INTERNATIONAL SILVER INC - FORM 10-Q

Attached files

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EXCEL - IDEA: XBRL DOCUMENT - INTERNATIONAL SILVER INC	Financial_Report.xls
EX-32.1 - CERTIFICATION - INTERNATIONAL SILVER INC	islv_ex321.htm
EX-31.1 - CERTIFICATION - INTERNATIONAL SILVER INC	islv_ex311.htm
EX-31.2 - CERTIFICATION - INTERNATIONAL SILVER INC	islv_ex312.htm
EX-32.2 - CERTIFICATION - INTERNATIONAL SILVER INC	islv_ex322.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, 2014

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 o No x

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12,13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No o

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Shares Outstanding at August 18, 2014
Common Stock, $0.0001 Par Value		37,941,114

TABLE OF CONTENTS

		Page

Item 1	FINANCIAL STATEMENTS		3

	Consolidated Financial Statements:		3

	Balance Sheets		4

	Statement of Income		5

	Statement of Cash Flows		6

	Supplemental Disclosures of Non-cash Financing Activities:		7

	Statement of Shareholders' Equity		8

	Notes To The Financial Statements		9

Item 2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS		34

Item 3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		39

Item 4	CONTROLS AND PROCEDURES		40

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

PART 1 – FINANCIAL INFORMATION

Item 1 – Financial Statements

International Silver, Inc.

(An Exploration Stage Company)

Condensed Consolidated Financial Statements

For The Three Months June 30, 2014

(Unaudited)

and

For the Year Ended December 31, 2013

(Audited)

International Silver, Inc.

(An Exploration Stage Enterprise)

Unaudited Interim Condensed Consolidated Balance Sheets

	As At			As at
	June 30,			December 31,
	2014			2013

ASSETS

CURRENT ASSETS
Cash	$	70,287		$	98,411
Accounts receivable		154,442			38,719
Prepaid expenses - Note C		45,213			130,013
Total Current Assets	$	269,942		$	267,143

PROPERTY, PLANT AND EQUIPMENT- Note D
Mineral properties	$	153,388		$	153,388
Leasehold improvements		26,812			26,812
Equipment		7,485			7,485
Furniture & fixtures		14,637			14,637
Computer software		8,390			8,390
Computer equipment		26,304			26,304
	$	237,016		$	237,016
Accumulated depreciation		(20,640	)		(14,701	)
	$	216,376		$	222,315

Other Assets - Note E
Deposit toward investment - Note F	$	-		$	191,142
Other deposits - Note G		2,500			2,500
	$	2,500		$	193,642
TOTAL ASSETS	$	488,818		$	683,100

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	224,327		$	122,532
Payroll taxes payable		126,099			24,092
Accrued expenses		1,027,972			543,319
Due to related parties - Note L		69,502			26,186
Convertible notes payable - Note H		3,986,952			3,459,047
Retained on Contracts		61,206			-
Deferred income - Note M		25,342			100,000
Total Current Liabilities	$	5,521,400		$	4,275,176

LONG-TERM LIABILITIES
Convertible notes payable - Note H	$	-		$	-
	$	-		$	-
Total Liabilities	$	5,521,400		$	4,275,176

SHAREHOLDERS' EQUITY - Note K
Common stock authorized shares - 500,000,000 par value $0.0001 per share issued & o/s at 06/30/14 - 37,941,114 issued & o/s at 12/31/13 - 37,066,799	$	3,794		$	3,706
Additional paid-in capital		5,317,048			5,279,977
Accumulated deficit prior to exploration stage		(176,034	)		(176,034	)
Accumulated deficit during exploration stage		(10,177,390	)		(8,699,725	)
Total Shareholders' Equity	$	(5,032,582	)	$	(3,592,076	)
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY	$	488,818		$	683,100

See accompanying notes to the condensed consolidated financial statements

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
	June 30,			June 30,			June 30,			June 30,			Stage through
	2014			2013			2014			2013			(June 30, 2014)

Revenues
Mineral lease income	$	12,466		$	12,465		$	24,658		$	24,795		$	174,658
Consulting-third parties		194,738			94,824			391,548			179,979			276,604
Consulting-related parties		-			-			-			-			1,042,403
Total Revenues	$	207,204		$	107,290		$	416,206		$	204,774		$	1,493,665

Operating Expenses
Exploration costs	$	233,929		$	113,556		$	356,695		$	220,112		$	2,208,844
General and administration
Rent expense – related party		27,860			20,559			55,745			51,398			426,440
Rent expense – third party		7,500			16,280			15,000			23,780			82,772
Bad debt expense		-			-			-			-			41,860
All other general & administrative		334,275			433,582			714,522			889,364			5,728,695
Depreciation and depletion		2,969			1,594			5,939			2,787			15,850
Total operating expenses	$	606,533		$	585,571		$	1,147,901		$	1,187,441		$	8,504,461

Operating Income/(Loss)	$	(399,329	)	$	(478,281	)	$	(731,695	)	$	(982,667	)	$	(7,010,796	)

Other Income/(Expense)
Gain on settlement of debt	$	-		$	-		$	-		$	-			1,678,634
Impairment loss		-			-			-			-			(1,733,456	)
Interest expense		(319,796	)		(401,836	)		(745,970	)		(621,624	)		(3,111,772	)
Total other Income/(expense)	$	(319,796	)	$	(401,836	)	$	(745,970	)	$	(621,624	)	$	(3,166,594	)

Net Income/(Loss)	$	(719,125	)	$	(880,117	)	$	(1,477,665	)	$	(1,604,291	)	$	(10,177,390	)
Basic Earnings per Share
Income/(Loss) per Share	$	(0.02	)	$	(0.02	)	$	(0.04	)	$	(0.04	)
Weighted Average Shares Outstanding		37,580,039			37,052,280			37,337,657			37,052,280

See accompanying notes to the condensed consolidated financial statements

International Silver, Inc.

(An Exploration Stage Enterprise)

Unaudited Interim Condensed Consolidated Statement of Cash Flows

							Inception (June 16,
	Six Months Ended						2006) of Exploration
	June 30,			June 30,			Stage through
	2014			2013			(June 30, 2014)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income/(Loss)	$	(1,477,665	)	$	(1,604,291	)	$	(10,177,390	)
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		5,939			2,787			15,850
Impairment loss		-			-			1,733,456
Gain on settlement on debt		-			-			(1,678,634	)
Financing cost		527,905			406,285			2,179,328
Loss on investment		191,142			-			282,142
Reclamation bond		-			-			14,406
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		(115,723	)		(74,080	)		95,219
Decrease/(Increase) in employee receivable		-			-			2,317
Decrease/(Increase) in prepaid expenses		84,800			3,509			(48,687	)
(Decrease)/Increase in payables		247,118			(187,986	)		406,760
(Decrease)/Increase in accrued expenses		484,653			185,087			1,051,593
(Decrease)/Increase in Retainage on account		61,206			-			61,206
(Decrease)/Increase in deferred income		(74,658	)		25,205			25,342
Net Cash Flows (used by) Operating Activities	$	(65,283	)	$	(1,243,484	)	$	(5,320,707	)
CASH FLOW FROM INVESTMENT ACTIVITIES
Lease/purchase option on land	$	-		$	-		$	(90,000	)
Purchase of land		-			-			(137,500	)
Leasehold Improvements		-			-			(26,812	)
Purchase of equipment, furniture & fixtures		-			(35,871	)		(57,938	)
Building improvements		-			-			(14,822	)
Deposits towards investment		-			(30,000	)		(191,142	)
Non-refundable deposit - Option payment		-			(35,000	)		(91,000	)
Refundable deposits		-			-			(16,906	)
Purchase of mineral land - Deposit method		-			-			(105,888	)
Net Cash Flows from Investment Activities	$	-		$	(100,871	)	$	(732,008	)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock:
Net proceeds from stock issuance	$	2,603		$	-		$	1,333,345
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		34,556			1,500,000			4,809,556
Debt service payments		-			-			(100,000	)
Borrowings from related parties		-			-			152,980
Net Cash Flows from Financing Activities	$	37,159		$	1,500,000		$	6,091,372

Net Increase/(Decrease) in Cash	$	(28,124	)	$	155,645		$	38,657
Beginning Cash Balance	$	98,411		$	211,188		$	31,630
Ending Cash Balance	$	70,287		$	366,833		$	70,287

See accompanying notes to the condensed consolidated financial statements

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
	2014		2013		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

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 December 31, 2012			37,052,280		3,705		3,260,984			0		0		(176,034	)		(5,005,566	)		(1,916,911	)

Convertible Debt
Issuance of Warrants
February 21, 2013							917,542													917,542
Convertible Debt
Issuance of Warrants
May 22, 2013							500,000													500,000
Convertible Debt
Issuance of Warrants
July 31, 2013							500,000													500,000
Exercise of Warrants
December 2, 2013			14,519		1		1,451													1,452
Convertible Debt
December 20, 2013							100,000													100,000
Net Income/(Loss)																	(3,694,159	)		(3,694,159	)

At December 31, 2013			37,066,799		3,706		5,279,977			0		0		(176,034	)		(8,699,725	)		(3,592,076	)

Exercise of Warrants
January 21, 2014			25,296		3		2,600													2,603
Convertible Debt
January 7, 2014							34,556													34,556
Net Income/(Loss)																	(758,540	)		(758,540	)

At March 31, 2014			37,092,095		3,709		5,317,133			0		0		(176,034	)		(9,458,265	)		(4,313,457	)

Issuance of Common Stock
May 7, 2014			50,000		5		(5	)												0
Cashless Exercise of Warrants
May 13, 2014			250,000		25		(25	)												0
May 14, 2014			549,019		55		(55	)												0
Net Income/(Loss)																	(719,125	)		(719,125	)

At June 30, 2014			37,941,114		3,794		5,317,048			0		0		(176,034	)		(10,177,390	)		(5,032,582	)

See accompanying notes to the consolidated financial statements

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 currently intends to continue a reconnaissance and exploration program in the Pioche Mining District located in Nevada and 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 property consists of 227 acres of surface and mineral rights and 495 acres in lode mining claims. 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 March 31, 2014 there are no proven and probable reserves.

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. 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. The mineral lease was renewed on January 1, 2014.

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.

Note B – Summary of Significant Accounting Policies

Principles of Consolidation

The financial statements for the three months ended and the six months June 30, 2014 and June 30, 2013, respectively, 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, 2014, trade receivables were $154,442 and at December 31, 2013, trade receivables were $38,719. 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:

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, 2014 and December 31, 2013, the Company held securities in Continental Mining & Smelting, which are considered “available for sale” and were reported under the Equity Method. At June 30, 2014 and December 31, 2013, the value of the Company’s investments in Continental Mining & Smelting Limited was considered fully 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, 2014 and December 31, 2013, 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:

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, 2014, there was $20,640 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, 2014, 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 engineering 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 and reflected from engineering contracts rendered by Western States Engineering, Inc., a subsidiary of International Silver, Inc. for the three months ended and six months ended June 30, 2014 and June 30, 2013, respectively. As of June 30, 2014, 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.

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 December 22, 2013 and January 7, 2014, the Company executed additional convertible note to ISLV Partners, LLC. Refer to Note H – Convertible Notes Payable.

On January 21, 2014, 16,864 unit purchase options were exercised on a “cashless exercise”, resulting in an issuance of 25,296 shares of the Company’s common stock.

On May 5 and May 14, 2014, there were 500,000 and 1,333,334 warrants exercised on two “cashless exercises”, resulting in an issuance of 250,000 and 549,019 shares of the Company’s common stock, respectively, As of June 30, 2014, a total of 6,379,121 warrants expired that were issued on May 20, 2011 and June 14, 2011, respectively, leaving a balance of 23,271,452 warrants outstanding.

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, 2014 were $527,905 and $406,285 for the six months ended June 30, 2013. During the six months ended June 30, 2014, 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, 2014 and December 31, 2013, 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.

Note C – Prepaid Expense

At June 30, 2014, 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 and a retainer on a consulting arrangement with Gustavson Associates for a preliminary economic assessment on our property located in Nevada, resulting in a prepaid expense balance of $45,213 at June 30, 2014, compared to a balance of $130,013 at December 31, 2013, summarized below:

	June 30, 2014		December 31, 2013

Prepaid mine leases	$	8,178	$	91,097
Prepaid commercial insurance		7,517		9,063
Prepaid director & officer insurance		3,063		3,063
Prepaid expense – metallurgical services		841		841
Prepaid expense – economic assessment study		25,000		25,000
Prepaid expense – other		614		949
Total prepaid expenses	$	45,213	$	130,013

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. At June 30, 2014, mining properties valued at $153,388 were as follows:

Calico Silver Project

The Calico Silver Project consists of 60 unpatented mining claims on 1,300 acres of surface rights, which were acquired through staking and filing Notices of Location with the Bureau of Land Management. At June 30, 2014, this property was under a mineral lease agreement with Calico Exploration, LLC (Leasee). The leasee is obligated to pay annual maintenance fees to the Bureau of Land Management (BLM) on its 60 unpatented lode-mining claims, located in San Bernadino County, California. Refer to Note P – Subsequent Events.

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 in surface rights, with a patented mining claim, 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. The contract for deed was executed on August 7, 2012, at which time an initial deposit of $50,000 was made, plus title fees of $5,888. The terms of the purchase agreement are disclosed in Note I – Contract Payable.

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. On August 7, 2013, the Company made the first anniversary payment of $50,000, plus interest accrued up to that date. At June 30, 2014, installments applied towards the purchase of the Chattel property were $105,888.

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, that includes 227 acres of surface and mineral rights and 495 acres in lode mining claims. 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. See Note D – Property, Plant and Equipment.

At June 30, 2014, there were no proven or probable reserves.

The five-year lease requires annual lease payments of $50,000 payable 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. Management is currently negotiating the extension of a contract with Prince Mine, LLC. Future minimum lease payments are as follows:

November 6, 2013 (Extended to June, 2014)	$	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, 2014 is $182,466. For three months ended June 30, 2014, lease expense was $12,465.

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 property consists of 362 acres of surface and mineral rights and 954 acres of mineral rights only.

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 of $15,000, the first and second anniversary payments due January 15, 2013 and January 15, 2014, respectively, were timely paid. The annual lease payment for year 2015 is $15,000 and $20,000 each year thereafter up through year 2020. Annual lease payments for years 2021 – 2030 are scheduled to increase to $25,000 annually. Thereafter, annual lease payments are variable and increase progressively. 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 – timely paid	$	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

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, 2014 was $36,822. For the three months ended June 30, 2014, lease expense was $3,740.

Continental Public Land Trust Lease – Silver Bow County, Montana

On April 23, 2012, the Company entered into a mineral lease and option and 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 property consists of 1,103 acres of mineral rights only.

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 of $20,000 and the first anniversary payment of $25,000 were timely paid. Annual lease payments of $25,000 are due thereafter for the next ten years period from years 2014 through 2024; thereafter, the annual lease payment of $25,000 shall be adjusted in proportion to the United States Bureau of Labor Producer Price Index.

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	$	2,425,000

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, 2014 was $49,658. For the three months ended June 30, 2014, lease expense was $6,233.

MG & A property lease

On December 17, 2013, the Company entered into a mineral lease agreement with SMC, a Montana corporation, to perform its due diligence of the property in Montana. The term of the agreement is for twenty (20) years and for so long as Product is produced, or until sooner terminated, extended or canceled. The lease requires an initial payment of $100,000 at inception, which grants the Company the right to perform its due diligence study up to February 1, 2014. If by February 1, 2014, the Company decides to continue the lease, a payment of $350,000 is required. The first anniversary payment of $200,000 is due December 15, 2014, with the second and third anniversary payments due in the amounts of $300,000 and $400,000, respectively. Thereafter, annual lease payments of $400,000 will be due.

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 the agreement executed on December 17, 2013, are as follows:

December 17, 2013 - $100,000 – initial payment - timely paid	$	100,000
February 1, 2014 - $350,000 – additional initial payment	$	350,000
December 15, 2014 - $200,000 – First anniversary payment	$	200,000
December 15, 2015 - $300,000 – Second anniversary payment	$	300,000
December 15, 2016 - $400,000 – Third anniversary payment and thereafter annually	$	6.800,000
Total	$	7,750,000

Additionally, the Company agrees to pay the “lessor” a Production Royalty Payment of three percent (3%) on “net smelter returns” received by the Lessee from the sale or other dispositions of “leased substances”. In addition, if the Company makes a “net profit” resulting from mineral production from the property, a twenty-five percent (25%) “Net Profits Interest Payment” may be required.

Lease expense on the property since inception of the lease on December 17, 2013 through June 30, 2014 was $100,000.

Leasehold Improvements, Equipment, Furniture and Fixtures

Acquisitions during the year ended December 31, 2013 consisted of office furniture, scanner/plotter and computers and auto cad software for the newly-established exploration office at Butte, Montana. There were no capital acquisitions during the second quarter ended June 30, 2014. At June 30, 2014, the net book value of fixed assets was $216,376.

At June 30, 2014, property, plant and equipment is comprised of the following:

Land – Mining Properties	$	153,388
Leasehold Improvements		26,812
Equipment		7,485
Furniture and Fixtures		14,637
Computer Software and Equipment		34,694
	$	237,016
Accumulated Depreciation		(20,640	)
	$	216,376

Depreciation expense for the three months ended June 30, 2014 was $2,969 and accumulated depreciation was $20,640.

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, 2014, 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, 2013 and June 30, 2014, there was 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, 2014, the Company’s share of income for the three months then ended were $315 and cumulative losses inception to–date are $266,697. These cumulative 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, 2014, 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, for the purpose of forming a joint venture with the Company to conduct the evaluation, remediation, reclamation and processing of the Caselton Tailings owned by “Aurum”. Pursuant to the agreement, “Aurum” and the Company each would have a 50% interest. As consideration, the Company is required to arrange all capital funding required and provide custom processing availability for the tailings material owned by “Aurum”.

As of June 30, 2014, Management has ceased any further evaluation and has elected to opt out of the arrangement.

Note G – Other Deposits

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. With the conclusion of the drilling program, the Company is obligated to do any reclamation work required pursuant to the terms and conditions of the operation. Once fulfilled, the Office of the United States Department of Interior will authorize a refund. As of December 31, 2013, a provision was made to offset reclamation costs against the bond, therefore, the amount reflected in Other Assets is zero.

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 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 was initially due on or before February 14, 2014, but has since been extended with Management’s continued negotiations with ISLV Partners, LLC for additional procurement of funding.

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.

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.

Convertible Note Agreement – Fourth Amendment

On July 24, 2013, the Company executed a fourth amendment to the Convertible Note Agreement, dated February 6, 2012, as amended by the First, Second and Third amendments, dated May 17, 2012, February 13, 2013 and May 22, 2013, respectively. The “financing option” was amended to allow for multiple closings or tranches, and if ISLV Partners, LLC funds at least $500,000 of the Financing Option prior to August 12, 2103, ISLV Partners, LLC shall have until November 1, 2013 to fund the remaining portion (up to $1,000,000 additional) of the financing Option.

On July 31, 2013, ISLV Partners, LLC loaned an additional amount of $500,000 and shall have the right to loan an additional amount up to $1,000,000 by November 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 July 31, 2016. Net proceeds from the loan will be used for working capital, exploration and corporate development purposes

Convertible Note Agreement – Fifth Amendment

On December 20, 2013, the Company executed a fifth amendment to the Convertible Note Agreement, dated February 6, 2012, as amended by the First, Second, Third and Fourth amendments, dated May 17, 2012, February 13, 2013, May 22, 2013 and July 24, 2013, respectively.

On December 20, 2013, ISLV Partners, LLC loaned an additional amount of $100,000. The note is convertible into International Silver, Inc. common stock at $0.20 per share. Net proceeds from the loan will be used for working capital, exploration and corporate development purposes.

On January 7, 2014, ISLV Partners, LLC loaned an additional amount of $34,556. The note is convertible into International Silver, Inc. common stock at $0.20 per share. 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, 2014			December 31, 2013
Convertible Notes Payable issued to 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			1,000,000
Issued May 22, 2013		500,000			500,000
Issued July 31, 2013		500,000			500,000
Issued December 20, 2013		100,000			100,000
Issued January 7, 2014		34,556			0
Total	$	4,734,556		$	4,700,000
Discount on Notes Payable		(747604	)		(1,240,953	)
Net Carrying Value	$	3,986,952		$	3,459,047

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, 2014, 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.

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, 2014, 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 23,000,000 shares of the Company’s common stock as of June 30, 2014 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

Conversion Price			$	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

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
Conversion Price			$	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

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
Conversion Price			$	0.200
Intrinsic conversion price/share			$	0.183
Beneficial Conversion Option for fully converted note			$	833,770

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
Conversion Price			$	0.200
Intrinsic conversion price/share			$	0.172
Beneficial Conversion Option for fully converted note (limited to face value of note)			$	429,389

Warrants Issued on July 31, 2013

On July 31, 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 July 31, 2013	$	0.38
Market Value of Stock, if converted	$	950,000	$	451,306

Fair Value - Warrants - At Time of Issuance – July 31, 2013
No. of Warrants Issued		2,500,000
Exercise Price	$	0.400
Fair Value - Based on Black-Scholes Method
Black-Scholes Value	$	0.041
Fair Value of Warrants	$	102,500	$	48,694
Total/Relative Value	$	1,052,500	$	500,000

Beneficial Conversion Option Calculation
Relative Note Value			$	451,306
Face value of Note			$	500,000
Conversion Price			$	0.200
Intrinsic conversion price/share			$	0.181
Beneficial Conversion Option for fully converted note (limited to face value of note)			$	451,306

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

Contract Payable – Chattel, LLC

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. On August 7, 2013, the first anniversary payment of $50,000, plus interest of $58,000 was paid. As of June 30, 2014, interest accrued was $50,170 on the outstanding balance.

Note J – Income Taxes

The Company has reported (for income tax purposes) federal net operating losses for 2013, 2012 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		1,393,549
Net Operating Loss carry-forward to Year 2013	$	3,017,039
Net Operating Loss - Year 2013		1,706,747
Net Operating Loss carry-forward to Year 2014	$	4,723,786

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, 2014, the Company recorded a deferred tax benefit of $1,749,133 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, 2014 and December 31, 2013.

Net deferred tax assets consist of the following components:

	June 30,			December 31,
	2014			2013

Deferred Tax Asset	$	1,749,133		$	1,706,747
Valuation Account		(1,749,133	)		(1,706,747	)
Net Deferred Tax Asset	$	0		$	0

At December 31, 2013, the Company had a net operating loss carry-forward of $4,723,786 for federal income tax purposes that may be offset against future taxable income from years 2014 through 2026-34. 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, the net operating loss carry forward 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.

On December 2, 2013, the Company issued 14,519 shares of common stock upon the exercise of 9,679 Unit Purchase Options (UPO) at an exercise price of $0.15 per unit. The exercise of these UPO’s resulted in the issuance of 9,679 warrants, which were exercised as a cashless exercise.

On January 21, 2014, the Company issued 25,296 shares of common stock upon the exercise of 16,864 UPOs at an exercise price of $0.15 per unit. The exercise of these UPOs resulted in the issuance of 16,864 warrants, which were exercised as a cashless exercise.

At June 30, 2014, the Company had 37,941,114 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 vested 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 stock options were exercised or forfeited for the three months ended June 30, 2014 or for the year ended December 31, 2013.

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 status of stock option activity as of June 30, 2014 is as follows:

	Number of		Weighted Average		Options		Weighted Average Exercise		(in years) Average 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		5.0
Exercised		0				0
Outstanding, December 31, 2011		3,300,000	$	0.20		3,300,000	$	0.20		4.8
Granted - November 5, 2012		400,000	$	0.34		400,000	$	0.34
Exercised		0				0
Outstanding, December 31, 2012		3,700,000	$	0.22		3,700,000	$	0.22		3.0
Granted		0		0		0
Exercised		0		0		0
Outstanding, December 31, 2013		3,700,000	$	0.22		3,700,000	$	0.22		2.3
Granted		0		0		0
Exercised		0		0		0
Outstanding, March 31, 2014		3,700,000	$	0.22		3,700,000	$	0.22		2.3
Granted		0		0		0
Exercised		0		0		0
Outstanding, June 30, 2014		3,700,000	$	0.22		3,700,000	$	0.22		2.3

Warrants

To date warrants have been issued resulting from 1) a private placement occurring in 2011 in which 8,238,998 warrants were issued, 2) six convertible notes in which an aggregate of 23,000,000 warrants were issued, 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 a total of 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. As of June 30, 2014, the warrants issued in conjunction with the private placement expired.

On February 6, 2012, the Company negotiated a convertible note agreement, whereby the lender was issued 3,000,000 warrants, with an expiration 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 negotiated a convertible term note of $1,000,000 whereby the lender was issued an additional 5,000,000 warrants, with an expiration 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.

On May 22, 2013, the Company negotiated a convertible term note of $500,000 whereby the lender was issued an additional 2,500,000 warrants, with an expiration 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.

On July 31, 2013, the Company negotiated a convertible term note of $500,000 whereby the lender was issued an additional 2,500,000 warrants, with an expiration date of July 31, 2016, exercisable at $0.40 per share for a number of shares equal to the number of shares into which the notes are convertible.

On December 2, 2013, 9,679 unit purchase options were exercised and a cashless warrant exercise occurred, resulting in the issuance of 14,519 shares of common stock for $1,452 and an additional 4,840 warrants issued.

On January 21, 2014, 16,864 unit purchase options were exercised and a cashless warrant exercise occurred, resulting in the issuance of 25,296 shares of common stock for $2,530 and an additional 8,432 warrants issued.

During the quarter ended June 30, 2014, 1,833,334 warrants associated with the private placement that occurred in 2011 were exercised on a “cashless basis”, resulting in the issuance of 799,019 shares of common stock.

As of June 30, 2014, there are 23,271,452 warrants outstanding.

A summary of warrant activity From January 1, 2010 through June 30, 2014 as follows:

	Number of		Weighted Average		Warrants		Weighted Average Exercise
	Warrants		Exercise Price		Exercisable		Price
Outstanding, January 1, 2010		0				0
Granted		8,238,998	$	0.20		8,238,998	$	0.20
Exercised		0				0
Outstanding, December 31, 2011		8,238,998	$	0.20		8,238,998	$	0.20
Granted		13,271,452	$	0.40		13,271,452	$	0.40
Exercised		0				0
Outstanding, December 31, 2012		21,510,450	$	0.32		21,510,450	$	0.32
Granted		10,004,840	$	0.40		10,004,840	$	0.40
Exercised		14,519				14,519
Outstanding, December 31, 2013		31,500,771	$	0.35		31,500,771	$	0.35
Granted		8,432				8,432
Exercised		25,296				25,296
Outstanding, March 31, 2014		31,483,907	$	0.35		31,483,907	$	0.35

Granted		0				0
Exercised		1,833,334				1,833,334
Expired		6,379,121				6,379,121
Outstanding, June 30, 2014		23,271,452	$	0.40		23,271,452	$	0.40

At June 30, 2014, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:

		Warrants O/S						Warrants Exercisable
Range of Warrant Exercise Price		Weighted-Average Remaining Contractual Life		Number of Warrants		Weighted Average Exercise Price		Number of Warrants		Weighted Average Exercise Price

$	0.40		0.61		3,000,000	$	0.40		3,000,000	$	0.40
$	0.40		0.90		10,000,000	$	0.40		10,000,000	$	0.40
$	0.40		1.16		271,452	$	0.40		271,452	$	0.40
$	0.40		1.65		5,000,000	$	0.40		5,000,000	$	0.40
$	0.40		1.90		2,500,000	$	0.40		2,500,000	$	0.40
$	0.40		2.09		2,500,000	$	0.40		2,500,000	$	0.40
			0.93		23,271,452				23,271,452

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.

	June 30,		December 31,
	2014		2013
Due To Related Parties
Harold R. Shipes - Shareholder/Officer	$	46,547	$	18,308
Eileen Shipes		3,048		2,683
John McKinney		5,350		0
Matthew J. Lang		2,897		1,102
Danielle Lang		3,121		1,361
Clarity Management, LP		8,539		2,732
Total	$	69,502	$	26,186

At June 30, 2014, we owed $69,502 to related parties.

Related party transactions have occurred with the following related party officer and directors:

Harold R. Shipes, the Company’s Chief Executive Officer and Chairman of the Board of Directors, travels extensively in connection with the Company’s holdings or prospective holdings which is reimbursable by the Company. At June 30, 2014, there were reimbursable expenses due Mr. Shipes in the amount of $46,547 and at December 31, 2013, Mr. Shipes was owed $18,308. Other related party transactions involve reimburseable expenses to an officer and employees related to the Chief Executive Officer.

Note M – Deferred Income

Calico Mineral Lease Agreement

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 was 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.

At June 30, 2014, there was $25,342 of deferred income from the Calico mineral lease agreement. Refer to Note P – Subsequent Events in regards to the cancellation of this lease agreement.

Note N – Retained on Accounts

G.I Canoas S.A.P.I de C.V. Engineering Services Contract

On October 1, 2013, the Company entered into a contract with G.I. Canoas S.A.P.I de C.V., a Mexican company, for the design engineering and procurement services on construction of leach and solvent extraction electro-winning facilities. The term of the agreement is for twelve months, renewable upon reasonable terms and conditions as may be agreed upon by both parties. A retainer of $50,000 was received by the client and will be applied to the last invoice upon termination of services.

Additional monies advanced and applied towards outside consultants related to service contracts amount to $72,000. As of June 30, 2014, $60,794 had been applied, leaving $ 11,206 retained on these accounts.

At June 30, 2014, there was a net balance of $61,206 in retained accounts.

Note O – 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 June 30, 2014 are $2,208,844. Exploration costs incurred for the three months ended June 30, 2014 were $233,929.

Note P – Subsequent Events

Management has reviewed all subsequent events through the issuance date of the audited financial statements and has represents that the following material events that have transpired subsequent to June 30, 2014 up through the issuance date.

On July 22, 2014, the Company received notice from Calico Exploration, LLC, leasee of the Calico property located in California, that it was terminating the mineral lease agreement.

ITEM 2 – MANAGEMENT DISCUSSION’S 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. Additionally, this Management’s Discussion and Analysis should be read in conjunction with our audited financial statements and related notes for the Company’s Fiscal Year ending December 31, 2012. The terms “we,” “our” or “us” refer to International Silver, Inc. This discussion contains forward-looking statements based on our current expectations, assumptions, and estimates. The words or phrases “believe,” “expect,” “may,” “anticipates,” or similar expressions are intended to identify “forward-looking statements.” The results shown herein are not necessarily indicative of the results to be expected in any future periods. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties pertaining to our business, included the risk factors contained herein.

We are an exploration stage company that engages in minerals exploration activities in the United States and Mexico involving silver, gold, zinc, copper and other minerals. To date, we have not generated any revenues from any of these activities since approximately June, 2006, when we switched our emphasis in our business plan and commenced our mineral exploration business. To date, our exploration activities have been limited to the exploration and purchasing of mineral interests in the United States and Mexico.

Results of Operations

Operating Performance for the three months ended June 30, 2014 (the “June 2014 Quarter”) as compared to the three months ended June 30, 2013 (the “June, 2013 Quarter”) was as follows:

For the June 2014 Quarter, we recorded a net loss of $719,125, as compared to a net loss of $880,117 for the June 2013 Quarter or a decrease in net loss of $160,992 or 18%. The decrease in the net loss resulted primarily from increased engineering consulting income and decreased interest/financing costs, partially offset by higher exploration costs.

Operating expenses reflected during the June 2014 Quarter were $606,533, an increase of $20,962 or 4% as compared to operating expenses of $585,571 for the June 2013 Quarter. The increase in operating expenses is attributed mostly to an increase in exploration costs, resulting from the write-off of an investment in a joint venture arrangement with Aurum, LLC.

Other Income/(Expense) during the June 2014 Quarter was $319,796, a net decrease of $82,040, as compared to the June 2013 Quarter of $401,836. Higher interest costs in the June 2013 Quarter resulted from the amortization of discount on notes due to the recognition of a “beneficial conversion feature” of the conversion option on the convertible notes issued to ISLV Partners, LLC.

Operating Performance for the six months ended June 30, 2014 (the “First Half 2014”) as compared to the six months ended June 30, 2013 (the “First Half, 2013 Quarter”) was as follows:

For the, we recorded a net loss of $1,477,665, as compared to a net loss of $1,604,291for the First Half 2013 or a decrease in net loss of $126,626 or 8%. The decrease in the net loss resulted primarily from increased engineering consulting income and lower director’s fees, partially offset by interest/financing costs. Revenue from engineering contracts increased by $211,432 or 103% over the First Half 2013.

Operating expenses reflected during the First Half 2014 were $1,147,901, a decrease of $39,540 or 3% as compared to operating expenses of $1,187,441 for the First Half 2013. Decreased operating expenditures have resulted from administrative cost reductions in the area of director fees, salaries and professional fees offset by higher exploration costs due to the write-off of an investment in a joint venture arrangement.

Other Income/(Expense) during the First Half 2014 was $745,970, a net decrease of $124,346, as compared to the First Half 2013 of $621,624. Higher interest costs in the First Half 2014 resulted the increase in convertible debt.

Liquidity and Capital Resources

Our financial statements as presented in Item 1 of this report have been prepared in conformity with US GAAP, which contemplate our continuation as a going concern. However, the report of our independent registered public accounting firm on our financial statements, for the three months ended June 30, 2014, contains an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. The “going concern” qualification results from, among other things, our development-stage status, no revenue recognized since inception, other than from engineering consulting services, and our net losses from inception as a development stage company, which total $10,177,390 and the uncertainty in raising additional capital. Our financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary if we were unable to continue as a going concern.

Currently, we have funded our operations through private placements, short-term convertible notes, and some on-going engineering consulting services. The capital required to execute our total business vision and objectives is significant. Since February 6, 2012, we have negotiated convertible term notes totaling $4,734,556. During 2014, we will continue our efforts to raise additional capital to fund the working capital requirements and exploration and development activities necessary to meet our business objectives.

Our capital budget for 2014 for the completion of acquisitions, exploration and development programs in the Pioche Mining District in Nevada and in Silver Bow County, Montana is approximately $1.7 million.

Cash and Cash Flows

Cash on hand at June 30, 2014 was $70,287 compared to $366,833 at June 30, 2013, a decrease of $296,546. The reduction reflects decreased funding from the Company’s private investors during the first six months of 2014, than for six months ended June 30, 2013. Income generated from engineering contracts is presently the only source of income to the Company. Funding received in 2014 has been minimal. Exploration activities have been sustained primarily by providing engineering and procurement services on two third-party contracts.

Net cash flows from operating activities were ($65,283) for the six months ended June 30, 2014, compared to ($1,243,484) for the six months ended June 30, 2013, a decrease of $1,178,201. The decrease in net cash flows from operating activities over the prior comparative period is attributable to the write-off of an investment in a joint venture, changes in working capital, primarily in accounts payable and accrued expenses. Accounts payable and accrued expenses as of June 30, 2014 have increased substantially, as the Company is seeking funding.

Investment activities during the six months ended June 30, 2014 were nil. Capital expenditures during the six months ended June 30, 2013 were $100,871 spent on furniture & fixtures for our Butte Montana exploration office and a $30,000 deposit towards an investment and an option payment of $30,000 for the Pan American mine assets.

Financing activities during the six months ended June 30, 2014 included the issuance of stock for $2,603 and additional financing of $34,556 from ISLV Partners, LLC. During the six months ended June 30, 2013, the Company issued a convertible note in the amount of $1,500,000 to ISLV Partners, LLC.

Going forward, our business plan does not reflect, nor do we anticipate, any revenues from our properties during the remaining part of our exploration phase until we confirm previously demonstrated mineralization, obtain operating permits, and construct mining and processing facilities. We have generated $416,206 in revenues during the six months ended June 30, 2014, primarily from engineering contracts through our affiliate, Western States Engineering, Inc.

Exploration Costs – Inception to Date

On June 16, 2006, our Board of Directors passed a resolution to change the nature of its operations from an engineering services company to an exploration company. Since converting our business plan to conducting exploration activities, we have purchased the following properties and engaged in the exploration activities and incurred the following exploration costs since inception:

Capital Acquisitions:
A) Purchase of Tecoma Mine - Year 2007	$	90,000
B) Sale of Tecoma Mine - Year 2008		(90,000	)
C) Purchase of Magna Charta property - Silver Bow County, Montana		47,500
D) Purchase of Chattel property - Silver Bow County, Montana		105,888
Total Capital Acquisitions	$	153,388

Exploration Costs:
A) Acquisition of 98% interest in Metals Preciosos, S.A. de C.V.,
a Mexican company
1) El Cumbro property	$	14,260
2) El Cusito property		15,000
3) Canada de Oro property		15,000
4) La Moneda property		10,000
B) Langtry property - options expired - exploration abandoned
1) Option payments		100,000
2) Exploration costs		21,075
C) Calico Mining District - San Bernadino County, California
1) Silverado mining claims - acquisition of BLM mineral claims		4,760
2) Leviathon mining claims - acquisition of BLM mineral claims		47,609
D) Pioche Mining District - Lincoln County, Nevada
1) Prince Mine lease		824,574
2) Caselton Tailings exploration costs		514,632
3) Caselton Mine/Mill exploration costs		18,676
4) Pan American mine acquisition- option not exercised		35,000
5) Caselton Tailings joint venture costs		191,142
E) Silver Bow County, Montana
1) New Butte property lease		88,020
2) Continental Public Land Trust lease		49,657
3) Chattel property		1,256
4) Magna Charta property		432
4) MG&A		159,371
3) Silver Bar property (option) – abandoned		6,819
4) Butte properties - General exploration costs		48,929
F) Other Exploration Sites (evaluated)
1) Anaconda		7,500
2) Oro Blanco		8,840
3) SE Arizona Silver		4,829
4) Mohave Gold		1,050
5) Zonia Mine		6,650
6) General Administrative costs		13,763
Total Exploration Costs	$	2,208,844

These direct exploration costs account for approximately 26% of the total operating expenditures of $8,504,461, since our exploration activities commenced on June 16, 2006. General and administrative expenses, which include salaries, consulting, director’s fees, insurance, rent, mineral leases and travel, comprise the majority of the remaining of the operating expenditures for this time period.

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) inflation or deflation; (e) speculation; and (f) 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 associated with 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 increased US mining operations cost; 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 interim condensed Consolidated Financial Statements for the three months ended June 30, 2014 have been applied consistently with the year ended December 31, 2013.

Recently Enacted Accounting Standards

Management has evaluated recent accounting pronouncements issued since the audited financial statements and in management’s opinion, relevant pronouncements reviewed have no material effect on the Company’s financial statements.

PLAN OF OPERATIONS

Overview

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 2014 is $ 1,712,000.

At the 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.

We are continuing with the evaluation of the Pioche area, 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.

Properties -The Butte Silver Mines properties in Silver Bow County, Montana, the Pioche Mining District properties in Lincoln County, Nevada and The Calico Silver Project in San Bernardino County, California

Our exploration program is shown below:

Exploration at Butte Silver Mines

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.

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 2014 is uncertain.

Exploration at Pioche Properties:

Surface and underground drilling.

All accumulated data from the 2012 Phase I Drill Program, geochemical and geophysical studies has been evaluated to confirm the highest priority targets for Phase II exploration on the Prince Mine.

Exploration at Calico Property

We have leased the Calico Silver property to another exploration company and will focus our exploration efforts on the Pioche and Butte Mining Districts.

Our ability to complete any of the activities described under “Plan of Operations” will require significant funding. 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 be unable 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.

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.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our filings under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the rules and forms of the SEC. This information is accumulated and communicated to our executive officer to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation and the requirements of the Exchange Act, our Chief Executive Officer and our Chief Financial Officer concluded that, as of June 30, 2014, 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 June 30, 2014 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:

●

Our small size limits our ability to achieve the desired level of separation our internal controls and financial reporting. We have a separate CEO, CFO and an Audit Committee to review and oversee the financial policies and procedures of the Company, but due to lack of independence, management considers this a material weakness. Although, we have installed an audit committee, we still 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.

Changes in internal controls

Our management, with the participation our Chief Executive Officer and Chief Financial Officer, performed an evaluation as to whether any change in our internal controls over financial reporting occurred during the financial quarter ending June 30, 2014. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that no change occurred in our internal controls over financial reporting during the financial quarter ending June 30, 2014 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 – Legal Proceedings.

We are not aware of any pending or threatened litigation against us or our officers and directors.

ITEM 1A – Risk Factors.

Risk Factors

Item 1A. Risk Factors.

As a Smaller Reporting Company, we are not required to provide risk factors; however, please consult our Form 10-K for our fiscal year ending December 31, 2013, which contains risk factors and is available for review at sec.gov.

ITEM 2 – Unregistered Sales of Equity Securities and Use of Proceeds.

On December 2, 2013, we issued 14,519 shares of common stock to Kevin Wilson, as a result of his exercise of 9,679 units purchase options (UPO’s) for $1,452 and a “cashless exercise” of warrants thereof.

On January 21, 2014, we issued 25,296 shares of common stock to Matthew Eitner, as a result of his exercise of 16,864 units purchase options (UPO’s) for $2,530 and a “cashless exercise” of warrants thereof.

On May 7, 2014, we issued 50,000 shares to Prince Mine, LLC, in exchange for an extension of the Prince Mine lease agreement.

On May 13, 2014, we issued 250,000 shares to The Bollag Family Trust upon their “cashless exercise” of 500,000 warrants.

On May 14, 2014, we issued 549,019 shares to Seaside 88, LP upon their “cashless exercise” of 1,333,334 warrants.

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.

ITEM 3 – Defaults upon Senior Securities.

None

ITEM 4 – Mine Safety Disclosures.

Not Applicable

ITEM 5 – Other Information.

None

ITEM 6 – Exhibits.

Exhibit 31.1		Certification by the Principal Executive Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

Exhibit 31.2		Certification by the Principal Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002

Exhibit 32.1		Certification by the Principal Executive Officer pursuant to Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

Exhibit 32.2		Certification by the Principal Financial Officer pursuant to Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

101.INS **		XBRL Instance Document

101.SCH **		XBRL Taxonomy Extension Schema Document

101.CAL **		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF **		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB **		XBRL Taxonomy Extension Label Linkbase Document

101.PRE **		XBRL Taxonomy Extension Presentation Linkbase Document

_______________

** 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.

	INTERNATIONAL SILVER, INC.

Dated: August 18, 2014	By:	/s/ Harold R. Shipes
		Harold R. Shipes,
		Chief Executive Officer/Chairman of the Board

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

Signature	Title	Date

/s/ Harold R. Shipes	Chairman of the Board/Director	August 18, 2014
Harold R. Shipes	Chief Executive Officer
	(Principal Executive Officer)

/s/ John A. McKinney	Chief Financial Officer	August 18, 2014
John A. McKinney	Executive Vice President
	(Principal Financial Officer)

Attached files

INTERNATIONAL SILVER INC Reports

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