bottom	Just 28th

10KSB	29th Page of 33	TOC	1st	Previous	Next	Bottom	Just 29th

10KSB	30th Page of 33	TOC	1st	Previous	Next	Bottom	Just 30th

10KSB	31st Page of 33	TOC	1st	Previous	Next	Bottom	Just 31st

10KSB	32nd Page of 33	TOC	1st	Previous	Next	Bottom	Just 32nd

10KSB	Last Page of 33	TOC	1st	Previous	Next	Bottom	Just 33rd

Dates Referenced Herein and Documents Incorporated By Reference

		Referenced-On Page
This 10KSB Filing	Date	First	Last	Other Filings

	9/1/92	3
	4/28/94	4
	11/24/95	20
	12/31/95	16		10-K, 10KSB/A, PRE 14A
	1/1/96	20	29
	10/8/96	4	5
	12/31/96	14	33	10KSB
	1/1/97	14
	2/7/97	20		PRER14A
	3/28/97	4	19
	3/31/97	1		10QSB
	4/4/97	18
	4/30/97	15
	9/1/97	4	6
	12/15/97	32
For The Period Ended	12/31/97	1	32	NT 10-K
	3/16/98	24
	3/31/98	1	19	10QSB, NT 10-K
	4/7/98	5
	4/13/98	22
Filed On / Filed As Of	4/14/98
	4/7/2	6

Top				List All Filings

Filing Submission - Alternative Formats (Word / Rich Text, HTML, Plain Text, SGML, XML, et al.)

			in		Show		and
Help...	Wildcards: ? (any letter), * (many). *Logic:* for Docs: & (and), \| (or); for Text: \| (anywhere), "(&)" (near).

Horn Silver Mines Inc · 10KSB · For 12/31/97

Filed On 4/14/98 · SEC File 1-08757 · Accession Number 96313-98-53

Annual Report -- Small Business · Form 10-KSBFiling Table of Contents

10KSB · Annual Report -- Small BusinessDocument Table of Contents

Dates Referenced Herein and Documents Incorporated By Reference

Annual Report -- Small Business · Form 10-KSB
Filing Table of Contents

10KSB · Annual Report -- Small Business
Document Table of Contents