10-Q 1 islv_10q.htm FORM 10-Q islv_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10 – Q
 
(MARK ONE)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2013
 
OR
 
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE TRANSITION PERIOD FROM _________ TO _________
 
INTERNATIONAL SILVER, INC.
(Exact name of registrant as specified in its charter)
 
Arizona
(State or other jurisdiction of incorporation or organization)
 
333-147712
 
86-0715596
(Commission File Number)
 
(IRS Employer Identification Number)
 
5210 E. Williams Circle, Suite 700
Tucson, Arizona 85711
(Address of principal executive offices including zip code)
 
(520) 889-2040
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically or posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Paragraph 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of " large accelerated filer", "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
Accelerated filer
o
Non–Accelerated filer
o
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS.
 
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
 
Shares Outstanding at August 13, 2013
Common Stock, $0.0001 Par Value
 
37,052,280
 
Exhibit Index located at page 42
 


 
 

 

TABLE OF CONTENTS

 
 
 
Page
 
 
 
     
Item 1
FINANCIAL STATEMENTS
    3  
 
 
       
 
Consolidated Financial Statements:
    4  
 
 
       
 
Balance Sheets
    5  
 
 
       
 
Statement of Income
    6  
 
 
       
 
Statement of Cash Flows
    7  
 
 
       
 
Supplemental Disclosures of Non-cash Financing Activities:
    8  
 
 
       
 
Statement of Shareholders' Equity
    9  
 
 
       
 
Notes To The Financial Statements
    10  
 
 
       
Item 2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
    32  
 
 
       
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    39  
 
 
       
Item 4
CONTROLS AND PROCEDURES
    39  
 
 
       
PART II – OTHER INFORMATION
 
 
       
Item 1
LEGAL PROCEEDINGS
    41  
 
 
       
Item 1A
RISK FACTORS
    41  
 
 
       
Item 2
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
    41  
 
 
       
Item 3
DEFAULTS UPON SENIOR SECURITIES
    41  
 
 
       
Item 4
MINE SAFETY DISCLOSURES
    41  
 
 
       
Item 5
OTHER INFORMATION
    41  
 
 
       
Item 6
EXHIBITS
    42  

 
2

 
 
PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements
 
SEALE AND BEERS, CPAs
PCAOB & CPAB REGISTERED AUDITORS
 
www.sealebeers.com
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors
International Silver, Inc.
(An Exploration Stage Company)

We have reviewed the accompanying condensed consolidated balance sheet of International Silver, Inc. as of June 30, 2013, and the related condensed consolidated statements of operations for the three and six-month periods ended June 30, 2013 and 2012, and for the period from inception on June 16, 2006 through June 30, 2013, and condensed consolidated statements of cash flows for the six-month periods then ended and for the period from inception on June 16, 2006 through June 30, 2013. These interim financial statements are the responsibility of the Corporation’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for the financials and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note A to the financial statements, the Company has minimal revenues, has negative working capital at June 30, 2013, 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
August 9, 2013
 
50 S. Jones Blvd Suite 202 Las Vegas, NV 89107 Phone: (888)727-8251 Fax: (888)782-2351
 
 
3

 

 
 
 
 
International Silver, Inc.

(An Exploration Stage Company)

Condensed Consolidated Financial Statements

For The Six Months June 30, 2013
(Unaudited)

and

For the Year Ended December 31, 2012
(Audited)
 
 
 



 
4

 
 
International Silver, Inc.
(An Exploration Stage Enterprise)
Unaudited Interim Condensed Consolidated Balance Sheets
 
   
As At
   
As At
 
   
June 30,
   
December 31,
 
   
2013
   
2012
 
             
ASSETS
             
CURRENT ASSETS
           
Cash
  $ 366,833     $ 211,188  
Accounts receivable
    135,403       61,323  
Prepaid expenses - Note C
    102,142       105,651  
Total Current Assets
  $ 604,378     $ 378,162  
 
               
PROPERTY, PLANT AND EQUIPMENT- Note D
               
Mineral properties
  $ 103,388     $ 103,388  
Leasehold Improvements
    26,812       26,812  
Equipment
    5,399       5,399  
Furniture & Fixtures
    11,877       3,502  
Computer Software
    8,390       -  
Computer equipment
    21,535       2,429  
    $ 177,401     $ 141,530  
Accumulated depreciation
    (9,027 )     (6,240 )
    $ 168,374     $ 135,290  
                 
Other Assets - Note E
               
Deposit toward investment - Note F
  $ 180,000     $ 150,000  
Other Deposits - Note G
    84,406       49,406  
 
  $ 264,406     $ 199,406  
                 
TOTAL ASSETS
  $ 1,037,158     $ 712,858  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
             
CURRENT LIABILITIES
           
Accounts payable
  $ 35,697     $ 234,745  
Payroll taxes payable
    6,682       8,658  
Accrued expenses
    379,968       194,882  
Due to related parties - Note L
    65,255       52,218  
Deferred Income - Note M
    25,205       -  
Total Current Liabilities
  $ 512,807     $ 490,503  
                 
LONG-TERM LIABILITIES
               
Related party convertible notes payable - Note H
  $ 2,628,010     $ 2,139,266  
 
  $ 2,628,010     $ 2,139,266  
                 
Total Liabilities
  $ 3,140,817     $ 2,629,769  
                 
SHAREHOLDERS' EQUITY (DEFICIT) - Note K
               
Common stock
               
authorized shares - 500,000,000
               
par value $0.0001 per share
               
issued & o/s at 12/31/12 - 37,052,280
               
issued & o/s at 06/30/13 - 37,052,280
  $ 3,705     $ 3,705  
Additional paid-in capital
    4,678,527       3,260,984  
Accumulated deficit prior to exploration stage
    (176,034 )     (176,034 )
Accumulated deficit during exploration stage
    (6,609,857 )     (5,005,566 )
Total Shareholders' Equity
  $ (2,103,659 )   $ (1,916,911 )
                 
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)
  $ 1,037,158     $ 712,858  
 
See accompanying notes to the condensed consolidated financial statements
 
 
5

 
 
International Silver, Inc.
(An Exploration Stage Enterprise)
Unaudited Interim Condensed Consolidated Statement of Income
 
   
Three Months Ended
   
Six Months Ended
   
Inception (June 16, 2006) of Exploration Stage through
 
   
June 30,
   
June 30,
   
June 30,
   
June 30,
    (June 30,  
   
2013
   
2012
   
2013
   
2012
    2013)  
                                 
Revenues
                               
Mineral lease income
  $ 12,465     $ -     $ 24,795     $       $ 124,795  
Consulting - third parties
    35,001       -       70,002       -       263,945  
Consulting -related parties
    59,824       -       109,977       -       507,067  
Total Revenues
  $ 107,290     $ -     $ 204,774     $ -     $ 895,807  
 
                                       
Operating Expenses
                                       
Exploration costs
  $ 113,556     $ 43,635     $ 220,112     $ 94,279     $ 1,457,412  
General and administration
                                       
Rent expense - related party
    20,559       28,500       51,398       57,000       340,695  
Rent expense - third party
    16,280       -       23,780       -       23,780  
Bad debt expense
    -       -       -       -       41,860  
All other general & administrative
    433,582       358,306       889,364       654,556       4,262,597  
Depreciation and depletion
    1,594       39       2,787       79       4,237  
Total operating expenses
  $ 585,571     $ 430,480     $ 1,187,441     $ 805,914     $ 6,130,581  
                                         
Operating Income/(Loss)
  $ (478,281 )   $ (430,480 )   $ (982,667 )   $ (805,914 )   $ (5,234,774 )
                                         
Other Income/(Expense)
                                       
Gain on settlement of debt
  $ -     $ -     $ -     $ -       1,678,634  
Impairment loss
    -       -       -       -       (1,733,456 )
Interest expense
    (401,836 )     (88,808 )     (621,624 )     (149,344 )     (1,320,261 )
Total other income/(expense)
  $ (401,836 )   $ (88,808 )   $ (621,624 )   $ (149,344 )   $ (1,375,083 )
                                         
Net Income/(Loss)
  $ (880,117 )   $ (519,288 )   $ (1,604,291 )   $ (955,258 )   $ (6,609,857 )
                                         
Basic Earnings per Share
                                       
Income/(Loss) per Share
  $ (0.02 )   $ (0.01 )   $ (0.04 )   $ (0.03 )        
                                         
Weighted Average Shares
                                       
Outstanding
    37,052,280       36,780,828       37,052,280       36,780,828          
 
See accompanying notes to the condensed consolidated financial statements
 
 
6

 
 
International Silver, Inc.
(An Exploration Stage Enterprise)
Unaudited Interim Condensed Consolidated Statement of Cash Flows
 
   
Six Months Ended
   
Inception (June 16,
2006) of Exploration
Stage through
 
 
 
June 30,
   
June 30,
   
(June 30,
 
   
2013
   
2012
   
2013)
 
   
 
   
 
   
 
 
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net Income/(Loss)
  $ (1,604,291 )   $ (955,258 )   $ (6,609,857 )
Adjustments used to reconcile net (loss)
                       
to net cash (used) by operating activities:
                       
Non-controlling interest in subsidiary
    -       -       (3,530 )
Dissolution of subsidiary
    -       -       3,530  
Depreciation and depletion
    2,787       79       4,237  
Impairment loss
    -       -       1,733,456  
Gain on settlement on debt
    -       -       (1,678,634 )
Financing cost
    406,285       34,109       820,387  
Stock compensation expense
    -       -       424,000  
Issuance of common stock
                       
In exchange for land
    -       -       30,000  
In exchange for services
    -       -       157,000  
In exchange for exploration costs
    -       -       55,385  
In exchange for debt
    -       -       50,000  
Changes in operating assets and liabilities
                       
Decrease/(Increase) in receivables
    (74,080 )     236       114,258  
Decrease/(Increase) in employee receivable
    -       -       2,317  
Decrease/(Increase) in prepaid expenses
    3,509       (20,119 )     (105,616 )
(Decrease)/Increase in payables
    (187,986 )     32,747       94,466  
(Decrease)/Increase in accrued expenses
    185,087       94,207       403,590  
(Decrease)/Increase in deferred income
    25,205       -       25,205  
Net Cash Flows (used by) Operating Activities
  $ (1,243,484 )   $ (813,999 )   $ (4,479,806 )
                         
CASH FLOW FROM INVESTMENT ACTIVITIES
                       
Lease/purchase option on land
  $ -     $ -     $ (90,000 )
Purchase of land
    -       -       (90,000 )
Leasehold Improvements
    -       -       (26,812 )
Purchase of equipment, furniture & fixtures
    (35,871 )     (3,357 )     (48,324 )
Building improvements
    -       -       (14,822 )
Deposits towards investment
    (30,000 )     (110,000 )     (180,000 )
Nonrefundable deposit - Option payment
    (35,000 )     -       (70,000 )
Refundable deposit - reclamation bond
    -       (14,406 )     (14,406 )
Purchase of mineral land
    -       (47,500 )     (103,388 )
Net Cash Flows from Investment Activities
  $ (100,871 )   $ (175,263 )   $ (637,752 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Issuance of common stock:
                       
Net proceeds from stock issuance
  $ -     $ -     $ 1,329,290  
Less: Stock issuance costs
    -       -       (139,724 )
Sale of mining property
                       
For treasury stock
    -       -       (30,000 )
Exchange for securities
    -       -       (25,000 )
Return of deed of trust - mining property
    -       -       90,000  
Disposal of vehicle
    -       -       215  
Third-party loan
    1,500,000       2,600,000       4,175,000  
Debt service payments
    -       (30,000 )     (100,000 )
Borrowings from related parties
    -       -       152,980  
Net Cash Flows from Financing Activities
  $ 1,500,000     $ 2 ,570,000     $ 5 ,452,761  
                         
Net Increase/(Decrease) in Cash
  $ 155,645     $ 1,580,738     $ 335,203  
                         
Beginning Cash Balance
  $ 211,188     $ 1 ,913     $ 31,630  
                         
Ending Cash Balance
  $ 366,833     $ 1,582,651     $ 366,833  
 
See accompanying notes to the condensed consolidated financial statements
 
 
7

 
 
International Silver, Inc.
(An Exploration Stage Enterprise)
Supplemental Disclosures of Non-Cash Financing Activities
 
   
 
   
Exploration Stage
 
   
Six Months Ended
   
(June 16, 2006
 
   
June 30,
   
June 30,
   
through
 
   
2013
   
2012
   
June 30, 2013)
 
                   
The Company issued shares of its common stock in exchange for the following:
       
                   
For services rendered:
 
 
   
 
   
 
 
Director services
  $ -     $ -     $ 21,000  
Legal and professional services
    -       -       116,350  
Stock transfer agent services
    -       -       5,500  
Accounting services
    -       -       6,150  
Geology and engineering
    -       -       8,000  
Sub-total
  $ -     $ -     $ 157,000  
For land/mining property
    -       -       42,000  
For equipment
    -       -       3,000  
For exploration costs
    -       -       55,385  
For debt retirement
    -       -       156,651  
For contributed capital
    -       -       315,072  
Total non-cash issuances of stock
  $ -     $ -     $ 729,108  
                         
Shares of common stock issuable
                       
For debt interest
  $ -     $ -     $ 16,250  
    $ -     $ -     $ 16,250  
                         
Shares of common stock cancelled
                       
Repurchase of its common stock
  $ -     $ -     $ 30,000  
                         
Issuance of incentive stock option grants
                       
Grants issued
  $ -     $ -     $ 424,000  
                         
The Company relinquished its mining property in exchange for the following:
                 
                         
For repurchase of its common stock
  $ -     $ -     $ (30,000 )
For marketable securities in another company
  $ -     $ -     $ (25,000 )
For deed of trust in the mining property
  $ -     $ -     $ 90,000  
 
See accompanying notes to the condensed consolidated financial statements
 
 
8

 
 
International Silver, Inc.
 
(An Exploration Stage Enterprise)
Consolidated Statement of Shareholders' Equity
 
                           
Accumulated Deficit
     
 
     
Common Stock
 
Additional
 
Treasury Stock/
 
Prior
 
During
     
   
Share
 
No. of
  $0.0001  
Paid-In
 
Shares Issuable
 
Exploration
 
Exploration
     
   
Price
 
Shares
 
Par Value
 
Capital
 
Shares
 
Amount
 
Stage
 
Stage
 
Total
 
                                 
 
     
At Janaury 1, 2012
        36,780,828     3,678     2,505,936     0     0     (176,034 )   (2,454,140 )   (120,560 )
                                                       
Convertible Debt
                                                     
Issuance of Warrants
                                                     
February 6, 2012
                    133,334                             133,334  
Convertible Debt
                                                     
Issuance of Warrants
                                                     
May 25, 2012
                    444,444                             444,444  
Shares exchanged for debt
                                                     
August 28, 2012
  $ 0.200     271,452     27     54,263                             54,290  
Cost of Discounted Shares
                                                       
August 28, 2012
                      95,008                             95,008  
Stock option - grants issued
                                                       
November 7, 2012
  $ 0.070                 28,000                             28,000  
Net Income/(Loss)
                                              (2,551,426 )   (2,551,426 )
                                                         
At December 31, 2012
          37,052,280     3,705     3,260,985     0     0     (176,034 )   (5,005,566 )   (1,916,910 )
                                                         
Convertible Debt
                                                       
Issuance of Warrants
                                                       
February 21, 2013
                      917,542                             917,542  
Net Income/(Loss)-Restated
                                              (724,174 )   (724,174 )
                                                         
At March 31, 2013
          37,052,280     3,705     4,178,527     0     0     (176,034 )   (5,729,740 )   (1,723,542 )
                                                         
Convertible Debt
                                                       
Issuance of Warrants
                                                       
May 22, 2013
                      500,000                             500,000  
Net Income/(Loss)
                                              (880,117 )   (880,117 )
                                                         
At June 30, 2013
          37,052,280     3,705     4,678,527     0     0     (176,034 )   (6,609,857 )   (2,103,659 )
 
See accompanying notes to the condensed consolidated financial statements
 
 
9

 
 
International Silver, Inc.
(An Exploration Stage Company)
Notes to Unaudited Interim Condensed 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 is to acquire and explore high-grade silver properties throughout North and South America.

On September 4, 1992, the Company was incorporated in Arizona as ARX Engineering, Inc. and then changed its name to Western States Engineering, Inc. On June 20, 2006, the Company changed its name to International Silver, Inc. to reflect 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 continue a reconnaissance and exploration program in the Pioche Mining District located in Nevada, in Silver Bow County, Montana 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 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 analyzing its findings. At June 30, 2013, 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) representing the Company’s capital contribution towards the joint venture. Formation of the joint venture entity 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.
 
 
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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. The Company wholly owns approximately 1,300 acres of U.S federal lode mining claims. In 2012, the Company leased this property to Calico Exploration, LLC.

Condensed Financial Statements
The accompanying interim condensed consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position for the periods ended June 30, 2013 and December 31, 2012 and results of operations for the comparative periods for the three months ended June 30, 2013 and June 30, 2012. Cash flows are presented for the comparative periods for the six months ended June 30, 2013 and June 30, 2012.

Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed interim financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2012 audited financial statements. The results of operations for the six-month period ended June 30, 2013 are not necessarily indicative of the operating results for the full year.

Going Concern
The Company’s interim condensed financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. There is substantial doubt of the ability of the Company to continue as a going concern since it is dependent upon 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, which may include, a private placement, a public offering, convertible notes, secured loans or any combination of the foregoing.

The ability of the Company to continue as a going concern is dependent upon its ability to secure 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.
 
 
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Note B - Summary of Significant Accounting Policies

Principles of Consolidation
The financial statements for the three months ended June 30, 2013 and June 30, 2012 include the accounts of International Silver, Inc. and its subsidiaries, Western States Engineering, Inc. International Silver Nevada, 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 reviewed and evaluated recent and relevant accounting pronouncements issued since its last audited financial statements and in managements’ opinion, these pronouncements have no material effect on the Company’s financial statements.

Use of Estimates
Preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant areas requiring the use of management estimates include the determination of mineral ore quantities; the depletion expense calculation, if applicable; useful lives of property and equipment for depreciation; impairment valuations and calculation of any deferred taxes. Actual results may differ from those estimates, and such differences may be material to the condensed financial statements.

In management’s opinion all adjustments necessary for a fair statement of the results for the interim periods have been made, and the adjustments are of a normal recurring nature.
 
Concentration of Credit Risk
Our cash equivalents, 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
During 2013 and 2012, the Company negotiated additional financing with ISLV Partners, LLC; as a result, the Company’s entire tangible property, currently owned or acquired hereafter, is collateral in connection with the ISLV Partners, LLC financing. (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 June 30, 2013, trade receivables were $135,403 and at December 31, 2012, trade receivables were $61,323. No allowance for uncollectible accounts was established, as management deem the accounts as fully collectible.
 
 
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Investments
Investments in marketable securities are classified under one of three methods:
 
1)
available for sale
 
 
2)
held to maturity
 
 
3)
trading securities

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 June 30, 2013 and December 31, 2012, the Company held securities in Continental Mining & Smelting, which are considered “available for sale” and were reported under the Equity Method. At June 30, 2013 and December 31, 2012, 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 June 30, 2013 and December 31, 2012, all mineral interests were in the exploration stage.
 
 
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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:
 
Leasehold Improvements
15 years
Equipment
5 years
Office furniture and equipment
5 years

Development stage mineral interests are not amortized until such time as the underlying property is converted to the production stage. As of June 30, 2013, there was $9,027 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 June 30, 2013, 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.

Income was recognized from management and engineering contracts rendered by Western States Engineering, Inc., a subsidiary of International Silver, Inc. for the six months ended June 30, 2013. As of June 30, 2013, there has been no production from any of the Company's mineral properties, as 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.
 
 
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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)

On February 21, 2013, the Company executed an additional convertible note, 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 June 30, 2013 and December 31, 2012, no options or 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 six months ended June 30, 2013 were $406,285 and $34,109 for the six months ended June 30, 2012. During the six months ended June 30, 2013, non-cash investing and financing activities reflected amortization of discount on notes issued by ISLV Partners, LLC. (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 June 30, 2013 and December 31, 2012, 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, which 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.
 
 
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Note C – Prepaid Expense
 
During the six months ended June 30, 2013, the leases on New Butte and the Continental Public Land Trust, located in the State of Montana, were renewed, as well as commercial insurance coverage for all our exploration properties located in Nevada and Montana. At June 30, 2013, prepaid expenses reflect the unexpired portion of mineral property leases, which are treated as operating leases, pursuant to FASB ASC 840-20. Also reflected in prepaid expenses is the unexpired portion of commercial insurance on our Nevada and Montana properties, prepayments on the roaster-leach study being conducted by Hazen Research and on a consulting arrangement with Gustavson Associates for a preliminary economic assessment on the Caselton Tailings located in Nevada, resulting in a prepaid expense balance of $102,142 at June 30, 2013, compared to a balance of $105,651 at December 31, 2012, summarized below:
 
 
 
June 30,
2013
 
 
December 31,
2012
 
 
 
 
 
 
 
 
Prepaid mine leases
 
$
46,370
 
 
$
49,096
 
Prepaid commercial insurance
 
 
19,596
 
 
 
5,603
 
Prepaid director & officer insurance
 
 
578
 
 
 
35,413
 
Prepaid expense – metallurgical services
 
 
7,000
 
 
 
14,321
 
Prepaid expense – economic assessment study
 
 
25,000
 
 
 
0
 
Prepaid expense – rent
   
2,500
     
0
 
Prepaid expense – other
 
 
1,098
 
 
 
1,218
 
                 
Total prepaid expenses 
 
$
102,142
   
$
105,651
 
 
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.
 
 
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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 March 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:

November 6, 2013
 
$
50,000
 
November 6, 2014
 
$
50,000
 
 
 
 
 
 
Total
 
$
100,000
 
 
Lease expense on the Prince Mine since inception of the lease on November 6, 2010 through June 30, 2013 is $132,466. For the six months ended June 30, 2013, lease expense was $24,795.

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:

No. 1 - Initial payment
 
$
687,500
 
No. 2 - 1st anniversary of exercise
 
$
687,500
 
No. 3 - 2nd anniversary of exercise
 
$
687,500
 
No. 4 - 3rd anniversary of exercise
 
$
687,500
 

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:

January 15, 2014 - $15,000 annually
 
$
15,000
 
January 15, 2015 - $15,000 annually
 
$
15,000
 
Each January 15th - $20,000 annually - Years 2016 – 2020
 
$
100,000
 
Each January 15th - $25,000 annually - Years 2021 – 2030
 
$
250,000
 
Each January 15th - $50,000 annually - Years 2031 – 2060
 
$
1,500,000
 
Each January 15th - $75,000 annually - Years 2061 – 2062
 
$
150,000
 
 
 
 
 
 
Total
 
$
2,030,000
 

 
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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 June 30, 2013 was $22,438.

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.

April 23, 2013 - $25,000 annually - Year 2013 – Paid
 
$
25,000
 
Each April 23rd - $25,000 annually - Years 2014– 2024
 
$
250,000
 
Each April 23rd - $25,000 annually - Years 2015 – 2112, as adjusted by US Producer Price Index
 
$
2,175,000
 
Total
 
$
2,450,000
 

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 the owner’s property.

Lease expense on the Continental Public Land Trust since inception of the lease on April 23, 2012 through June 30, 2013 was $23,726.
 
Leasehold Improvements, Equipment, Furniture and Fixtures
Acquisitions during the six months ended June 30, 2013 consisted of office furniture, scanner/plotter and computers and auto cad software for the newly-established exploration office at Butte, Montana. At June 30, 2013, total leasehold improvements, equipment and office furniture acquisitions were $74,013.
 
At June 30, 2013, property, plant and equipment is comprised of the following:

Land – Mining Properties
 
$
103,388
 
Leasehold Improvements
 
 
26,812
 
Equipment
 
 
5,399
 
Furniture and Fixtures
 
 
11,877
 
Computer Software and Equipment
 
 
29,925
 
 
 
$
177,401
 
Accumulated Depreciation
 
 
(9,027
)
 
 
$
168,374
 

Depreciation expense for the three months ended June 30, 2013 was $1,594 and accumulated depreciation was $9,027.
 
 
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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 June 30, 2013, the Company owned a 16.7 % interest in Continental, whose outstanding shares were 36,028,001. At the date of acquisition, the Company determined that the “Equity Method” of accounting was warranted because 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, 2012 and June 30, 2013, there is no measurable value in the common stock of Continental Mining and Smelting Limited. Continental Mining and Smelting Limited has been attempting to obtain financing to enter the development stage of their mining operations, but has thus far been unsuccessful in doing so,

At June 30, 2013, the Company’s share of losses for the six months then ended were $27,297 and cumulative losses inception to–date are $226,783. 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 June 30, 2013, the Company held the following securities:
 
No of Shares
 
 
Share Price
 
 
Fair Value
 
Common Stock
 
 
 
 
 
 
 
 
 
Available for Sale securities:
 
 
 
 
 
 
 
 
 
Continental Mining and Smelting Limited
 
 
6,000,000
 
 
$
0.000
 
 
$
0
 
 
Note F - 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 to be used to complete a Phase 1 site investigation.

As of June 30, 2013, the Company had reimbursed Aurum, LLC $180,000 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.
 
 
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Note G - Other Deposits
 
Non-Refundable Deposits – Option to Purchase the Assets of Pan American
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.
 
Non-Refundable Deposits – Option to Purchase Acid Plant
On April 1, 2013, the Company executed an exclusive right to purchase agreement with Atlas Precious Metals Inc., a related party, for the purchase of a sulfuric acid plant. The purchase price agreed to is the lower of either the market value or $5,000,000 during the term of 18 months. Under the agreement, the Company will make an initial payment of $14,000, payable at the signing of the agreement and $7,000, payable on the 20th day of each month. All payments shall be applied towards the purchase price of the asset. Payment may be tendered in cash, shares of the Company’s common stock or a combination thereof. The common stock transaction is based on a per share price of $0.50 of the Company’s common stock. As of June 30, 2013, the Company had made $35,000 in option payments.

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 H – Related Party 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 provide 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 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 February 14, 2014.

Convertible Note Agreement – First Amendment
On May 17, 2012, the Company executed an amendment to the Convertible Note Agreement, dated February 6, 2012, giving ISLV Partners, LLC, the option to make an additional loan in the principal amount of up to $2,000,000. Under the terms of the First Amendment, ISLV Partners, LLC advanced the Company an amount of $130,000 on May 17, 2012 and a loan for an additional $1,870,000 on May 25, 2012. 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 10,000,000 additional common stock shares at an exercise price of $0.40 per share, exercisable through May 25, 2015. Net proceeds from the loan will be used for working capital, exploration and corporate development purposes.
 
 
20

 
 
Convertible Note Agreement – Second Amendment
On February 13, 2013, the Company executed a second amendment to the Convertible Note Agreement, dated February 6, 2012, giving ISLV Partners, LLC, the option to make an additional loan in the principal amount of up to $2,200,000. Under the terms of the Second Amendment, ISLV Partners, LLC loaned an initial amount of $1,000,000 on February 21, 2013 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.

Convertible Note Agreement – Third Amendment
On May 22, 2013, the Company executed a third amendment to the Convertible Note Agreement, dated February 6, 2012, as amended by the First and Second amendments, dated May 17, 2012 and February 13, 2013, respectively, giving ISLV Partners, LLC, the option to make an additional loan in the principal amount of up to $1,200,000. Under the terms of the Third Amendment, ISLV Partners, LLC loaned an initial amount of $500,000 on May 22, 2013 and shall have the right to loan an additional amount up to $700,000 by July 1, 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 2,500,000 additional common stock shares at an exercise price of $0.40 per share, exercisable through May 22, 2016. Net proceeds from the loan will be used for working capital, exploration and corporate development purposes.

The following table summarizes the net carrying value, after the discount on the notes resulting from the issuance of warrants:

 
 
June 30,
2013
 
 
December 31,
2012
 
Convertible Notes Payable – ISLV Partners, LLC:
 
 
 
 
 
 
Issued February 6, 2012
 
$
600,000
 
 
$
600,000
 
Issued May 17, 2012
 
 
130,000
 
 
 
130,000
 
Issued May 25, 2012
 
 
1,870,000
 
 
 
1,870,000
 
Issued February 21, 2013
 
 
 1,000,000
 
 
 
 0
 
Issued May 22, 2013
   
500,000
     
0
 
Total
 
$
4,100,000
 
 
$
2,600,000
 
Discount on Notes Payable
 
 
(1,471,990
)
 
 
(460,734)
 
Net Carrying Value
 
$
2,628,010
 
 
$
2,139,266
 
 
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. At June 30, 2103, no conversion had occurred.

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.
 
 
21

 
 
Lender’s Option on Certain Projects
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.

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 June 30, 2013, the convertible note instruments had no beneficial conversion feature, and 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
Detachable warrants issued by the Company providing the Lender with the option to purchase 29,010,450 shares of the Company’s common stock as of June 30, 2013 are as follows:
 
Warrants Issued February 6, 2012
On February 6, 2012, the Company, in conjunction with the issuance of the initial convertible note in the amount of $600,000, 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:
 
 
 
Allocation
   
Relative
 
 
 
of Proceeds
   
Value
 
 
           
Face Value of Convertible Note
  $ 600,000        
No. of Common Shares
    3,000,000        
Current Market Value
             
Market Share price at Feb. 6, 2012
  $ 0.200        
Market Value of Stock, if converted
  $ 600,000     $ 533,333  
 
               
Fair Value - Warrants - At Time of Issuance - Feb 6, 2012
               
No. of Warrants Issued
    3,000,000          
Exercise Price
  $ 0.400          
Fair Value - Based on Black-Scholes Method
               
Black-Scholes Value
  $ 0.025          
Fair Value of Warrants
  $ 75,000     $ 66,667  
 
               
Total/Relative Value
  $ 675,000     $ 600,000  
 
               
Beneficial Conversion Option Calculation
               
Relative Note Value
          $ 533,333  
 
               
Face value of Note
          $ 600,000  
 
               
Market price of stock
          $ 0.200000  
Intrinsic Conversion price/share
          $ 0.177778  
Difference in price/share
          $ 0.022222  
Number of shares convertible
            3,000,000  
Beneficial Conversion Option for fully converted note
          $ 66,667  
 
 
22

 
 
Warrants Issued May 25, 2012
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 “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:
 
 
 
Allocation
 
 
Relative
 
 
 
of Proceeds
 
 
Value
 
 
 
 
 
 
 
 
Face Value of Convertible Notes
 
$
2,000,000
 
 
 
 
No. of Common Shares
 
 
10,000,000
 
 
 
 
Current Market Value
 
 
 
 
 
 
 
Market Share price at May 25, 2012
 
$
0.200
 
 
 
 
Market Value of Stock, if converted
 
$
2,000,000
 
 
$
1,777,778
 
 
 
 
 
 
 
 
 
 
Fair Value - Warrants - At Time of Issuance – May 25, 2012
 
 
 
 
 
 
 
 
No. of Warrants Issued
 
 
10,000,000
 
 
 
 
 
Exercise Price
 
$
0.400
 
 
 
 
 
Fair Value - Based on Black-Scholes Method
 
 
 
 
 
 
 
 
Black-Scholes Value
 
$
0.0250
 
 
 
 
 
Fair Value of Warrants
 
$
250,000
 
 
$
222,222
 
 
 
 
 
 
 
 
 
 
Total/Relative Value
 
$
2,250,000
 
 
$
2,000,000
 
 
 
 
 
 
 
 
 
 
Beneficial Conversion Option Calculation
 
 
 
 
 
 
 
 
Relative Note Value
 
 
 
 
 
$
1,777,778
 
 
 
 
 
 
 
 
 
 
Face value of Note
 
 
 
 
 
$
2,000,000
 
 
 
 
 
 
 
 
 
 
Market value of stock
 
 
 
 
 
$
0.200000
 
Intrinsic conversion price/share
 
 
 
 
 
$
0.177778
 
Difference in price/share
 
 
 
 
 
$
0.022222
 
Number of shares convertible
 
 
 
 
 
 
10,000,000
 
Beneficial Conversion Option for fully converted note
 
 
 
 
 
$
222,222
 

 
23

 
 
Warrants Issued on February 21, 2013
On February 21, 2013, the Company, in conjunction with the issuance of the an additional convertible note in the amount of $1,000,000, issued a total of 5,000,000 “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:
 
 
 
Allocation
 
 
Relative
 
 
 
of Proceeds
 
 
Value
 
 
 
 
 
 
 
 
Face Value of Convertible Notes
 
$
1,000,000
 
 
 
 
No. of Common Shares
 
 
5,000,000
 
 
 
 
Current Market Value
 
 
 
 
 
 
 
Market Share price at February 21, 2013
 
$
0.35
 
 
 
 
Market Value of Stock, if converted
 
$
1,750,000
 
 
$
916,230
 
 
 
 
 
 
 
 
 
 
Fair Value - Warrants - At Time of Issuance – February 21, 2013
 
 
 
 
 
 
 
 
No. of Warrants Issued
 
 
5,000,000
 
 
 
 
 
Exercise Price
 
$
0.400
 
 
 
 
 
Fair Value - Based on Black-Scholes Method
 
 
 
 
 
 
 
 
Black-Scholes Value
 
$
0.032
 
 
 
 
 
Fair Value of Warrants
 
$
160,000
 
 
$
83,770
 
 
 
 
 
 
 
 
 
 
Total/Relative Value
 
$
1,910,000
 
 
$
1,000,000
 
 
 
 
 
 
 
 
 
 
Beneficial Conversion Option Calculation
 
 
 
 
 
 
 
 
Relative Note Value
 
 
 
 
 
$
916,230
 
 
 
 
 
 
 
 
 
 
Face value of Note
 
 
 
 
 
$
1,000,000
 
 
 
 
 
 
 
 
 
 
Market value of stock
 
 
 
 
 
$
0.200
 
Intrinsic conversion price/share
 
 
 
 
 
$
0.183
 
Beneficial Conversion Option for fully converted note
 
 
 
 
 
$
833,770
 
 
 
24

 
 
Warrants Issued on May 22,2013
On May 22, 2013, the Company, in conjunction with the issuance of the an additional convertible note in the amount of $500,000, issued a total of 2,500,000 “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:
 
 
 
Allocation
 
 
Relative
 
 
 
of Proceeds
 
 
Value
 
 
 
 
 
 
 
 
Face Value of Convertible Notes
 
$
500,000
 
 
 
 
No. of Common Shares
 
 
2,500,000
 
 
 
 
Current Market Value
 
 
 
 
 
 
 
Market Share price at May 22, 2013
 
$
0.45
 
 
 
 
Market Value of Stock, if converted
 
$
1,125,000
 
 
$
429,389
 
 
 
 
 
 
 
 
 
 
Fair Value - Warrants - At Time of Issuance – May 22, 2013
 
 
 
 
 
 
 
 
No. of Warrants Issued
 
 
2,500,000
 
 
 
 
 
Exercise Price
 
$
0.400
 
 
 
 
 
Fair Value - Based on Black-Scholes Method
 
 
 
 
 
 
 
 
Black-Scholes Value
 
$
0.074
 
 
 
 
 
Fair Value of Warrants
 
$
185,000
 
 
$
70,611
 
 
 
 
 
 
 
 
 
 
Total/Relative Value
 
$
1,310,000
 
 
$
500,000
 
 
 
 
 
 
 
 
 
 
Beneficial Conversion Option Calculation
 
 
 
 
 
 
 
 
Relative Note Value
 
 
 
 
 
$
429,389
 
 
 
 
 
 
 
 
 
 
Face value of Note
 
 
 
 
 
$
500,000
 
 
 
 
 
 
 
 
 
 
Market value of stock
 
 
 
 
 
$
0.200
 
Intrinsic conversion price/share
 
 
 
 
 
$
0.172
 
Beneficial Conversion Option for fully converted note
 
 
 
 
 
$
429,389
 
 
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.
 
 
25

 
 
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, and thus no liability was recognized on August 7, 2012. As of June 30, 2013, the outstanding principal balance is $1,450,000, plus accrued interest of $51,962.
 
Note J - Income Taxes

The Company has reported (for income tax purposes) net operating losses for 2012, 2011 and prior years as follows:

Net Operating Loss carry-forward to Year 2006
 
$
106,508
 
Net Operating Income - Year 2006 (Applied)
 
 
(4,693
)
Net Operating Loss carry-forward to Year 2007
 
$
101,815
 
Net Operating Loss - Year 2007
 
 
111,921
 
Net Operating Loss carry-forward to Year 2008
 
$
213,736
 
Net Operating Loss - Year 2008
 
 
237,958
 
Net Operating Loss carry-forward to Year 2009
 
$
451,694
 
Net Operating Loss - Year 2009
 
 
62,811
 
Net Operating Loss carry-forward to Year 2010
 
$
514,505
 
Net Operating Loss - Year 2010
 
 
47,369
 
Net Operating Loss carry-forward to Year 2011
 
$
561,874
 
Net Operating Loss - Year 2011
 
 
1,061,616
 
Net Operating Loss carry-forward to Year 2012
 
$
1,623,490
 
Net Operating Loss - Year 2012
 
 
1,468,831
 
Net Operating Loss carry-forward to Year 2013
 
$
3,092,321
 

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 June 30, 2013, the Company recorded a deferred tax benefit of $1,408,271 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 June 30, 2013 and December 31, 2012. 
 
Net deferred tax assets consist of the following components:
 
June 30,
   
December 31,
 
 
 
2013
   
2012
 
 
           
Deferred Tax Asset
 
$
1,408,271
   
$
1,105,626
 
Valuation Account
   
(1,408,271
)
   
(1,105,626
)
Net Deferred Tax Asset
 
$
0
   
$
0
 

 
26

 
 
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 (Deficit)

Common Stock Issued and Outstanding
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 June 30, 2013, the Company had 37,052,280 shares issued and outstanding. The Company has 500,000,000 shares of common stock authorized.
 
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, 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.

On February 28, 2013, the Board amended the Plan establishing the maximum number of shares of common stock to be reserved for issuance under the Plan at 5,000,000.

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 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 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 three months ended June 30, 2013 or for the year ended December 31, 2012.

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%.
 
 
27

 
 
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 and changes during the three months ended June 30, 2013, is presented below: 

                            Weighted  
                     
Weighted
   
(in years)
 
         
Weighted
         
Average
   
Average
 
   
Number of
   
Average
   
Options
   
Exercise
   
Contractual
 
   
Stock Options
   
Exercise Price
   
Exercisable
   
Price
   
Life
 
Outstanding-January 1, 2010
   
0
   
 
     
0
             
Granted - November 1, 2010
   
3,300,000
   
$
0.20
     
3,300,000
   
$
0.20
     
5.00
 
Exercised
   
0
             
0
                 
Outstanding-December 31, 2011
   
3,300,000
   
$
0.20
     
3,300,000
   
$
0.20
         
Granted - November 5, 2012
   
400,000
   
$
0.34
     
150,000
   
$
0.34
     
5.00
 
Exercised
   
0
             
0
                 
Outstanding-December 31, 2012
   
3,700,000
   
$
0.22
     
3,450,000
   
$
0.22
     
3.00
 
Granted
   
0
     
0
     
0
                 
Exercised
   
0
     
0
     
0
                 
Outstanding-March 31, 2013
   
3,700,000
   
$
0.22
     
3,450,000
   
$
0.22
     
2.68
 
Granted
    0       0       0                  
Exercised     0       0       0                  
Outstanding-June 30, 2013
    3,700,000     $ 0.22       3,450,000     $ 0.22       2.43  

Warrants
To date, the Board of Directors has approved the issuance of 29,010,450 warrants resulting from 1) a private placement occurring in 2011 in which 8,238,998 warrants were issued, 2) five convertible notes in which an aggregate of 20,500,000 warrants were issued, and 3) 271,452 warrants issued in settlement of outstanding debt due the Company’s Chief Executive Officer and Board Chairman, Harold R. Shipes.

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.

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.

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 expiration 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

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.

On February 21, 2013, the Company a negotiated convertible term note of $1,000,000 whereby the lender was issued an additional 5,000,000 warrants, with an expiry date of February 21, 2016, exercisable at $0.40 per share for a number of shares equal to the number of shares into which the notes are convertible.
 
 
28

 
 
On May 22, 2013, the Company a negotiated convertible term note of $500,000 whereby the lender was issued an additional 2,500,000 warrants, with an expiry date of May 22, 2016, exercisable at $0.40 per share for a number of shares equal to the number of shares into which the notes are convertible.

At June 30, 2013, none had yet been exercised.

A summary of warrant activity for the year 2012 and the six months ended June 30, 2013 is presented below:
 
 
       
Weighted
         
Weighted
 
 
       
Average
         
Average
 
 
 
Number of
   
Exercise
   
Warrants
   
Exercise
 
 
 
Warrants
   
Price
   
Exercisable
   
Price
 
Outstanding, January 1, 2012
   
8,238,998
   
$
0.20
     
8,238,998
   
$
0.20
 
Granted
   
3,000,000
   
$
0.40
     
3,000,000
   
$
0.40
 
Exercised
   
0
             
0
         
Outstanding, March 31, 2012
   
11,238,998
   
$
0.42
     
11,238,998
   
$
0.42
 
Granted
   
10,000,000
   
$
0.40
     
10,000,000
   
$
0.40
 
Exercised
   
0
             
0
         
Outstanding, June 30, 2012
   
21,238,998
   
$
0.42
     
21,238,998
   
$
0.42
 
Granted
   
271,452
   
$
0.40
     
271,452
   
$
0.40
 
Exercised
   
0
             
0
         
Outstanding, September 30, 2012
   
21,510,450
   
$
0.42
     
21,510,450
   
$
0.42
 
Granted
   
0
   
$
0.40
     
0
   
$
0.40
 
Exercised
   
0
             
0
         
Outstanding, December 31, 2012
   
21,510,450
   
$
0.42
     
21,510,450
   
$
0.42
 
Granted
   
5,000,000
   
$
0.40
     
5,000,000
   
$
0.40
 
Exercised
   
0
             
0
         
Outstanding, March 31, 2013
   
26,510,450
   
$
0.42
     
26,510,450
   
$
0.42
 
Granted
   
2,500,000
   
$
0.40
     
2,500,000
   
$
0.40
 
Exercised
    0    
 
        0          
Outstanding, June 30, 2013    
29,010,450
   
0.42
     
29,010,450
    $
0.42
 
 
At June 30, 2013, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:
 
     
Warrants Outstanding
   
Warrants Exercisable
 
Range of
Warrant Exercise
   
Weighted- Average Remaining
   
Number of
   
Weighted Average
   
Number of
   
Weighted
Average
 
Price
   
Contractual Life
   
Warrants
   
Exercise Price
   
Warrants
   
Exercise Price
 
                                 
$
0.20
     
0.89
     
7,699,998
   
$
0.20
     
7,699,998
   
$
0.20
 
$
0.20
     
0.96
     
539,000
   
$
0.20
     
539,000
   
$
0.20
 
$
0.40
     
1.61
     
3,000,000
   
$
0.40
     
3,000,000
   
$
0.40
 
$
0.40
     
1.90
     
10,000,000
   
$
0.40
     
10,000,000
   
$
0.40
 
$
0.40
     
2.16
     
271,452
   
$
0.40
     
271,452
   
$
0.40
 
$
0.40
     
2.65
     
5,000,000
   
$
0.40
     
5,000,000
   
$
0.40
 
$
0.40
     
2.90
     
2,500,000
   
$
0.40
     
2,500,000
   
$
0.409