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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 – Q
for the quarterly period ended March 31, 2012
FOR THE TRANSITION PERIOD FROM _______ TO _______.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 o
Indicate by check mark whether the registrant has submitted electronically or posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Paragraph 232.405 of this chapter) during the preceding 12 months ( or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of " large accelerated filer", "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
SEALE AND BEERS, CPAs
PCAOB & CPAB REGISTERED AUDITORS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
International Silver, Inc.
(A Development Stage Company)
We have reviewed the accompanying condensed consolidated balance sheet of International Silver, Inc. as of March 31, 2012, and the related condensed consolidated statements of operations for the three-month period(s) ended March 31, 2012 and for the period from inception on June 16, 2006 through March 31, 2012, and condensed consolidated statements of cash flows for the three-month periods then ended and for the period from inception on June 16, 2006 through March 31, 2012. These interim financial statements are the responsibility of the Corporation's management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for the financials and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company has no revenues, has negative working capital at March 31, 2012, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated d ficit which raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note A. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Seale and Beers, CPAs
Las Vegas, Nevada
June 12, 2012
50S. Jones Blvd Suite 202 Las Vegas. NV 89107 Phone: (888)727-8251 Fax: (888)782-2351
International Silver, Inc.
(An Exploration Stage Company)
Condensed Consolidated Financial Statements
For The Three Months Ended March 31, 2012
For the Year Ended December 31,2011
See accompanying notes to the condensed consolidated financial statements
See accompanying notes to the condensed consolidated financial statements
See accompanying notes to the condensed consolidated financial statements
See accompanying notes to the condensed consolidated financial statements
International Silver, Inc.
(An Exploration Stage Company)
Notes to Unaudited Interim Condensed Consolidated Financial Statements
Note A - Organization and Business
International Silver, Inc. is an exploration stage company, as set forth in FASB ASC 915 – Development Stage Entities and “Industry Guide 7” of the Securities and Exchange Commission’s Guides for the Preparation of Registration Statements and with the Society for Mining, Metallurgy and Exploration’s “Guide for Reporting Exploration Information, Mineral Resources, and Mineral Reserves” dated March 1, 1999. The Company’s strategy consists of acquiring and exploring high-grade silver properties throughout North and South America.
The Company was incorporated in the State of Arizona, as ARX Engineering, Inc., on September 4, 1992 and then subsequently changed their corporate company name to Western States Engineering, Inc. On June 20, 2006, the Company changed its name to International Silver, Inc. in connection with its new business plan of acquisition of exploration properties, along with providing engineering services.
The business strategy consists of acquiring and exploring high-grade silver properties throughout North and South America. The Company will initiate an intensive reconnaissance and exploration program in the Pioche Mining District located in Nevada, in Silver Bow County, Montana and Calico Mining District in California to identify potentially high-grade silver targets and to evaluate other properties in each of the districts for possible acquisition. The Company will continue to seek and evaluate new opportunities for exploration and/or development properties.
Key Mineral Properties
Prince Mine Property, Lincoln County, Nevada
The Company has entered into a lease /purchase agreement to explore and acquire the historic Prince Mine in Lincoln County, Nevada, USA. The Prince Mine is a former producer of silver, gold, lead, zinc and manganese sulfide and oxide fluxing ore.
Caselton Tailings Project
The Company has entered into a joint venture operating agreement to evaluate, remediate, reclaim and develop the Caselton Tailings which are located in the Pioche Mining District in Lincoln County, Nevada.
New Butte Mining Properties, Silver Bow County, Montana
On December 1, 2011, the Company executed a mining lease agreement on a large block of private land with mineral rights in the Butte District of Montana. The lease provides full access for mining on the land for a term of fifty years and thereafter as long as minerals are produced. The New Butte Properties were historically owned and operated as silver-zinc and silver-copper mines by the Anaconda Company. The major formerly operating underground mines now held by the Company are known as the Alice, the Lexington, the Badger, the Diamond and the High One.
Calico Silver Project, San Bernardino County, California
The Calico Silver Project is located in the Calico silver mining district about 15 miles northeast of Barstow or 145 miles northeast of Los Angeles in the Mojave Desert of Southern California. The project is held for exploration with approximately 1300 acres of U.S federal lode mining claims owned in 100 percent interest by International Silver Inc.
It is the intention of the company to maintain the claims and to continue with exploration on this project.
Condensed Financial Statements
The accompanying interim consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position for the periods ended March 31, 2012 and December 31, 2011 and results of operations for the comparative periods for the three months ended March 31, 2012 and March 31, 2011 and including the comparative periods for the three months ended March 31, 2012 and March 31, 2011 have been made. Cash flows are presented for the comparative periods March 31, 2012 and March 31, 2011.
Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed interim financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2011 audited financial statements. The results of operations for the period ended March 31, 2012 are not necessarily indicative of the operating results for the full year.
The Company’s condensed financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. There is substantial doubt of the ability of the Company to continue as a going concern since it is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company include (1) a private placement, and (2) initiating a public offering.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other resources of financing and attain profitable operations. The accompanying condensed financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note B - Summary of Significant Accounting Policies
Principles of Consolidation
The financial statements include the accounts of International Silver, Inc. and its three wholly-owned subsidiaries, Butte Silver Mines, Inc., International Silver Nevada, Inc. and Western States Engineering, Inc. for the three months ended March 31, 2012 and March 31, 2011. The Company’s financial condition and results of operations are based on its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (GAAP).
Recent Accounting Pronouncements
Management has evaluated all of the recent accounting pronouncements issued since the audited financial statements and in managements’ opinion, the relevant pronouncements reviewed have no material effect on the Company’s financial statements.
Use of Estimates
Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant areas requiring the use of management estimates include the determination of mineral ore quantities; the depletion expense calculation, if applicable; useful lives of property and equipment for depreciation; impairment valuations and calculation of any deferred taxes. Actual results may differ from those estimates, and such differences may be material to the condensed financial statements.
In management’s opinion all adjustments necessary for a fair statement of the results for the interim periods have been made, and the adjustments are of a normal recurring nature.
Concentration of Credit Risk
Our cash equivalents and prepaid expenses (and trade receivables when recorded) are exposed to concentrations of credit risk. We manage and control risk by maintaining cash with major financial institutions. At March 31, 2012, the Company has a bank balance in excess of FDIC limits. Management believes that the financial institutions are financially sound and the risk of loss is low.
Concentrations and Economic Vulnerability
Concentrations and economic vulnerability include reliance on related parties. During the year 2011, 100% of the revenue was realized from a related party, which were minimal and no revenues were realized during the three months ended March 31, 2012.
During the first quarter, 2012, the Company negotiated additional financing ( refer to Note H – Convertible Note Payable) and as a result, the entirety of the Company’s tangible property, currently owned or acquired hereafter, is collateral for the ISLV Partners, LLC note.
Fair Value of Financial Instruments
Due to their short-term nature, the carrying value of our current financial assets and liabilities approximates their fair values. The fair value of our borrowings, if recalculated based on current interest rates, would not significantly differ from the recorded amounts.
Cash and Cash Equivalents
For the statement of cash flows, any liquid investments with a maturity of three months or less at the time of acquisition are considered to be cash equivalents.
Accounts receivable are stated, net of an allowance for uncollectible accounts. At March 31, 2012 and at December 31, 2011, there were no trade receivables. Related party receivables were $63 and $299, respectively. No allowance for uncollectible accounts was established, as management deemed the accounts as fully-collectible.
Investments in marketable securities are classified under one of three methods:
The accounting treatment accorded any investment will depend on whether the presence of ‘significant influence” over an investee exists. If the investor owns at least 20% of its common stock, then significant influence is assumed. If there is less than 20% ownership or if there is no significant influence over an investee, the investment is valued at the Fair Value Method, otherwise the Equity Method is utilized. At March 31, 2012 and December 31, 2011, the Company held securities in Continental Mining & Smelting which are considered “available for sale”, were reported under the Equity Method. At March 31, 2012 and December 31, 2011, the value of the Company’s investments in Continental Mining & Smelting Limited was considered impaired. See Note F.
Costs associated with the acquisition of mineral interests, in the exploration stage, are “expensed”. Mineral exploration costs are also “expensed” as incurred. Mine infrastructure development costs incurred prior to establishing proven and probable reserves are expensed. When it otherwise becomes probable that infrastructure costs will not be recoverable, they are impaired. When it has been determined that a mineral property can be economically developed, the costs incurred to develop such property, including costs to further delineate the ore body and remove overburden to initially expose the ore body, are capitalized as incurred. These costs will then be amortized using the units-of-production method over the estimated life of the ore body based on estimated recoverable ounces of proven and probable reserves.
To the extent that any development costs benefit an entire mineralized property, they are amortized over the estimated life of the property. The specific capitalized cost bases subject to depletion are calculated on a formula based on the number of tons of ore that are expected to be mined divided by the total tons in proven and probable reserves in the property. To date, no development has occurred, nor has depletion has been taken, since production has not commenced.
Mineral Interests and Property
Mineral interests include the costs of acquired mineral rights and royalty interests in production, development and exploration stage properties.
Production stage mineral interests represent interests in operating properties that contain proven and probable reserves. Development stage mineral interests represent interests in properties under development that contain proven and probable reserves. Exploration stage mineral interests represent interests in properties that are believed to potentially contain mineralized material.
Mineral interests related to mining properties in the production stage are amortized over the life of the related property using the Units of Production method in order to match the amortization with the expected underlying future cash flows. Development stage mineral interests are not amortized until such time as the underlying property is converted to the production stage. At March 31, 2012, and December 31, 2011, all mineral interests were in the exploration stage.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, except for those fixed assets acquired and accounted for under the “Asset Acquisition Method” utilizing fair value measurements. Maintenance and repair are charged to expense as incurred, renewals and improvements that extend the useful lives of assets are capitalized. Depreciation on property and equipment is computed using the straight-line method over the assets’ estimated useful lives as follows:
Development stage mineral interests are not amortized until such time as the underlying property is converted to the production stage. As of March 31, 2012, there was $39 in depreciation and no amortization has taken place on any of the mineral interests, as the assets are in the exploration stage.
Impairment of Long-Lived Assets
The company adheres to ASC 360-10-20 and 360-10-35, "Accounting for the Impairment and Disposal of Long-Lived Assets," which requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows are less than the carrying amount of the asset and would be calculated based on discounted cash flows.
Assets impaired to-date are comprised of 6,000,000 shares of common stock held in Continental Mining and Smelting, Limited ( a Canadian company). For the three months ended March 31, 2012, there was no impairment on any of the Company’s long-lived assets.
Revenue Recognition and Production Costs
The Company recognizes revenue when sales contracts or consulting contracts have been properly executed, delivery of product has occurred or services have been rendered, the contract price is readily determinable and collectability is reasonably assured.
Reclamation and Remediation Costs (Asset Retirement Obligations)
The Company has adopted ASC 410-20 - Asset Retirement Obligation which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. As of March 31, 2012, the Company did not have any environmental or reclamation obligations.
Earnings (Loss) Per Share
Basic income (loss) per share is computed by dividing income (loss) attributable to the common shareholders by the weighted-average number of common shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, unless the effect is to reduce a loss or increase earnings per share. On November 1, 2010, the Company adopted and granted stock options to its directors, employees and key consultants. Additionally, a private placement transacted in 2011 and a convertible note transacted during the first quarter of 2012, that involve options and warrants, have a dilutive effect and is disclosed in earnings per share on the Statement of Income for the three months ended March 31, 2012. As of March 31, 2012 and December 31, 2011, no options or warrants had been exercised.
The Company accounts for income taxes under ASC 740-10-30 - Accounting for Income Taxes. ASC 740-10-30 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, ASC 740-10-35 generally considers all expected future events other than enactments of changes in the tax law or rates. Income tax information is disclosed in Note I – Income Taxes of the condensed consolidated financial statements.
Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax assets are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC 220-10-55-2 - Comprehensive Income, requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. On March 31, 2012 and March 31, 2011, the Company did not have any material items of comprehensive income.
The Company revalues derivative liabilities as of each balance sheet date, and otherwise complies with the provisions of ASC 815-10. There are no derivative liabilities at December 31, 2011 or March 31, 2012.
In December 2004, the Financial Accounting Standards Board, issued ASC 718 - Share-Based Payment, requires “public” companies to recognize the cost of employee services received in exchange for equity instruments, based on the grant-date fair value of those instruments, with limited exceptions. ASC 718 also affects the pattern in which compensation cost is recognized, the accounting for employee share purchase plans, and the accounting for income tax effects of share-based payment transactions. The Company adopted a stock option plan on November 1, 2010, which is accounted for pursuant to ASC 718.
Note C – Prepaid Expense
At March 31, 2012, prepaid expenses included a prepayment on a mineral lease, which are treated as operating lease, pursuant to FASB ASC 840-20. Disclosure of lease terms is explained in Note D – Mining Properties. At March 31, 2012 and December 31, 2011, prepaid expenses were comprised of the following:
Note D – Mining Properties
Magna Charta Mining Claim
On March 1, 2012, the Company acquired title to a fee simple estate or interest in the Magna Charta Lode Mining claim for $47,500. The mining claim comprised of 18 acres, with a patented mining claim, including surface rights is located in the County of Silver Bow in the State of Montana.
Prince Mine Lease
On November 6, 2010, the Company entered into a lease /purchase agreement to explore and acquire the historic Prince Mine in Lincoln County, Nevada, USA. The Prince Mine is a former producer of silver, gold, lead, zinc and manganese sulfide and oxide fluxing ore.
The five-year lease requires annual lease payments of $50,000 payable annually on each anniversary date from the date of the lease agreement. Pursuant to FASB ASC 840 – 20 Operating Leases, the lease meets the criteria to be treated as an operating lease. Future minimum lease payments are as follows:
Lease expense on the Prince Mine for the three months ended March 31, 2012 was $12,466.
Should the Company exercise the purchase option, the total purchase price shall be $2,750,000, less any amounts paid as advance/lease payments. The initial payment is due within 30 days of the option exercise. Installment payments are as follows:
Prepayment of all or any portion thereof, are not subject to penalty.
New Butte Lease
On December 1, 2011, the Company entered into a mineral lease agreement with FL Leasing, LLC (“lessor”), now New Butte Leasing, LLC, to examine the mineral potential of the Silver Bow/Butte Area located in Silver Bow County, Montana.
The term of the agreement is for fifty (50) years and for so long as Product is produced, or until sooner terminated, extended or canceled. The lease requires annual lease payments commencing January 15, 2012 and on each anniversary date thereafter. The initial annual lease payment is $15,000 and $15,000 each year thereafter for the years 2013-2015. Annual lease payments for years 2016 – 2020 are $20,000; thereafter annual lease payments are variable and increase progressively. The lease payment due January 15, 2012 was timely paid. Pursuant to FASB ASC 840 – 20 Operating Leases, the lease meets the criteria to be treated as an operating lease. Future minimum lease payments, based on an amended agreement executed on May 22, 2012, are as follows:
Additionally, the Company agrees to pay “lessor” a Net Smelter Returns Royalty of three percent (3%) on production of gold, silver and various other metal.
Calico Silver Project
The Calico Silver Project consists of 60 unpatented mining claims, which were acquired through staking and filing Notices of Location with the Bureau of Land Management. The Company pays annual maintenance fees to the Bureau of Land Management (BLM) on its 60 unpatented lode mining claims, located in San Bernadino County, California. The Company expenses these maintenance fees in the year paid.
Note E – Property, Plant and Equipment
Property, plant and equipment is comprised of the following:
On January 30, 2012, the Company purchased land located in Butte, Montana known as “Magna Charta”, which it intends to explore for mineral content. The contract sales price was $47,500.
Depreciation expense of $39 was recorded on computer equipment for the three months ended March 31, 2012 and $72 for the twelve months ended December 31, 2011.
Note F – Investments
On November 30, 2010, the Company exchanged a 70% interest in the Estrades Mining Lease #795 (Quebec) and associated equipment in consideration for 6,000,000 shares of common stock from Continental Mining and Smelting Limited (“Continental”) , a Canadian company. At December 31, 2011, the Company owned a 16.7 % interest in Continental, whose outstanding shares were 36,028,001.
At date of acquisition, the Company made the determination that the “Equity Method” of accounting was warranted in that the Company was deemed to exercise significant influence and control over Continental’s policies and operations, although the percentage was below the 20% threshold pursuant to FASB ASC 323-10-15-6 – Significant Influence. The Company has one director and an officer who represent Continental as directors.
The company’s policy regarding the Equity Method pursuant to FASB ASC 323-10 – Investments – Equity Method and Joint Ventures will be to record the initial investment, at cost, and then recognize the increase or reduction in its investment based on its proportional share of Continental’s income, losses and dividends, as the case may be, at the end of each reporting period. At the date of acquisition and at December 31, 2011 and March 31, 2012, there is no measurable value in the common stock of Continental Mining and Smelting Limited. The company has been trying to obtain financing in order to enter the development stage of their mining operations, but have not been succeedful thus far.
At December 31, 2011, the Company’s share of losses for the year then ended were $116,055. For the three months ended March 31, 2012, the Company’s proportional share of Continental’s losses were $14,983 and for cumulative losses, inception to–date of $158,083. These losses are held “in suspension” until such time that a measurable valuation of Continental’s common stock is ascertained, pursuant to ASC 323-10-35-20.
At March 31,2012, the Company held the following securities:
Other Assets –Long-Term
As of March 31, 2012, the Company had reimbursed Aurum, LLC $10,000 as a deposit towards an investment in a joint venture with Aurum, LLC. These costs, upon formation of the joint venture will be considered as part of International Silver Nevada, Inc.’s capital contribution. The Company is obligated to make an initial cash capital contribution of $50,000 and sequential funding of an additional $50,000 to $100,00 to be used to complete a Phase 1 site investigation. Refer to Note N – Subsequent Events.
Note G – Note Payable
On April 21, 2011 the Company issued a promissory note in the amount of $100,000 to the Atkinson Trust, payable in ten equal monthly installments of $10,000, interest only. The note was issued as a condition of purchasing the assets of Pan American Zinc Company, with close of escrow to occur on February 23, 2012. At December 31, 2011, the Company recinded the contemplated purchase and relinquished its rights to the property. The seller agreed to take back the property in exchange for forgiving all related liability created in the sale except for $27,337, the net present value of the remaining note balance at December 31, 2011. At March 31, 2012, the Company owed $30,000 plus accrued interest of $1,182.
On January 9, 2012 and January 31, 2012, the Company issued cognovit promissory notes in the amount of $90,300 and $81,000, respectively to Empire Advisors, LLC. The full principal amount of the notes and accrued interest, at eight (8%) percent simple interest, were due February 9, 2012 and February 29, 2012, respectively. At March 31, 2012, these notes, plus accrued interest had been paid.
Notes payable as of March 31, 2012 and December 31, 2011, respectively, are shown below:
Note H – Convertible Note Payable
Convertible Note Purchase Agreement – Initial Financing
On February 6, 2012, the Company entered into a Convertible Note Purchase Agreement with ISLV Partners, LLC (the Lenders) to provide funding in the amount of $600,000 for working capital and other corporate purposes. The general terms and conditions of the loan provided that the “lenders” retain out of the funding, the sum of the $90,300 and $80,000, to satisfy full repayment of the cognovit promissory notes (see Note G) which were assigned to the lender, including all unpaid accrued interest to the Closing Date. The initial Note in the principal amount of $600,000 is secured by the mortgages, deeds of trust, fixture filings, security agreements and assignment of leases and rents, and such security agreements executed and delivered on the closing date, pursuant to which certain real properties owned by the Company and /or any subsidiary, as more particularly specified in such mortgages, deeds of trust, assignment of leases and rents are pledged as collateral security for the obligations (Initial Mortgages). The principal and unpaid interest, at a per annum interest rate of eight (8%) percent, is due on or before July 27, 2013.
The lender was given the right, at its option, to make an additional loan to the Company in the principal amount of $4,000,000. On May 17, 2012, the $4,000,000 was amended to $2,000,000. On May 17, 2012 and May 25, 2012, loans in the amount of $130,000 and $1,870,000, respectively, were made (refer to Note N – Subsequent Events).
The “Lender” may, at its option, upon written notice to the Company, convert all or any portion of the unpaid principal balance of the note and/or unpaid accrued interest into shares of common stock of the Company, at a price of $0.20 per share of common stock. If converted, the total market value of the shares would be $600,000. At March 31, 2012, no conversion had occurred.
Upon execution of the Convertible Note Purchase Agreement, dated February 6, 2012, the Company issued 3,000,000 warrants to purchase additional shares of common stock of the Company, at an exercise price of $0.40 per share. The number of such warrants issued equals the number of shares into which the applicable Lender’s note is convertible.
The Notes shall be secured by a first priority security interest in all tangible property of the Company, whether now owned or hereafter acquired, and all proceeds thereof.
Upon demand by the Lenders, the Company will file a registration statement on Form S-1 covering all shares issued or issuable upon conversion of the Notes and exercise of the Warrants. The Lenders will have customary piggy-back registration rights.
Lender’s Option on Certain Projects
If additional financing is completed, Lenders or their designees have a three-year (3) option to acquire a 20% interest in each of the Company’s Projects located in the Pioche Mining District in Nevada at a price equal to approximately the fair market value for each respective Project.
Convertible note payable as of March 31, 2012 and December 31, 2011, respectively, are shown below:
Outstanding convertible instrument
An optional conversion feature was included in the Convertible Term Note, dated February 6, 2012. The terms of the optional conversion grants the “Lender” the option to convert all or any portion of the unpaid principal balance of the note and/or unpaid accrued interest into shares of common stock of the Company, at a price of $0.20 per share of common stock. At March 31, 2012, the convertible note instrument had no beneficial conversion feature, thus a discount on the note was not recognized.
In addition to the conversion feature, on the Convertible Term Note, dated February 6, 2012, the Company issued 3,000,000 warrants to purchase additional shares of common stock of the Company, at an exercise price of $0.40 per share. The number of such warrants issued equals the number of shares into which the applicable Lender’s note is convertible. The beneficial conversion option was derived as follows:
Note I - Income Taxes
The Company has reported (for income tax purposes) net operating losses for 2011, 2010 and prior years as follows:
Pursuant to the provisions of the Internal Revenue Code, the Company has elected to forego the carry-back provisions, allowable under the IRS regulations, for the stated accounting periods.
At March 31, 2012, the Company recorded a deferred tax benefit of $749,812 but due to a going-concern issue, management made an allowance for a provision of an equal amount, should the Company not be able to avail itself of that tax benefit. Deferred tax asset is based on prevailing IRS graduated tax tables which average 33% at March 31, 2012 and December 31, 2011.
Net deferred tax assets consist of the following components:
At December 31, 2011, The Company had a net operating loss carry-forward of $1,767,216 for federal income tax purposes that may be offset against future taxable income from years 2012 through 2030. Our deferred tax benefit is adjusted for interim results, but we simultaneously adjust the allowance for a net zero effect.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.
Note J – Shareholders’ Equity
The Company was incorporated on September 4, 1992 with the initial issuance of 1,000 shares of common stock at a par value of $1.00 per share. On June, 2006 the Board of Directors adopted a new business strategy to change its emphasis from providing engineering services to conducting mine exploration and development. As a result, the Board of Directors amended its Articles of Incorporation to authorize 500,000,000 shares of common stock, at a par value of $0.0001 to allow for equity financing. Additionally, the Board of Directors passed a resolution, dated June 16, 2006, to effectuate a stock split of 12,000 to 1, for all represented shares. On July 24, 2006, the three shareholders of record were given their new share distribution of 4,000,000 shares each.
On September 13, 2006, the Company issued 1,000,000 shares of common stock at $0.075 per share in exchange for legal services.
On September 19, 2006, the Company issued 30,000 shares of common stock at $1.00 per share for land.
On October 21, 2006, the Company issued 300,000 shares of common stock at $.185 per share in exchange for a 98% interest in the holdings of Metales Preciosos Atlas, S.A. de C.V., a Mexican subsidiary.
On October 21, 2006, the Company issued 100,000 shares of common stock at $.050 per share in exchange for Directors fees.
During 2007, the Company conducted a private placement and issued an additional 260,000 shares of common stock for cash as follows:
On May, 2007, the Company issued 7,000 shares of common stock at $0.500 per share for $3,500.
On June, 2007, the Company issued 3,000 shares of common stock at $0.500 per share for $1,500.
On October, 2007, the Company issued 4,000 shares of common stock at $0.500 per share for $2,000.
On November, 2007, the Company issued 246,000 shares of common stock at $0.297 per share for $73,000.
On May 22, 2007, the Company issued 100,000 shares of common stock at $0.055 per share in exchange for transfer agent fees.
On June 30, 2007, the Company issued 336,186 shares of common stock at $0.500 per share in exchange for an outstanding debt owed a shareholder/officer, as explained in Note H.
On September 13, 2007, the Company issued 100,000 shares of common stock at $0.040 per share in exchange for Director fees.
On September 13, 2007, the Company issued 150,000 shares of common stock at $0.040 per share in exchange for engineering consulting services.
On September 21, 2007, the Company issued 150,000 shares of common stock at $0.040 per share in exchange for consulting services.
On June 12, 2008, the Company issued 150,000 shares of common stock at $0.133 per share in exchange for legal services.
On September 8, 2008, the Company issued 335,567 shares of common stock at $0.289 per share in exchange for an outstanding debt owed to a shareholder/officer.
On November 10, 2008, the Company repurchased 30,000 of its own shares in common stock upon relinquishing its holdings in the Tecoma Mining District. These shares are being held in Treasury as of December 31, 2009, valued at $1.00 per share, their original issue price.
On September 23, 2009, the Board of Directors passed a resolution for the issuance of 3,550,000 shares of common stock at $0.010 to its directors, officers and certain consultants for services rendered. The share certificates were effective October 6, 2009, but are “restricted” pursuant to Rule 144 of the Securities Act of 1934.
On March 1, 2010, the Company purchased its 70% interest in the Estrades Mine in exchange for 6,000,000 shares of its common stock, at a share price of $0.0025 per share.
On August 18, 2010, the Company issued 2,000,000 shares of common stock at $0.025 per share in exchange for an outstanding debt of $50,000 owed to a shareholder/officer.
On August 24, 2010, the Company conducted a private placement and issued an additional 2,000,000 shares of common stock at $0.02 per share for $40,000.
On December 31, 2010, the Company issued 50,000 shares of common stock in exchange for a convertible note to Tintic Standard Gold, Inc. for $75,000.
On April 25, 2011, the Company issued 499,077 shares of its common stock upon the conversion of the Tintic Standard Gold Mines, Inc. bridge loan convertible note in full satisfaction of the principal and interest up to the conversion date. This included the additional 25,000 shares for the note extension made on March 21, 2011.
During the second quarter, 2011, the Company issued 7,699,998 shares of its common stock for $1,155,000 from May 18, 2011 through June 23, 2011 on a private placement. The sale of unregistered securities were to third party individuals and companies not related to International Silver, Inc.
There were no stock issuances during the quarter ended March 31, 2012.
At December 31, 2011, the Company had authorized 500,000,000 shares of common stock, 36,780,828 shares had been issued and are outstanding.
Stock Option Plan
At November 1, 2010, the Board of Directors (“Board”) of the Company authorized the approval of a stock option plan (the “Plan”). The plan allows the Board of Directors, or a committee thereof at the Board’s discretion, to grant stock options to officers, directors, key employees and consultants of the company and its affiliates. The Board authorized the Corporation to issue up to 20% of the total number of outstanding shares of the Company’s common stock as Stock Options. Because no vesting is required, the cost of compensation was recognized entirely during the quarter the options were issued.
Options outstanding as of March 31, 2012 are as follows:
During the years ended December 31, 2011, and December 31, 2012, the board of directors approved the issuance of warrants to purchase an aggregate of 12,238,998 shares of the Company's common stock, resulting from a private placement for $2,000,000 in financing in year 2011 and on a convertible note issued for $600,000 in year 2012. Such warrants are exercisable at prices ranging from $0.20 to $0.40 per share, vesting over a period of 36 months, and expire at various times through February, 2015.
During the quarter ended June 30, 2011, as a component of the 8,237,998 “units” the Company sold in private placements, the Company issued 8,237,998 Class A common stock warrants, each granting the holder the right to purchase one share of common stock at an exercise price of $0.20 per share. Each warrant expires in three years. At March 31, 2012, none had yet been exercised.
On February 6, 2012, the Company negotiated a convertible note agreement, whereby the lender was issued 3,000,000 warrants, with an expiry date of February 6, 2015, exercisable at $0.40 per share for a number of shares equal to the number of shares into which the initial note is convertible (Refer to Note H - Convertible Note Payable). At March 31, 2012, none had yet been exercised.
No warrants have been exercised as of December 31, 2012
Note K - Related Party Transactions
Amounts due from and to related parties, are receivable from or payable to entities controlled by the shareholders, officers, or directors of the Company (“Related Entities”). The underlying transactions are with these related parties. These amounts are unsecured and not subject to specific terms of repayment.
Related party transactions have occurred with the following related party entities:
The Company rents (subleases) its administrative offices in Tucson, Arizona from Atlas Precious Metals Inc., an affiliate. Effective April 1, 2011, the Company entered into a revised lease agreement for additional office space for a short-term period effective through September 30, 2011, with total rents due in the amount of $51,000, payable $8,500 per month. This rental agreement with Atlas Precious Metals, Inc. was renewed for an additional one-year period, effective October 1, 2011 with a monthly rental of $9,500 or $114,000 annually. Rental expense for the administrative offices for the year ended December 31, 2011 was $81,000 and for the three months ended March 31, 2012, rental expense was $28,500. At March 31, 2012, all rents are current and there was $9,500 in prepaid rent from a related party.
Arimetco International, Inc. utilizes periodic courier services paid by International Silver, Inc. and reimburses the Company.
Harold R. Shipes, Chief Executive Officer and Chairman of the Board of Directors of International Silver, Inc. does extensive travel related to International Silver, Inc. holdings, reimburseable by the Company. At December, 31, 2011 and March 31, 2012, Mr. Shipes was owed $15,443 and $25,132, respectively.
Note L – Exploration Costs
Acquired mineral interests are presented as “exploration costs” as required by “Industry Guide 7” of the Securities and Exchange Commission’s Guides for the Preparation of Registration Statements and with the Society for Mining, Metallurgy and Exploration’s “Guide for Reporting Exploration Information, Mineral Resources, and Mineral Reserves”. Exploration costs incurred since inception through March 31, 2012 are $385,221. Exploration costs incurred for the three months ended March 31, 2012 were $18,464.
Note M – Reclassification
Subsequent to filing the annual 10-K report for the year ended December 31, 2011, a reclassification of $10,000 was made from Accounts Payable –Trade to Note Payable to reflect the proper nature of the liability on the Balance Sheet as of December 31, 2011.
Note N – Subsequent Events
Management has reviewed all subsequent events through the issuance date of the condensed financial statements and discloses the following material events that have transpired subsequent to March 31, 2012 up through the issuance date:
On May 17, 2012, the Company executed the “First Amendment of the Convertible Note Purchase Agreement” with ISLV Partners, LLC (the Lenders), whereby the original agreement dated February 6, 2012 was amended as to the following contractual terms:
The “Standstill Date” was amended from March 15, 2012 to November 15, 2012 and the amount of additional financing was amended from $4,000,000 to $2,000,000, with an option (“Financing Option”), on the part of the Lenders, for up to $2,000,000 on or before November 25, 2012.
On May 17, 2012, the Company executed a convertible term note for $130,000. Terms are identical to terms on the “original convertible note agreement issued on February 6, 2012 (Refer to Note H).
On May 25, 2012, the Company executed a convertible term note for $1,870,000. Payment terms are identical to terms on the “original convertible note agreement issued on February 6, 2012. (Refer to Note H).
On March 27, 2012, the Company, executed a contract with Aurum, LLC (“Aurum”), a Colorado limited liability company, to form a joint venture with International Silver, Inc. (“ISLV”) for the purpose of conducting the evaluation, remediation, reclamation and processing of the Caselton Tailings owned by “Aurum”. Pursuant to the agreement, “Aurum” and “ISLV” will each have a 50% interest. As consideration, “ISLV will undertake to arrange all capital funding required and provide custom processing availability for the tailings material owned by “Aurum”.
The Company is obligated to make an initial cash capital contribution of $50,000 and sequential funding of an additional $50,000 to $100,00 to be used to complete a Phase 1 site investigation.
ITEM 2 – MANAGEMENT DISCUSSION’S AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
Management Discussion and Analysis Section
This Management’s Discussion and Analysis should be read in conjunction with our financial statements and its related notes. The terms “we,” “our” or “us” refer to International Silver, Inc. This discussion contains forward-looking statements based on our current expectations, assumptions, and estimates. The words or phrases “believe,” “expect,” “may,” “anticipates,” or similar expressions are intended to identify “forward-looking statements.” The results shown herein are not necessarily indicative of the results to be expected in any future periods. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties pertaining to our business, included the risk factors contained herein.
We are an exploration stage company that engages in minerals exploration activities in the United States and Mexico involving silver, gold, zinc, copper and other minerals. To-date, we have not generated any revenues from any of these activities since approximately June, 2006, when we switched our emphasis in our business plan and commenced our mineral exploration business. To date, our exploration activities have been limited to the exploration and purchasing of mineral interests in the United States and Mexico.
Results of Operations
Operating Performance for the three months ended March 31, 2012 (the “March 2012 Quarter”) as compared to the three months ended March 31, 2011 (the “March 2011 Quarter”)
For the March 2012 Quarter, we recorded a net loss of $435,970, as compared to a net loss of $173,546 for the March, 2011 Quarter or an increase in net loss of $262,424. General and administrative expenses increased substantially over the March, 2011 Quarter due to the acquisition of the Prince Mine and New Butte properties in Nevada and Montana, respectively, resulting in increased administrative costs, planning, consulting, exploratory and development work.
During the March 2012 Quarter and the March, 2011 Quarter, the Company did not realize any revenues.
Operating expenses reflected during the March 2012 Quarter were $375,434 an increase of $294,805 as compared to operating expenses of $80,629 for the March, 2011 Quarter. Most of the increase resulted from administrative expenses, salaries, consulting, lease expense as a result of the Company obtaining financing to commence plans for development work on the two properties located in the Pioche Mining District in Lincoln County, Nevada and the New Butte Mining District in Silver Bow County, Montana recently acquired and exploration work underway on other mining leased property.
Other Income/(Expense) during the March 2012 Quarter were $60.536, a net decrease of $32,381 during the March 2012 Quarter, as compared to the March, 2011 Quarter, was due to interest expense related to the notes issued for bridge financing by Tintic Standard Gold Mines settled during the March, 2011 Quarter.
Liquidity and Capital Resources
Our financial statements as presented in Item 1 of this report have been prepared in conformity with US GAAP, which contemplate our continuation as a going concern. However, the report of our independent registered public accounting firm on our financial statements, for the three months ended March 31, 2012, contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. The “going concern” qualification results from, among other things, our development-stage status, no revenue recognized since inception, other than for engineering services, and our net losses from inception as a development stage company, which total approximately $2,890,110 and the outstanding arrangements with related parties and uncertainty in raising additional capital. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary if we were unable to continue as a going concern.
Currently, we have funded our operations through private placements, short-term notes payable, and some on-going engineering consulting services. The capital required to execute our total business vision and objectives is significant. On February 6, 2012 and subsequently amended on May 17, 2012, the Company negotiated a Convertible Note Agreement for financing of up to $2.0 million, with the option of the lender to loan up to an additional $2.0 million. During 2012, we will continue our efforts to raise additional capital to fund the working capital requirements and exploration and development activities necessary to meet our business objectives.
Our global capital budget for the completion of acquisitions, exploration and development programs in the Pioche Mining District in Nevada and the New Butte Mining District in Montana is approximately $2.0 million.
We cannot meet these requirements from our present operations. We intend to seek to finance these activities through the sale of our equity securities. We cannot assure you that we will be able to raise sufficient funds, if any, through the sale of our equity securities, and our inability to raise these funds will impair our ability to develop our business. Further, any sale of equity securities is likely to result in significant dilution to our shareholders
Cash and Cash Flows
Cash on hand at March 31, 2012 was $179,055 as compared to $2,097 at March 31, 2011. The increase in cash of $176,958 at the end of the three months ended March 31, 2012 as compared to the three months ended March 31, 2011 was due to primarily from proceeds realized from interim financing of a convertible note of $600,000, net of higher cash operating expenditures incurred through March 31, 2011, than for the three months ended March 31, 2011..
Net cash flows from operating activities were ($365,358) for the three months ended March 31, 2012, compared to ($33,886) for the three months ended March 31, 2011, a net decrease in cash flows of $331,472 over the March 2011 Quarter. Negative cash flows from Operating Activities for the three months ended March 31, 2012 reflect higher exploration and general administrative expenses in the areas of consulting, rent, salaries and mineral leases due to procurement of financing and the commencement of planning for development work on the Prince and New Butte mine property recently acquired. During the three months ended March 31, 2011, there was relatively little to no activity other than minimal exploration.
During the three months ended March 31, 2012, the Company purchased mineralized property in Silver Bow County, Montana in the amount of $47,500 and incurred $10,000 in deferred costs related to the land holding costs. There were no other investment activities undertaken during the three months ended March 31, 2011.
Financing activities undertaken during the three months ended March 31, 2012 included interim or the initial financing in the amount of $600,000 through the issuance of a convertible note. Going forward, our business plan does not reflect, nor do we anticipate, any revenues during the remaining part of our exploration phase. We do not anticipate any other type of revenue until we confirm previously demonstrated mineralization, obtain operating permits, and construct mining and processing facilities.
Exploration Costs – Inception to Date
On June 16, 2006, our Board of Directors passed a resolution to change the nature of its operations from an engineering services company to an exploration company. Since converting our business plan to conducting exploration activities, we have purchased the following properties and engaged in the exploration activities and incurred the following exploration costs since inception:
These direct exploration costs account for approximately 13% of the total operating expenditures of $2,981,156, since our exploration activities commenced on June 16, 2006. General and administrative expenses, which include salaries, consulting, rent, mineral leases and travel, comprise the majority of the remaining of the operating expenditures for this time period.
Uncertainties and Trends
Our operations, potential funding, and potential revenues are dependent now, and in the future, upon the following factors:
Off-Balance Sheet Arrangements
We have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under whom we have:
We do not have any off-balance sheet arrangements or commitments that have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are material.
Changes in Accounting Policies
The significant accounting policies outlined within our Condensed Consolidated Financial Statements for the quarter ended March 31, 2012 have been applied consistently with the year ended December 31, 2011.
Recently Enacted Accounting Standards
Management has evaluated the recent accounting pronouncements issued since the audited financial statements and in management’s opinion, the relevant pronouncements reviewed have no material effect on the Company’s financial statements.
PLAN OF OPERATIONS
Our Plan of Operations has been organized for each of our properties and claims to account for the similarities and differences in the location, geology, the prospective metals that may be hosted by each property or claim, and the current stage of exploration of each property and claim; accordingly, we have several Plans of Operations to account for those similarities and differences among our various properties and claims. Our Plans of Operations represent our expected exploration activities and are for a period of twelve months. The total amount budgeted for exploration by International Silver Inc. in 2012 is $ 4,090,000.
We are continuing with the evaluation of mine plans, potential drill targets and resource potential of the Prince Mine. Drill testing of the projected extensions of the known silver mineralization should begin in the fall of 2012. On the Caselton Tailings remediation Project, we will conduct site characterization studies with geotechnical drilling in conjunction with metallurgical testing. The data generated from the program will be used to design a processing facility and to determine the feasibility of economic precious metals recovery. At the newly acquired Butte Silver Mines properties, we will be evaluating and compiling the voluminous historic exploration and mining data on the properties and will commence with preliminary mine development planning. We believe that we have adequate mineral resources defined on the Butte properties to merit initiation of this planning which will be concurrent with geologic mapping and sampling of mineralized structures and surveying of existing underground development. Based upon our analysis of the test results and studies, we will determine whether to proceed with development plans. We cannot determine, predict, or assure whether we will be able to proceed with advanced exploration and development activities regarding any of our properties or claims. Our exploration activities will be conducted under the overall direction of our registered Consulting Geologist using industry standard quality assurance and control procedures.
Properties - The Calico Silver Project in San Bernardino County, California, the Pioche Mining District properties in Lincoln County, Nevada and the Butte Silver Mines properties in Silver Bow County, Montana.
We will continue to hold the Calico Silver property and will focus our exploration efforts on the Pioche and Butte Mining Districts. We will use employees, consultants and existing infrastructure to conduct our activities in the Pioche Nevada and the Butte, Montana properties. Our exploration program is shown below:
Exploration at Butte Silver Mines
Exploration at Prince Mine:
Site Characterization and Planning at the Caselton Tailings:
Our ability to complete any of the activities described under “Plan of Operations” require significant funding. We presently have a commitment for portion of the funding, but we cannot assure you that we will be able to obtain full funding or that the terms on which additional funding may be available will be acceptable. To the extent that we are able to secure funding for a portion of our needs, we will have to allocate such funding among the projects, and we may not be able to complete components of these projects. If we are able to obtain only limited funding, it may result in significant dilution to our shareholders. Further, our use of proceeds may be determined by the investors based on their priorities, which may be different from our priorities.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our executive officer to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation and the requirements of the Exchange Act, our Chief Executive Officer and our Chief Financial Officer concluded that, as of March 31, 2011, our disclosure controls and procedures needed to be declared as ineffective. The small size of our company does not provide for the desired separation of control functions, and we do not have the required level of documentation of our monitoring and control procedures. The potential remedies for this situation are described below.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an evaluation of the effectiveness of our internal control over financial reporting and determined that our internal control over financial reporting was ineffective as of March 31, 2012 due to material weaknesses. A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board’s Audit Standard No. 5 as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting. Management’s assessment identified the following material weaknesses in internal control over financial reporting:
In light of the material weaknesses described above, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Subject to the Company’s financial resources management hopes to further mitigate the risk of the material weaknesses going forward by utilizing external financial consulting services, in a more effective manner, prior to the review by our principal independent accounting firm to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the Commission’s rule and forms.
Changes in internal controls
Our management, with the participation our Chief Executive Officer and Chief Financial Officer, performed an evaluation as to whether any change in our internal controls over financial reporting occurred during the financial quarter ending March 31, 2012. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that no change occurred in our internal controls over financial reporting during the financial quarter ending March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
We are not aware of any pending or threatened litigation against us or our directors in their capacity as such.
ITEM 1A - RISK FACTORS
In addition to the information contained in this report, you should carefully consider the risk factors disclosed in our Form 10-K, which could materially affect our business, financial condition or future results. Except as described elsewhere in this report, there have been no material changes from the risk factors previously disclosed in our Form 10-K.
Risks Related to our Business Activities.
Our financial condition raises substantial doubt about our ability to continue as a going concern.
As of March 31, 2012, we have an accumulated deficit of $3,066,144. We are an exploration stage enterprise and have generated nominal revenue during our exploration stage. Our auditor has issued a going concern opinion that there is substantial doubt whether we can continue as an ongoing business. If we fail to obtain approximately $4.1 million of financing, we will be unable to pursue our business plan and operations will have to be curtailed or terminated, in which case you will lose part or all of your investment in our common stock. Further, if we raise funds through the sale of our equity securities, our shareholders will suffer significant dilution.
Because we lack an operating history and have had virtually no operations, our internal controls and reporting systems may have material weaknesses which may result in material risks of which we are unaware remaining unreported or undisclosed.
Our operating history since the inception of our new business plan in 2006 has consisted of preliminary exploration activities and non-income-producing activities. In addition, our management has not devoted its full time to our business and operations. Accordingly, our internal institutional structures are weak, and we have limited internal controls and reporting systems. This means we may be unable to detect and report material risks and weaknesses in or to our business and operations. If a material adverse contingency that had remained undetected and undisclosed due to the weaknesses described above occurred, this lack of disclosure would limit your ability to plan for such an event and could have a material adverse effect on our business and results of operations and on your investment in us.
Because our properties or claims may never have reserves or be profitable, your investment in our common shares may be negatively impacted.
None of the properties or claims on which we have the right to explore for silver and other precious metals is known to have any confirmed commercially mineable deposits of silver or other metals that may be mined at a profit. We may be unable to develop our properties at a profit, either because, 1) the deposits are not of the quality or size that enable us to make a profit from actual mining activities or 2) because it may not be economically feasible to extract metals from the deposits. In either case, you may lose part or all of you entire investment.
Because we are an exploration stage company, we have no mining operations, and our future operations are subject to substantial risks, we may never be successful in conducting any future mining operations .
We are not a mining company, but rather a beginning stage exploration stage. We will be unable to generate revenues or make profits, unless we actually mine deposits, if any actually exist.
We lack an operating history in our current business plan and we have losses, which make it difficult for you to evaluate whether we will be able to continue our operations or ever be profitable.
In June 2006, we began our current business plan of conducting exploration for silver and other minerals — our short operating history has consisted of preliminary exploration activities and non-income-producing activities. Accordingly, we have no adequate operating history for you to evaluate our future success or failure.
Our management has conflicts of interest that may favor the interests of our management, but to the detriment of our minority shareholders’ interests.
Our officers and directors also serve as officers and/or directors of other mining exploration companies and are related by family relations to one another. As a result, their personal interests and those of the companies that they are affiliated with may come into conflict with our interests and those of our minority stockholders. We as well as the other companies that our officers and directors are affiliated with may present our officers and directors with business opportunities that are simultaneously desired. Additionally, we may compete with these other companies for investment capital, technical resources, key personnel and other things. You should carefully consider these potential conflicts of interest before deciding whether to invest in our shares of our common stock. We have not yet adopted a policy for resolving such conflicts of interests. Because the interests of our officers and the companies that they are affiliated with may disfavor our own interests and those of our minority stockholders, you should carefully consider these conflicts of interest before purchasing shares of our common stock.
The services of our President and Chief Executive Officer, Executive Vice President/Chief Financial Officer, Consulting Geologist, and our Vice President of Administration and Logistics, are essential to the success of our business; the loss of any of these personnel will adversely affect our business.
Our business depends upon the continued involvement of our officers, directors, and consulting geologist, each of whom have mining experience from 10 to 36 years. The loss, individually or cumulatively, of these personnel would adversely affect our business, prospects, and our ability to successfully conduct our exploration activities. Before you decide whether to invest in our common stock, you should carefully consider that the loss of their expertise, may negatively impact your investment in our common stock.
We may be denied the government licenses and permits or otherwise fail to comply with federal and state requirements for our exploration activities.
Our future exploration activities will require licenses, permits, or compliance with other state and federal requirements regarding prospecting, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Delays or failures to acquire required licenses or permits or successfully comply with the pertinent federal and state regulations will negatively impact our operations.
We do not carry any property or casualty insurance and do not intend to carry such insurance in the near future which may expose us to liabilities that will negatively affect our financial condition.
The search for valuable minerals exposes us to numerous hazards. As a result, we may become subject to liability for such hazards, including environmental pollution, cave-ins, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods and earthquakes or other hazards that we cannot insure against or which we may elect not to insure. At the present time we have no coverage to insure against these hazards, should we incur liabilities involving these hazards that may have a material adverse effect on our financial condition.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We issued no shares of our common stock during the quarter ended March 31, 2012, or subsequently.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
ITEM 4 - REMOVED AND RESERVED
ITEM 5 - OTHER INFORMATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated.
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections