Item 1. Business
International Silver is referred to herein as “we”, “our” or “us”
Business
Glossary
Adits - An underground mine tunnel with only one end daylighting.
Alluvial (valleys) - Material created by the erosion of rocks by water, air and climate conditions.
Argentite - Silver sulfide
Arroyo - Spanish word that defines a dry creek bed.
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.
Cerussite - Lead carbonate, an oxide ore mineral of lead.
Dolomite - Refers to magnesium bearing 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 - Zinc silicate mineral.
Igneous bodies - Rock masses created by intrusion of molten rock.
Igneous rock out crops - Masses of igneous rocks, which are exposed.
Limonite - Porous iron oxides.
Limonitic Anglesite - Form of lead sulfate with oxidized iron found in many lead-zinc-silver ore zones.
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, an oxide ore mineral of zinc.
Sphalerite - Refers to zinc sulfide, a common ore mineral of zinc.
Staking - Refers to the practice of placing stakes in the form of pipes or wooden posts to identify property being claimed under the rules of the Bureau of Land Management of the United States.
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 of precious metals. 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.
Our primary rights and properties are the 1) Calico Silver Project, an exploration project , located in the Calico Mining District of San Bernardino County, California and held by unpatented Federal lode mining claims owned by the company; 2) a Lease/ Option to acquire and explore the Prince Mine; 3) a block of 495 acres of unpatented Federal lode mining claims adjacent to the Prince Mine and 450 acres of unpatented Federal lode claims adjacent to the Caselton Mine, both claim blocks owned directly by us, located in the Pioche Mining District of Lincoln County, Nevada; and 4) Butte Silver Mining Project, located in the Butte Mining District of Silver Bow County, Montana consisting of approximately 380 acres of surface rights and 1,000 acres of mineral rights.
We generated total revenues of $249,744 in 2012 from a mineral lease agreement and engineering/mining related consulting services. Our engineering related revenues and mineral lease income are insufficient to maintain our exploration efforts; accordingly, we are dependent upon procuring third-party funding to continue our focus on exploration and development activities.
We have relied upon funds raised from the sale of our common stock funds from private placements and limited engineering services to cover our operating costs and expenses. After December, 31, 2012, management executed a convertible note agreement for $2.2 million and is pursuing additional funding for expand its exploration activities at the Prince Mine in Nevada and Butte properties in Montana and for general corporate activities. 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 6, 1992 as Western States Engineering and Construction, 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, but continue providing limited engineering consulting services. Prior to June 16, 2006, we only 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, and 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
At our Administrative Offices in Tucson, Arizona, we currently have seven employees: (1) Mr. Harold R. Shipes, President and Chief Executive Officer; (2) Mr. John A. McKinney, Executive Vice President/Chief Financial Officer; (3) Mr. Matthew J. Lang, Vice President of Administration/Corporate Secretary; (4) Mr. Daniel Dominguez, Corporate Controller; (5) Mrs. Eileen Shipes, Office Manager; (6) Ms. Danielle Lang, Staff Accountant and (7) Mr. Alexander Makaron, Engineer.
On January 1, 2013, we established an engineering/exploration office in Butte, Montana. We hired two new employees: (1) Robin McCulloch, Manager of Operations; and (2) Jill Sotendahl, a geologist.
Production Distribution Methods
Should we be successful in producing metallic concentrates, we will attempt to sell such concentrates directly to smelters or to metals trading companies for shipment to smelters around the world. Should we be successful in producing precious metals, we will attempt to sell them directly to precious metals trading 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 or companies, since we will attempt to sell metals and concentrates directly to smelters and metals trading 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, Cedar City, Utah, Ely, Las Vegas, Nevada and Butte, Montana;
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Sample preparation and assay services from Skyline Assayers and Laboratories in Tucson, Arizona and American Analytical laboratories a certified and registered laboratory with offices in Sparks and Elko Nevada;
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Purchase of bulldozers, excavators, and grading equipment through equipment companies such as the Caterpillar dealer and use equipment dealer;
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Smelting, refining and purchasing of product through Glencore, Trafigura, Gerald Metals, and Penoles;
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Transportation through SP or UP Railways and local truck haulage companies in the United States;
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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, Cedar City, Utah, Ely and Las Vegas, Nevada;
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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 gangue rock, which will be purchased from Dow Chemicals or other suppliers;
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Consumables to be furnished by local suppliers; and
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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, which include the following:
California Property
The following approvals will be required from the following government agencies relative to our Calico Silver property prior to advanced exploration such as drilling:
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California Department of Wildlife Management.
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Bureau of Land Management as disclosed in Plan of Operation, which provides for advanced exploration activities on Federal land held by unpatented mining claims.
Nevada Properties
The following approvals will be required from the following government agencies depending on the level of activity relative to our Pioche properties:
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Water Quality Division of the Nevada Department of Environmental Protection, which requires approval for commercial processing of ore and or de-watering of mines for exploration.
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Air Quality Division of the Nevada Department of Environmental Protection, which is required prior to commercial ore processing operations or construction of related facilities.
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Explosives Permit from the Federal Bureau of Alcohol, Tobacco and Firearms required prior to mine operation or other blasting activity.
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Bureau of Land Management - If advanced exploration or mining activities are to be conducted on federal managed land held by unpatented mining claims, Bureau of Land Management approval is required.
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Nevada Division of Water Resources approval for drilling exploration wells.
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Federal Mine Safety and Health Administration requires us to provide notice of renewal of underground mining for inspection scheduling.
Montana Properties
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Since the planned program for the two Montana properties consists of evaluation and exploration on a private mineral estate, we will be required to file a permit application with the Montana Department of Environmental Liability. If underground mine exploration is necessary, notification with follow-up inspections will be conducted by the U.S. Mine Safety & Health Administration.
Costs and Effect 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 $140,000 for initial permit related work, to be completed by our Consulting Geologist and other contract services.
Research and Development Expenditures/Last Three Years:
We have not engaged in any research and development or assumed any such expenses over the past three 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 mining 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", 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.
An investment in our securities involves a high degree of risk, and you should only consider an investment in our securities if you can afford to sustain the loss of your entire investment. You should carefully consider the following risk factors and all other information contained herein as well as the information included in this Annual Report on Form 10-K, in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, other than those we describe below, that are not presently known to us or that we currently believe are immaterial, may also impair our business operations. If any of the following risks occur, our business and financial results could be harmed. You should refer to the other information contained in this Annual Report, including our consolidated financial statements and the related notes.
Risks Related to our Business Activities.
Our financial condition raises substantial doubt about our ability to continue as a going concern.
As of December 31, 2012, we have an accumulated deficit of $5,181,600. We are an exploration stage enterprise and have generated nominal revenue during our exploration stage. Our auditor has issued a going concern opinion that there is substantial doubt whether we can continue as an ongoing business. If we fail to obtain the entire $4.2 million of financing, we will be unable to pursue our business plan and operations will have to be curtailed or terminated, in which case you will lose part or all of your investment in our common stock. Further, if we raise funds through the sale of our equity securities, our shareholders will suffer significant dilution.
Because 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 reserves of silver ore or ores of 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.
Fluctuations in the market price for silver may affect both the value of our assets and the market price of our stock.
Silver is a commodity and its price is very volatile. Our ability to raise funds and the price and terms on which we are able to raise funds may be affected by the both the volatility in the price of silver and the investment community’s perception of the future price of silver. Such changes could affect both the value of our assets and the price of our stock.
We are subject to risks applicable to mining operations.
Mining operations inherently imply certain risk of which investors should be aware, as follows:
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World-wide economic cycles influence prices of base and precious metals. As economies recede, demand for these commodities may decline, which may negatively impact the supply and demand ratio, causing prices to respond accordingly. The cash flow generated by mining activities is dependent on price levels of the metals produced. Future world-wide economic cycles may cause prices to vary outside assumed parameters in cash flow models, which_ include certain price assumptions.
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Ore grades vary within ore bodies. Lower grades than predicted might negatively impact cash flow since less metal may be produced from specific ore blocks.
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Our economic performance is dependent upon production of the predicted and planned tonnage and grade from the mine. Ground conditions in underground mines can cause fluctuation of tonnage production from that planned. Lower tonnage from that planned would imply less metal production, and would negatively impact cash flow.
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Economic performance of the mining operation is dependent on sales of the mine production. While both base and precious metals are commodities that are sold world-wide, they still must be sold. Failure to maintain an orderly market for the products would cause an interruption to cash flow until the production is sold.
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The regularity of cash flow is dependent upon a regular sales program, which has not been finalized by us.
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Smelting costs fluctuate over time.
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Transportation of concentrates and final metals produced to the market is subject to weather interruption.
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The start date of mining operations may be impacted by delays in the various permits required by government agencies.
We have a limited operating history on which to base an evaluation of our business and prospects.
Although we were incorporated in 1992 and continue to perform engineering services and acquired the Calico Silver Project in 2007 and gained control of the mining leases in Nevada and Montana in 2010 and 2012, respectively, we are still in the exploratory stage due to our change in business plans and have little operating history and have incurred losses during the exploratory period. We have never had any revenues from exploration or mining operations. In addition, our operating history has been restricted to the acquisition and exploration of our mineral properties and this does not provide a meaningful basis for an evaluation of our prospects if we ever determine that we have a mineral reserve and commence the construction and operation of a mine. We have no way to evaluate the likelihood of whether our mineral properties will be found to contain any mineral reserve or, if they do that we will be able to build or operate a mine successfully. We anticipate that we will continue to incur operating costs without realizing any revenues during the period when we are exploring our properties. We therefore expect to continue to incur significant losses into the foreseeable future, which will require us to raise funds to cover our ongoing costs. If we are unable to generate significant revenues from mining operations and any dispositions of our properties, we will not be able to earn profits or continue operations. At this early stage of our operation, we also expect to face the risks, uncertainties, expenses and difficulties frequently encountered by companies at the start up stage of their business development. We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a materially adverse effect on our financial condition. There is no history upon which to base any assumption as to the likelihood that we will prove successful in implementing our current business plan and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations.
We have no history of mining operations.
The company has no history of mining operations, and there is no assurance that it will successfully operate profitably or provide a return on investment in the future. The costs, timing and complexities of mine construction and development are increased by the remote locations of our properties. It is common in new mining operations to experience unexpected problems and delays during construction, development, and mine start-up. In addition, delays in the commencement of mineral production often occur. Accordingly, there are no assurances that our activities will result in profitable mining operations or that we will profitably produce metals at any of its properties. Other factors mentioned in this section entitled “Risk Factors” may also prevent us from successfully operating a mine.
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 15 to 40 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 carry only limited property and casualty insurance, 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.
We may be unable to successfully manage our growth, and we currently have limited management systems and resources available to us to manage any such potential growth.
We are in the process of expanding our operations and anticipate that significant expansion of our operations will be required in order to address potential market opportunities. This potential growth will place a significant strain on our management, operational and financial resources. We expect to add additional key personnel in the near future. Increases in the number of employees will place significant demands on our management. In order to manage the expected growth of its operations, we will be required to expand existing operations, particularly with respect to mining personnel, to improve existing procedures and controls, including improvement of our financial and other internal management systems, on a timely basis.
Further, our management will be required to establish and maintain relationships with various third parties and to maintain control over our strategic direction in a rapidly changing environment. There can be no assurance that our current personnel, systems, procedures and controls will be adequate to support our future operations, that management will be able to identify, hire, train, retain, motivate and manage required personnel or that our management will be able to manage and exploit existing and potential market opportunities successfully. If we are unable to manage growth effectively, our business, results of operations and financial condition will be materially adversely affected.
We may be unable to obtain funds for our operations.
We may not have adequate funds to complete the acquisition and initiate and achieve operations of any or our present or proposed properties. Implementation of our plan to develop these properties is dependent upon receiving financing, for which there are no assurances. If we are unable to obtain financing, we may have to curtail, delay or cease operations, which will negatively affect the value of an investment in our securities. Unless we are able to generate revenue from our operations, we may be unable to obtain traditional bank financing on reasonable terms, if at all, and we may be limited to equity-based offerings, which is likely to dilute the interest of our stockholders. Further, there is no assurance that we will be successful in obtaining financing through debt or equity offerings, on commercially reasonable terms or at all. Any of these eventualities would have a material adverse effect on our business and operations.
There are uncertainties regarding development of the mining properties.
Any mining operations we undertake will involve substantial development. We may encounter various technical and control problems during our development of mining operations. No assurance can be given that any of our proposed mining operations will not involve a longer period of time or the expenditure of a greater amount of funds and other resources than is presently contemplated. Such technical or operational problems may negatively impact the economic performance of the project.
Our operations are subject to extensive governmental regulation.
Both mineral exploration and extraction require permits from various federal, state, and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that we will be able to obtain or maintain any of the permits required for the continued exploration of our mineral properties or for the construction and operation of a mine on our properties at economically viable costs. If we cannot accomplish these objectives, our business could fail.
Although we believe that we are in compliance with all material laws and regulations that currently apply to our activities but there can be no assurance that we can continue to remain in compliance. Current laws and regulations could be amended and we might not be able to comply with them, as amended. Further, there can be no assurance that we will be able to obtain or maintain all permits necessary for our future operations, or that we will be able to obtain them on reasonable terms. To the extent such approvals are required and are not obtained, we may be delayed or prohibited from proceeding with planned exploration or development of our mineral properties.
Land reclamation requirements for exploration properties may be burdensome and may divert funds from our exploration programs
Although variable, depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies, as well as companies with mining operations, in order to minimize long term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and to reasonably re-establish pre-disturbance land forms and vegetation. In order to carry out reclamation obligations imposed on us in connection with its mineral exploration, we must allocate financial resources that might otherwise be spent on further exploration programs.
Because of the inherent dangers involved in mineral exploration and exploitation, there is a risk that we may incur liability or damages as we conduct our business.
The search for and exploitation of valuable minerals involves numerous hazards. In the course of carrying out our operations, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. We currently have no such insurance nor do we expect to get such insurance for the foreseeable future. If a hazard were to occur, the costs of rectifying the hazard may exceed our asset value and cause us to liquidate all of our assets, resulting in the loss of your entire investment in us.
We face competition in many areas of our business.
We will compete with other companies engaged in the mining industry, most of which are larger than us. Therefore, we will face substantial competition in connection with the hiring and retaining of highly qualified mining, metallurgical, financial and administrative personnel, which creates a high degree of risk. Among our competitors are BHP/Billiton and Freeport McMoran, as well as numerous other foreign and domestic companies in the mining business. Many of these competitors are well established, have substantially greater financial and other resources than we have, and have an established reputation for success in mining that will be competitive with our operations.
In addition, the mineral exploration, development, and production industry is largely un-integrated. We compete with other exploration companies looking for mineral resource properties. While we compete with other exploration companies in the effort to locate and acquire mineral resource properties, we will not compete with them for the removal or sales of mineral products from our properties if we should eventually discover the presence of them in quantities sufficient to make production economically feasible. Readily available markets exist worldwide for the sale of mineral products. Therefore, we will likely be able to sell any mineral products that we identify and produce.
In identifying and acquiring mineral resource properties, we compete with many companies possessing greater financial resources and technical facilities. This competition could adversely affect our ability to acquire suitable prospects for exploration in the future.
Accordingly, there can be no assurance that we will be able to compete successfully with other companies or that we will ever achieve profitability.
SPECIFIC RISKS RELATING TO THE COMPANY AND OUR COMMON STOCK
We have not paid dividends in the past and do not expect to pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We have never paid cash dividends on our common stock and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting it at such time as the board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if its stock price appreciates.
There is a limited market for our common stock, which may make it more difficult to dispose of your stock.
Our common stock is currently quoted on the Over the Counter OTC QB market under the symbol "ISLV". There is a limited trading market for our common stock. Accordingly, there can be no assurance as to the liquidity of any markets that may develop for our common stock, the ability of holders of our common stock to sell our common stock, or the prices at which holders may be able to sell our common stock.
We may have difficulty in attracting and retaining management and outside independent members to our board of directors as a result of their concerns relating to their increased personal exposure to lawsuits and stockholder claims by virtue of holding these positions in a publicly held company.
The directors and management of publicly traded corporations are increasingly concerned with the extent of their personal exposure to lawsuits and stockholder claims, as well as governmental and creditor claims which may be made against them, particularly in view of recent changes in securities laws imposing additional duties, obligations and liabilities on management and directors. Due to these perceived risks, directors and management are also becoming increasingly concerned with the availability of directors and officers liability insurance to pay on a timely basis the costs incurred in defending such claims. We currently carry limited directors and officer’s liability insurance. Directors and officers liability insurance is expensive and difficult to obtain. If we are unable to provide directors and officers liability insurance at affordable rates, it may become increasingly more difficult to attract and retain qualified outside directors to serve on our board of directors.
We are effectively controlled by our management.
Our senior management owns in the aggregate a majority of our outstanding common stock. Accordingly, they will be able to elect our entire board of directors, and to take action requiring stockholder approval without the vote of other stockholders, subject to governing laws, rules and regulations. Investors in the Company will thus have little ability to influence our business or operations.
Our directors have the right to authorize the issuance of shares of our preferred stock and additional shares of our common stock.
Our directors, within the limitations and restrictions contained in our articles of incorporation and without further action by our stockholders, have the authority to issue shares of preferred stock from time to time in one or more series and to fix the number of shares and the relative rights, conversion rights, voting rights, and terms of redemption, liquidation preferences and any other preferences, special rights and qualifications of any such series. Any issuance of additional shares of preferred stock could adversely affect the rights of holders of our common stock. Should we issue additional shares of our common stock at a later time, each investor's ownership interest in our stock would be proportionally reduced. No investor will have any preemptive right to acquire additional shares of our common stock, or any of our other securities. A sale of a substantial number of shares of our common stock may cause the price of its common stock to decline. If our stockholders sell substantial amounts of the Company’s common stock in the public market, the market price of its common stock could fall. These sales also may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
The SEC requires us, as a reporting company, to include a report of management on our internal controls over financial reporting in our annual reports on Form 10-K. Our chief executive officer and chief financial officer, neither of which is an accountant, have concluded that our financial controls are ineffective, we cannot assure you that, if our controls were reviewed by our independent registered accounting firm, such firm would reach the same conclusion. We have not engaged any independent firm to evaluate our internal controls or to make recommendations with respect to internal controls. If our auditors are unable to conclude that we have effective internal controls over financial reporting, investors could lose confidence in the reliability of our financial statements, especially in view of our need to restate prior financial statements, which could result in a decrease in the value of our securities. We cannot assure you that we will be able to adequately address in a timely manner any internal controls issues in a timely manner. Further, although the Dodd-Frank Wall Street Reform and Consumer Protection Act exempts companies with a public float of less than $75 million from the requirement that our independent registered public accounting firm attest to our financial controls, this exemption does not affect the requirement that we include a report of management on our internal controls over financial reporting and will not affect the requirement to include the auditor’s attestation if our public float exceeds $75 million. Regardless of whether we are required to receive an attestation from our independent registered public accounting firm with respect to our internal controls, if we are unable to do so, potential investors may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.
Our common stock is thinly traded and the market price of our common stock is very volatile, leading to the possibility of its value being depressed at a time when you may want to sell your shares.
Our stock is quoted on the OTC QB, the middle tier of the OTC market. It had previously been quoted on the OTC Bulletin Board and the OTC Pink. The OTC QB is not a stock exchange. There is not an active market for our common stock. There may be many periods, some of significant duration, in which there is no or insignificant trading volume in our common stock. The absence of any significant activity can result in a very volatile stock. When there is little trading activity, the purchase or sale of a relatively small number of shares could result in a disproportionate change in the stock price. In addition, numerous other factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly. In addition to market and industry factors, the price and trading volume for our common stock may be highly volatile for specific business reasons. Securities class action litigation is often instituted against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs to us and divert our management’s attention and resources.
Our common stock is subject to the "Penny Stock" rules of the SEC and the trading market in our securities is limited, which makes transaction in our stock cumbersome and may reduce the value of an investment in our stock.
The SEC has adopted Rule 3a51-1 which establishes the definition of a "penny stock," for the purposes relevant to us, is any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires: that a broker or dealer approve a person's account for transactions in penny stocks; and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person's account for transactions in penny stocks, the broker or dealer must: obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form: sets forth the basis on which the broker or dealer made the suitability determination; and that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.
An investment in our securities involves a high degree of risk, and you should only consider an investment in our securities if you can afford to sustain the loss of your entire investment.
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. (“APMI”). APMI has a five-year lease with WC Partners, a Los Angeles, California-based company, which expires on September 30, 2013. We pay Atlas Precious Metals Inc. $10,280 per month for our space at this location. Our space is adequate for our purposes.
Exploration Properties and Claims
We may explore for various metals, including gold, silver, copper, lead, manganese, zinc, barite; however, our initial primary activities will focus on the exploration of silver. Our exploration rights were obtained through outright property acquisition, staking of federal mining claims on lands managed by the U.S. Bureau of Land Management, purchase options of privately held surface and mineral rights, purchase of unpatented claims on Bureau of Land Management managed federal lands and through exploration leases. These rights are held by us without underlying royalty interests. Our properties are located in San Bernardino County, California, the Pioche mining district of Lincoln County, Nevada and Butte, Montana. These properties and the land tenure are further discussed in later sections as:
·
The Prince Mine
·
Montana Properties
·
The Calico Silver Project
With respect to our properties for exploration purposes, our properties may or may not progress to the development stage. 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 Pioche Mining District, Lincoln County, Nevada
Introduction:
Our principal area of interest is the Pioche District of Lincoln County, Nevada. We believe that this District represents a unique opportunity in North American mining, in that, we have secured control of a large portion of a very unique silver district. Additionally, we plan to continue to expand our holdings in this area. For the next few years, we will focus our attention to this district, to completing the acquisition of the Prince Mine, which we have under a lease with a purchase option. The district is of a size that potentially may provide us with profitable commercial operations, subject to adequate financing and other risks attendant to our operations.
History:
Silver was discovered on the eastern slope of the Pioche Mountains in 1869 and exploited for high grade, bonanza silver ore until the 1930's when the known fissures were fundamentally depleted. This ore occurred in brecciated fissure veins hosted in the Cambrian age Prospect Mountain Quartzite. This type of ore was found near the town of Pioche mostly in the Treasure Hill area. The veins ranged in thickness from one to four feet, with swells up to ten feet, but the three most productive extended for several thousand feet in strike and to a depth of 1200 feet. The silver ore was mostly oxidized and contained lead as cerussite, some galena, with silver chloride and argentite. Supergene processes apparently removed the zinc from the non-reactive siliceous rock, which was likely present in the original sulfides.
Just to the west of the bonanza silver vein area and extending from it into exposures of stratigraphically higher limestones and shales, bedded replacement lead/zinc/silver ore was discovered. The lower part of the Combined Metals Member of the Pioche Shale has been the most productive sequence for non-oxidized sulfide replacements. This unit is the first of the beds enclosed in shales directly above the Cambrian age, Prospect Mountain Quartzite. An east-west structural zone termed the Caselton Channel was found to host replacement mineralization for a strike of over 10,000 feet. The ore zone ranged in thickness from 4 to 40 feet, averaged six feet and had a width of 100 to 1800 feet. The grade of the 3.2 million tons of sulfide ore mined between 1924 and 1959 averaged 4.8 ounces of silver, 0.044 ounces per ton gold, 4.5% lead and 12% zinc. The ore consisted primarily of sphalerite, galena and pyrite in a gangue of manganiferous siderite and minor quartz. Oxidized replacements exist above the sulfide zone but were only partially mined mostly due to smelting issues.
Geology:
The Pioche Mining District encompasses roughly the northern half of the Pioche Hills but extends into the Highland Range to the west. The Pioche Hills are a relatively minor mountain range that follows a northwest trend between Meadow and Lake Valleys. This trend is in marked contrast to the ranges both east and west which align themselves north-south. The Pioche Hills are largely composed of Cambrian sedimentary rocks but these are obscured on the southeast flank where overlain by Tertiary volcanic flow rocks. The mineralized area is entirely within Paleozoic sediments. The principal formations in ascending order are the Prospect Mountain Quartzite, Pioche Shale, Lyndon Limestone, Chisholm Shale and Highland Peak Limestone.
The structural setting of the Pioche Hills has been interpreted mostly in terms of regional thrust faulting. The exposed Paleozoic sedimentary rocks were apparently overridden by a regional thrust plate. This plate termed the Highland thrust consists of a stacked sequence of Upper Cambrian sediments similar to the lower plate but may include some Tertiary volcanic rocks as well. The Highland Peak Formation and a stratigraphic section down to the lower part of the Lyndon Limestone were displaced eastward along the thrust structures. Some flat thrust faults tend to follow shale beds and cut out thicknesses of rock units with little obvious physical expression.
The early Tertiary (and possibly similar pre-Mesozoic?) structures have in turn been displaced by subsequent events. The most traceable set of faults are related to Tertiary extensional basin and range faulting. There appears to be a strike slip component to these major features. They tend to strike north and dip away from the range. Further, the Cambrian rocks are offset by a series of closely spaced, northeast trending normal faults, which drop the strata deeper toward the center of the range.
The Prince Mine was an underground mine which was developed on the very large sulfide replacement "channels" or structural zones containing silver, zinc, lead, gold and manganese with commercial ore grades, but with varying grade in each channel. The three principle and most significant channels are the Caselton Channel, the Prince Channel and the Pan American Channel. These channels are known to extend for several miles in length and range from 100 feet to as much as 1,800 feet wide with ore up to 90 feet thick. Typically, they historically grade d 2.3 ounces of silver and 0.02 ounces of gold per ton, 2.5% lead, 3.5% zinc and 12% manganese dioxide. (P. Gemmill, 1968, pp 1128-1147: In Ridge, Ore Deposits of the United States, AIME, NY.)
While the initial operations of the Prince Mine focused on sulfide replacement ore bodies in limestone with much higher grades, massive oxidized mineralization is believed to remain which has only been minimally mined. As technology has advanced, significant opportunity remains in using the very low cost acid leaching of oxidized zinc, followed by solvent extraction and electro-winning to produce special high grade zinc cathode which can be sold at a premium. In the solvent extraction process, sulfuric acid is regenerated for re-use, which minimizes costs of operation. These methods of processing oxide ores will be evaluated in conjunction with our exploration activities in the district.
Property Description, Geology and History
The Prince Mine
We entered into an exploration lease with an option to acquire the Prince Mine property on November 6, 2010 as further discussed in Note D to our financial statements. The initial land position held under the lease/option consists of twelve patented lode mining claims held in fee simple title by Prince Mine LLC. These claims comprise 227 acres of surface and mineral rights. Should the purchase rights be exercised the property title will transfer to International Silver without a retained royalty. After the exercise of the lease, we acquired through Federal mining law by location, an additional 495 acres in 25 lode mining claims on BLM managed lands next to the patented leased land. The lease / option requires annual payments to the lessor. The Federal lode mining claims require annual maintenance fee payments to the U.S. BLM.
The geology of the Prince Mine is characterized by substantial faulting and displacement of the silver - lead - zinc - gold carbonate replacement type of mineralization. The Prince member of the Lyndon formation has been uplifted along a northwest trending mineralized structure bringing a large block of oxidized mineralization very near the surface, to within ten feet in some areas. Our sampling and analysis indicates that this mineralizing structure likely continues past all known workings in the mine and past any drilling, and most likely intersects the Caselton Channel to the North. Our exploration target is an open pit ore body hosting as much as 15 million tons of mineralized material in these carbonate replacement horizons.
The Prince Mine is a an historic underground silver producer which reportedly contains over 2 million tons of historically measured in-situ ore grade mineralization accessible through existing workings. Its main shaft is 850 feet deep and has several levels of drifts extending outward. It is located 1.5 miles from the Caselton Concentrator, a 1,500-ton per day minerals processing plant. Our immediate focus will be to explore the mineralized zone through geochemical and geophysical surveys and surface drilling. Due to its proximity to the surface, the drill holes will be relatively shallow, 1000 feet or less . At the same time, access to underground workings will be cleaned and repaired to allow inspection and verification sampling. The program hopes to delineate mineralization amenable to mining but there are presently no known mineable reserves established for the mine property.
Property Location and Access
Our Pioche Mining District property is located near the town of Pioche, the county seat of Lincoln County Nevada U.S.A. State Highway 93 serves Pioche. The Prince Mine is about two miles southwest of the town. The mine is accessible by paved State Road 320, which connects to Highway 93. The following maps further illustrate the access and relative positions of the Pioche District properties.
Butte District Properties, Silver Bow County Montana
We began work to acquire mineral properties in the Butte district in 2008. In 2011, we were successful in securing a leasehold interest on a large group of former producing silver mines and mineral claims once held by the Anaconda Company. These properties are believed to still contain a large resource of un-mined silver - zinc and silver - copper mineralization. Inactive mines now held by us include the Badger State, the Lexington, the Alice, the Diamond, the Speculator and the High Ore. We intend to evaluate the feasibility of renewed mining of the historic resources in several of these mines and to conduct exploration for porphyry copper - silver in the district.
History
Mining in the district first began with gold and silver, then copper. In 1910 the Anaconda Company was formed to consolidate the district under singular ownership and to mine and process the rich ores found there. The properties held by us were last operated by the Anaconda Company in 1967.
District Geology
The Butte porphyry copper center is in the south western part of a regional composite intrusive complex termed the Boulder batholith. The batholith as exposed is about 70 miles long by 35 miles wide and trends in a northeastward direction toward Helena MT. The intrusive complex is composed of dozens of chemically distinct plutons ranging in age from middle to late Cretaceous. The batholith is fault bounded to the southeast with right lateral shears. The northwest side also has wrench fault boundaries but also in places appears to be largely concordant with late Cretaceous age volcanics.
In the vicinity of Butte the dominant rock type is 70 to 72 m.y. old Butte Quartz Monzonite. Compositionally, this intrusive may also be termed a hornblende - biotite granodiorite. It in turn has been intruded by quartz porphyry dikes which are differentiates from a larger copper bearing porphyry intrusive at depth and now exposed as an up thrown fault block in the Montana Resources Continental Pit. Younger 48 m.y. volcanics and rhyolitic intrusives cut or unconformably overlie the older intrusives locally, particularly to the west of Butte.
All of the mineralization mined in the central, north and west parts of the district has been found in vein zones created by structural fracturing in the wall rock. The most economically important of these vein zones were termed the Anaconda System. These veins trend generally east-west, with an arc like curvature, were very wide and contained high grade copper ores mostly as chalcocite with native silver. Dips were sinuous but were all southward below the 2800 foot level. Connecting the Anaconda veins, a second somewhat thinner, northwest set of cross cutting veins were developed and mined. These were termed the Blue System.
As the structurally controlled vein systems extended across the district, mineralogic zoning patterns were recognized. A copper rich Central Zone on Butte Hill gave way to an intermediate zone in a rough, semi-circular map pattern, which contained mixed zinc and copper mineralization. This zone extended outward and graded into a peripheral zone characterized by manganese, zinc and silver veining. Our lands are located within all three mineralogic zones. (C. Meyer, E. Shea, C Goddard, Jr., 1968, pp 1373-1416: In Ridge, Ore Deposits in the United States, AIME, New York.)
Property Location and Access.
The land position consists of approximately 1,400 acres of surface rights and 2,000 acres of mineral rights in the Butte District, Silver Bow County Montana.
Claims Map
Property Description, Geology, History.
Alice Mine
Rainbow & Rising Star Veins
The Alice mine is in the outer part of the intermediate mineralogic zone at Butte and was developed on a group of main stage silver zinc veins containing manganese. This mine was first opened in 1886 when rich shallow ores of native silver and silver chloride were mined. The mine is accessed through a tunnel level with track for haulage and two points of ingress and egress. A 400 ‘ deep ventilation shaft is also in place as is a cross cut on the 400 foot level to the Lexington mine shaft. The workings have been maintained and are in relatively good condition.
The vein zone strikes east - west and dips 60 - 80 degrees south. The width varies as numerous veins come together and diverge, with individual veins averaging from 14 feet to 90 feet combining to form a vein zone up to 187 feet wide. Some of the narrower higher grade veins have been mined by historic operations to about the 500 foot level. The water table is below 800 feet.
Oxidized minerals with silver with manganese extend from surface in this wide vein zone down to about 100 feet where they transition into a sulfide zone containing argentite, sphalerite and galena in quartz veins with rhodonite and rhodochrosite. In 1986, an independent engineering firm, Robertson Research International Ltd, calculated a near surface geologic resource to a depth of 75 feet as having 1,418,000 tons with an average grade of 4.68 ounce per ton silver and 0.018 ounce per ton gold.
An estimate of the sulfide zone geologic resource from the 100 foot level to the 1000 foot level was made by Tatman and Potresou in1990, for New Butte Mining Inc. based on Anaconda “Green Book Reserve Reports” and underground drilling. This estimate by two reputable professionals quotes a potential resource of 8,776,736 tons averaging 4.08 ounces per ton silver, 0.024 ounces per ton gold, 4.24 % zinc and 1.31% lead. These estimates are presented as historic data only as mine planning and verification studies have not yet even been initiated.
Lexington Mine
Skyrme, State, Gaul, Grey Rock and Blue Wing veins
The Lexington Mine adjoins and connects on the south with the Alice Mine area development. A good three compartment shaft extends through the tunnel level to 2600 feet but is flooded at about the 1000 level. The shaft is principally useful for ventilation but could be used for hoisting materials between levels. It has a good steel head frame but is not suited for large tonnage production hoisting. The shaft was last operated by the Anaconda Company in 1959. Other parts of the mine including stopes in the Grey Rock Vein on the 400 haulage level were operated in 1990 by New Butte Mining Inc.
The Lexington is developed on the inside edge of the intermediate mineralogic zone on several groups of relatively narrow silver veins and sulfide vein breccias. The veins widen with depth, averaging 4.2 feet to the 600 level after which they increase to 7.6 feet to the 2600 foot level. The historic resource tabulated on the books of the Anaconda Company in developed and probable categories with a 4.6% zinc cutoff grade, are cited as 1,702,864 tons grading 3.57 ounces per ton silver and 8.31% zinc.
Another 1,536,234 tons grading 2.59 ounce per ton silver with 8.27% zinc are listed as “future reserve blocks” by Anaconda. About half of this tonnage is listed above the level of mine flooding. We list no current ore reserves for the property.
Badger State Mine
State, Emily, Badger, Snow Ball and South Split of Rainbow veins
The Badger State Mine was operated by the Anaconda Company from 1960 to 1967 as a 1500 tpd block cave silver - zinc mine. The mine has a substantial steel head frame and large steel frame hoist and compressor building. The three compartment shaft extends downward to the 3800 level. It is presently bulkheaded at the surface and will require repairs for renewed use.
The Badger is located north of the Berkeley Pit and is in the intermediate silver-zinc zone but grades into the periphery of the central copper zone at depth. A substantial tonnage of silver - zinc ore grade mineralization is believed to remain un-mined as plans for re-opening by Anaconda are referenced in company files.
High Ore and Diamond Bell Mines
Syndicate, Bell, Speculator and High Ore veins
The Diamond is located near the north high wall of the Berkeley Pit and our mineral rights extend southerly into the pit area.
The Diamond has a steel production head frame but no hoisting facilities. The shaft is bulkheaded for safety at the surface and was last used for ventilation in 1973. The High Ore Mine connected with the Diamond but the shaft was caved by Anaconda as the area became part of the Berkeley open pit.
The mines are former high grade copper- silver producers in the central mineralogic zone. Ore was found in structurally controlled chalcocite - bornite veins which had lower grade alteration envelopes surrounding them. These veins were mined to several thousand feet of depth. Presently there are no identified mineral resources remaining in the mines, however, we believe that the exploration potential for lesser grade disseminated copper is extremely good.
West Butte Property, Silver Bow County, Montana
On August 7, 2012, we the entered into a purchase agreement and contract deed with Chattel LLC, a Montana Limited Liability Company, for 1022 acres of surface and mineral rights in the West Butte area of the Butte Mining District, Silver Bow County Montana. The West Butte Property is immediately west of Big Butte hill and lies within the peripheral mineralogic zone of the Butte District. Mineralization in this area is characterized by zinc, manganese, silver bearing veins, oxidized near surface. Numerous WNW directed, structurally controlled vein zones occur on the property that are hosted by various phases of the intrusive Butte Quartz Monzonite. There has been no active mining on the property since the 1950s when limited underground mining for silver-manganese ore was conducted.
Although the property is believed to have good exploration potential for silver mineralization and is as yet relatively unexplored, the property was principally acquired for other reasons. The location was selected as a future site for an underground access decline into the intermediate and Central Zones of the Butte District as well as for a future site for a flotation mill and metallurgical treatment facilities.
Calico Silver Project
The Calico Silver Project is an exploration project with a substantial land position in an area of known bulk mineable disseminated silver-barite mineralization. A wide and elongated zone of epithermal silver-barite veining, which is exposed on the property, will be the area initially investigated.
Geology and History
The project is in the Calico Mining District of Southern California. The district has been the site of historic underground mining of bonanza grade silver deposits since the 1880’s and more recently has attracted notice for the discovery of large tonnage disseminated silver deposits. The mineralization of the Calico Silver Project 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 Leviathon claims. Country rock is tertiary volcanics in related pyroclastic and sedimentary formations. The Leviathon vein system is located northeast of the Calico Fault. The Lilly claims are southwest of the fault in argillically altered tuffaceous sediments of the Barstow formation. These claims lie directly between two known disseminated silver deposits, the Waterloo and Langtry but have not been adequately tested by exploration drilling.
Over 100,000 tons of barite ore was mined in the early 1950’s on the claims by open pit methods in a large cut known as the Leviathon Mine. Approximately 50,000 tons of drilling mud grade barite was shipped. Previous to this, all workings on the property were for underground silver mining in the Silverado Mine and the Silver Bow Mine and is believed to have occur red 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 mineable mineral deposits presently exist on the mining claims. The claims are presently under lease to Calico Exploration, LLC. These claims are held for exploration only as no mineable mineral reserves have as yet been discovered or developed.
Property Description
The Calico Silver Property consists of 60 unpatented Federal lode mining claims, which were acquired through staking and filing Notices of Location with the Bureau of Land Management. The Claims are grouped as Leviathon, Silverado and Lilly groups that were located in September and October 2007, at which time the Bureau of Land Management approved the our Notice of Location for Lode Mining Claims accepting that we have located and have the right to the unpatented mining claims. Each claim generally consists of 20. 66 acres for a total of 1,300 acres. Annual maintenance fees of $140 per claim are required to be paid to the BLM each August in order to maintain the rights to explore and possibly mine on the federal land.
Property Location and Access
The Calico Silver Project, is located approximately 15 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 overriding environmental or archeological issues related to this property although it is located within the Mohave Desert Conservation Area and will be held to the applicable environmental compliance standards associated with that area. The property is an exploration stage project without reserves and the sources for power and water, should exploration be successful, have yet to be determined.
Mine Safety Disclosure
Section 1503 of the Dodd-Frank Wall Street Reform Act requires that issuers that are conducting operations of a mine must disclose in their periodic reports with the Securities and Exchange Commission, specific information regarding health and safety and any violations related assessments and legal actions pertaining to mine related facilities.
As we have disclosed herein, we are an Exploration Company and we do not have any mines, operational or otherwise. As such, the Mine and Safety Disclosure is inapplicable to us and there is no disclosure required.
Item 3.
Item 3. Legal Proceedings
There are no pending or threatened lawsuits against us.
Item 4.
Item 4. Mine Safety Disclosures
Not Applicable.
PART II
Item 5.
Item 5. Market Price of and Dividends on our Common Equity and Related Stockholder Matters.
Market Information
Our common stock is quoted on the OTCQB under the trading symbol ISLV. The following table sets forth, for 2012 and 2011, the quarterly high and low bid prices for our common stock in the over-the-counter market. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions
Holders
As of December 31, 2012, there were 55 shareholders of record.
Transfer Agent
Our transfer agent is Island Stock Transfer, 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760, telephone (727) 289-0010.
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
On November 1, 2010, our Board of Directors authorized the approval of a stock option plan. The plan was amended, after December 31, 2012, on February 28, 2013 by the Board of Directors to authorize a maximum of 5,000,000 shares of our common stock. The plan allows the Board of Directors, or a committee thereof at the Board’s discretion, to grant stock options to officers, directors, key employees and consultants of the company and its affiliates.
Pursuant to the Plan, in the case of Incentive Stock Options, the exercise price shall not be less than (i) 100% of the fair market value of one share of common stock on the date the option is granted, or (ii) 110% of the fair market value of one share of common Stock on the date the option is granted if, at that time the option is granted, the participant owns, directly or indirectly more than 10% of the total combined voting power of all classes of stock of the company. In the case of Non-Statutory Stock Options, the per share price to be paid by the Participant, at the time the option is exercised, shall be determined by the Committee in its sole discretion.
On November 1, 2010, stock options for 3,300,000 shares were granted to directors, officers, key employees and consultants at an exercise price of $0.20, which was in excess of the quoted market price of $0.12 of our shares at the date of the grant. The options granted to employees were deemed as “incentive stock options” by the Board of Directors in accordance with the Plan; provided, that the treatment of the options as incentive stock options is subject to shareholder approval of the plan. Options granted to non-employees are non-qualified stock options. These option grants are fully vested and expire on November 1, 2015.
On November 5, 2012, stock options for 400,000 shares were granted to members of the Board of Directors at an exercise price of $0.34, which was in excess of the quoted market price of $0.30 of the our shares at the date of the grant. Stock options for 150,000 shares granted to new directors are fully vested and expire on November 5, 2015. The additional stock options for 250,000 shares issued to all directors vest on September 15, 2013. All these options were deemed as “incentive stock options” by the Board of Directors in accordance with the Plan of common stock.
At December 31, 2012, we had 3,700,000 stock options outstanding. No options were exercised or forfeited during the years ended December 31, 2012 or 2011.
Except for the plan described above, we have not established 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, 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.
Purchasers of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any shares of our common stock during 2012 or 2011.
.
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 us. On October 6, 2009, we issued 3,550,000 shares of our common stock to our directors and to our employees for services rendered. Harold Shipes, John McKinney and Matthew Lang each received 1,000,000 shares. Michael Harrington, Herbert Dunham, Daniel Dominguez, Harrison Matson and Danielle Lang each received 100,000 shares. Alexander Makaron received 35,000 and Viviana Medina received 15,000.
On January 21, 2010, we cancelled 30,000 shares of common stock previously issued to a third-party in exchange for the Tecoma mining property, when the property reverted back to its original owners.
On March 1, 2010, we purchased a 70% interest in the Estrades Mine, from a related party, in exchange for 6,000,000 shares of its common stock, at a share price of $0.0025 per share. The property is carried on our books on a fair value of the equity instrument issued basis. The value allocated to the acquired property is based on a 97.5% discount from the market price on the date of the transaction ($0.40 per share) based on the number of shares issued to the related party and the minimal trading volume of the common stock.
On August 18, 2010, we issued 2,000,000 shares of common stock at $0.025 per share in exchange for an outstanding debt of $50,000 owed to Harold R. Shipes, director/officer.
On August 24, 2010, conducted a private placement and issued an additional 2,000,000 shares of common stock at $0.02 per share for $40,000. Cork Investments, Inc. and Ron Nash, were each issued 1,000,000 shares of common stock.
On December 21, 2010, we issued a 90-day convertible note to Tintic Standard Gold, Inc. in the principal amount of $75,000. As consideration for the issuance of the note, we issued 50,000 shares of common stock to Tintic Standard Gold. We agreed to issue an additional 25,000 shares to Tintic to extend the note for an additional 90 days. On April 25, 2011, the note was converted into 474,077 shares of common stock. A total of 499,077 shares were issued, including the 25,000 shares for the note extension.
On August 25, 2011, we a private placement of its common stock totaling $1,155,000. Casimir Capital LP was the placement agent for the financing. The private placement consisted of the issuance and sale of an aggregate of 7,699,998 units at a purchase price of $0.15 per unit. Each unit is comprised of one share of common stock and a three-year warrant to purchase one share of common stock at a price of $0.20 per share. The sale of unregistered securities were to third party individuals and companies not related to us. The aggregate sales price was $1,155,000 with placement agent fees paid in the amount of $80,850, including the issuance of three-year placement agent options to purchase a total of 539,000 units at a purchase price of $0.15 per unit. Proceeds realized have been initially utilized to pay for legal and administrative fees related to this private placement. Additionally, as of June 30, 2011, we applied some of these proceeds to pay for additional exploration activities and general administrative services.
On August 28, 2012, we issued 271,452 shares of common stock at $0.20 per share in exchange for an outstanding debt owed to a shareholder/officer in the amount of $54,290.
We relied upon Sections 4(2) and 4(6) of the Securities Act of 1933, as amended 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
On August 24, 2010, we received $40,000 in proceeds from a private unrelated investor on a private placement of 2,000,000 shares of our common stock, the funds of which were applied towards general corporate use. Proceeds from a convertible note issued to Tintic Standard Gold, Inc. on December 21, 2010 for $75,000 were applied to exploration activities, as well as for general administration services in year 2011.
On August 25, 2011, proceeds of $1,015,000 were received from the private placement completed with Casimir Capital, LP, were applied for exploration activities and general corporate use.
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 involving silver, gold, zinc, copper and other minerals. To-date, we have not generated any revenues from any of these activities since 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 leasing 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 two private placements, 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
Our financial condition as of December 31, 2012, compared to December 31, 2011 is summarized below, as follows:
Assets.
As of December 31, 2012, we had total assets of $712,858 compared to total assets of $46,692 as of December 31, 2011, representing an increase of $666,166. Current assets at December 31, 2012 of $378,162 and $45,974 at December 31, 2011 are comprised of prepaid insurance and prepaid mine lease costs. Property, plant and equipment of $135,290 at December 31, 2012, reflects primarily the acquisition the Magna Charta property and the deposit on the Chattel property, both located in Butte, Montana. Other assets as of December 31, 2012, includes $150,000 of deposits in an investment, an option payment of $35,000 on the purchase of the Pan American Zinc, Inc. assets and an environmental bond posted on the Caselton Tailings property of $14,406.
Total Liabilities & Equity
Total liabilities and equity at December 31, 2012 of $712,858, reflects debt financing of $2,600,000 procured during the year from ISLV Partners, LLC and the accumulated deficit of $5,181,600. Current liabilities increased by $323,250 to $490,503 at December 31, 2012 compared to $167,253 at December 31, 2011. The increase is attributable to higher payables and accrued expenses arising from the drilling program undertaken by us at the leased Prince mine property located in Nevada during the latter part of the year.
Shareholders’ Equity decreased by $1,796,350 to ($1,916,911) as of December 31, 2012 compared to ($120,561) as of December 31, 2011. The decrease results from the net loss from operations of $2,551,426 during 2012, less the valuation assigned to warrants (recognized as equity financing) issued to ISLV Partners, LLC on the convertible loan financing that occurred during the first half of 2012.
Liquidity and Capital Resources
Working capital decreased by $8,938 to ($112,341) at December 31, 2012, compared to ($121,279) at December 31, 2011. The decrease in working capital resulted principally from increased payables due to the drilling program initiated at the Prince mine property.
Net cash flow from operating activities decreased by $1,126,680 to ($2,080,414) at December 31, 2012, compared to ($953,734) at December 31, 2011. The bulk of the decrease pertains to exploration, general and administrative costs associated with our efforts on procuring various mining leases and a drilling program initiated at the Prince mine property in the Pioche Mining District in Lincoln County, Nevada
Cash flows from investing activities were $334,601 for the year ended December 31, 2012, an increase of $318,989 from the period ended December 31, 2011, which reflected minimal investing activities of $15,612. During 2012, the following occurred - Deposits of $150,000 were made towards an investment in a joint venture, purchase of the Magna Charta and Chattel properties in Montana requiring cash outlays of $103,388, a payment of $35,000 on the purchase option for the Pan American Zinc Co. assets in Nevada, the placement of an reclamation bond of $14,406 at the Caselton Tailings property and leasehold improvements and equipment expenditures of $31,807.
Cash flows from financing activities increased by $1,689,014 to $2,624,290 for the year ended December 31, 2012 compared to $935,276 for the year ended December 31, 2011. In 2012, third-party financing in the amount of $2,600,000 was obtained by the issuance of convertible notes. Our debt obligations in the amount of $54,290 were satisfied by the issuance of common stock to one its officers and debt service payments of $30,000 were made to extinguish the debt owed on a promissory note. In comparison, during the year ended December 31, 2011, a net of $1,015,276 was realized in a private placement of our common stock and debt service payments of $80,000 were made.
Our business plan does not reflect, nor do we anticipate, any revenues during our exploration phase, aside from ongoing engineering services rendered on third-party contracts. 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 any of our properties; 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, 2012 as we have an accumulated deficit of $5,181,600. 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 $4.2 million pending adequate financing over the next twelve months.
Our capital budget for the completion of acquisitions, exploration and development programs in the Pioche Mining District in Nevada, the Calico Project in California and in the Silver Bow Mining District in Montana are as follows:
We cannot meet these requirements from our operations. We intend to seek to finance these activities through the sale of our equity securities. We cannot assure you that we will be able to raise sufficient funds, if any, through the sale of our equity securities, and our inability to raise these funds will impair our ability to develop our business. Further, any sale of equity securities is likely to result in significant dilution to our shareholders.
Results of Operations
We incurred losses of $2,551,426 for the year ended December 31, 2012, an increase in losses of $1,248,426 over the prior year. The increase in losses are due to higher exploration, consulting, professional fees, travel and lodging and salaries in connection with increased exploration drilling and due diligence and investigative work on the properties located in the Pioche Mining District in Nevada and the Silver Bow Mining District in Montana. An analysis of the major components of our results of operations is, as follows:
Revenues - In the year ended December 31, 2012, revenues were $249,744, representing an increase or $241,844 over the $7,900 earned in the year ended December 31, 2011. The increase in revenues are a result of third-party contracts for management and engineering consulting services. No revenues have been realized from production of metal in either year.
Exploration Expenses - Exploration costs increased by 951% or $787,708 to $870,543 for the year ended December 31, 2012 compared to $82,835 for the year ended December 31, 2011. The level of exploration work increased substantially in 2012 due to the acquisition of several mineral leases in Nevada and Montana and commencement of a drilling program at the Prince mine property located in Nevada.
General & Administrative Expenses - General and administrative expenses increased by 44% or $445,916 to $1,466,252 for the year ended December 31, 2012 from $1,020,336 for the year ended December 31, 2011. Increased emphasis on the Nevada and Montana properties resulted is due diligence, exploration and investigative work. Substantial costs were expended for drilling and assaying services, consultants, legal, travel costs and staff salaries for work done in the Pioche Mining District properties located in Nevada, as well as work done in the County of Silver Bow, Montana, where several other properties are undergoing exploratory activities.
Depreciation and Depletion Expenses - Depreciation expense for 2012 was only $623 and $72 for 2011. No depreciation has been taken to-date on any mining plant or equipment, as none has been placed in service.
Other Income and Expenses - Other Income/Expenses for the year ended December 31, 2012 were $463,752 or $256,095 less than for the year ended December 31, 2011, which were $207,657. The cost of discounted shares, interest accrued on the convertible notes issued during 2012 and interest accrued on the contract note on the purchase of the Chattel property in Montana comprised the total of $463,752 in interest expense.
In 2011, Other Income/Expenses were primarily comprised of interest costs of $99,918 relating to a promissory note on the Pan American property, which was relinquished back to the seller at year-end, and $92,917 interest incurred on a bridge loan from Tintic Standard Gold Mines, Inc. In addition, an impairment loss of $14,822 was recognized on building improvements.
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 registered geologist as a 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:
· Prince Mine
· Pan American Mine
· Caselton Concentrator
· Montana Properties
· Calico Silver Project
Since converting our business plan to conducting exploration activities, we have incurred the following costs related directly to our exploration activities:
Capitalized Acquisitions
During our exploration activities, from June 16, 2006 through December 31, 2012, we have incurred $1,237,300 in exploration costs, as summarized above, general and administration expenses of $3,704,390 primarily consisting of salaries, stock compensation expense, office rent, legal and consulting fees, and travel expenditures. In addition, we have incurred impairment losses, interest and financing costs of $753,459 for a total of $5,005,566.
Accumulated losses of $5,005,566 incurred from the inception of the “exploration phase”, accounts for approximately 97% of the accumulated deficit of $5,181,600 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, gold, 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
·
Global economic conditions may affect pricing 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, 2012 have been applied consistently for the December 31 year-ends of 2012 and 2011.
Recent Accounting Pronouncements
Management has evaluated the recent accounting pronouncements issued since the audited financial statements and in management’s opinion, the relevant pronouncements that apply to our activities and their effect as of December 31, 2011 and December 31, 2012, are as follows:
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. During 2010, we sold an interest in a mining property, whose share-based payment transaction was accounted based on Level 3 fair value measurements.
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. At December 31, 2010, stock options granted were valued at $396,000, based on fair value measurements utilizing the Black Sholes Option pricing model.
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. During 2010, we abandoned our mining concessions in Sonora, Mexico and a resolution was ratified and approved by the Board of Directors to dissolve its Mexican subsidiary, Metals Precious Atlas, S.A. de C.V., thus ceasing any further exploration work in Mexico.
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.
PLAN OF OPERATIONS
Our Plan of Operations has been organized for each of our properties and claims to account for the similarities and differences in the location, geology, the prospective metals that may be hosted by each property or claim, and the current stage of exploration of each property and claim; accordingly, we have several Plans of Operations to account for those similarities and differences among our various properties and claims. Our Plans of Operations represent our expected exploration activities and are for a period of twelve months. The total amount budgeted for exploration, acquisition and development in 2013 is $ 4,215,000.
We are continuing with the evaluation of mine plans, Phase II drill program and resource potential of the Prince Mine. Phase 1 Drill program of the projected extensions of the known silver mineralization was completed in the fall of 2012. On the Caselton Tailings remediation Project, we will conduct site characterization studies in conjunction with metallurgical testing. The data generated from the program will be used to design a processing facility and to determine the feasibility of economic precious metals recovery. At the newly acquired Butte Silver Mines properties, we will be evaluating and compiling the voluminous historic exploration and mining data on the properties and will commence with preliminary mine development planning. We believe that we have adequate mineral resources defined on the Butte properties to merit initiation of this planning which will be concurrent with geologic mapping and sampling of mineralized structures and surveying of existing underground development. Based upon our analysis of the test results and studies, we will determine whether to proceed with development plans. We cannot determine, predict, or assure whether we will be able to proceed with advanced exploration and development activities regarding any of our properties or claims. Our exploration activities will be conducted under the overall direction of our registered consulting geologist using industry standard quality assurance and control procedures.
Properties - The Calico Silver Project in San Bernardino County, California, the Pioche Mining District properties in Lincoln County, Nevada and the Butte Silver Mines properties in Silver Bow County, Montana.
We have leased the Calico Silver property to another exploration company and will focus our exploration efforts on the Pioche and Butte Mining Districts. We will use employees, consultants and existing infrastructure to conduct our activities in the Pioche Nevada and the Butte, Montana properties. Our exploration program is shown below:
Exploration at Butte Silver Mines
1)
Data and property acquisition.
Our staff will continue to compile the exploration records from these historic Anaconda Company mines. While much data is in our possession, other sources will be utilized in order to make the records as complete as possible. Once acquired, the exploration and development data will be compiled using mine planning software to regenerate resource estimates. Underground levels will be plotted as will drift sampling records and exploration drill holes. Selected mineral and surface interests ancillary to our properties are also slated for acquisition.
2)
Development Planning.
Based on the presently known historic resources and proposed AMC underground mine plans, we expect to be able to create new preliminary mine development plans for the Project. This will require underground mapping, surveying and confirmation sampling. As the condition of much of the existing underground development headings is presently unknown, the extent of this work to be conducted in 2013 is uncertain.
Exploration at Prince Mine:
1)
Surface and underground drilling.
All accumulated data from the 2012 Phase I Drill Program, geochemical and geophysical studies will be evaluated to confirm the highest priority targets for Phase II exploration on the Prince Mine. A drilling contractor will be hired to conduct the drilling program using the dual tube reverse circulation air rotary method of drilling and sample collection under the supervision of our registered Geologist. This drilling method is widely accepted as providing high quality sample integrity. Industry standard chain of custody and quality assurance and control procedures will be followed. This will include the use of duplicate samples and sample standards. Accurate geologic logs of the drill holes will be created and the drill hole locations surveyed. Geologic samples will be continuously collected and delivered to an independent certified analytical laboratory for assaying. It is estimated that this program will require up to four months for completion.
2)
Mine planning.
As assays come back from drilling programs, the corporate engineering department will enter them into a data base with mine planning software to produce a preliminary scoping study. Assuming the continued exploration is successful, an independent engineering firm will be hired to produce a deposit model using computerized mine planning software. This phase will require approximately three months and will most probably commence at approximately month twelve.
Site Characterization and Planning at the Caselton Tailings:
1)
Metallurgical testing
The initial Phase I bench scale test work has been completed and the metallurgical lab is working on optimizing metal recoveries before commencing Phase II pilot scale test work using a continuous-feed fluidized-bed system.
2)
Feasibility and Permitting.
This phase of the Operations Plan will commence once all the metallurgical test work is completed. Aerial surveying of the entire site will be completed during the first half of 2013. The permitting will be done ‘in- house' by our Western States Engineering division with assistance from an established and reputable independent mining engineering firm. Permit applications for the combined metal recovery and site remediation project will be prepared for submittal in conjunction with the process design work.
Our ability to complete any of the activities described under “Plan of Operations” will require significant funding. We presently have a commitment for portion of the funding, but we cannot assure you that we will be able to obtain full funding or that the terms on which additional funding may be available will be acceptable. To the extent that we are able to secure funding for a portion of our needs, we will have to allocate such funding among the projects, and we may not be able to complete components of these projects. If we are able to obtain only limited funding, it may result in significant dilution to our shareholders. Further, our use of proceeds may be determined by the investors based on their priorities, which may be different from our priorities.
Item 7A
Item 7A Quantitative and Qualitative disclosures About Market Risk
Not applicable.
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 and Stockholders of
International Silver, Inc.
(An Exploration Stage Company)
We have audited the accompanying balance sheets of International Silver, Inc. (An Exploration Stage Company) as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2012 and from inception on June 16, 2006 through December 31, 2012. International Silver, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Silver, Inc. (An Exploration Stage Company) as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ equity (deficit) and cash flows for each of the years in the two-year period ended December 31, 2012 and from inception on June 16, 2006 through December 31, 2012, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company has not yet established an ongoing source of revenues sufficient to cover its operating costs, has negative working capital at December 31, 2012, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit 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
March 22, 2012
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, 2012
And
For the Year Ended December 31, 2011
International Silver, Inc.
(An Exploration Stage Enterprise)
Consolidated Balance Sheets
See accompanying notes to the consolidated financial statements
International Silver, Inc.
(An Exploration Stage Enterprise)
Consolidated Statement of Income
See accompanying notes to the consolidated financial statements
International Silver, Inc.
(An Exploration Stage Enterprise)
Consolidated Statement of Cash Flows
See accompanying notes to the consolidated financial statements
International Silver, Inc.
(An Exploration Stage Enterprise)
Supplemental Disclosures of Non-Cash Financing Activities
International Silver, Inc.
(An Exploration Stage Enterprise)
Consolidated Statement of Shareholders' Equity
See accompanying notes to the consolidated financial statements
International Silver, Inc.
(An Exploration Stage Company)
Notes to Consolidated Financial Statements
Note A - Organization and Business
General
International Silver, Inc. (the “Company”) is an exploration stage company, as set forth in FASB ASC 915 - Development Stage Entities and “Industry Guide 7” of the Securities and Exchange Commission’s Guides for the Preparation of Registration Statements and with the Society for Mining, Metallurgy and Exploration’s “Guide for Reporting Exploration Information, Mineral Resources, and Mineral Reserves” dated March 1, 1999. The Company’s strategy consists of acquiring and exploring high-grade silver properties throughout North and South America.
The Company was incorporated in the State of Arizona, as ARX Engineering, Inc. on September 4, 1992 and then later changed their corporate company name to Western States Engineering, Inc. On June 20, 2006, the Company changed its name to International Silver, Inc. in connection with its new business plan of acquiring exploration properties, along with providing engineering services.
The Company’s business strategy consists of acquiring and exploring high-grade silver properties throughout North and South America. Contingent upon adequate funding, the Company intends to initiate a reconnaissance and exploration program in the Pioche Mining District located in Nevada, in Silver Bow County, Montana and in Calico Mining District in California to identify potentially high-grade silver targets and to evaluate other properties in each of the districts for possible acquisition. The Company will continue to seek and evaluate new opportunities for exploration and/or development properties.
Key Mineral Properties
Prince Mine Property, Lincoln County, Nevada
On November 6, 2010, the Company has entered into a lease /purchase agreement to explore and acquire the historic Prince Mine in Lincoln County, Nevada, USA. The Prince Mine is a former producer of silver, gold, lead, zinc and manganese sulfide and oxide fluxing ore. The Company has completed a preliminary drilling program and is in the process of analyzing their findings. At December 31, 2012, there are no proven and probable reserves.
Caselton Tailings Project
On March 27, 2012, the Company entered into a joint venture operating agreement to evaluate, remediate, reclaim and develop the Caselton Tailings that are located in the Pioche Mining District in Lincoln County, Nevada. The Company has deposited funds towards this investment (refer to Note E - Deposit in Investment) which constitutes the Company capital contribution towards the joint venture. Formation of the joint venture is pending.
New Butte Mining Properties, Silver Bow County, Montana
On December 1, 2011, the Company executed a mining lease agreement on 954 acres of mineral rights and an additional 362 acres of surface and mineral rights located in the Butte District of Montana. The lease provides full access for mining on the land for a term of fifty years and thereafter as long as minerals are produced. The New Butte Properties were historically owned and operated as silver-zinc and silver-copper mines by the Anaconda Company. The major formerly operating underground mines now held by the Company are known as the Alice, the Lexington, the Badger, the Diamond and the High One.
Magna Charta Property, Silver Bow County, Montana
On March 1, 2012, the Company purchased 18 acres of land, a patented mining claim, which includes surface rights situated in the County of Silver Bow, Montana under a fee simple contract.
Continental Public Land Trust, Silver Bow County, Montana
On April 23, 2012, the Company executed a 99-year mining lease on 1,100 acres of mineral rights with Continental Public land Trust with an option to purchase certain patented lode and placer mining claims, including surface rights and other interests Silver Bow County, Montana. The Belmont mine property is part of the CPLT lease.
West Butte - Chattel Property. Silver Bow County Montana
On August 7, 2012, the Company entered into a purchase agreement and contract for deed with Chattel, LLC, a Montana limited liability company, for 1,022 acres of land and mineral rights, located in Silver Bow County, Montana.
Calico Silver Project, San Bernardino County, California
The Calico Silver Project is located in the Calico Silver Mining District about 15 miles northeast of Barstow or 145 miles northeast of Los Angeles in the Mojave Desert of Southern California. There are approximately 1,300 acres of U.S federal lode mining claims wholly owned by the Company. In 2012, the Company leased this property to Calico Exploration, LLC.
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. There is substantial doubt of the ability of the Company to continue as a going concern since it is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plans to obtain such resources for the Company may include (1) a private placement, and/or (2) a public offering and/or (3) convertible notes and secured loans.
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 subsidiaries Western States Engineering, Inc., International Silver Nevada, Inc. and Butte Silver Mines, Inc. for the twelve months ended December 31, 2012. For the twelve months ended December 31, 2011, the financial statements include International Silver, Inc. and its subsidiaries, Western States Engineering, Inc. and Butte Silver Mines, Inc. The Company’s financial condition and results of operations are based on its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (GAAP).
Recent Accounting Pronouncements
Management has evaluated the recent accounting pronouncements issued since the audited financial statements and in managements’ opinion, the relevant pronouncements reviewed have no material effect on the Company’s financial statements. At December 31, 2012 there were no recent accounting standards that apply to the Company activities.
Use of Estimates
Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant areas requiring the use of management estimates include the determination of mineral ore quantities; the depletion expense calculation, if applicable; useful lives of property and equipment for depreciation; impairment valuations and calculation of any deferred taxes. Actual results may differ from those estimates, and such differences may be material to the financial statements. In management’s opinion all adjustments necessary for a fair statement of the results for the years ended December 31, 2012 and December31, 2011 have been made.
Concentration of Credit Risk
Our cash equivalents, prepaid expenses and trade receivables 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 related parties. During the year 2012, no revenue was realized from related parties. In year 2011, 100% of the revenue was realized from a related party.
During the first half of 2012, the Company negotiated additional financing and as a result, the entirety of the Company’s tangible property, currently owned or acquired hereafter, is collateral for the ISLV Partners, LLC. (Refer to Note H - Convertible Note Payable).
Fair Value of Financial Instruments
Due to their short-term nature, the carrying value of our current financial assets and liabilities approximates their fair values. The fair value of our borrowings, if recalculated based on current interest rates, would not significantly differ from the recorded amounts.
Cash and Cash Equivalents
For the statement of cash flows, any liquid investments with a maturity of three months or less at the time of acquisition are considered to be cash equivalents.
Accounts Receivable
Accounts receivable are stated, net of an allowance for uncollectible accounts. At December 31, 2012 trade receivabes were $61,323and at December 31, 2011, there were no trade receivables, only related party receivables of $299. No allowance for uncollectible accounts was established, as management deem the accounts as fully-collectible.
Investments
Investments in marketable securities are classified under one of three methods:
The accounting treatment accorded any investment will depend on whether the presence of “significant influence” over an investee exists. If the investor owns at least 20% of its common stock, then significant influence is assumed. If there is less than 20% ownership or if there is no significant influence over an investee, the investment is valued at the Fair Value Method, otherwise the Equity Method is utilized. At December 31, 2012 and December 31, 2011, the Company held securities in Continental Mining & Smelting, which are considered “available for sale” and were reported under the Equity Method. At December 31, 2012 and December 31, 2011, the value of the Company’s investments in Continental Mining & Smelting Limited was considered impaired. See Note E - Other Assets - Investments in Stocks.
Mineral Development
Costs associated with the acquisition of mineral interests, in the exploration stage, are “expensed”. Mineral exploration costs are also “expensed” as incurred. 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, 2012 and December 31, 2011, all mineral interests were in the exploration stage.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost, except for those fixed assets acquired and accounted for under the “Asset Acquisition Method” utilizing fair value measurements, if any. Maintenance and repair are charged to expense as incurred, renewals and improvements that extend the useful lives of assets are capitalized. Depreciation on property and equipment is computed using the straight-line method over the assets’ estimated useful lives as follows:
Development stage mineral interests are not amortized until such time as the underlying property is converted to the production stage. As of December 31, 2012, there was $6,240 in accumulated depreciation and no amortization has taken place on any of the mineral interests, as the Company is in the exploration stage.
Impairment of Long-Lived Assets
The company adheres to ASC 360-10-20 and 360-10-35, "Accounting for the Impairment and Disposal of Long-Lived Assets," which requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows are less than the carrying amount of the asset and would be calculated based on discounted cash flows.
Estimates of future cash flows used to test the recoverability of a long-lived asset incorporate the company’s assumptions about its use of the asset and all available evidence was considered. For impairment purposes, the asset groupings were considered at their lowest level for which identifiable cash flows are independent of the cash flows of other assets and liabilities.
At December 31, 2012, an impairment test was conducted on the Company’s mineral land holdings and no impairment loss is required. Refer to Note D - Property. Plant and Equipment - Mining Properties.
Revenue Recognition and Production Costs
The Company recognizes revenue when sales contracts or consulting contracts have been properly executed, delivery of product has occurred or services have been rendered, the contract price is readily determinable and collectability is reasonably assured.
At December 31, 2012, income was recognized from management and engineering contracts from Western States Engineering, Inc., a subsidiary of International Silver, Inc. As of December 31, 2012, there has been no production from any of the Company's mineral properties, since these properties are still in the exploratory stage.
Earnings (Loss) Per Share
Basic income (loss) per share is computed by dividing income (loss) attributable to the common shareholders by the weighted-average number of common shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, unless the effect is to reduce a loss or increase earnings per share.
On November 1, 2010, the Company adopted and granted stock options to its directors, employees and key consultants. On November 7, 2012, the Company granted its members of the Board of Directors additional stock options. (Refer to Note K - Shareholders’ Equity)
In 2012, the Company executed three convertible notes, whereby the lender was granted warrants to purchase additional shares of common stock of the Company. Refer to Note H - Convertible Notes Payable).
As of December 31, 2012 and December 31, 2011, no options nor warrants had been exercised.
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 J- Income Taxes.
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.
Statement of Cash Flows Information and Supplemental Non-Cash Financing Activities
Non-cash investing and financing transactions during the year ended December 31, 2012 were $214,715 and $191,054 for the year ended December 31, 2011. During the year 2012, non-cash investing and financing activities reflected amortization of discount on notes issued by ISLV Partners, Inc. and the cost of discounted shares issued in exchange for outstanding debt. (refer to Note H - Convertible Notes Payable)
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. On December 31, 2012 and December 31, 2011, the Company did not have any material items of comprehensive income.
Derivative Instruments
The Company revalues derivative liabilities as of each balance sheet date, and otherwise complies with the provisions of ASC 815-10.
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. In 2009, the Board of Directors of the Company approved a resolution for the stock issuance to officers and employees to recognize the cost of employee services. The Company adopted a stock option plan on November 1, 2010, which is accounted for pursuant to ASC 718.
Note C - Prepaid Expense
At December 31, 2012, prepaid expenses reflect the unexpired portion of mineral property leases, which are treated as operating leases, pursuant to FASB ASC 840-20. Disclosure of lease terms is explained in Note D - Property, Plant and Equipment. During the year ended December 31, 2012, prepayments were also made on drilling, assaying and metallurgical contracts negotiated. Prepaid expenses also reflect the unexpired portion of general liability insurance on the Company’s properties, as well as director & officer liability insurance, resulting in a prepaid expense balance of $105,651 at December 31, 2012 as follows:
Note D - Property, Plant and Equipment
Mining Properties
The Company’s mining interests, include property acquired by staking, purchasing and leasing mining claims located in the states of California, Nevada and Montana as follows:
Calico Silver Project
The Calico Silver Project consists of 60 unpatented mining claims, which were acquired through staking and filing Notices of Location with the Bureau of Land Management. The Company pays annual maintenance fees to the Bureau of Land Management (BLM) on its 60 unpatented lode-mining claims, located in San Bernadino County, California. The Company expenses these maintenance fees in the year paid.
Magna Charta Mining Claim - Silver Bow County, Montana
On March 1, 2012, the Company acquired title to a fee simple estate or interest in the Magna Charta Lode Mining claim for $47,500. The mining claim comprised of 18 acres, with a patented mining claim, including surface rights is located in the County of Silver Bow in the State of Montana.
West Butte - Chattel Property - Silver Bow County Montana
On April 27, 2012, the Company entered into a purchase agreement with Chattel, LLC, a Montana limited liability company, for 1,022 acres of land and mineral rights, located in Silver Bow County, Montana at a purchase price of $1,500,000. Pursuant to ASC 360-20-55-2, the minimal initial investment requirement for the full recognition of the purchase price on land held for commercial or industrial purposes, requires a minimal investment of 20% of the value. Upon execution of the contract for deed on August 7, 2012, only the initial deposit of $50,000, plus title fees were capitalized. The terms of the purchase agreement are disclosed in Note I - Contract Payable.
Prince Mine Lease - Lincoln County , Nevada
On November 6, 2010, the Company entered into a lease /purchase agreement to explore and acquire the Prince Mine in Lincoln County, Nevada, USA. The Prince Mine is a former producer of silver, gold, lead, zinc and manganese sulfide and oxide fluxing ore. During 2012, a preliminary drilling program was undertaken by the Company. At December 31, 2012 there were no proven or probable reserves.
The five-year lease requires annual lease payments of $50,000 payable annually on each anniversary date from the date of the lease agreement. Pursuant to FASB ASC 840 - 20 Operating Leases, the lease meets the criteria to be treated as an operating lease. Future minimum lease payments are as follows:
Lease expense on the Prince Mine since inception of the lease on November 6, 2010 through December 31, 2012 is $107,671. For the year ended December 31, 2012 lease expense was $50,000.
Should the Company exercise the purchase option, the total purchase price shall be $2,750,000, less any amounts paid as advance/lease payments. The initial payment is due within 30 days of the option exercise. Installment payments are as follows:
Prepayment of all or any portion of the principal balance are not subject to penalty.
New Butte Lease - Silver Bow County, Montana
On December 1, 2011, the Company entered into a mineral lease agreement with FL Leasing, LLC (“lessor”), now known as New Butte Leasing, LLC, to examine the mineral potential of the Silver Bow/Butte Area located in Silver Bow County, Montana.
The term of the agreement is for fifty (50) years and for so long as Product is produced, or until sooner terminated, extended or canceled. The lease requires annual lease payments commencing January 15, 2012 and on each anniversary date thereafter. The initial annual lease payment is $15,000 and $15,000 each year thereafter for the years 2013-2015. Annual lease payments for years 2016 - 2020 are $20,000; thereafter, annual lease payments are variable and increase progressively. The lease payment due January 15, 2012 was timely paid. Pursuant to FASB ASC 840 - 20 Operating Leases, the lease meets the criteria to be treated as an operating lease. Future minimum lease payments, based on an amended agreement executed on May 22, 2012, are as follows:
The lease payment due January 15, 2013 was timely paid.
Additionally, the Company agrees to pay the “lessor” a Net Smelter Returns Royalty of three percent (3%) on production of gold, silver and various other metals.
Lease expense on the New Butte property since inception of the lease on December 1, 2011 through December 31, 2012 was $14,425.
Continental Public Land Trust Lease - Silver Bow County, Montana
On April 23, 2012, the Company entered into a mineral lease and option to purchase agreement with Continental Public Land Trust, a Montana non-profit organization, to explore the mineral potential of certain patented lode and placer mining claims located in located in Silver Bow County, Montana.
The term of the agreement is for ninety-nine (99) years and for so long as Product is produced, or until sooner terminated, extended or canceled. The lease requires annual lease payments commencing April 23, 2012 and on each anniversary date thereafter. The initial annual lease payment is $20,000, $25,000 on the first anniversary date and $25,000 each year thereafter for the next ten years. Every ten years, thereafter, the lease payment shall be adjusted in proportion to the United States Bureau of Labor Producer Price Index. The initial lease payment of $20,000 was paid on April 23, 2012.
Additionally, the Company agrees to pay the Owner a royalty of two percent (2.0%) of the net cash flow from its operating activities (free cash flow royalty) derived from production of all mineral commodities produced from Owner’s property.
Lease expense on the Continental Public Land Trust since inception of the lease on April 23, 2012 through December 31, 2012 was $13,808.
At December 31, 2012, property, plant and equipment is comprised of the following:
Acquisitions during the year ended December 31, 2012 were as follows:
On January 30, 2012, the Company purchased land located in Butte, Montana known as “Magna Charta”, which it intends to explore for mineral content. The contract sales price was $47,500.
On April 27, 2012, the Company entered into a purchase agreement with Chattel, LLC, a Montana limited liability company, for 1,022 acres of land and mineral rights, located in Silver Bow County, Montana at a purchase price of $1,500,000. Pursuant to ASC 360-20-55-2, the minimal initial investment requirement for the full recognition of the purchase price on land held for commercial or industrial purposes, requires a minimal investment of 20% of the value. Upon execution of the contract for deed on August 7, 2012, only the initial deposit of $50,000, plus title fees totaling $55,888 were capitalized. The terms of the purchase agreement are disclosed in Note I - Contract Payable.
Depreciation expense for the year ended December 31, 2012 was $623 and for the twelve months ended December 31, 2011 depreciation was $72.
Note E - Other Assets
Investments in Stock
On November 30, 2010, the Company exchanged a 70% interest in the Estrades Mining Lease #795 (Quebec) and associated equipment in consideration for 6,000,000 shares of common stock from Continental Mining and Smelting Limited (“Continental”), a Canadian company. At December 31, 2012, the Company owned a 16.7 % interest in Continental, whose outstanding shares were 36,028,001.
At date of acquisition, the Company made the determination that the “Equity Method” of accounting was warranted in that the Company was deemed to exercise significant influence and control over Continental’s policies and operations, although the percentage was below the 20% threshold pursuant to FASB ASC 323-10-15-6 - Significant Influence. The Company has one director and an officer who represent Continental as directors.
The Company’s policy regarding the Equity Method pursuant to FASB ASC 323-10 - Investments - Equity Method and Joint Ventures will be to record the initial investment, at cost, and then recognize the increase or reduction in its investment based on its proportional share of Continental’s income, losses and dividends, as the case may be, at the end of each reporting period. At the date of acquisition and at December 31, 2011 and September 30, 2012, there is no measurable value in the common stock of Continental Mining and Smelting Limited. Continental Mining and Smelting Limited has been trying to obtain financing in order to enter the development stage of their mining operations, but has been unsuccessful thus far.
At December 31, 2012, the Company’s share of losses for the year then ended were $63,379 and cumulative losses inception to-date are $222,792. These losses are held “in suspension” until such time that a measurable valuation of Continental’s common stock is ascertained, pursuant to ASC 323-10-35-20.
At December 31, 2012, the Company held the following securities:
Deposits Towards Investment
On March 27, 2012, the Company, executed a contract with Aurum, LLC (“Aurum”), a Colorado limited liability company, to form a joint venture with the Company for the purpose of conducting the evaluation, remediation, reclamation and processing of the Caselton Tailings owned by “Aurum”. Pursuant to the agreement, “Aurum” and the Company will each have a 50% interest. As consideration, the Company will undertake to arrange all capital funding required and provide custom processing availability for the tailings material owned by “Aurum”.
The Company is obligated to make an initial cash capital contribution of $50,000 and sequential funding of an additional $50,000 to $100,000 to be used to complete a Phase 1 site investigation.
As of December 31, 2012, the Company had reimbursed Aurum, LLC $150,000 for holding costs on property associated with a joint venture between the Company and Aurum, LLC. These funds are recognized as a deposit towards the investment in the joint venture with Aurum, LLC. Pursuant to the joint venture agreement, these costs, upon formation of the joint venture will be considered as part of International Silver Nevada, Inc.’s capital contribution.
Note F - Other Deposits
Non-Refundable Deposits
On October 29, 2012, the Company executed an option to purchase the assets of Pan American Zinc, a Nevada corporation. The terms of the option required an option payment of $35,000, which has been paid, with the option period effective from October 29, 2012 and terminating on July 31, 2013, unless extended by either party to the contract. The total purchase price shall be $5,000,000, payable in four (4) annual installments of $500,000, starting with the closing date of August 15, 2013 and extending for the next three anniversary dates and three (3) annual installments of $1,000,000, thereafter for the next three anniversary dates.
The Company may elect to pay an accelerated discounted purchase payment of three million ($3,000,000) dollars at any time after the closing and prior to the first anniversary. The election of the accelerated discounted purchase payment shall make the total purchase price three million five hundred thousand ($3,500,000) dollars.
Refundable Deposits - Reclamation Bond
On June 18, 2012, the Company placed a reclamation bond with the Bureau of Land Management in the amount of $14,406 to provide surface reclamation coverage for the drilling program at the Caselton Mine tailings. When all terms and conditions of the operation have been fulfilled, the Office of the United States Department of Interior will authorize a refund.
Note G - Note Payable
On April 21, 2011 the Company issued a promissory note in the amount of $100,000 to the Atkinson Trust, payable in ten equal monthly installments of $10,000, interest only. The note was issued as a condition of purchasing the assets of Pan American Zinc Company, with close of escrow to occur on February 23, 2012. At December 31, 2011, the Company rescinded the contemplated purchase and relinquished its rights to the property. The seller agreed to take back the property in exchange for forgiving all related liability created in the sale except for $30,000, the net present value of the remaining note balance at December 31, 2011. On June 14, 2012, the Company paid the remaining balance owed on the note.
On January 9, 2012 and January 31, 2012, the Company secured loans and issued cognovit promissory notes in the amount of $90,300 and $81,000, respectively to Empire Advisors, LLC. The full principal amount of the notes and accrued interest, at eight (8%) percent simple interest, were due February 9, 2012 and February 29, 2012, respectively. At March 31, 2012, these notes, plus accrued interest had been paid.
Notes payable as of December 31, 2012 and December 31, 2011, respectively, are shown below:
Note H - Convertible Notes Payable
Convertible Note Purchase Agreement - Initial Financing
On February 6, 2012, the Company entered into a Convertible Note Purchase Agreement with ISLV Partners, LLC (the Lenders) to provide funding in the amount of $600,000 for working capital and other corporate purposes. The general terms and conditions of the loan provided that the “lenders” retain out of the funding, the sum of the $90,300 and $80,000, to satisfy full repayment of the cognovit promissory notes (see Note G - Notes Payable) which were assigned to the lender, including all unpaid accrued interest to the closing date. The initial note in the principal amount of $600,000 is secured by the mortgages, deeds of trust, fixture filings, security agreements and assignment of leases and rents, and such security agreements executed and delivered on the closing date, pursuant to which certain real properties owned by the Company and /or any subsidiary, as more particularly specified in such mortgages, deeds of trust, assignment of leases and rents are pledged as collateral security for the obligations (Initial Mortgages). The principal and unpaid interest, at a per annum interest rate of eight (8%) percent, is due on or before July 27, 2013.
The lender was given the right, at its option, to make an additional loan to the Company in the principal amount of $4,000,000. On May 17, 2012, the $4,000,000 was amended to $2,000,000.
Optional Conversion
The “Lender” may, at its option, upon written notice to the Company, convert all or any portion of the unpaid principal balance of the note and/or unpaid accrued interest into shares of common stock of the Company, at a price of $0.20 per share of common stock. If converted, the total market value of the shares would be $600,000. At December 31, 2012, no conversion had occurred.
Warrants
Upon execution of the Convertible Note Purchase Agreement, dated February 6, 2012, the Company issued 3,000,000 warrants to purchase additional shares of common stock of the Company, at an exercise price of $0.40 per share. The number of such warrants issued equals the number of shares into which the applicable Lender’s note is convertible.
Security
The Notes shall be secured by a first priority security interest in all tangible property of the Company, whether now owned or hereafter acquired, and all proceeds thereof.
Registration rights
Upon demand by the Lenders, the Company will file a registration statement on Form S-1 covering all shares issued or issuable upon conversion of the Notes and exercise of the Warrants. The Lenders will have customary piggy-back registration rights.
Lender’s Option on Certain Projects
If additional financing is completed, the Lenders or their designees have a three-year (3) option to acquire a 20% interest in each of the Company’s Projects located in the Pioche Mining District in Nevada at a price equal to approximately the fair market value for each respective Project.
Convertible Note Purchase Agreement - Additional Financing
On May 17, 2012 and May 25, 2012, loans in the amount of $130,000 and $1,870,000, respectively, were procured by the Company pursuant to the first amendment to the convertible note purchase agreement.
Terms and conditions are identical to the initial financing, which are disclosed above. On May 25, 2012, 10,000,000 warrants were issued to ISLV Partners, LLC on the additional financing. The warrants entitle the holder to purchase additional shares of common stock of the Company, at an exercise price of $0.40 per share. The number of such warrants issued equals the number of shares into which the applicable Lender’s note is convertible.
Convertible notes payable as of December 31, 2012 and December 31, 2011, respectively, are shown below:
Outstanding convertible instrument
An optional conversion feature was included in the convertible term notes issued. The terms of the optional conversion grants the “Lender” the option to convert all or any portion of the unpaid principal balance of the note and/or unpaid accrued interest into shares of common stock of the Company, at a price of $0.20 per share of common stock. At December 31, 2012, the convertible note instruments had no beneficial conversion feature, thus a discount on the notes themselves, was not recognized, but the “detachable” warrants issued in conjunction with this financing, were assigned a fair value due to their beneficial conversion feature on a “fully-converted” basis. In addition, an “intrinsic value” was also assigned on the warrants, pursuant to generally accepted accounting principles, as governed by ASC 470-20-55-12.
Qualified Financing
In the event that the Company, at any time after the original issuance of the Notes, proposes to consummate any equity offering or series of related equity offerings resulting in gross proceeds to the Company of not less than $250,000, the Company shall give written notice to the holder not less than 20 days prior to the consummation of such Qualified Financing. Upon consummation of such Qualified Financing, the Notes shall then and thereafter be convertible into shares of the same class as the shares issued in the Qualified Financing, and the conversion price per share shall be equal to the lesser of a) 90% of the implied price per share of common stock in such Qualified Financing, or b) the then-effective conversion price, subject to adjustments.
Warrants
On February 6, 2012, the Company, in conjunction with the issuance of the $600,000 convertible note, issued a total of 3,000,000 “detachable” warrants to ISLV Partners, LLC for an option to purchase additional shares of common stock of the Company, at an exercise price of $0.40 per share. The number of such warrants issued equals the number of shares into which the applicable Lender’s note is convertible. The beneficial conversion option was derived as follows:
On May 25, 2012, the Company, in conjunction with the issuance of the two additional convertible notes in the amount of $130,000 and $1,870,000, issued a total of 10,000,000 additional “detachable” warrants to ISLV Partners, LLC for an option to purchase additional shares of common stock of the Company, at an exercise price of $0.40 per share. The number of such warrants issued equals the number of shares into which the applicable Lender’s note is convertible. The beneficial conversion option was derived as follows:
Adjustment to Warrant Price
The exercise price and the number of shares purchasable are subject to adjustment, but in no case shall the exercise price be reduced to below the par value of the class of stock for which this warrant is exercisable at such time, and the Company shall not take or permit to be taken any action which would cause the exercise price to be reduced below the par value per share of the class of stock for which this warrant is exercisable at such time.
If the Company makes a dividend or distribution on its common stock payable in common shares, the exercise price shall be proportionately adjusted effective as of the record date for the dividend or distribution. Other provisions requiring the adjustment to the warrant price relate to distributions other than common stock, adjustment upon merger, consolidation or exchange, recapitalization or reclassification.
Note I - Contract Payable
On April 27, 2012, the Company entered into an agreement with Chattel, LLC, a Montana limited liability company, for the purchase of certain real property located in Silver Bow County, Montana. The contract for deed executed on August, 2012 was for a total purchase price was $1,500,000, with an earnest deposit of $50,000 placed prior to close of escrow. Interest on the unpaid balance is at a rate of four (4%) percent per annum. Payment terms are 1) $50,000 at close of escrow, plus accrued interest, 2) $50,000, plus accrued interest, due on the first and second anniversary date of the date of closing and 3) the balance due, including accrued interest, on the third anniversary date of the date of closing. In case of default, seller’s sole recourse shall be to reclaim all rights under the contract and buyer shall be liable for all payments in arrears, including interest.
Pursuant to ASC 360-20-55-2, the minimal initial investment requirement for the full recognition of the purchase price on land held for commercial or industrial purposes, requires a minimal investment of 20% of the value. Upon execution of the contract for deed on August 7, 2012, only the initial deposit of $50,000, plus title fees paid were capitalized, thus no liability is recognized.
Note J - Income Taxes
The Company has reported (for income tax purposes) net operating losses for 2012, 2011 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, 2012, the Company recorded a deferred tax benefit of $1,105,626 but due to a going-concern issue, management made an allowance for a provision of an equal amount, should the Company not be able to avail itself of that tax benefit. Deferred tax asset is based on prevailing IRS graduated tax tables which average 34% at December 31, 2012 and December 31, 2011.
At December 31, 2012, The Company had a net operating loss carry-forward of $3,092,321 for federal income tax purposes that may be offset against future taxable income from years 2013 through 2031. Our deferred tax benefit is adjusted for interim results, but we simultaneously adjust the allowance for a net zero effect. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur net operating loss carry forwards may be limited as to use in future years.
Note K - Shareholders’ Equity
The Company was incorporated on September 4, 1992 with the initial issuance of 1,000 shares of common stock at a par value of $1.00 per share. On June, 2006 the Board of Directors adopted a new business strategy to change its emphasis from providing engineering services to conducting mine exploration and development. As a result, the Board of Directors amended its Articles of Incorporation to authorize 500,000,000 shares of common stock, at a par value of $0.0001 to allow for equity financing. Additionally, the Board of Directors passed a resolution, dated June 16, 2006, to effectuate a stock split of 12,000 to 1, for all represented shares.
On July 24, 2006, the three shareholders of record were given their new share distribution of 4,000,000 shares each.
On September 13, 2006, the Company issued 1,000,000 shares of common stock at $0.075 per share in exchange for legal services.
On September 19, 2006, the Company issued 30,000 shares of common stock at $1.00 per share for land.
On October 21, 2006, the Company issued 300,000 shares of common stock at $.185 per share in exchange for a 98% interest in the holdings of Metales Preciosos Atlas, S.A. de C.V., a Mexican subsidiary.
On October 21, 2006, the Company issued 100,000 shares of common stock at $.050 per share in exchange for Directors fees.
During 2007, the Company conducted a private placement and issued an additional 260,000 shares of common stock for cash as follows:
On May, 2007, the Company issued 7,000 shares of common stock at $0.500 per share for $3,500.
On June, 2007, the Company issued 3,000 shares of common stock at $0.500 per share for $1,500.
On October, 2007, the Company issued 4,000 shares of common stock at $0.500 per share for $2,000.
On November, 2007, the Company issued 246,000 shares of common stock at $0.297 per share for $73,000.
On May 22, 2007, the Company issued 100,000 shares of common stock at $0.055 per share in exchange for transfer agent fees.
On June 30, 2007, the Company issued 336,186 shares of common stock at $0.500 per share in exchange for an outstanding debt owed a shareholder/officer, as explained in Note H.
On September 13, 2007, the Company issued 100,000 shares of common stock at $0.040 per share in exchange for Director fees.
On September 13, 2007, the Company issued 150,000 shares of common stock at $0.040 per share in exchange for engineering consulting services.
On September 21, 2007, the Company issued 150,000 shares of common stock at $0.040 per share in exchange for consulting services.
On June 12, 2008, the Company issued 150,000 shares of common stock at $0.133 per share in exchange for legal services.
On September 8, 2008, the Company issued 335,567 shares of common stock at $0.289 per share in exchange for an outstanding debt owed to a shareholder/officer.
On November 10, 2008, the Company repurchased 30,000 of its own shares in common stock upon relinquishing its holdings in the Tecoma Mining District. These shares are being held in Treasury as of December 31, 2009, valued at $1.00 per share, their original issue price.
On September 23, 2009, the Board of Directors passed a resolution for the issuance of 3,550,000 shares of common stock at $0.010 to its directors, officers and certain consultants for services rendered. The share certificates were effective October 6, 2009, but are “restricted” pursuant to Rule 144 of the Securities Act of 1934.
On March 1, 2010, the Company purchased its 70% interest in the Estrades Mine in exchange for 6,000,000 shares of its common stock, at a share price of $0.0025 per share.
On August 18, 2010, the Company issued 2,000,000 shares of common stock at $0.025 per share in exchange for an outstanding debt of $50,000 owed to a shareholder/officer.
On August 24, 2010, the Company conducted a private placement and issued an additional 2,000,000 shares of common stock at $0.02 per share for $40,000.
On December 31, 2010, the Company issued 50,000 shares of common stock in exchange for a convertible note to Tintic Standard Gold, Inc. for $75,000.
On April 25, 2011, the Company issued 499,077 shares of its common stock upon the conversion of the Tintic Standard Gold Mines, Inc. bridge loan convertible note in full satisfaction of the principal and interest up to the conversion date. This included the additional 25,000 shares for the note extension made on March 21, 2011.
From May 18, 2011 through June 23, 2011, the Company issued 7,699,998 shares of its common stock for $1,155,000 on a private placement. The sale of unregistered securities were to third party individuals and companies not related to International Silver, Inc.
On August 28, 2012, the Company issued 271,452 shares of common stock at $0.20 per share in exchange for an outstanding debt owed to a shareholder/officer.
At December 31, 2012, the Company had authorized 500,000,000 shares of common stock, 37,052,280 shares had been issued and are outstanding.
Stock Option Plan
At November 1, 2010, the Board of Directors (“Board”) of the Company authorized the approval of a stock option plan (the “Plan”). The plan allows the Board of Directors, or a committee thereof at the Board’s discretion, to grant stock options to officers, directors, key employees and consultants of the company and its affiliates. The Board authorized the Corporation to issue up to 20% of the total number of outstanding shares of the Company’s common stock as Stock Options. No vesting will be required.
Pursuant to the Plan, in the case of Incentive Stock Options, the exercise price shall not be less than (i) 100% of the fair market value of one (1) share of common stock on the date the option is granted, or (ii) 110% of the fair market value of one (1) share of common Stock on the date the option is granted if, at that time the option is granted, the participant owns, directly or indirectly more than 10% of the total combined voting power of all classes of stock of the company. In the case of Non-Statutory Stock Options, the per share price to be paid by the Participant, at the time the option is exercised, shall be determined by the Committee in its sole discretion.
On November 1, 2010, stock options for 3,300,000 shares were granted to directors, officers, key employees and consultants at an exercise price of $0.20, which was in excess of the quoted market price of $0.12 of the Company’s shares at the date of the grant. All these options were deemed as “incentive stock options” by the Board of Directors in accordance with the Plan. These option grants are fully vested and expire on November 1, 2015. Stock compensation expense of $396,000 was recognized based on the Black-Scholes valuation of $0.12 per share of common stock
On November 5, 2012, stock options for 400,000 shares were granted to directors at an exercise price of $0.34, which was in excess of the quoted market price of $0.30 of the Company’s shares at the date of the grant. Stock options for 150,000 shares granted to new directors are fully vested and expire on November 5, 2015. The additional stock options for 250,000 shares issued to all directors vest on September 15, 2013. All these options were deemed as “incentive stock options” by the Board of Directors in accordance with the Plan. Stock compensation expense of $28,000 was recognized based on the Black-Scholes valuation of $0.07 per share of common stock.
No options were exercised or forfeited during the year 2012 or 2011.
Compensation expense has been recorded pursuant to ASC 718 - Compensation - Stock Compensation based on fair value derived by means of applying the Black Scholes (BSM) option-pricing model as follows.
The fair value of each option granted on November 1, 2010 was calculated assuming an expected life of five years, current stock price of $0.12 per share, an exercise price of $0.20 per share, an annual risk-free interest rate of 3.0% and a dividend yield of zero yielding a volatility of greater than 823%.
The fair value of each option granted on November 5, 2012 was calculated assuming an expected life of five years, current stock price of $0.30 per share, an exercise price of $0.34 per share, an annual risk-free interest rate of 3.0% and a dividend yield of zero yielding a volatility of less than 1%.
A summary of the status of the Company’s stock options as of December 31, 2012 and changes during the year then ended, is presented below:
Warrants
To date, the Board of Directors has approved the issuance of 21,510,450 warrants resulting from a private placement for $2,000,000 in financing in year 2011 and on convertible notes issued for $2,600,000 during the first six months of 2012. These warrants are exercisable at prices ranging from $0.20 to $0.40 per share, vesting over a period of 36 months, and expire at various times through May 25, 2015.
On May 20, 2011 and June 14, 2011, as a component of the 8,238,998 “units” the Company sold in private placements, the Company issued 8,238,998 Class A common stock warrants, each granting the holder the right to purchase one share of common stock at an exercise price of $0.20 per share. Each warrant expires in three years. At December 31, 2012, none had yet been exercised.
On February 6, 2012, the Company negotiated a convertible note agreement, whereby the lender was issued 3,000,000 warrants, with an expiry date of February 6, 2015, exercisable at $0.40 per share for a number of shares equal to the number of shares into which the initial note is convertible. (Refer to Note H - Convertible Note Payable). At December 31, 2012, none had yet been exercised.
On May 17 and May 25, 2012, the Company negotiated convertible term notes of $130,000 and $1,870,000, respectively, aggregating $2,000,000, whereby the lender was issued an additional 10,000,000 warrants, with an expiry date of May 25, 2015, exercisable at $0.40 per share for a number of shares equal to the number of shares into which the notes are convertible (Refer to Note H - Convertible Note Payable). At December 31, 2012, none had yet been exercised
On August 28, 2012, the Company issued Harold R. Shipes, its Chief Executive Officer and Director, a total of 271,452 shares of common stock in exchange for debt, plus 271,452 warrants, exercisable at $0.40 per share for a number of shares equal to the number of shares issued. These warrants expire on August 28, 2015. At December 31, 2012, none had yet been exercised.
A summary of warrant activity for year 2012 and year 2011 is as follows:
At December 31, 2012, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:
Note L - Related Party Transactions
Amounts due from and to related parties, are receivable from or payable to entities controlled by the shareholders, officers, or directors of the Company (“Related Entities”). The underlying transactions are with these related parties. These amounts are unsecured and not subject to specific terms of repayment.
Related party transactions have occurred with the following related party entities:
At December 31, 2011, owed $25,566 to related parties. The Company rents (subleases) its administrative offices in Tucson, Arizona from Atlas Precious Metals Inc., an affiliate, and is provided telephone service as well. At December 31, 2012, all rents were current and on December 31, 2011, a total of $10,123 was outstanding.
Arimetco International, Inc. and Atlas Precious Metals Inc. utilize periodic courier services paid by the Company and reimburses the Company. At December 31, 2012, there was no balance owing the affiliated companies and on December 31, 2011, the affiliated companies were due $299.
Harold R. Shipes, the Company’s Chief Executive Officer and Chairman of the Board of Directors, does extensive travel related to the Company’s holdings or prospective holdings, reimbursable by the Company. At December 31, 2012 and December, 31, 2011, Mr. Shipes was owed $1,608 and $15,443, respectively.
Commencing with the month of September, 2012, the Company approved compensation to its Board of Directors of $50,000 each annually. At December 31, 2012, the Company owed its directors $50,000.
On August 28, 2012, the Company, issued 271,452 shares of the Company’s common stock in settlement of an outstanding debt, in the amount of $54,290, owed to Harold R. Shipes, its Chief Executive Officer and Director, based on a per share price of $0.20. In addition, Mr. Shipes was issued 271,452 warrants. These warrants were issued under the same basis and terms given to ISLV Partners, LLC. for an option to purchase additional shares of common stock of the Company, at an exercise price of $0.40 per share. The number of such warrants issued equals the number of shares issued to Mr. Shipes.
Note M - Deferred Income
On November, 10, 2012, the Company, as the “Lessor”, entered into a mineral lease agreement with Calico Exploration, LLC, a Delaware limited liability company (“Calico”), which provides for the Company’s lease of certain claims located in San Bernadino County, California. The lease provides for a 10-year term with Calico’s option to continue the lease for up to a maximum of 75 years. Calico is required to make a $100,000 down payment to the Company, which Calico has already paid. Calico is also required to pay the Company annual lease payments of $50,000 and a net smelter return production royalty of two percent (2%) on a quarterly basis, commencing January 1, 2013. Prior to the payment of any net smelter return, the Company has a pre-emptive right and the first right of refusal to participate in up to forty (40) percent of the claims plus an area of influence of two thousand (2,000) feet in any direction of the outside boundaries.
Note N- Exploration Costs
Acquired mineral interests are presented as “exploration costs” as required by “Industry Guide 7” of the Securities and Exchange Commission’s Guides for the Preparation of Registration Statements and with the Society for Mining, Metallurgy and Exploration’s “Guide for Reporting Exploration Information, Mineral Resources, and Mineral Reserves”. Exploration costs incurred since inception through December 31, 2012 are $1,237,300. Exploration costs incurred for the years ended December 31, 2012 and December 31, 2011 were $870,543 and $82,835, respectively.
Note O - Reclassification
Subsequent to filing the annual 10-K report for the year ended December 31, 2011, a reclassification of $10,000 was made from Accounts Payable -Trade to Note Payable to reflect the proper nature of the liability on the Balance Sheet as of December 31, 2011.
Note P - Subsequent Events
Management has reviewed all subsequent events through the issuance date of the audited financial statements and has disclosed all material events that have transpired subsequent to December 31, 2011 up through the issuance date, which includes the following:
On February 21, 2013, the Company procured additional financing in the amount of $2.2 million from ISLV Partners, LLC by the issuance of convertible notes pursuant to the 2nd Amendment to its February 6, 2012 Convertible Note Agreement. Under the terms of the 2nd Amendment, ISLV Partners, LLC loaned an initial amount of $1,000,000 and shall have the right to loan an additional amount up to $1,200,000 by April 15, 2013. The note is convertible into International Silver, Inc. common stock at $0.20 per share. In addition, the Company issued to ISLV Partners, LLC a warrant to purchase 5,000,000 additional common stock shares at an exercise price of $0.40 per share, exercisable through February 21, 2016. Net proceeds from the loan will be used for working capital, exploration and corporate development purposes.
Item 9
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our executive officer to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation and the requirements of the Exchange Act, our Chief Executive Officer and our Chief Financial Officer concluded that, as of December 31, 2011, our disclosure controls and procedures needed to be declared as ineffective. The small size of our company does not provide for the desired separation of control functions, and we do not have the required level of documentation of our monitoring and control procedures. The potential remedies for this situation are described below.
Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an evaluation of the effectiveness of our internal control over financial reporting and determined that our internal control over financial reporting was ineffective as of December 31, 2011 due to material weaknesses. A material weakness in internal control over financial reporting is defined by the Public Company Accounting Oversight Board’s Audit Standard No. 5 as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of our financial reporting. Management’s assessment identified the following material weaknesses in internal control over financial reporting:
●
The small size of our Company limits our ability to achieve the desired level of separation our internal controls and financial reporting. We do have a separate CEO and CFO, however we do not have an Audit Committee to review and oversee the financial policies and procedures of the Company due to lack of independence. Until such time as we are able to install an audit committee, we do not meet the full requirement for separation. In the interim, we will continue to strengthen the role of our CEO and CFO and their review of our internal control procedures.
●
We have not achieved the desired level of documentation of our internal controls and procedures. This documentation will be strengthened to limit the possibility of any lapse in controls occurring.
In light of the material weaknesses described above, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
Subject to the Company’s financial resources management hopes to further mitigate the risk of the material weaknesses going forward by utilizing external financial consulting services, in a more effective manner, prior to the review by our principal independent accounting firm to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported accurately and within the time periods specified in the Commission’s rule and forms.
Our management determined that there were no other changes made in our internal controls over financial reporting during 2012 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
This Annual Report on Form 10-K does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report on Form 10-K.
There were no changes in our internal control over financial reporting during the year ended December 31, 2012 that materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
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 holds office for a period of one year 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/Director/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 2011, Mr. Shipes provided us with engineering services, specializing in mining related engineering projects. Including his affiliation with us, Mr. Shipes has over 40 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.
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
j)
In 2010, Mr. Shipes was elected to the board of directors of Continental Mining and Smelting, Limited, a related party private Canadian 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 Kennedy, Director. Mr. Kennedy is a founding member of Empire Advisors LLC., a midmarket private equity fund based in Columbus, Ohio that is a significant investor in the Company. Empire is also an investor in other mining projects including CS Mining, LLC located near the Company’s Pioche project. Mr. Kennedy is also a Senior Partner at the law firm of Crabbe, Brown & James LLP where he practices government relations. Mr. Kennedy is a past appellate court judge and past president of City Council in Columbus Ohio. He received his Law degree in 1978 from Ohio Northern University-Claude W. Pettit College of Law and a Bachelor of Arts (Finance, with honors) degree in 1975, from the University of Bridgeport.
Mr. Clinton W. Walker, Director. Mr. Walker is a General Partner at Clarity Partners, L.P., a venture capital and private equity firm based in Los Angeles, California. He is Chairman of the Board of CS Mining LLC., a copper, gold and silver mining company based in Milford, Utah. Mr. Walker also sits on the boards of TelePacific Communications and CaseStack. Mr. Walker received his Bachelor of Business Administration in Accounting in 1985 at Pacific Union College.
Mr. Russell D. Alley, Director. Mr. Alley is President of CS Mining LLC., a copper, gold and silver mining company based in Milford, Utah. Mr. Alley has over 40 years in the mining industry focused on base metals. He received a Bachelor of Science degree in Metallurgical Engineering at the University of Arizona in 1968 and a Masters of Science degree in Management from Troy State University in 1975.
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 30 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.
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.
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 22 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 2010, Mr. McKinney was elected to the board of directors of Continental Mining and Smelting, Limited, a related party private Canadian company.
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.
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 24 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
One 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, four of our directors are not independent, therefore our Board of Directors cannot affirmatively determine that any of these four 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
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 elected not yet elected an audit committee due to lack of independence and a nominating committee 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
On August 9, 2012, three new members were appointed as directors, 1) John Kennedy, 2) Clinton W. Walker and 3) Russell D. Alley, bringing the total number of directors to six. Prior to these appointments, the Board approved resolutions during three different telephonic meetings. Subsequent to the appointment of the three new directors the board held three telephonic meetings and two Board of Directors meetings were held with all members present.
During 2011, seven board resolutions were adopted in lieu of actual board member meetings. All three board members, Harold R. Shipes, Michael Harrington and Herbert E. Dunham approved the resolutions.
During 2010, all but one of the eight board resolutions were adopted in lieu of actual board member meetings. All three board members, Harold R. Shipes, Michael Harrington and Herbert E. Dunham approved the resolutions. On November 1, 2010, the Board met and approved the adoption of a stock option plan.
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.
e. Annual Shareholder Meetings
During 2012 and 2011, there was no annual shareholder 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
In 2012 and 2011, there was no deferred compensation to our officers.
In 2010, there was no cash compensation paid to our officers. Each of the named officers was granted incentive stock options to purchase 500,000 shares at $.20 per share on November 1, 2010. The options are valued at $0.12 per share, based on the Black Scholes formula, for a total of $60,000 each.
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.
Board Compensation
The following table sets forth the compensation for members of the board of directors whose compensation is not included in the Summary Compensation table.
DIRECTORS’ COMPENSATION TABLE
There was no compensation for the directors in 2011.
Stock Option Plan
On November 1, 2010, our Board of Directors authorized the approval of a stock option plan and on May 5th 2011, the board amended the plan. The plan, which covers 3,800,000 shares, allows the Board of Directors, or a committee thereof at the Board’s discretion, to grant stock options to officers, directors, key employees and consultants of the company and its affiliates. No vesting will be required.
Pursuant to the Plan, in the case of Incentive Stock Options, the exercise price shall not be less than (i) 100% of the fair market value of one share of common stock on the date the option is granted, or (ii) 110% of the fair market value of one share of common Stock on the date the option is granted if, at that time the option is granted, the participant owns, directly or indirectly more than 10% of the total combined voting power of all classes of stock of the company. In the case of Non-Statutory Stock Options, the per share price to be paid by the Participant, at the time the option is exercised, shall be determined by the Committee in its sole discretion.
During the year ended December 31, 2010, total stock options for 3,300,000 shares were granted to directors, officers, key employees and consultants under the plan. On November 1, 2010, stock options for 3,300,000 shares were granted at an exercise price of $0.20, which was in excess of the quoted market price of $0.12 of the Company’s shares at the date of the grant. The options granted to employees were deemed as “incentive stock options” by the Board of Directors in accordance with the plan, although the treatment of the options as incentive stock options is subject to stockholder approval of the plan. Options granted to non-employees are non-qualified stock options. These option grants are fully vested and expire on November 1, 2015.
On November 5, 2012, stock options for 400,000 shares were granted to directors at an exercise price of $0.34, which was in excess of the quoted market price of $0.30 of our shares at the date of the grant. Stock options for 150,000 shares granted to new directors are fully vested and expire on November 5, 2015. The additional stock options for 250,000 shares issued to all directors vest on September 15, 2013. All these options were deemed as “incentive stock options” by the Board of Directors in accordance with the Plan. Stock compensation expense of $28,000 was recognized based on the Black-Scholes valuation of $0.07 per share of common stock.
No options were exercised or forfeited during the year 2012 or 2011.
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 March 28, 2013, 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
(1) 6,235,417 shares held by Harold and Eileen Shipes as community property and 1,000,000 shares are held by Harold R. Shipes individually. Includes 771,452 shares underlying currently exercisable options and warrants.
(2) 4,404,000 shares held by John and Lynette McKinney as joint tenants, and 1,000,000 shares are held by John McKinney individually. Includes 500,000 shares underlying currently exercisable options.
(3) 3,507,300 shares held by Matthew J. Lang. Includes 500,000 shares underlying currently exercisable options.
(4) 192,000 shares held by Herbert E. and Ana Dunham as joint tenants, and 100,000 shares are held by Herbert E. Dunham individually. Includes 100,000 shares underlying currently exercisable options.
(5) 300,000 shares held by Michael Harrington. Includes 100,000 shares underlying currently exercisable options.
(6) Includes 50,000 shares underlying currently exercisable options.
(7) Includes 50,000 shares underlying currently exercisable options.
(8) Includes 50,000 shares underlying currently exercisable options.
(9) Harold Shipes is a shareholder, officer and director of Atlas Precious Metals Inc.; John McKinney and Matthew Lang are shareholders and officers of Atlas Precious Metals Inc. and Herbert Dunham is a shareholder of Atlas Precious Metals Inc.
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 37,052,280 shares of common stock outstanding, including 26,510,450 warrants outstanding and 3,450,000 vested stock options outstanding as of March 28, 2013.
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%.
On March 1, 2010, we purchased a 70% interest in the Estrades Mine from Atlas Precious Metals, Inc., a related party as described above, in exchange for 6,000,000 shares of its common stock, at a share price of $0.0025 per share. The property is carried on our books on a fair value of the equity instrument issued basis. The value allocated to the acquired property is based on a 97.5% discount from the market price on the date of the transaction ($0.40 per share) based on the number of shares issued to the related party and the minimal trading volume of the common stock.
During March, 2010, we negotiated the terms in a contract for the sale of the Estrades Mine in exchange for 6,000,000 shares of common stock in Continental Mining and Smelting Limited, a related party. As of December 31, 2011, Continental Mining & Smelting LTD. had identified a CPC merger company, completed a NI 43-101 evaluation on the Estrades property and is seeking financing to complete the merger and go public.
Indebtedness to our Chief Executive Officer , Harold Roy Shipes
As of December 31, 2011, we owed our Chief Executive Officer, Harold R. Shipes, a total of $15,443 representing business expenses incurred on our behalf.
As of December 31, 2010, we owed our Chief Executive Officer, Harold R. Shipes, a total of $36,589 of which is accrued interest of $29,748 from various loans made in earlier years, with the balance representing business expenses incurred on our behalf.
As of December 31, 2009, we owed our Chief Executive Officer, Harold R. Shipes, a total of $86,589 of which is accrued interest of $79,748 from various loans made in earlier years, with the balance representing business expenses incurred on our behalf.
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 our behalf.
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 2011, there were no issuances of our common stock to our Directors.
In 2010, Harold R. Shipes was issued 2,000,000 shares of common stock in exchange for reduction in our indebtedness to him in the amount of $ 50,000.
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.
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 our behalf.
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.
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.
On August 28, 2012, we issued Harold R. Shipes, our Chief Executive Officer and Director, a total of 271,452 shares of common stock in exchange for debt, plus 271,452 warrants, exercisable at $0.40 per share for a number of shares equal to the number of shares issued. These warrants expire on August 28, 2015. At December 31, 2012, none had yet been exercised.
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
Audit fees paid to our independent auditors, Seale and Beers, CPA’s in 2012 were $18,896.
Audit fees paid to our independent auditors, Seale and Beers, CPA’s in 2011 were $14,500.
.
Tax Fees
No such fees were paid to Seale and Beers, CPA’s at any time..
All Other Fees
No such fees were paid to Seale and Beers, CPA’s at any time
PART IV
Item 15
Item 15 Exhibits and Financial Statement Schedules
EXHIBITS
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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.
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.