Item 1. Business
International Silver is referred to herein as “we”, “our” or “us”
Business
Glossary
Adits - An underground mine tunnel
Alluvial (valleys) - Material created by the erosion of rocks by water, air and climate conditions.
Arroyo - Spanish word that defines a creek.
Banded barite and jasper - Rock formed by the action of hot solutions containing dissolved silica, which forms layers composed of barium sulfate and silica.
Barite - Barium Sulfate.
Dolomite - Refers to limestone.
Flotation tests - The use of flotation for the separation of minerals by the mixing of reagents, air and water during agitation to cause the minerals to separate by floating to the surface of the solution along with air bubbles.
Galena - Lead sulfide mineral.
Hemimorphite - Refers to the physiology of certain minerals.
Igneous bodies - Bodies created by volcanic action.
Igneous rock crops - Masses of igneous rocks, which are exposed.
Limonite - Porous limestone that has been eroded by the effect of acid waters.
Limonitic Anglesite - Form of limonite found in many lead-zinc-silver ore zones.
Lode Veins - Indicate concentrations of minerals in veins.
Mine planning - Computerized mine planning; the use of computers to simulate a multi-dimensional mine to form a visual image of a planned mine.
Pyrite - Refers to iron sulfide.
Scout Sampling - Refers to the practice of taking samples of rocks in areas previously not sampled.
Shoring - The use of wood braces to support underground workings to prevent rock cave-ins.
Smithsonite - Refers to zinc carbonate.
Spahalerite - Refers to zinc sulfide.
Staking - Refers to the practice of placing stakes in the form of pipes or wooden stakes to identify property being claimed under the rules of the Bureau of Land Management of the United States.
Tertiary Volcanics in related pyroclastic and sedimentary formations - Volcanic material deposited through erosion and re-settling to form solid bodies.
Veins - Natural conduits of mineral deposition of varying grades and thickness, typically linear in form.
Wulfenite - A mineral of tungsten.
General
We are an exploration stage company that searches for mineral deposits or reserves. We have not yet engaged in either development or production stage activities. We plan to acquire, stake claims, or lease exploration properties, and conduct exploration activities in North America.
On November 2, 2006, we acquired 98% of our subsidiary, Metales Preciosos S.A. de C.V. (“Metales Preciosos”), a Mexico based company incorporated in Mexico on April 21, 2003. Metales Preciosos holds four of the exploration properties - El Cumbro, El Cusito, Canada de Oro,, and La Moneda properties located all located in Mexico. In 2009 and 2008, there were minimal exploration efforts on these properties, while other prospective properties within the same region were reviewed. In 2009, we closed our Hermosillo, Mexico exploration office.
Additional property reviews conducted during 2009 were in the western region of the United States at our Leviathon property located in San Bernardino County, California and prospective properties in the State of Nevada.
Although we generated total revenues of $227,121 in 2005 and $209,665 in 2006 from engineering/mining related consulting services, revenues generated from engineering services have decreased to $119,838 in 2007, $111,360 in 2008 and $145,659 in 2009 since June 16, 2006, when we changed the focus of our operations to exploration activities.
We have relied upon funds raised from the sale of our common stock funds provided by our management and limited engineering services to cover our operating costs and expenses. Our independent accountant has issued an opinion that there is substantial doubt about our ability to continue as a going concern.
DESCRIPTION OF BUSINESS
Business Development
We were incorporated in the State of Arizona on September 4, 1992 as ARX Engineering Inc. On June 16, 2006, we changed our name to International Silver, Inc. to reflect our present business plan of conducting exploration activities in North America. Prior to June 16, 2006, we conducted engineering mining related consulting services.
We have never filed or been involved in any bankruptcy, receivership or similar proceeding. We have never been involved or conducted any transaction involving a material reclassification, merger, consolidation, or purchase or sale of a significant amount of assets not in the ordinary course of business.
Business
We are an exploration stage company that engages in exploration activities. An exploration stage company searches for mineral deposits or reserves, which has not yet engaged in either development or production stage activities. We plan to acquire, stake claims, or lease exploration properties, and conduct exploration activities in North America.
Competition
We compete with other exploration companies, most of which have greater financial, operational, and technical resources than us. Additionally, many of our competitors have longer operating histories, more established and a greater number of exploration properties and have strategic partnerships and relationships that benefit their activities, which we do not currently have.
Hedging Transactions
We do not engage in hedging transactions and we have no hedged mineral resources.
Employees
We currently have four employees: (a) Mr. Harold R. Shipes, our Chief Executive Officer; (b) Mr. John A. McKinney, our Executive Vice President/Chief Financial Officer; (c) Mr. Matthew J. Lang, our Vice President of Administration/Corporate Secretary; and (d) Mr. Alexander Makaron, our Engineer.
Production Distribution Methods
Should we be successful in producing Zinc-Silver concentrates, we will attempt to sell such concentrates directly to metals trading companies for shipments to smelters around the world or directly to smelters.
Should we be successful in producing other Lead/Precious Metals, we will attempt to sell them directly to metal type companies that purchase the metals in connection with their ongoing trading activities of such metals.
Sources and Availability of Raw Materials
We do not use raw materials .
Dependence on One or a Few Major Customers
We do not expect to become dependent upon a few major customers, since we will attempt to sell concentrates directly to metals trading companies and to do not expect to become dependent upon any one or a few such companies.
Dependence on Third Party Contractors Not Yet Hired or Equipment Sellers Not Yet Contracted With
We will depend on outside contractors for the following:
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Exploration equipment rentals from companies in Barstow, California and Hermosillo, Sonora, Mexico;
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Sample preparation and assay services in both areas from ALS Chemex, a world-wide assay laboratory located in Canada;
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Purchase of bulldozers, excavators, and grading equipment through equipment companies such as the Catepillar dealer and use equipment dealer.
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Smelting, refining and purchasing of production through Glencore and Gerald Metals, and Penoles in Mexico;
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Transportation through SP Railways in the United States, Ferro Carriles de Mexico, and local truck haulage companies in both major areas;
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Diesel fuel and gasoline for the generation of electricity and fueling of equipment, which we will purchase from commercial suppliers in Barstow, California and Hermosillo, Sonora, Mexico;
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Tires to be purchased from Goodyear or Michelin;
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Equipment, parts and service to be furnished by local suppliers;
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Flotation reagents, that are used for separating valuable minerals from their gang rock, which will be purchased from Dow Chemicals or other suppliers;
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Consumables to be furnished by local suppliers;
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Grinding media that is used for milling of mined products to enable flotation recovery of valuable minerals, to be purchased from Nucor Steel or other commercial foundries;
We have no verbal or written agreements or any arrangements whatsoever with any of the above companies or other third party contractors or equipment sellers to operate on our properties or to sell us the items or provide the services reflected above. The above information only reflects our projected operational plan to use these companies if we can purchase the items from them or secure their services at the time they are needed.
Patents, Trademarks, Licenses, Royalty Agreements, Franchise Agreements:
We do not have any patents, trademarks, licenses, royalty agreements, or franchise agreements, nor do we anticipate the need in our future operations for the foregoing.
Compliance with Government Regulations and Need for Government Approval and Environmental Permits
There are various levels of governmental controls and regulations that govern environmental impact of mineral exploration activities and mineral processing operations, including performance standards, air and water quality emission standards and other design or operational requirements, and health and safety standards. We will be subject to various levels of federal and state laws and regulations, as well as that of Mexico, which include the following:
Leviathon Property
The following approvals will be required from the government of California relative to our Leviathon property:
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Water Quality Division of the California Department of Environmental Quality.
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Air Quality Division of the California Department of Environmental Quality.
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Department of Wildlife Management.
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Bureau of Land Management in the case of the Plan of Operation of Leviathon.
Mexico Properties
The following approvals will be required from the government of Mexico relative to our Mexico properties:
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Water Quality Division of the Federal Bureau of Environmental Quality.
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Air Quality Division of the Federal Bureau of Environmental Quality.
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Federal Department of Mines for Operating Permit.
Costs and Effective of Compliance with Federal, State and Local Environmental Laws
Effect of Existing of Probable Governmental Regulations on our Business
Cost of Permits
We have budgeted $50,000 for initial permit related work, to be completed by our Consulting Geologist and other contract services.
Research and Development Expenditures/Last Two Years:
We have not engaged in any research and development or assumed any such expenses over the past two years, nor do we anticipate any such expenditure in the future. The processing technologies we will use for the recovery of metals are the standard technology used by the exploration industry around the world.
Disclosure Regarding Forward-Looking Statements And Risk Factors
Forward-Looking Statements.
This Annual Report on Form 10-K includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this Annual Report regarding our financial position, business strategy, plans and objectives of our management for future operations and capital expenditures, and other matters, other than historical facts, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements and the assumptions upon which the forward-looking statements are based are reasonable, we can give no assurance that such expectations will prove to have been correct.
Additional statements concerning important factors that could cause actual results to differ materially from our expectations are disclosed in the following "Risk Factors" section and elsewhere in this Annual Report. In addition, the words "believe", "may", "will", "when", "estimate", "continue", "anticipate", "intend", "expect" and similar expressions, as they relate to us, our business, or our management, are intended to identify forward-looking statements. All written and oral forward-looking statements attributable to us or persons acting on our behalf subsequent to the date of this Annual Report are expressly qualified in their entirety by the following Risk Factors.
Available Information.
Item 1A.
Item 1A. Risk Factors.
Risk Factors
In addition to the other information provided in this Form 10-K, you should carefully consider the following risk factors (and others in our S-1 Registration Statement, which may be accessed at: www.sec.gov/Archives/edgar/data/1419482/000114420408011274/v104636_s1a.htmn) in evaluating our business before purchasing our common stock. Our exploration activities are highly risky and speculative; accordingly, an investment in our common stock shares involves a high degree of risk. You should not invest in our common stock if you cannot afford to lose your entire investment. In considering an investment in our common shares, you should carefully consider the following risk factors together with all of the other information contained in our filings with the Securities and Exchange Commission, including our S-1 Registration Statement. Any of the following (along with other risk factors that are discussed in our S-1 Registration Statement, and which includes more expansive risk factor discussions pertaining to the risk factors discussed below), may cause our exploration activities, prospects, financial condition or results of operations to be negatively impacted, which may lead to the loss of all or part of your investment.
Risks Related to our Business Activities.
Our financial condition raises substantial doubt about our ability to continue as a going concern.
As of our December 31, 2009 year-end, we have an accumulated deficit of $855,496. 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 $10 million of financing, we will be unable to pursue our planned business operations will have to be curtailed or terminated, in which case you will lose part or all of your investment in our common stock.
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:
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the deposits are not of the quality or size that would enable us to make a profit from actual mining activities; or
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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 9 to 35 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.
Our management devotes less than full time to our business, which may negatively impact our operations and/or reduce our revenues.
Harold Roy Shipes, our Chief Executive Officer, John McKinney, our Executive Vice President/Chief Financial Officer, and Matt Lang, our Vice President of Administration/Corporate Secretary, devote less than full time to our business. Each member of our management described above devotes approximately 30% of their time to us. Because our management may be unable to devote the time necessary to our business, we may be unsuccessful in the implementation of our business plan.
Item 2.
Item 2. Properties
Our Corporate Offices
Tucson, Arizona
Our corporate offices, which are located at 5210 E. Williams Circle, Suite 700, Tucson, Arizona 85711, are leased from an affiliate, Atlas Precious Metals, Inc., who have a five-year lease with WC Partners, a Los Angeles, California-based company, whereby Atlas Precious Metals pays rent of $8,393 monthly, including utilities. We pay Atlas Precious Metals Inc. $500 per month for our space at this location. Our space is adequate for our purposes.
Our Subsidiary’s Offices
Sonora, Mexico
Our wholly-owned Mexico based subsidiary, Metales Preciosos Atlas, S.A. de C.V., has closed its offices in Hermosillo, Mexico.
We are not subject to competitive conditions for property. We have no property to insure regarding our corporate offices. We have no policy with respect to investments in real estate or interests in real estate and no policy with respect to investments in real estate mortgages. Further, we have no policy with respect to investments in securities of or interests in persons primarily engaged in real estate activities.
Exploration Properties and Claims
Overview of Exploration Properties and Claims
We have the right to explore for various metals, including gold, silver, copper, lead, zinc, berite; however, our initial primary activities will focus on the exploration of silver. Our rights were obtained through outright property acquisition, staking of Bureau of Land Management claims, and purchase of Bureau of Land Management claims. None of our rights have been obtained through leases. Our properties are located in the State of Sonora in Mexico, and San Bernardino County, California. These properties are known as:
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The El Cumbro, El Cusito, Canada de Oro, and La Moneda properties located in Sonora, Mexico; and
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The Leviathon property located in San Bernardino County, California.
With respect to our properties for exploration purposes, if our operations progress to development stage, we may develop our properties. We are subject to competitive conditions for exploration properties since our competitors may be in a better operational and financial position to compete against us for desirable properties. Additionally, there are material issues regarding whether we do or do not insure our properties.
The Mexico Properties:
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El Cumbro
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El Cusito
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Canada De Oro
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La Moneda
Metales Preciosos S.A. de C.V.
In November 2006, we acquired from our affiliate, Atlas Precious Metals, Inc., 98% of the equity of Metales Preciosos, Atlas S.A. de C.V. (“Metales Preciosos”), a Mexico corporation, by issuing 300,000 shares of our common stock to Atlas Precious Metals that owned Metales Preciosos since October 2003. Our Chief Executive Officer, Mr. Harold R. Shipes, owns the remaining 2%. Metales Preciosos, which we now own, owns a 100% undivided interest in the following four properties located in the southeast part of the State of Sonora, Mexico:
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The El Cumbro Property is composed of 774.8 acres located 123 miles southeast of the city of Hermosillo and 6.5 kilometers northeast of the town of Tepoca, Sonora, near Yecora and the border between the States of Sonora and Chihuahua, Mexico. The highway from Hermosillo to Yecora is a paved road in excellent condition.
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The El Cusito Property is comprised of 184.8 acres and abuts the El Cumbro Property to the east.
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Canada de Oro is comprised of 486 acres and is an alluvial gold property abutting the El Cumbro property and extending from the El Cumbro property southeast for approximately five kilometers;
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The La Moneda gold property is composed of 416.84 acres and is located in the western part of the State of Sonora, approximately 14 kilometers inland from the Gulf of Cortez near the port city of Puerto Libertad.
Metales Preciosos Atlas, S.A. de C.V. maintained a small exploration office in Hermosillo, Sonora, Mexico, from which it conducted exploration on the various properties and performed required administration of its mining properties. In mid-year 2009, this office was closed. Any required administration is being handled out of the home office in Tucson, Arizona.
Currently, there are no proven mine grade ore reserves and we are in the exploration stage; however, there are identified veins and potential for ore grade mineralization.
La Moneda:
We own a 100% undivided interest in a 416.14 hectare claim block through our acquisition of Metales Preciosos. This claim was the focus of an intensive work campaign during the Spanish Colonial Era; however, little systematic work has been conducted since that time and no production records are available. A portion of an open cut on a vein measuring 2.8 meters thick were open and were sampled during the scout sampling.
The La Moneda property is located 25 kilometers east of Puerto Libertad on the west coast of Sonora, 126 kilometers southeast of Caborca, Sonora. The access to the property is paved roads to the town of Puerto Libertad with the last 14 kilometers over unpaved maintained road in excellent condition. The nearest electrical power to the property is 10 kilometers away. The property forms the heart of a gold district on the Aguirre Mountain, the site of numerous gold workings comprised of both alluvial and hard rock mines. The property has one Spanish Colonial Era adit. The property is a pure exploration property.
El Cumbro and El Cusito Properties:
The properties host multiple lode veins that were last worked during the Spanish Colonial Era. The veins on the property generally trend in a northeast southwest direction and extend for several kilometers. The multiple veins generally are parallel. The ore is polymetallic in nature, containing silver, gold, zinc, lead and copper in abundance. Numerous workings exist on the properties and date back to the Spanish Colonial Era.
The multiple adits on the property are generally un-passable without clean out and shoring. Colonial workings are shallow and occurred on veins that demonstrated high-grade surface expression. During due diligence, samples were from material collected by trench sampling of waste dumps and assayed and demonstrate the potential for high-grade ore material on most of the veins. The workings were on veins showing a minimum width of one meter to as much as five meters. There are three distinct veins of mineable widths. The El Cumbro vein has the widest and highest grades.
The El Cumbro and El Cusito properties are located 205 kilometers southeast of the city of Hermosillo and 6.5 kilometers northeast of the town of Tepoca, Sonora, near Yecora and the border between the States of Sonora and Chihuahua, Mexico. The highway from Hermosillo to Yecora is a paved road in excellent condition.
Claims to the Mexico Properties
We hold stamped and approved claims for the El Cumbro, El Cusito, Canada De Oro, and La Moneda properties that were obtained from the Mexico Bureau of Mines in Mexico City. In order to obtain these claims we were required to erect a monument on the property that designates staking of these claims. In conformity with the Mexico Bureau of Mines regulations, we retained the services of a Mexico licensed claims surveyor to verify the monument that we erected to stake the claim, which is submitted with the claims application with the Mexico Bureau of Mines, to officially identify the claims, who reviews the property to confirm that there are no conflicting claims and then approves the claim application and they are then recorded in the name of the claimant. We are required to pay an annual maintenance fees and is current on all claims.
Property Description, Location and Access
The El Cumbro, El Cusito, and Canada De Oro Properties abut one another and together share common access.
The El Cumbro and El Cusito Properties are located generally within the Sierra Madre Gold/Silver Belt along the Sonora/Chihuahua border, in the southern part of Sonora.
The El Cumbro Property is composed of 774.8 acres located 123 miles southeast of the city of Hermosillo and 3.9 miles northeast of the town of Tepoca, Sonora, near Yecora and the border between the States of Sonora and Chihuahua, Mexico. The highway from Hermosillo to Yecora is a paved road in excellent condition.
El Cumbro, El Cusito Claim Map
La Moneda Claim Map
The El Cusito Property is comprised of 184.8 acres and abuts the El Cumbro Property to the east.
The Canada de Oro Property is comprised of 486 acres, and abuts the El Cumbro and El Cusito claims to the south. This property is an alluvial deposit that was eroded from the El Cumbro and El Cusito claim areas and deposited in a valley drainage that begins on the property and runs south. The Canada de Oro claims cover this valley.
Lantry Property
In December, 2008 the purchase option for the Langtry property located in San Bernardino County, California expired. Due to current economic conditions, we opted to forego the purchase.
Leviathon Property
The Leviathon Property consists of 60 unpatented mining claims, which were acquired through staking and filing Notices of Location with the Bureau of Land Management. The Claims are referred to collectively as the Leviathon Claims and are grouped as Leviathon 1 through Leviathon 14, and Lilly 11-20 that were approved by the Bureau of Land Management in September and October 2007, at which time the Bureau of Land Management approved the Company’s Notice of Location for Lode Mining Claims stating that we have located and have the right to the Leviathon unpatented mining claims. Each claim consists of 20.7 acres, for a total of 1,304 acres.
Property Description, Location and Access
The Leviathon Property consists of 60 unpatented lode mining claims encompassing 1,304 acres.
The Leviathon Property, is located approximately 10 miles northeast of the town of Barstow, California, 145 miles northeast of Los Angeles. The small communities of Dagget and Yermo, California lie about six miles east from Barstow on Interstate 15 and taking the Meridian Road exit, then east one mile on Frontage Road to the Yermo cutoff, then 3.2 miles north on Merdian Road to the paved portion of the Randberg-Barstow Road, then two miles north to a dirt road which leads eastward onto the claims. Access to the property is accessible year round. There are no weather related conditions preventing access to the property on a year round basis. We know of no environmental or archeological issues related to this property.
Geology and History
The mineralization of the Leviathon Property occurs in a series of parallel veins up to 50 feet wide in a zone several hundred feet wide and primarily visible at the surface. The veins strike NW/SE, dip steeply to almost vertical, and are traceable for 1.25 miles on the property. Country rock is tertiary volcanics in related pyroclastic and sedimentary formations. The vein system is located northeast of the Calico Fault.
Over 100,000 tons of barite ore were mined in the early 1950’s by open pit methods in a large cut known as the Leviathon Cut. Approximately 50,000 tons of drilling mud grade barite was shipped. Previous to this, all workings on the property were underground silver mining in the Silverado Mine and the Silver Bow Mine, believed to occur in the late 1890’s. Records are sketchy and no reliable information on these two mines has been located. The above information pertaining to mining only depicts historical information and has no significance whatsoever whether deposits presently exist on the Leviathon property.
Item 3.
Item 3. Legal Proceedings
There are no pending or threatened lawsuits against us.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted during the fourth quarter of 2009 or at any other time during 2009 for a vote of our security holders through the solicitation of proxies or otherwise.
PART II
Item 5.
Item 5. Market Price of and Dividends on our Common Equity and Related Stockholder Matters.
Market Information
Our common stock has been quoted on the Over the Counter Bulletin Board (the "OTCBB") under the trading symbol "ISLV" commencing March 31, 2008.
Holders
As of December 31, 2009, there were 50 shareholders of record.
Dividends
We have not declared or paid any cash dividends on our common stock since our formation and do not presently anticipate paying any cash dividends on our common stock in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
Since our inception and to date, we have not established an Option Plan or any other Equity Compensation Plan.
Miscellaneous Rights and Provisions
Holders of our common stock have no preemptive rights. Upon our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to shareholders after the payment of all of our debts and other liabilities. All outstanding shares of our common stock are, and the common stock to be outstanding upon completion of this offering will be, fully paid and non-assessable. There are not any provisions in our Articles of Incorporation or Bylaws that would prevent or delay change in our control.
Preferred Stock
We are not authorized to issue Preferred Shares of stock in any series.
Options
We have not issued and do not have outstanding any options to purchase shares of our common stock.
Convertible Securities
We have not issued and do not have outstanding any securities convertible into shares of our common stock or any rights convertible or exchangeable into shares of our common stock.
Purchasers of Equity Securities by the Issuer and Affiliated Purchasers
Not applicable. We have no equity securities that are registered pursuant to Section 12 of the Securities and Exchange Act of 1934. Additionally, we have not repurchased any of our shares of common stock.
Sales Of Unregistered Securities
On June 12, 2008, we issued 150,000 shares of our common stock to Hamilton & Lehrer, P.A. in exchange for legal services.
On September 8, 2008, we issued 335,567 shares of our common stock to our Chief Executive Officer, Harold R. Shipes and his wife, Eileen Shipes, in full satisfaction of the principal portion of the $90,000 loan that our Chief Executive Officer extended to us to place an option towards the purchase of the Langtry property and $6,979 in business debts that he paid on our behalf..
In October, 2009, the Board of Directors approved a resolution to compensate its directors and employees for services rendered to the Company. On October 6, 2009, we issued 3,550,000 shares of our common stock to the Directors of our Company and to its employees for services rendered.
We relied upon Sections 4(2) and 4(6) of the Securities Act of 1933, as amended (“the Securities Act”) for the offer and sale of the above shares. We believed that Section 4(2) was available because: (a) there was no general solicitation in the offer or sale; (b) all purchasers were accredited investors; (c) we placed restrictive legends on the certificates representing these securities issued to the accredited investors stating that the securities were not registered under the Securities Act and are subject to restrictions on their transferability and resale; and (d) the offer and sale did not involve a public offering.
Use of Proceeds
Not applicable. Although we received proceeds from the sale of our common stock in a private placement, in 2008, and under the immediately above indicated exemptions, we did not receive any proceeds during 2009 from the resale of our common stock by the Selling Shareholders indicated in our S-1 Registration Statement.
Item 6.
Item 6. Selected Financial Data
Item 7
Item 7 - Management’s Discussion and Analysis of Financial Conditions and Results of Operations
Forward-Looking Statements
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.
We have realized consulting fees from on-going engineering services, which along with funding received on a previous private placement have enabled us to continue, on a limited basis, our exploration activities until additional funding resources are obtained.
Financial Condition and Changes in Financial Condition
At December 31, 2009, we had cash resources $35,747and receivables due from related parties in the amount of $17,707, including on-going engineering contract work to enable us to continue to conduct our exploration activities and meet our maturing obligations for several months. Our continued activities are dependent upon obtaining adequate financing, as described below. Our financial condition as of December 31, 2009, compared to December 31, 2008 is summarized below, as follows:
Assets.
As of December 31, 2009, we had total assets of $65,185 compared to total assets of $111,935 as of December 31, 2008, representing a 42% decrease or $46,750. Current assets comprise 100% and 99.7% of our total assets at December 31, 2009 and December 31, 2008, respectively, as further depicted below:
The 29% decrease or $14,527 in cash comparing the period ending December 31, 2009 to the period ending December 31, 2008, is attributable the decrease in the collection of receivables and decreased payables over the period ending December 31, 2008.
Liabilities and Shareholders’ Equity
Total liabilities increased by 7% or $6,472 to $97,467 at December 31, 2009, compared to $90,995 at December 31, 2008. This increase is primarily due to reimbursable travel expenses that are Due to Related Parties.
Shareholders’ Equity decreased by 377% or $53,803 to ($39,517) as of December 31, 2009; compared to $14,286 as of December 31, 2008. This decrease is primarily due to a loss from operations of $89,303 for the year 2009, offset partially by the issuance of common stock for services in the amount of $35,500.
Liquidity and Capital Resources
Working capital decreased by ($53,766) to ($43,047) at December 31, 2009, compared to $10,719 at December 31, 2008. This decrease results principally from the reduction in cash of $14,527 and expired prepaid expenses of $26,706 and write-offs in receivables..
Net cash outflows from operating activities decreased by 89% or $118,246 to ($14,742) at December 31, 2009, compared to ($132,988) at December 31, 2008. This decrease in cash outflows is primarily the result of lower losses in year 2009 than in year 2008 by $209,465 as a result of decreased exploration activities and a reduction in payables and accrued expenses in the amount of approximately $41,522, offset by the change in the reduction in receivables of $175,066 during the year 2008, resulting from substantial collections from a related party..
During 2009, there was no investment activity.
Cash flows from financing activities in 2009 were nil at $215, compared to $221,979 in 2008, for a decrease of $221,764 or a decrease of 100%. In 2008, these activities included the return of the Tecoma mining property ($90,000), borrowings from a shareholder/director ($90,000), issuance of shares in exchange for debt ($96,979), less the redemption of company stock ($30,000) and acquisition of shares($25,000) in a related company.
Our business plan does not reflect, nor do we anticipate, any revenues during our exploration phase, aside from ongoing engineering services rendered to an affiliate. We do not anticipate any other type of revenue until we confirm previously demonstrated mineralization, obtain operating permits, and construct mining and processing facilities at either our US or Mexican properties or both; there is no assurance that we will have sufficient financing to accomplish or otherwise be successful at meeting these objectives. There is no guarantee of success or that we will have sufficient financing to accomplish those objectives.
Our auditors have issued a going concern opinion on our audited financial statements for the fiscal year ended December 31, 2009 as we have an accumulated deficit of $855,496. These and other matters raise substantial doubt about our ability to continue as a going concern. We will have to supplement our currently available funds to satisfy our cash requirements for the immediate months by attempting to collect upon existing receivables and raising funds through an equity funding. We anticipate total spending requirements of approximately $9,289,500 pending adequate financing over the next twelve months, in the following areas:
·
$5,000,000 for property acquisitions;
·
$3,089,500 to proceed with the exploration of our properties and claims to determine whether there are commercially exploitable reserves of silver, gold, barite, lead, and zinc
·
$500,000 for working capital;
·
$200,000 for legal and accounting expenses; and
·
$500,000 for general and administrative expenses
We plan to undertake the following steps in our attempt to overcome our going concern qualification and our need for $9,289,500 of financing to accomplish our operational plan:
·
Contact broker-dealers to discuss and negotiate a broker dealer acting as an underwriter to conduct a public offering of our common stock sufficient to raise $10.0 million;
·
Contact other companies with sufficient financial resources to fund our operational activities to discuss and negotiate a joint venture arrangement or a merger transaction where we would combine our business interests and objectives;
·
Contact the fund managers of hedge funds and mutual funds to determine whether their interest in investing in our common stock sufficient to obtain adequate financing; and
·
Raise financing through a private placement of our common stock
Results of Operations
We incurred losses of $89,303 for the year ended December 31, 2009, a decrease in losses of $209,485 over the prior year. The decrease is due primarily to a decrease in exploration activity in 2009.
An analysis of the major components of our results of operations is, as follows:
Revenues. During the year ended December 31, 2009 and December 31, 2008, we had revenues of $146,934 and $120,498, respectively. Revenues increased by 22% or $26,436 due to additional engineering consultation undertaken.
Operating Loss. Operating losses decreased by 66% or $177,155 to ($89,469) for the year ended December 31, 2009; from ($266,624) for the year ended December 31, 2008. This decrease in loss over those incurred in 2008 was primarily due a decrease in exploration activities.
Exploration Expenses . Exploration costs decreased by 88% or $136,660 to $19,183 for the year ended December 31, 2009, from $155,843 for the comparable 2008 period. During 2009, we conducted substantially less exploration work than in the previous year.
General & Administrative Expenses. General and administrative expense decreased by $13,782, due to decreased bad debt write-offs, to $217,123 for the year ended December 31, 2009 from $230,905 during the year ended December 31, 2008. The bulk of these expenditures are for consulting work, professional fees and rent.
Depreciation and Depletion Expenses . Depreciation expense for 2009 and 2008 was $97 and $374, respectively.
Interest Expense. Interest expense for the year ended December 31, 2009 decreased by 99% or $7,748 to $109 from $7,857 during the 2008 period. The decrease was due to the debt reduction in 2008 of the $90,000 loan due an officer/director.
Net Loss. Net loss for the year ended December 31, 2009 decreased by 70% or $209,485 to $89,303 from $298,788 during 2008. This decrease in loss was due primarily to decreased exploration activity.
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 engaged in the following exploration activities.
1)
Hired a geotechnical consultant to assist launching an exploration program;
2)
Commenced the development of an exploration plan;
3)
Actively sought mineral interests containing precious metals; and
4)
Acquired the following minerals interests and option to purchase mineralized property:
Since converting our business plan to conducting exploration activities, we have incurred the following costs:
Capitalized Acquisitions
During our early stage of exploration activities, from June 16, 2006 through December 31, 2009, we incurred an additional $755,096 in general and administration expenses, primarily consisting of salaries, rent, consulting fees, and travel expenditures.
Accumulated losses of $679,462 incurred from the inception of the “exploration phase” accounts for approximately 79% of the accumulated deficit of $855,496 reflected in the Shareholders’ Equity section of our financial statements. Our prior engineering activities accounts for the other portion of the deficit.
Uncertainties and Trends
Our revenues are dependent now, and in the future, upon the following factors:
·
Price volatility in worldwide commodity prices, including silver, gold, and other minerals, which is affected by: (a) sale or purchase of silver by central banks and financial institutions; (b) interest rates; (c) currency exchange rates; (d) currency exchange rates; (e) inflation or deflation; (f) speculation; and (g) fluctuating prices in worldwide and local commodities for petroleum-related products, chemicals, and solvents, which will affect our ability to obtain additional and continuing funding;
·
Global and regional supply and demand of silver, bold, and other minerals, including investment, industrial and jewelry demand;
·
Political and economic conditions of major silver, gold or other mineral-producing countries;
·
Threatened changes to the U.S. Mining Law that may cause increasing federal land royalties, or other unanticipated consequences and related increased costs of conduct in mining operations in the United States; and
·
Our Mexican properties are subject to foreign risk, such as passage of onerous regulatory exploration and mining requirements and availability of materials and supplies.
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
·
An obligation under a guarantee contract,
·
a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,
·
any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or
·
any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us.”
We do not have any off-balance sheet arrangements or commitments that have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material, other than those which may be disclosed in this Management’s Discussion and Analysis of Financial Condition and the audited Consolidated Financial Statements and related notes.
Changes in Accounting Policies
The significant accounting policies outlined within our Consolidated Financial Statements for the year ended December 31, 2009 have been applied consistently for the December 31 year-ends of 2009 and 2008.
Recent Accounting Pronouncements
Below is a listing of the most recent accounting standards and their effect on the Company.
In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-08 (ASU 2010-08), Technical Corrections to Various Topics. The amendments are effective for the first reporting period (including interim periods) beginning after issuance (February 2, 2010), except for certain amendments. The clarifications of the guidance on the embedded derivates and hedging (Subtopic 815-15) are effective for fiscal years beginning after December 15, 2009, and should be applied to existing contracts (hybrid instruments) containing embedded derivative features at the date of adoption. The Company does not expect the provisions of ASU 2010-08 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the provisions of ASU 2010-06 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-05 (ASU 2010-05), Compensation - Stock Compensation (Topic 718). This standard codifies EITF Topic D-110 Escrowed Share Arrangements and the Presumption of Compensation.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-04 (ASU 2010-04), Accounting for Various Topics-Technical Corrections to SEC Paragraphs.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-03 (ASU 2010-03), Extractive Activities-Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures. This is effective for annual reporting periods ending on or after December 31, 2009. However, an entity that becomes subject to the disclosures because of the change to the definition oil- and gas- producing activities may elect to provide those disclosures in annual periods beginning after December 31, 2009. Early adoption is not permitted. The Company does not expect the provisions of ASU 2010-03 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. (See FAS 167 effective date below)
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. (See FAS 166 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. (See EITF 09-1 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance” (“EITF 09-1”). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. The Company does not expect the provisions of EITF 09-1 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the FASB issued SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities. SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. SFAS 167 will be effective for the Company beginning in 2010. The Company does not expect the provisions of SFAS 167 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the FASB issued SFAS No. 166, (ASC Topic 860) “Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. The Company does not expect the provisions of SFAS 166 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the Securities and Exchange Commission’s Office of the Chief Accountant and Division of Corporation Finance announced the release of Staff Accounting Bulletin (SAB) No. 112. The statements in staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing the Commission's official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws.
In September 2008, the FASB issued exposure drafts that eliminate qualifying special purpose entities from the guidance of SFAS No. 140 (ASC Topic 860), “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and FASB Interpretation 46 (ASC Topic 810) (revised December 2003), “Consolidation of Variable Interest Entities − an interpretation of ARB No. 51 (ASC Topic 810),” as well as other modifications. While the proposed revised pronouncements have not been finalized and the proposals are subject to further public comment, the Company anticipates the changes will not have a significant impact on the Company’s financial statements. The changes would be effective March 1, 2010, on a prospective basis.
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 Phase I exploration activities and are for a period of eighteen months, at an approximate cost of $2.5 million. Based upon our analysis of the test results and feasibility studies, we will determine whether to proceed with Phase II exploration and development, which will consist of expanding identified ore blocks to the proven classification, permitting, and development. We cannot determine, predict, or assure whether we will be able to proceed with Phase II exploration and development activities regarding any of our properties or claims. Our exploration activities will be conducted under the overall direction of our Consulting Geologist, but each Plan of Operations described below will be directly managed and supervised by a Field Geologist that we hire.
Mexico Properties
We will continue to hold the El Cumbro, El Cusito, and Canada de Oro Properties for future exploration.
USA Properties - The Leviathon property in San Bernardino County, California
We will explore the Leviathon property for silver and barite at a total cost of $2,527,000. We will use one Field Geologist, four workers and infrastructure for our Leviathon property. Equipment to be used to conduct the Leviathon exploration program is shown below:
Item 7A
Item 7A Quantitative and Qualitative disclosures About Market Risk
Not applicable. We do not presently invest or otherwise engage in market risk sensitive instruments.
Item 8
Item 8 Financial Statements and Supplementary Data
The information required by this item is filed herewith.
SEALE AND BEERS, CPAs
PCAOB & CPAB REGISTERED AUDITORS
www.sealebeers.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
International Silver, Inc.
(An Exploration Stage Company)
We have audited the accompanying consolidated balance sheets of International Silver, Inc. (An Exploration Stage Company) as of December 31, 2009 and December 31, 2008 (restated), and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2009, 2008 (restated) and since inception of exploration stage on June 16, 2006 through December 31, 2009. 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 conduct our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of International Silver, Inc. (An Exploration Stage Company) as of December 31, 2009 and December 31, 2008 (restated), and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2009, 2008 (restated) and since inception of exploration stage on June 16, 2006 through December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated 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 not yet established an ongoing source of revenues sufficient to cover its operating costs, 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.
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, Nevada
April 14, 2010
50 S. Jones Blvd. Suite 202 Las Vegas, NV 89107 Phone: (888)727-8251 Fax: (888)782-2351
International Silver, Inc.
(An Exploration Stage Company)
Consolidated Financial Statements
(Audited)
For the Year Ended December 31,2009
And
For the Year Ended December 31,2008
See accompanying notes to the consolidated financial statements
See accompanying notes to the consolidated financial statements
International Silver, Inc.
(An Exploration Stage Enterprise)
Consolidated Statements of Operations
International Silver, Inc.
(An Exploration Stage Enterprise) Consolidated Statements of Cash Flows
See accompanying notes to the consolidated financial statements
International Silver, Inc.
(An Exploration Stage Enterprise)
Consolidated Statement of Shareholders' Equity
International Silver, Inc.
Notes to Consolidated Financial Statements
Note A - Organization and Business
General
International Silver, Inc., 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.
Organization and Nature of Business
The Company was incorporated in the State of Arizona on September 4, 1992 as ARX Engineering, Inc. On October 6, 1992, ARX Engineering, Inc. changed its name to Western States Engineering and Construction, Inc. On June 20, 2006, the Company changed its name to International Silver, Inc. in connection with its new business plan and acquisition of the Tecoma property in the Lucin Mining District in Utah and the acquisition of mineralized properties in Sonora, Mexico. These acquisitions were based on the Board of Director’s decision to adopt a business plan of conducting silver exploration on an international basis.
Further, on July 14, 2006, the Company amended its Articles of Incorporation to reflect the Board’s decision to expand its authorized common stock from 1,000 shares to 500,000,000 to accommodate future equity financing.
The business strategy consists of acquiring and exploring high-grade silver properties throughout North and South America. The initial objective is to initiate an intensive reconnaissance and exploration program around the Leviathon property and on the El Cumbro and El Cusito properties of the Company’s wholly owned Mexican subsidiary, Metales Preciosos Atlas, S.A. de C.V., 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
Leviathon Project, San Bernardino Co. CA
The Leviathon 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.
The Calico district is a historic mining area with silver production from high grade veins commencing in 1882 and ending in 1931. Modern exploration methods applied in the district beginning in the 1970’s have delineated large deposits of disseminated epithermal silver mineralization potentially amenable to bulk mining. Known deposits of this type which exceed several hundred million ounces of contained silver in ore grading 2 to 4 ounces per ton, adjoin the project on two sides. There are no mineral reserves as yet defined on the Leviathon ground. An unverified historical estimate by a previous operator has postulated an existing resource of five million tons grading 2 ounce/ton silver with 65% barite. The property was mined for barite by open pit methods during the late 1950’s and into the 1960’s. A production of 100,000 tons of barite ore was recorded from this period.
It is the intention of the company to maintain the claims and to continue with exploration on the project.
Metales Preciosos Atlas S.A. de C.V. (Mexican Subsidiary Company)
In November 1, 2006, the Company acquired from Atlas Precious Metals, Inc., 98% of the equity of Metales Preciosos Atlas, S.A. de C.V. (“Preciosos”), a Mexico corporation, by issuing 300,000 shares of its common stock to Atlas Precious Metals. Preciosos owns a 100% undivided interest in four mining properties located in the southeast part of the State of Sonora, as follows: (a) El Cumbro, the most significant of the properties; (b) El Cusito, located adjacent to the El Cumbro property; and (c) Canada de Oro, an alluvial gold property extending from the El Cumbro property southeast for approximately five kilometers. In addition, Preciosos owns a 100% undivided interest in the La Moneda gold property located in the western part of the State of Sonora, approximately 14 kilometers inland from the Gulf of Cortez near the port city of Puerto Libertad. Preciosos maintains a small exploration on the various properties and performs required administration of its mineral properties. Valuation of these properties were based on the explorations expenditures incurred to-date by the related company that sold Metales Preciosos the rights to these properties.
Going Concern
The Company’s 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. The ability of the Company to continue as a going concern 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) obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses, and (2) initiating an initial 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 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 subsidiary Metals Preciosos Atlas, S.A. de C.V., Mexico. The Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (GAAP). The Company has elected to adopt U.S. currency as the functional currency for the accounting of its Mexican subsidiary. All inter-company transactions and balances have been eliminated.
Recently Enacted Accounting Standards
Below is a listing of the most recent accounting standards and their effect on the Company.
In February 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-08 (ASU 2010-08), Technical Corrections to Various Topics. The amendments are effective for the first reporting period (including interim periods) beginning after issuance (February 2, 2010), except for certain amendments. The clarifications of the guidance on the embedded derivates and hedging (Subtopic 815-15) are effective for fiscal years beginning after December 15, 2009, and should be applied to existing contracts (hybrid instruments) containing embedded derivative features at the date of adoption. The Company does not expect the provisions of ASU 2010-08 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-06 (ASU 2010-06), Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements. This is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the provisions of ASU 2010-06 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-05 (ASU 2010-05), Compensation - Stock Compensation (Topic 718). This standard codifies EITF Topic D-110 Escrowed Share Arrangements and the Presumption of Compensation.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-04 (ASU 2010-04), Accounting for Various Topics-Technical Corrections to SEC Paragraphs.
In January 2010, the FASB (Financial Accounting Standards Board) issued Accounting Standards Update 2010-03 (ASU 2010-03), Extractive Activities-Oil and Gas (Topic 932): Oil and Gas Reserve Estimation and Disclosures. This is effective for annual reporting periods ending on or after December 31, 2009. However, an entity that becomes subject to the disclosures because of the change to the definition oil- and gas- producing activities may elect to provide those disclosures in annual periods beginning after December 31, 2009. Early adoption is not permitted. The Company does not expect the provisions of ASU 2010-03 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. (See FAS 167 effective date below)
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. (See FAS 166 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. (See EITF 09-1 effective date below)
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) “Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance” (“EITF 09-1”). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. The Company does not expect the provisions of EITF 09-1 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the FASB issued SFAS No. 167 (ASC Topic 810), “Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 amends the consolidation guidance applicable to variable interest entities. SFAS 167 is effective as of the beginning of the first fiscal year that begins after November 15, 2009. SFAS 167 will be effective for the Company beginning in 2010. The Company does not expect the provisions of SFAS 167 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the FASB issued SFAS No. 166, (ASC Topic 860) “Accounting for Transfers of Financial Assets-an amendment of FASB Statement No. 140” (“SFAS 166”). SFAS 166 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. The Company does not expect the provisions of SFAS 166 to have a material effect on the financial position, results of operations or cash flows of the Company.
In June 2009, the Securities and Exchange Commission’s Office of the Chief Accountant and Division of Corporation Finance announced the release of Staff Accounting Bulletin (SAB) No. 112. The statements in staff accounting bulletins are not rules or interpretations of the Commission, nor are they published as bearing the Commission's official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the Federal securities laws.
In September 2008, the FASB issued exposure drafts that eliminate qualifying special purpose entities from the guidance of SFAS No. 140 (ASC Topic 860), “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” and FASB Interpretation 46 (ASC Topic 810) (revised December 2003), “Consolidation of Variable Interest Entities − an interpretation of ARB No. 51 (ASC Topic 810),” as well as other modifications. While the proposed revised pronouncements have not been finalized and the proposals are subject to further public comment, the Company anticipates the changes will not have a significant impact on the Company’s financial statements. The changes would be effective March 1, 2010, on a prospective basis.
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 and 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 financial statements.
Foreign Currency
The functional currency for our foreign subsidiary is U.S. dollars. The Company has elected to use the “remeasurement method”, also referred to as the “monetary/nonmonetary method” pursuant ASC 830-10. This method translates monetary assets at the current rate, while nonmonetary assets, liabilities and equity are translated at their appropriate historical rates. Where the local currency is used to record transactions, any material currency translation gains or losses would be included as an element of comprehensive income in the statement of operations and in the equity section of the balance sheet.
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. 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 several areas containing our mining prospects in isolated regions of Mexico, limited financial capacity of related parties and/or others to continue funding operations.
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 Receivables
Accounts receivables are stated, net of an allowance for uncollectible accounts, based on prior experience. At December 31, 2009 account receivables were $29,199.16 with an allowance for uncollectible accounts of $29,199.16, bringing the net amount to zero.
At December 31, 2008, accounts receivables were zero.
Inventories
In-process inventories represent ore that is currently in the process of being converted to a saleable product. In-process inventories, if any, are valued at the lower of average production cost or net realizable value. At December 31, 2009 and 2008 there were no inventories on hand.
FASB ASC 330-10-30 - Inventory-Overall-Initial Measurement, requires that the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) be recognized as a current period charge. It also requires, the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repair costs are charged to expense as incurred, and renewals and improvements that extend the useful life of assets are capitalized. Depreciation on property and equipment is computed using the straight-line method over the assets' estimated useful lives as follows:
Mining equipment 7 years
Vehicles 3 years
Office equipment 5 years
Depreciation expense for the year ended December 31, 2009 was $97. For the year ended December 31, 2008, depreciation expense was $374.
Mineral Development
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 December 31, 2009 and 2008, all mineral interests were in the exploration stage.
Impairment of Long-Lived Assets
The company adheres to ASC 360-10-20, "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. At December 31, 2009, there was an impairment on marketable securities in the amount of $25,000. Refer to Note E.
Revenue Recognition and Production Costs
Revenue is recognized when the price is determinable, upon delivery and transfer of title of product to the customer and when the collection of sales proceeds is assured. Production costs of silver, gold and other precious metals sold include labor and related direct and indirect costs of mine and plant operations. Production costs are charged to operations as incurred. At December 31, 2009, there had been no production from any of the Company's properties.
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. Since the Company’s activities are in the exploration and feasibility stage, there is no legal or contractual obligation for reclamation or remediation of our mines or mining interests. As a result, the adoption of ASC 410-20 does not currently have a material impact on our financial position, results of operations or cash flows.
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. The Company has no potential common stock instruments, which would result in diluted income (loss) per share as of December 31, 2009 and 2008.
Income Taxes
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 F to the 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. The total deferred tax asset is 36% of the cumulative net operating loss.
Net deferred tax assets consists of the following components:
At December 31, 2009, The company had a net operating loss carry-forward of $551,071 (refer to Note F) for federal income tax purposes that may be offset against future taxable income from years 2009 through 2027. No tax benefit has been reported in the December 31, 2009 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.
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.
Statement of Cash Flows Information and Supplemental Non-Cash Financing Activities
There were minimal interest cash payments during the year ended December 31, 2009 and for the year ended December 31, 2008. “Non-cash" investing and financing transactions during the reported periods related primarily to the issuance of common stock in exchange for legal and other professional services and for mineral interests and stock issued to a related party for cancellation of indebtedness, as disclosed in Note G.
Certain Equity Instruments
In June 2003, the FASB approved ASC 480-10-25-4 - Distinguishing Liabilities From Equity - Overall Recognition. ASC 480-10-25-4 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. At December 31, 2009, the Company is not impacted by this requirement.
Comprehensive Income
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. For the years ended December 31, 2009 and 2008, the Company recorded an unrealized loss on “available for sale” securities under Other Comprehensive Income. On December 31, 2009 and 2008, the Company did not have any material items of comprehensive income.
Derivative Instruments
In June 1998, the FASB issued ASC 815-10 - Accounting for Derivative Instruments and Hedging Activities. Currently, the Company does not have any derivative financial instruments and does not participate in hedging activities. Therefore, ASC 815-10 did not have an impact on its financial position or results of operations for the years ended December 31, 2009 and December 31, 2008.
Stock-Based Compensation
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. For small-business filers, ASC 718 is effective for interim periods beginning after December 15, 2005.
Non-Monetary Exchanges
In December 2004, the FASB issued ASC 845 - Nonmonetary Transactions. This Statement addresses the measurement of exchanges of non-monetary assets. The guidance in ASC 845,Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for non-monetary asset exchanges incurred during fiscal years beginning after the date that this Statement was issued.
Note C - Prepaid Expenses
On August 31, 2008, the Company executed a one-year contract with DME Capital, LLC for the purpose of obtaining venture capital and/or a joint venture agreement. The Company paid DME Capital, LLC a due diligence fee of $40,000. At December 31, 2009, the prepaid balance on this contract was zero and at December 31, 2008, the prepaid balance was $26,667. In total, prepaid expenses at December 31, 2009 and 2008 were $966 and $27,672, respectively.
Note D - Property, Plant and Equipment
Property, plant and equipment, exclusive of mineral interests which are reported under Note J - Exploration Costs, as required by Industry Guide 7, are comprised of the following:
Note E - Investment in Securities
During 2008, the Company relinquished its holdings in the Tecoma Mining District back to the original seller, in return for the shares in common stock that were part of the consideration given on the original purchase of the property As a result, the Company obtained 25,000 shares of the common stock of Atlas Precious Metals Inc., a privately-held and related company to International Silver, Inc. These shares were originally held by the Company’s shareholder/officer, who transferred these shares to the seller of the Tecoma Mining District property, in exchange for a note from the Company (Refer to Note H). At December 31, 2008, these securities were deemed to have no discernable value, therefore a $25,000 impairment loss was recorded.
Note F - Income Taxes
The Company has reported (for income tax purposes) net operating losses for 2009, 2008 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 December 31, 2009 the Company recorded a deferred tax benefit of $199,313, 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. No permanent or temporary timing differences between book and tax income have occurred through December 31, 2009.
Note G - 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 to effectuate a stock split of 12,000 to 1. On July 24, 2006, the shareholders of record (3) 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 in exchange for legal services.
On September 19, 2006, the Company issued 30,000 shares of common stock for land
On October 21, 2006, the Company issued 300,000 shares of common stock 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 for Director fees
During 2007, the Company issued shares of common stock as follows:
Conducted a private placement and issued an additional 260,000 shares of common stock for cash
May, 2007 - issued 7,000 shares of common stock for $ 3,500 in cash
June, 2007 - issued 3,000 shares of common stock for $ 1,500 in cash
October, 2007 - issued 4,000 shares in common stock for $ 2,000 in cash
November, 2007 - issued 236,000 shares in common stock for $73,000 in cash
Issued 500,000 shares of common stock in exchange for consulting services
May, 2007 - issued 100,000 shares of common stock for Director fees
September, 2007 - issued 400,000 shares of common stock for consulting services
Issued shares of common stock in exchange for debt
June 30, 2007 - issued 336,186 shares of common stock in exchange for an outstanding debt owed a
shareholder/officer, as explained in Note G.
On June 12, 2008, the Company issued 150,000 shares of common stock for transfer agent services
On September 8, 2008, the Company issued 335,567 shares of common stock 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.
On September 23, 2009, the Board of Directors passed a resolution for the issuance of 3,550,000 shares of common stock 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.
At December 31, 2009, the Company had authorized 500,000,000 shares of common stock and 18,561,753 shares had been issued and are outstanding.
Note H - 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.
Prior to 2008, various loans were made by a shareholder/officer and in 2007, the “principal” portion of the loans were paid off, leaving only the accrued interest due the shareholder/officer. In 2008, a shareholder loan of $90,000 was made to the Company so it could avail itself of an option to purchase mineral properties in the State of California. The principal part of this loan was also cancelled upon the receipt of an equivalent value in shares of common stock in the Company.
Note I - Litigation
At December 31, 2009 and 2008 there were no outstanding legal issues.
Note J- Office Leases
The Company rents (subleases) its administrative offices from an affiliate in Tucson, Arizona and is billed an allocated portion ($500 per month), commencing October 1, 2008 based on percentage of floor space occupied. During 2008 and through mid-year 2009, the foreign exploration office located in Hermosillo, Sonora, Mexico rented on a month-to-month basis at $500 per month. Rental expense for all administrative offices for the year ended December 31, 2009 was $7,353 and for the year ended December 31, 2008 was $18,002.
Note K - Exploration Costs
Acquired mineral interests are presented as “exploration costs” as required by Industry Guide 7. Exploration costs incurred since inception as of December 31, 2009 are $266,999. Exploration costs incurred for the years ended December 31, 2009 and December 31, 2008 are $19,183 and $155,843, respectively.
Note L - Subsequent Events
On March 1, 2010, the Company purchased a 70% interest in the Estrades Mine, including all facilities and equipment located at or used in connection with the property and certain other related properties, and mining claims and leases located in the Township of Estrades, Oivilliers in the Province of Quebec, Canada, from a related party in exchange for 6,000,000 shares of its common stock.
On March 3, 2010, the Company exchanged their recently-acquired 70% interest in the Estrades mining property and facilities for 6,000,000 shares of common stock of Continental Mining and Smelting Limited, a private company, incorporated under the federal laws of Canada.
Note M - Segment information
The Company’s operations are comprised of two reporting segments engaged in exploration of the Company’s mineral assets in the Western part of the United States and Northern part of Mexico. The financial statements reflect, for the most part, the segment information for the Company’s assets, liabilities and results of operations for the Western part of the United States, except for the following that pertains to the Northern part of Mexico:
Note N - Restatement of Prior Year’s Financial Statements
The Company’s financial statements for the period ended December 31, 2008 have been re-audited, pursuant to a mandate by the PCAOB - Public Company Accounting Oversight Board as a result of non-compliance by a predecessor auditing firm. As a result of this re-audit, the balance sheet and statement of operations have been restated to reflect the reclassification of a prepaid contract of $13,333, a write-off of $10,237 in receivables, an increase in accrued expenses of $2,420 and recognition of an impairment loss on securities available for sale of $25,000, resulting in an overstatement of income of $50,990 for the year ended December 31, 2008.
Item 9
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A(T)
Item 9A(T) Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer evaluated our disclosure controls and procedures on December 31, 2009 as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in connection with our filing of our annual report on Form 10-K for the year ended December 31, 2009.
Changes in internal controls.
There were no significant changes in our internal controls or in other factors that could significantly affect these internal controls subsequent to the date of their evaluation.
Item 9B.
Item 9B. Other Information
None
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Our Board of Directors and our executive officers consist of the persons named in the table below. Directors are elected at our annual meeting of Shareholders. Vacancies on our Board of Directors may only be filled by the majority vote of the remaining Directors. Each director shall hold office until the next annual meeting of Shareholders and until his successor has been elected. Our bylaws provide that we have at least one director.
The table below sets forth our corporate officers and directors:
Mr. Harold Roy Shipes, Chairman/President/Chief Executive Officer. Mr. Shipes has been our President/Chief Executive Officer since April 13, 1999, and our co-founder and Chairman of the Board since 1992. From 1992 until December 2009, Mr. Shipes provided us with engineering services, specializing in mining related engineering projects. Including his affiliation with us, Mr. Shipes has over 37 years experience in the mining industry in senior management positions with companies around the world and has worked extensively in copper, zinc and precious metals, as well as engineering, construction and project development, as follows:
a)
In 2004, Mr. Shipes became President and Chief Executive Officer of Atlas Minerals, Inc., now known as Atlas Corporation, an SEC reporting company that is currently delinquent in its reporting obligations, but will attempt to become current in its SEC reporting by June 2008.
b)
Mr. Shipes founded American International Trading Company in 1996 and has been its Chairman and Chief Executive Officer from 1996 to present. American International Trading Company is a privately held mining company based in Tucson, Arizona, that is engaged in exploration and development of tin mines in Bolivia.
c)
Mr. Shipes co-founded Western Gold Resources in 1994, which merged with Atlas Precious Metals, Inc. in 2004. Mr. Shipes continues as Chairman and Chief Executive Officer of Atlas Precious Metals, Inc., a Tucson, Arizona private based mining company that has several gold exploration properties in Sonora, Mexico, and projects in Bolivia, including a Joint Venture on the Karachipampa Lead Smelter in Potosi, Bolivia, and zinc, lead and silver exploration properties.
d)
In 1988, Mr. Shipes founded Arimetco International, Inc., a Toronto Stock Exchange listed company from 1988 to 1996 based in Tucson, Arizona, which was a copper mining company with operations in Arizona and Nevada. Mr. Shipes was President and Chief Executive Officer of Arimetco International, Inc. from 1988 until 1999.
e)
From November 1992 to October 1994, Mr. Shipes served as Chairman of Breakwater Resources, a zinc mining company located in Toronto Canada that was listed on the Toronto Stock Exchange at the time and continues to have such listing.
f)
From January 1993 to December 1995, Mr. Shipes served as a Director of Transoceanic Trading Company, a Barbados based metals trading company. In 1986, Mr. Shipes founded American Pacific Mining and acquired the El Mochito Mine, a zinc, lead and silver mine in Honduras.
g)
From 1984 to 1988, Mr. Shipes was the President and Chief Executive Officer of American Pacific Mining, a then listed Toronto Stock Exchange that engaged in mining activities in Honduras, Central America, and Arizona. The El Mochito Mine produced zinc and lead-silver concentrates that were shipped around the world for smelting; and the Johnson Camp Mine produced cathode copper that was consumed in the United States.
h)
Mr. Shipes was General Manager and Chief Executive Officer of Ok Tedi Mining Limited, a copper and gold mining company in Papua, New Guinea, from 1984 to 1986.
i)
From 1975 to 1983, Mr. Shipes was the Vice President and General Manager of the copper producing company, Southern Peru Copper Company, and from 1981 to 1983, as Vice President and General Manager of Southern Peru Copper Company.
In 1967, Mr. Shipes received a Bachelor of Science Degree in Biochemistry from the University of Arizona. In 1977, he completed postgraduate studies in Mining and Metallurgical Engineering at the University of Arizona and received a Bachelor of Science Degree in Biochemistry and Mining Metallurgical Engineering.
Mr. John A. McKinney, Executive Vice President and Chief Financial Officer. Mr. McKinney has been our Executive Vice President/Chief Financial Officer since June 16, 2006. From September 4, 1992 to December 31, 2001, Mr. McKinney was our Corporate Secretary. Including his affiliation with us, Mr. McKinney, has performed in senior management positions in the mining industry for approximately 20 years, as follows:
a)
In 1992, Mr. McKinney co-founded us when we were an engineering company specializing in mining related engineering projects.
b)
Since May 1994, Mr. McKinney has been a Director of American International Trading Company, a Tucson, Arizona based company that engaged in the business of mining exploration in Bolivia.
c)
In 1994, Mr. McKinney co-founded Western Gold Resources that merged with Atlas Precious Metals, Inc., a Tucson, Arizona based private mining company that has gold exploration properties in Sonora, Mexico, a Joint Venture on the Karachipampa Lead Smelter in Potosi, Bolivia lead smelter, and zinc, lead and silver exploration properties in Bolivia. Mr. McKinney has been Executive Vice President and Chief Financial Officer of Atlas Precious Metals Inc. since May 1994.
d)
From 1992 to 1995, Mr. McKinney served as a Director of Breakwater Resources, a Toronto Stock Exchange listed zinc mining company; during the same time period, he served on the management committee of Transoceanic Trading Company, a Barbados metals trading company that was a subsidiary of Breakwater Resources.
e)
Mr. McKinney served in the following positions with Arimetco International, Inc., a then Toronto Stock Exchange listed company based in Tucson, Arizona, which was a copper mining company with operations in Arizona and Nevada: (a) from 1989 to 1991, as the Director of Purchasing; (b) from 1991 to 1994, as the Vice President of Corporate Administration; (c) from 1994 to 1999, as Executive Vice President; and (d) from 1997 to 1999, as Chief Financial Officer.
f)
From 1989 to 1992, he was President/Director of Arisur, Inc., a Grand Cayman private company that owned the Andacaba Silver and Zinc mine in Bolivia and was a wholly owned subsidiary of Arimetco International, Inc.
In addition to the above mining related positions, in 1999, Mr. McKinney founded and became Chairman and President of Western Manufacturing Inc., a Phoenix, Arizona manufacturer, wholesaler and retailer of plantation shutters, until 2005, at which time all of the assets of Western Manufacturing Inc. were sold.
In 1984, Mr. McKinney received a Bachelor of Science Degree in Business Administration from the University of Arizona.
Mr. Matthew J. Lang, Vice President Administration and Corporate Secretary. Mr. Lang has been our Vice President of Administration and Corporate Secretary since June 16, 2006 and manages our general administration, including corporate administrative maintenance and reporting, coordinates shareholder meetings, director meetings and manages shareholder relations.. From approximately January 2003 and continuing to date, Mr. Lang also has acted as our General Logistics Manager and directed our administration and logistics management and coordinated the flow of materials required by on-going operations, from purchasing through delivery. Since May 2006, Mr. Lang has been the Vice President of Administration and Corporate Secretary for Atlas Precious Metals, Inc., a Tucson, Arizona based mining company that has several gold exploration properties in Sonora, Mexico, zinc, lead, and silver exploration properties in Bolivia, and a joint venture of the Karachipampa Lead Smelter in Potosi, Bolivia. From January 2002 to January 2003, Mr. Lang was the Operations Manager of the White Cliffs Diatomite Mine for Atlas Minerals, Inc., now known as Atlas Corporation, an industrial minerals company currently based in Tucson, Arizona that is an SEC reporting company, but delinquent in its reporting obligations. . From February 1999 to June 2002, he was General Purchasing and Sales Manager for Tucson, Arizona based Mining and Construction Suppliers Inc., a company that supplies tooling products to other businesses in the field of repair, construction, and mining.
Mr. Herbert Eugene Dunham, Director. Mr. Dunham has been our Director since June 16, 2006. From May 2003 to present, Mr. Dunham has been the owner of Dunham Mining Consultants, a sole proprietorship, located in Tucson, Arizona, that provides consulting services to the natural resource industry. Mr. Dunham was a Director of Golden Eagle International, Inc., an SEC reporting company, from May 9, 2006 to September 21, 2006, its Chief Operating Officer from July 27, 2006 to September 21, 2006, and an Interim Chief Financial Officer from August 15, 2006 to September 21, 2006.
From June 1997 to May 2003, Mr. Dunham was the Chairman/Chief Executive Officer of Affiliated Companies, a consortium of five companies conducting diversified energy and mining related business, including mining, oil and gas, power and utilities, and telecommunications.
Mr. Dunham has an additional 29 years in senior management positions in the mining industry, as follows:
a)
From June 1994 to June 1997, Mr. Dunham was the Chief Executive Officer/Director of Suramco, Inc., which managed diversified business enterprises, acquisitions, joint ventures, and expansions, including acquiring and operating five mining properties in the United States, Canada, and South America
b)
From 1988 to 1994, Mr. Dunham was the Chief Executive Officer of New Mexico operations for Phelps Dodge Corporation and a Director of an affiliated acquired company, Chino Mines Company, where he provided leadership in corporate planning, finance, technical areas and general operations, including the mining sector.
c)
From 1972 to 1988, Mr. Dunham was the Chief Executive Officer of Phelps Dodge Morenci, Inc., Chairman of Morenci Mining, Inc., and a Director of Morenci Water and Electric, all of which were associated with Phelps Dodge Corporation. During this period, Mr. Dunham directed and managed mining properties in Arizona, New Mexico, and Chile.
d)
From 1968 to 1972, Mr. Dunham was the Mining, Exploration, and Finance Manager of Rio Tinto, Plc, a natural resources and mining company conducting business in England, Spain, Australia, and Canada.
Mr. Dunham received the following degrees from Michigan Technological University located in Houghton, Michigan: (a) in 1968, a Bachelor of Science Degree in Mining Engineering; and (b) in 1970, a Bachelor of Science Degree in Geological Engineering. In 1972, Mr. Dunham received a Masters of Business Administration from the University of Pennsylvania’s Wharton Business School.
Michael Harrington, Director. Mr. Harrington has been our Director since October 23, 2007. In 1998, Mr. Harrington went into semi-retirement. Since that time, he has held the following Director positions:
a)
From April 1998 to the present, he has served as a Director and since January 2006 he has served as a Director and Vice-Chairman the Board of Directors of KWC Resources, a Montreal, Canada based company. KWC Resources is a publicly traded company listed on the Toronto Stock Exchange. KWC Resources is a Diamonds and Base Metals exploration company with a focus in northern Canada.
b)
From January 2006 to the present he has served as a Director of the Board of Directors of SGV Resources Inc, a Nevada corporation based in Reno, Nevada. SGV Resources is in the business of exploration and mine development with a primary focus in Arizona and Nevada. SGV Resources is a wholly owned subsidiary of St. Genevieve Resources Ltd. Located in Montreal, Canada and which is a publicly held Canadian company traded on the CNQ Stock Exchange.
c)
From April 2007 to the present, he has served as a Director of the Board of Directors of Cadillac Ventures Inc. Cadillac Ventures is an exploration company headquartered in Toronto, Canada. Its primary focus is in Gold and Tungsten exploration in eastern Canada. Cadillac Ventures is a publicly held Canadian company traded on the CNQ Stock Exchange.
From May of 1994 to June of 1998, Mr. Harrington worked as a private consultant and technical advisor to international mining companies seeking to invest in gold and silver mining companies in Russia, including Asarco, Pan American Silver Company, Kinross Gold Corporation, Armada Gold Corporation and Gippsland Resources Inc.
From 1979 to 1994, Mr. Harrington served in the following positions with Cyprus Minerals Company, previously known as Amoco Minerals Company, a subsidiary of Amoco Oil Company, a publicly held company located in Englewood, Colorado, whose shares were traded on the New York Stock Exchange: (a) from 1979 to 1989 as Vice President of Coal Development; (b) from 1982 to 1989 as Vice-President of Coal Sales and Marketing; and (c) positions held concurrently, from 1989 to 1990 as Vice President of General Corporate Development, and from January 1990 to December 1991 as Vice President of North Shore Mining Company, a Taconite pellet producer wholly owned by Cyprus Minerals Company; and (d) . from January 1992 to June 2004 as Vice President of General Corporate Development. In connection with these positions, Mr. Harrington was: (a) lead negotiator for approximately 10 acquisitions made by Cyprus Minerals Company; (b) responsible for the successful restart of North Shore Mining Company in Silver Bay Minnesota which had been idled under bankruptcy proceedings for 5 years; (c)Lead negotiator in the disposition of various assets, including gold and industrial mineral properties; (d) lead negotiator for long term coal sales contracts; (d) President of Omolon Gold Mining Company where he managed the negotiations for Cyprus’s investment and start up of the Kubaka Gold mining operation in Russia, and worked with OPIC and the EBRD, where he negotiated the first gold export agreement for the private exportation of gold from Russia.
Other positions held by Mr. Harrington include the following; (a) From 1971 to 1979 as Vice President of Finance of Atlantic, Gulf and Pacific Company, a privately held New York City based company in the business of marine construction; (b) from 1974 to 1979 as President of Atlantic, Gulf and Pacific companies coal mining subsidiary (AGP Coal Company); (c) From 1969 to 1971, as founder and Vice President of privately held South Hopkins Coal Company located in Madisonville, Kentucky; (d) From 1962 to 1969, he served as Controller of Handley Mills Corporation, a privately held textile company based in New York City; and (d) From 1958 to 1960, he worked as a Senior Auditor for Peat Marwick Mitchell and Co. in their New York City office.
Mr. Harrington received a Bachelor of Arts degree in Accounting from Iona College in 1956
Other Significant Persons
Harrison Matson, Consulting Geologist - Mr. Matson has been our Consulting Geologist since September 2007. From January 2001 to present, Mr. Matson has been the President and General Manager of Western Range Services, a private company based in Tucson, Arizona that conducts business in geotechnical engineering services;
Mr. Matson has approximately 22 years of mining experience, including:
a)
From August 1998 to December 2001, he served as Technical Engineering Manager of Equatorial Mining North America, Inc., a copper mining company based in Sydney Australia with operations in Arizona, Nevada, and Chile;
b)
From July 1989 to August 1988, as Chief Geologist of Arimetico, Inc., a then Toronto Stock Exchange listed company based in Tucson, Arizona, which was a copper mining company with operations in Arizona and Nevada;
c)
From November 1987 to July 1989, a Mining Engineer for the State of Arizona Department of Mines and Mineral Resources in Tucson, Arizona; and
d)
From January 1979 to November 1987, as exploration geologist for several companies, including Exploration, Ltd., Meridian Minerals, Inc., Gulf Resources, and Chemical Co.
In 1977, Mr. Matson received a Bachelor of Science Degree in Geology from the University of Arizona and completed his graduate studies in Geological Engineering in 1986 from the same university. Since 1987, Mr. Matson has been a registered Professional Geologist in the State of Arizona.
Family Relationships
Two of our officers and director are related to one another. John A. McKinney, our Executive Vice-President/Chief Financial Officer, is the son-in-law of Harold R Shipes, our Chief Executive Officer/Chairman of the Board. Apart from that relationship, there are no family relationships between or among any of our directors or executive officers. There is no arrangement or understanding between any of our directors or executive officers and any other person in which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.
Involvement in Certain Legal Proceedings
None of our officers, directors, or persons nominated for such position, has been involved in legal proceedings that would be material to an evaluation of their ability or integrity, including:
·
involvement in any bankruptcy;
·
involvement in any conviction in a criminal proceeding;
·
being subject to a pending criminal proceeding;
·
being subject to any order or judgment, decree permanently or temporarily enjoining barring, suspending or otherwise limiting their involvement in any type of business, securities or banking activities; and
·
being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.
Compliance with Section 16(a) of the Exchange Act
Not applicable. We do not have a class of equity securities registered under Section 12 of the Exchange Act.
Code of Ethics
We have adopted a Code of Ethics.
Corporate Governance:
a. Director Independence
Our common stock is quoted on the OTC Bulletin Board; that trading medium does not have director independence requirements. Under Item 407(a) of Regulation S-B, we have adopted the definition of independence used by the American Stock Exchange, which may be found in the American Stock Exchange Company guide at (s) 121(A)(2) (2007). Under this definition, none of our directors are independent, because our Board of Directors cannot affirmatively determine that any of our directors do not have a relationship that would interfere with the exercise of independent judgment in carrying out their responsibilities of a director.
b. Committees
We have audit, nominating or compensation committees performing similar functions. Our Board of Directors, as a whole, decides such matters, including those that would be performed by a standing nominating committee. Our Board of Directors has adopted procedures for considering executive and director compensation. We have not yet elected audit, compensation, or nominating committees because we have not sufficiently developed our operations since we changed our business model to exploration activities. We have established minimum criteria for the election of nominees to our Board of Directors and have a process or procedure for evaluating such nominees.
c. Shareholder Communications
Our Board of Directors has adopted a defined or procedure requirements for our stockholders to send communications to our Board of Directors, including submission of recommendations for nominating directors. We have also adopted a process for our security holders to communicate with our Board of Directors.
d. Board of Director Meetings.
During 2009, three board resolutions were adopted during the year in lieu of actual board member meetings. All three board members, Harold R. Shipes, Michael Harrington and Herbert E. Dunham approved the resolutions. The annual board meeting is pending.
During fiscal year 2008, we had one Board of Director meeting that was held on March 18, 2008. We had three directors in attendance, H. Roy Shipes, Michael Harrington and Herbert E. Dunham.
e. Annual Shareholder Meetings
Our annual board meeting for 2008 is pending.
On March 18, 2008, we had our 2007 Annual Meeting of Shareholders. All of our directors at the time, Messrs. Dunham, Harrington and Shipes attended the meeting. We request that all of our Directors attend our Annual Shareholder Meetings; however, we have no formal policy regarding their attendance.
Item 11
Item 11 Executive Compensation
The following table sets forth the total compensation currently being paid by us for services rendered by our executive officers.
Summary Compensation Table
Employment Agreements, Termination of Employment and Change-in-Control Arrangement
There are no employment agreements between any member of our management and us. There are no changes of control arrangements, either by means of a compensatory plan, agreement, or otherwise, involving our current or former executive officers.
Management Compensation
In 2009, our management received shares in the Company’s common stock as compensation for past services. We have no agreements in place to pay any compensation to management, although we may enter into such agreements in the future.
Board Compensation
SUMMARY COMPENSATION TABLE
In 2009, Herbert E Dunham and Michael Harrington, our Directors, have each received 100,000 shares of our common stock for their services as Directors The shares issued to Director Dunham on October 6, 2009 were valued at $0.01 per share, for an aggregate value of $1,000. The shares issued to Director Harrington on October 6, 2009, were valued at $0.01 per share, for an aggregate value of $1,000.
In 2008. there was no compensation paid to any director.
On September 13, 2007, Director Harrington was issued 100,000 shares of common stock, valued at $0.04 per share, for an aggregate value of $4,000, for services as Director.
On October 21, 2006, Director Dunham was issued 100,000 shares of common stock, valued at $0.05 per share, for an aggregate value of $5,000, for services as Director.
Item 12
Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following tables set forth the ownership, as of the date of this Form 10-K, of our common stock by each person known by us to be the beneficial owner of more than 5% of our outstanding common stock, our directors, and our executive officers and directors as a group. There are not any pending or anticipated arrangements that may cause a change in control.
The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable common share property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown
* Shares held as community property.
** Shares held as joint tenants in the entirety.
This table is based upon information derived from our stock records. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned. Except as set forth above, applicable percentages are based upon 18,561,763 shares of common stock outstanding as of the date of this registration statement.
Item 13
Item 13 Certain Relationships and Related Transactions
Our founders, who are also considered “promoters” under the Securities Act are: (a) Harold Roy Shipes, our Chief Executive Officer/Chairman of the Board; (b) John McKinney, our Executive Vice President/Chief Financial Officer; and (c) Matt J. Lang, our Vice President of Administration/Secretary. The information set forth below describes transactions with Messrs Shipes, McKinney, and Lang in connection with Messrs. Shipes, McKinney, and Lang, each being issued 4,000,000 shares of our common stock on September 13, 2006. These issuances were the result of the following:
a.
Prior to January 1, 1994, Arimetco International, Inc. owned 100% of our issued and outstanding shares of common;
b.
On or about January 1, 1994, Mr. Shipes and his wife, Eileen Shipes, purchased 800 shares of our common stock from Arimetco International, Inc. which represented 80% of our then issued and outstanding shares, for an aggregate purchase price of $200,000;
c.
On or about January 1, 1994, Mr. McKinney, purchased 200 shares of our common stock from Arimetco International, Inc. for $50,000, which represented 20% ;
d.
On or about July 13, 2006, of his 800 shares of our common stock, Mr. Shipes sold : (i) 333 shares to Matt Lang, our Vice President of Administration/Corporate Secretary, and his wife Danielle Lang, for an aggregate purchase price of $333 or $1.00 per share; and (ii) 133 of his shares to Mr. McKinney and his wife, Lynette McKinney, for an aggregate purchase price of $133 or $1.00 per share.
As a result of the transactions described in a - d, as of July 13, 2006, Mr. Shipes and his wife owned 334 shares of our common stock, and Messrs. McKinney, and Lang each had 333 shares of our common stock. On July 14, 2006, we increased our authorized shares to 500,000,000 and thereafter on the same day we forward split our issued and outstanding shares at a ratio of 12,000 to 1. This 12,000 to 1 split resulted in Mr. and Mrs. Shipes, Mr. and Mrs. Lang, and Mr. and Mrs. McKinney each jointly own 4,000,000 shares of our common stock.
On October 21, 2006, we issued 300,000 shares of our common stock to our affiliate, Atlas Precious Metals, Inc., for our acquisition of 98% of Preciosos S.A. de C.V, a Mexico incorporated entity, which is now our 98% owned subsidiary. Our Chief Executive Officer, Mr. Shipes, owns the remaining 2%.
Indebtedness to our Chief Executive Officer , Roy Shipes
As of December 31, 2009, we owe our Chief Executive Officer, Harold R. Shipes, a total of $93,732 of which is accrued interest of $79,748 from various loans made in earlier years, with the balance representing business expenses incurred on behalf of the Company.
As of December 31, 2008, we owed our Chief Executive Officer, Harold R. Shipes, a total of $84,019 representing accrued interest from various loans made in earlier years. From December 1998 to December 31, 2008, our Chief Executive Officer, Harold R. Shipes, loaned us an aggregate of $335,508. These loans, which are unsecured, bear interest at a rate of ten (10%) percent per year.
On September 8, 2008, we issued 335,567 shares of our common stock to Harold R. Shipes, in satisfaction of $96,979 in loans from Mr. Shipes. $90,000 represented the principal portion of a $90,000 loan made in 2008; the remainder represents business debts Mr. Shipes incurred on behalf of the Company.
On June 30, 2007, we issued 336,186 shares of our common stock to Mr. Shipes, in satisfaction of $168,093 of loans that he extended to us.
Stock Issuances to Directors
In 2009, Herbert E Dunham and Michael Harrington, each received 100,000 shares of our common stock for their services as a Director The shares issued to Director Dunham on October 6, 2009 were valued at $0.01 per share, for an aggregate value of $1,000. The shares issued to Director Harrington on October 6, 2009, were valued at $0.01 per share, for an aggregate value of $1,000.
Our Directors, Herbert E. Dunham and Michael Harrington each received 100,000 shares of our common stock on October 21, 2006 and September 13, 2007, respectively, for their services as our Directors. Mr. Dunham shares were valued at $0.05 per share for an aggregate value of $5,000. Mr. Harrington’s shares were valued at $0.04 per share, for an aggregate value of $4,000.
Apart from the above transactions, none of the following parties has, since our date of incorporation, had any other material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
·
Any of our directors or officers;
·
Any person proposed as a nominee for election as a director;
·
Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock;
·
Our promoters, or
·
Any member of the immediate family of any of the foregoing persons.
Item 14
Item 14 Principal Accountant Fees and Services
Principal Accountant Fees and Services
Audit Fees
We paid our principal independent accountants, Moore and Associates, Chartered $8,000 in audit fees for the audit of our financial statements ending December 31, 2008.
Audit fees paid to Moore and Associates, Chartered in 2009 were $6,800 and $2,000 to our successor auditors, Seale and Beers, CPA’s. During 2009, the Securities Exchange Commission advised us that Moore and Associates, Chartered, was not in compliance with appropriate auditing standards and procedures and their license to practice under the aspices of the Public Company Accounting Oversight Board (PCAOB) was revoked. Pursuant to SEC requirements, the Company filed the appropriate 8-K filing and has contracted with Seale and Beers, CPA’s to reaudit the Company’s financial records for the Year 2008 at a cost of $5,000.
Tax Fees
No such fees were paid to Moore & Associates, nor Seale and Beers, CPA’s , their successors, at any time.
All Other Fees
No such fees were paid to Moore & Associates, nor Seale and Beers, CPA’s , their successors, at any time
PART IV
Item 15
Item 15 Exhibits and Financial Statement Schedules
EXHIBITS
Exhibit 23(a): Consent of Seale and Beers, CPA’s dated April 14, 2010
Exhibit 31.1 Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
Exhibit 31.2 Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002
Exhibit 32.1 Certification by the Principal Executive Officer pursuant to Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
Exhibit 32.2 Certification by the Principal Financial Officer pursuant to Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL SILVER, INC.
/s/Harold R Shipes
Harold R. Shipes, Chief Executive Officer/Chairman of the Board
Dated: April 15, 2010
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.
Signature
Title
Date
/s/ Harold R. Shipes
Chairman of the Board/Director
April 15, 2010
Harold R. Shipes
Principal Executive Officer
Chief Executive Officer
/s/Herbert E Dunham
Director
April 15, 2010
Herbert E Dunham
/s/ Michael Harrington
Director
April 15, 2010
Michael Harrington
/s/John A. McKinney
Chief Financial Officer
April 15, 2010
John A. McKinney
Principal Accounting Officer
Executive Vice President
/s/ Matt J. Lang
Secretary/Vice President of
Administration
April 15, 2010
Matt J. Lang
Supplemental Information to be Furnished With Reports Filed Pursuant to Section 15(d) of the act by Registrants Which Have Not Registered Securities Pursuant to Section 12 of the Act.
Inapplicable. We have not provided an annual report to our security holders and we have never filed a Proxy Statement.
SEALE AND BEERS, CPAs
PCAOB & CPAB REGISTERED AUDITORS
www.sealebeers.com
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use, in the statement on Form 10K of International Silver, Inc, of our report dated April 14, 2010 on our audit of the consolidated financial statements of International Silver, Inc as of December 31, 2009 and 2008 (restated), and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years ended December 31, 2009, 2008 (restated) and since inception of exploration stage on June 16, 2006 through December 31, 2009, and the reference to us under the caption “Experts.”
/s/ Seale and Beers, CPAs
Seale and Beers, CPAs
Las Vegas, Nevada
April 15, 2010
Seale and Beers, CPAs PCAOB & CPAB Registered Auditors
50 S. Jones Blvd Suite 202 Las Vegas, NV 89107 Phone: (888)727-8251 Fax: (888)782-2351