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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 September 30, 2009, OR

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______ TO _______.

INTERNATIONAL SILVER, INC.
(Exact name of registrant as specified in its charter)

Arizona
(State or other jurisdiction of incorporation or
organization)

0001419482
 
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 November 23, 2009
Common Stock, $0.0001 Par Value
 
18,561,753
 
Exhibit Index located at page 36

 
 

 

TABLE OF CONTENTS

   
Page
     
Part 1 - FINANCIAL INFORMATION
   
     
Item 1 - FINANCIAL STATEMENTS
 
3
     
Consolidated Financial Statements:
 
3
Balance Sheets
 
4
Statement of Operations
 
6
Statement of Cash Flows
 
7
Statement of Shareholders’ Equity
 
9
Notes To The Financial Statements
 
10
     
Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND PLAN OF OPERATIONS
 
18
     
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
29
     
Item 4T - CONTROLS AND PROCEDURES
 
29
     
Part II - OTHER INFORMATION
   
     
Item 1 - LEGAL PROCEEDINGS
 
29
     
Item 1A - RISK FACTORS
 
30
     
Item 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
31
     
Item 3 - DEFAULTS UPON SENIOR SECURITIES
 
31
     
Item 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
32
     
Item 5 - OTHER INFORMATION
 
32
     
Item 6 – EXHIBITS
 
32
     
CERTIFICATIONS 31.1 & 31.2
   

 
2

 

PART 1 – FINANCIAL INFORMATION

ITEM 1 – FINANCIAL STATEMENTS

International Silver, Inc.
(An Exploration Stage Company)

Consolidated Financial Statements

For the Nine Months Ended September 30, 2009
(Unaudited)

and

For the Year Ended December 31, 2008
(Audited)

 
3

 

International Silver, Inc.
(An Exploration Stage Company)
Consolidated Balance Sheets

   
As At
 
   
September
30,
   
December
31,
 
   
2009
   
2008
 
   
(Unaudited)
   
(Audited)
 
             
ASSETS
           
             
CURRENT ASSETS
           
Cash
  $ 44,936     $ 50,274  
Accounts receivables - Note B
    29,509       150  
Due from related parties - Note H
    8,049       12,565  
Employee advances
    354       2,317  
Prepaid expenses
    228       1,005  
Total Current Assets
  $ 83,076     $ 66,311  
                 
PROPERTY AND EQUIPMENT-Note C
               
Land
  $ 0     $ 0  
Machinery and equipment
    2,042       2,042  
Furniture & fixtures
    3,500       3,500  
Vehicles
    0       1,125  
    $ 5,542     $ 6,667  
Less accumulated depreciation
    (5,542 )     (6,355 )
Total Property and Equipment
  $ 0     $ 312  
                 
OTHER ASSETS
               
Deferred financing costs - Note D
  $ 0     $ 40,000  
Investment in securities - Note E
    16,750       25,000  
Total Other Assets
  $ 16,750     $ 65,000  
                 
TOTAL ASSETS
  $ 99,826     $ 131,623  

See accompanying notes to the consolidated financial statements

 
4

 

International Silver, Inc
(An Exploration Stage Company)
Consolidated Balance Sheets

   
As At
 
   
September
30,
   
December
31,
 
   
2009
   
2008
 
   
(Unaudited)
   
(Audited)
 
             
LIABILITIES AND SHAREHOLDERS' EQUITY
           
             
CURRENT LIABILITIES
           
Accounts payable
  $ 439     $ 1,423  
Payroll taxes payable
  $ 381     $ 233  
Accrued expenses
    36,282       2,900  
Due to related parties - Note H
    95,652       80,824  
Total Current Liabilities
  $ 132,754     $ 85,380  
                 
N0N-CONTROLLING INTEREST
  $ (3,530 )   $ (3,255 )
                 
SHAREHOLDERS' EQUITY
               
Common stock
authorized shares   - 500,000,000
Par value $0.0001 per Share
issued & o/s at 12/31/08  - 15,011,753
issued & o/s at 09/30/09  - 15,011,753
    1,501       1,501  
Additional paid-in capital
    808,978       808,978  
Less: Treasury Stock - 30,000 shares
    (30,000 )     (30,000 )
Gain/Loss on Sale of Securities
    (8,250 )     0  
Accumulated deficit during exploration stage
    (801,627 )     (730,981 )
Total Shareholders' Equity
  $ (29,398 )   $ 49,498  
                 
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY
  $ 99,826     $ 131,623  

See accompanying notes to the consolidated financial statements

 
5

 

International Silver, Inc.
(An Exploration Stage Company)
Consolidated Statements of Operations

                           
Exploration Stage
(June 16, 2006
 
   
Three Months Ended
   
Nine Months Ended
   
(through
 
   
September 30,
   
September 30,
   
September 30,
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
   
2009)
 
         
(Restated)
         
(Restated)
       
REVENUES
                             
Consulting-third parties
  $ 25,169     $ 0     $ 44,199     $ 0     $ 44,199  
Consulting-related parties
    25,800       28,230       77,220       86,100       320,262  
Other
    1,195       3,685       1,371       9,121       17,636  
Total Revenues
  $ 52,164     $ 31,915     $ 122,790     $ 95,221     $ 382,097  
                                         
Operating Expenses
                                       
Production costs
  $ 0     $ 0     $ 0     $ 0     $ 0  
Exploration costs
    11,320       27,828       17,983       43,176       265,799  
General and administration
                                       
Consulting fees
    30,950       10,000       38,540       12,322       82,960  
Professional fees
    4,150       2,000       19,560       25,738       130,404  
Rent
    1,500       6,642       4,500       8,610       72,705  
All other general & administrative
    23,571       27,874       72,922       91,135       360,107  
Depreciation and depletion
    0       94       97       280       752  
Total operating expenses
  $ 71,491     $ 74,438     $ 153,602     $ 181,261     $ 912,727  
                                         
Operating Income/(Loss)
  $ (19,327 )   $ (42,523 )   $ (30,812 )   $ (86,040 )   $ (530,630 )
                                         
OTHER INCOME (EXPENSES)
                                       
Impairment Loss
  $ (40,000 )   $ 0     $ (40,000 )   $ 0     $ (40,000 )
Interest expense
    0       (2,488 )     (109 )     (5,498 )     (22,607 )
Total other income/(expense)
  $ (40,000 )   $ (2,488 )   $ (40,109 )   $ (5,498 )   $ (62,607 )
                                         
Less:  Non-Controlling Interest
  $ 0     $ 158     $ 275     $ 515     $ 3,724  
                                         
PROVISION FOR INCOME TAXES
                                       
Income tax benefit
  $ 165,028     $ 71,851     $ 165,028     $ 71,851     $ 165,028  
Tax valuation allowance
    (165,028 )     (71,851 )     (165,028 )     (71,851 )     (165,028 )
    $ 0     $ 0     $ 0     $ 0     $ 0  
                                         
NET INCOME/(LOSS)
  $ (59,327 )   $ (44,853 )   $ (70,646 )   $ (91,023 )   $ (589,513 )
                                         
Accumulated Deficit                                          
Beginning of period 
  $ (742,300 )   $ (529,353 )   $ (730,981 )   $ (483,183 )        
                                         
End of period
  $ (801,627 )   $ (574,206 )   $ (801,627 )   $ (574,206 )        
                                         
Basic and Diluted
                                       
Income/(Loss) per Share
  $ (0.004 )   $ (0.003 )   $ (0.005 )   $ (0.006 )        
                                         
Weighted Average Shares Outstanding
    15,011,753       14,843,970       15,011,753       14,768,970          
 
See accompanying notes to the consolidated financial statements

 
6

 

International Silver, Inc.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows

   
Nine Months Ended
   
Exploration Stage
 
   
September 30,
   
September 30,
   
(June 16, 2006 through
 
   
2009
   
2008
   
September 30, 2008)
 
   
(Unaudited)
   
(Unaudited)
   
(Unaudited)
 
         
(Restated)
   
(Restated)
 
                   
CASH FLOWS FROM OPERATING ACTIVITIES
                 
Net Income/(Loss)
  $ (70,646 )   $ (91,023 )     (589,513 )
Adjustments used to reconcile net (loss) to net cash (used) by operating activities:
                       
Non-controlling Interest in subsidiary
    (275 )     (515 )     (3,530 )
Depreciation and depletion
    97       280       909  
Impairment Loss on Financing cost
    40,000       0       40,000  
Issuance of common stock
                       
In exchange for land
    0       0       30,000  
In exchange for services
    0       20,000       121,500  
In exchange for exploration costs
    0       0       55,385  
Changes in operating assets and liabilities
                       
Decrease/(Increase) in accounts receivable
    (24,843 )     56,370       159,341  
Decrease/(Increase) in employee receivable
    1,962       0       1,962  
Decrease/(Increase) in prepaid expenses
    777       (718 )     9,631  
(Decrease)/Increase in accounts payable
    13,991       35,692       (10,790 )
(Decrease)/Increase in accrued expenses
    33,381       (25,963 )     59,902  
Net Cash Flows (used by) Operating Activities
  $ (5,556 )   $ (5,877 )   $ (125,203 )
                         
CASH FLOW FROM INVESTMENT ACTIVITIES
                       
Purchase of equipment
  $ 0     $ 0     $ (6,668 )
Deferred financing cost
    0       (40,000 )     (40,000 )
Purchase option on land
    0       (90,000 )     (90,000 )
Purchase of land
    0       0       (90,000 )
Net Cash Flows from Investment Activities
  $ 0     $ (130,000 )   $ (226,668 )
                         
CASH FLOWS FROM FINANCING ACTIVITIES
                       
Issuance of Common Stock:
                       
Cancellation of Debt
  $ 0     $ 0     $ (168,093 )
Recharacterization of debt to equity
    0       0       265,072  
Net Proceeds from stock issuance
    0       0       80,000  
Sale of mining property
                       
For treasury stock
    0       0       (30,000 )
Exchange for marketable securities
    0       0       (25,000 )
Return of deed of trust - mining property
    0       0       90,000  
Disposal of vehicle
    218       0       218  
Borrowings from related parties
    0       90,000       152,980  
Net Cash Flows from Financing Activities
  $ 218     $ 90,000     $ 365,177  
                         
Net (Decrease) in Cash
  $ (5,338 )   $ (45,877 )   $ 13,306  
                         
Beginning Cash Balance
  $ 50,274     $ 51,283     $ 31,630  
                         
Ending Cash Balance
  $ 44,936     $ 5,406     $ 44,936  

See accompanying notes to the consolidated financial statements

 
7

 

International Silver, Inc.
(An Exploration Stage Company)
Consolidated Statements of Cash Flows

   
Nine Months Ended
   
Exploration Stage
(June 16, 2006
 
   
September 30,
   
September 30,
   
through September 30,
 
   
2009
   
2008
   
2009)
 
                   
                   
Supplemental disclosures on non-cash financing activities:
                 
                   
The Company issued shares of its common stock in exchange for the following:
                 
                   
For services rendered:
                 
Director services
  $ 3,000     $ 0     $ 12,000  
Legal and professional services
    30,350       20,000       125,350  
Stock transfer agent services
    0       0       5,500  
Accounting services
    2,150       0       6,150  
Geology and engineering
    0       0       8,000  
Sub-total
  $ 35,500     $ 20,000     $ 157,000  
For land
    0       0       30,000  
For exploration costs
    0       0       55,385  
For contributed capital
    0       0       265,072  
Total non-cash issuances of stock
  $ 35,500     $ 20,000     $ 507,457  
                         
The Company relinquished its mining property in exchange for the following:
                       
                         
For repurchase of its common stock
    0       0       (30,000 )
For marketable securities in another company
    0       0       (25,000 )
For deed of trust in the mining property
    0       0       90,000  

See accompanying notes to the consolidated financial statements

 
8

 

International Silver, Inc.
(An Exploration Stage Enterprise)
Consolidated Statement of
    Shareholders' Equity

 
                                       
Accumulated
       
                                       
Deficit
       
                           
Additional
   
Other
   
During
       
   
Common Stock
   
TreasuryStock
   
Paid-In
   
Comprehensive
   
Exploration
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Income
   
Stage
   
Total
 
                                                 
At June 16, 2006
    12,000,000     $ 1,200                 $ 257,322     $ 0     $ (266,414 )   $ (7,892 )
                                                             
Shares issued for cash
    1,100,000       110                   79,890                       80,000  
Shares issued for services
    30,000       3                   29,997                       30,000  
Shares exchanged for debt
    300,000       30                   55,355                       55,385  
Parent Co.
                                                (72,844 )     (72,844 )
Non-controlling Interest
                                                (296 )     (296 )
At December 31, 2006
    13,430,000     $ 1,343                 $ 422,564     $ 0     $ (339,554 )   $ 84,353  
Shares issued for cash
    260,000       26                   79,974                       80,000  
Shares issued for services
    500,000       50                   21,450                       21,500  
Shares exchanged for debt
    336,186       33                   168,060                       168,093  
Net Income/(Loss)
                                                           
Parent Co.
                                                (143,925 )     (143,925 )
Non-controlling Interest
                                                (2,266 )     (2,266 )
At  December 31, 2007
    14,526,186     $ 1,452                 $ 692,048     $ 0     $ (485,745 )   $ 207,755  
Shares issued for services
    150,000       15                   19,985                       20,000  
Shares exchanged for debt
    335,567       34                   96,945                       96,979  
Shares repurchased
                    (30,000 )     (30,000 )                             (30,000 )
Net Income/(Loss)
                                                               
Parent Co.
                                                    (247,798 )     (247,798 )
Non-controlling Interest
                                                    (693 )     (693 )
At December 31, 2008
    15,011,753     $ 1,501       (30,000 )   $ (30,000 )   $ 808,978     $ 0     $ (734,236 )   $ 46,243  
Net Income/(Loss)
                                                               
Parent Co.
                                                    (526 )     (526 )
Non-controlling Interest
                                                    (107 )     (107 )
At March 31, 2009
    15,011,753     $ 1,501       (30,000 )   $ (30,000 )   $ 808,978     $ 0       (734,869 )     45,610  
Net Income/(Loss)
                                                               
Parent Co.
                                                    (10,793 )     (10,793 )
Non-controlling Interest
                                                    (168 )     (168 )
At June 30, 2009
    15,011,753     $ 1,501       (30,000 )   $ (30,000 )   $ 808,978     $ 0     $ (745,830 )   $ 34,649  
                                                                 
Unrealized Losses on of available for sale assets
                                            (8,250 )             (8,250 )
Net Income/(Loss)
                                                               
Parent Co.
                                                    (59,327 )     (59,327 )
Non-controlling Interest
                                                    0       0  
                                                                 
At September 30, 2009
    15,011,753     $ 1,501       (30,000 )   $ (30,000 )   $ 808,978     $ (8,250 )   $ (805,157 )   $ (32,928 )

See accompanying notes to the consolidated financial statements

 
9

 

International Silver, Inc.
Notes to Consolidated Financial Statements

Note A - Organization and Business

General
International Silver, Inc., an exploration stage company, as set forth in FASB ASC 915 – Development Stage Entities  and “Industry Guide 7” of the Securities and Exchange Commission’s Guides for the Preparation of Registration Statements and with the Society for Mining, Metallurgy and Exploration’s “Guide for Reporting Exploration Information, Mineral Resources, and Mineral Reserves” dated March 1, 1999.  The Company’s strategy consists of acquiring and exploring high-grade silver properties throughout North and South America.

Condensed Financial Statements
The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position for the periods ended September 30, 2009 and December 31, 2008 and results of operations and cash flows for the comparative periods at September 30, 2009 and September 30, 2008 and for the comparative periods September 30, 2009 and September 30, 2008 have been made.

Certain information and footnote disclosure normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2008 audited financial statements.  The results of operations for the period ended September 30, 2009 are not necessarily indicative of the operating results for the full year.

Going Concern
The Company’s financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern.  The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable.  If the Company is unable to obtain adequate capital, it could be forced to cease operations.

In order to continue as a going concern, the company will need, among other things, additional capital resources.  Management’s plans to obtain such resources for the Company include (1) obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses, and (2) initiating an initial public offering.

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other resources of financing and attain profitable operations.  The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 
10

 

Note B - Summary of Significant Accounting Policies

Principles of Consolidation
The financial statements include the accounts of International Silver, Inc. and its subsidiary Metals Preciosos Atlas, S.A. de C.V., Mexico.  The Company’s financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States (GAAP).  The Company has elected to adopt U.S. currency as the functional currency for the accounting of its Mexican subsidiary.  All inter-company transactions and balances have been eliminated.

Recently Enacted Accounting Standards
 
In June 2009 the FASB established the Accounting Standards Codification ("Codification" or "ASC") as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States ("GAAP"). Rules and interpretive releases of the Securities and Exchange Commission ("SEC") issued under authority of federal securities laws are also sources of GAAP for SEC registrants. Existing GAAP was not intended to be changed as a result of the Codification, and accordingly the change did not impact our financial statements. The ASC does change the way the guidance is organized and presented.

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

Foreign Currency
The functional currency for our foreign subsidiary is U.S. dollars. The Company has elected to use the “remeasurement method”, also referred to as the “monetary/nonmonetary method” pursuant ASC 830-10.  This method translates monetary assets at the current rate, while nonmonetary assets, liabilities and equity are translated at their appropriate historical rates.  Where the local currency is used to record transactions, any material currency translation gains or losses would be included as an element of comprehensive income in the statement of operations and in the equity section of the balance sheet.

Concentration of Credit Risk
Our cash equivalents and prepaid expenses (and trade receivables when recorded) are exposed to concentrations of credit risk. We manage and control risk by maintaining cash with major financial institutions. Management believes that the financial institutions are financially sound and the risk of loss is low.

Concentrations and Economic Vulnerability
Concentrations and economic vulnerability include reliance on several areas containing our mining prospects in isolated regions of Mexico, limited financial capacity of related parties and/or others to continue funding operations.

Fair Value of Financial Instruments
Due to their short-term nature, the carrying value of our current financial assets and liabilities approximates their fair values. The fair value of our borrowings, if recalculated based on current interest rates, would not significantly differ from the recorded amounts.

 
11

 

Cash and Cash Equivalents
For the statement of cash flows, any liquid investments with a maturity of three months or less at the time of acquisition are considered to be cash equivalents.

Accounts Receivables
Accounts receivables are stated, net of an allowance for uncollectible accounts, based on prior experience.  At September 30, 2009 net account receivables were $37,558. The allowance for uncollectible accounts was $2,760.  At December 31, 2008, net accounts receivables were $12,715. The allowance for uncollectible accounts was $2,760.  Included in the total receivables, are related party receivables at September 30, 2009 of $8,049 and at December 31, 2008 of $12,565 (Refer to Note H).

Inventories
In-process inventories represent ore that is currently in the process of being converted to a saleable product.  In-process inventories, if any, are valued at the lower of average production cost or net realizable value. At September 30, 2009 there were no inventories on hand.

FASB ASC 330-10-30 – Inventory-Overall-Initial Measurement, requires that the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material (spoilage) be recognized as a current period charge. It also requires, the allocation of fixed production overheads to the costs of conversion be based on normal capacity of the production facilities.

Property and Equipment
Property and equipment are recorded at cost. Maintenance and repair costs are charged to expense as incurred, and renewals and improvements that extend the useful life of assets are capitalized. Depreciation on property and equipment is computed using the straight-line method over the assets' estimated useful lives as follows:

Mining equipment
7 years
Vehicles
3 years
Office equipment
5 years

No depreciation expense was recorded for the three-month period ended September 30, 2009.  For the nine-month period ended September 30, 2009, depreciation expense was $97.  For the twelve-month period ended December 31, 2008, depreciation expense was $374.

Mineral Development
Costs associated with the acquisition of mineral interests, in the exploration stage, are “expensed”. Mineral exploration costs are also “expensed” as incurred. Mine infrastructure development costs incurred prior to establishing proven and probable reserves are expensed. When it otherwise becomes probable that infrastructure costs will not be recoverable, they are impaired. When it has been determined that a mineral property can be economically developed, the costs incurred to develop such property, including costs to further delineate the ore body and remove overburden to initially expose the ore body, are capitalized as incurred. These costs will then be amortized using the units-of-production method over the estimated life of the ore body based on estimated recoverable ounces of proven and probable reserves.

To the extent that any development costs benefit an entire mineralized property, they are amortized over the estimated life of the property. The specific capitalized cost bases subject to depletion are calculated on a formula based on the number of tons of ore that are expected to be mined divided by the total tons in proven and probable reserves in the property. To date, no development has occurred, nor has depletion has been taken, since production has not commenced.

Mineral Interests and Property
Mineral interests include the costs of acquired mineral rights and royalty interests in production, development and exploration stage properties.

Production stage mineral interests represent interests in operating properties that contain proven and probable reserves. Development stage mineral interests represent interests in properties under development that contain proven and probable reserves. Exploration stage mineral interests represent interests in properties that are believed to potentially contain mineralized material.

 
12

 

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 September 30, 2009, all mineral interests were in the exploration stage.

Impairment of Long-Lived Assets
The company adheres to ASC 360-10-20, "Accounting for the Impairment and Disposal of Long-Lived Assets," which requires that long-lived assets to be held and used be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss would be recognized when the estimated future cash flows are less than the carrying amount of the asset and would be calculated based on discounted cash flows.  At September 30, 2009, there was an impairment financing costs in the amount of $40,000.  Refer to Note D.

Revenue Recognition and Production Costs
Revenue is recognized when the price is determinable, upon delivery and transfer of title of product to the customer and when the collection of sales proceeds is assured.  Production costs of silver, gold and other precious metals sold include labor and related direct and indirect costs of mine and plant operations. Production costs are charged to operations as incurred.  At September 30, 2009, there had been no production from any of the Company's properties.

Reclamation and Remediation Costs (Asset Retirement Obligations)
The Company has adopted ASC 410-20 - Asset Retirement Obligation which addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. Since the Company’s activities are in the exploration and feasibility stage, there is no legal or contractual obligation for reclamation or remediation of our mines or mining interests.  As a result, the adoption of ASC 410-20 does not currently have a material impact on our financial position, results of operations or cash flows.

Earnings (Loss) Per Share
Basic income (loss) per share is computed by dividing income (loss) attributable to the common shareholders by the weighted-average number of common shares outstanding for the reporting period. Diluted net income per share reflects the potential dilution that could occur if dilutive securities and other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, unless the effect is to reduce a loss or increase earnings per share.  The Company has no potential common stock instruments, which would result in diluted income (loss) per share as of September 30, 2009 and September 30, 2008.

Income Taxes
The Company accounts for income taxes under ASC 740-10-30 - Accounting for Income Taxes.  ASC 740-10-30 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.  In estimating future tax consequences, ASC 740-10-35 generally considers all expected future events other than enactments of changes in the tax law or rates.  Income tax information is disclosed in Note F to the consolidated financial statements.

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax assets are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis.   Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  The total deferred tax asset is 35% of the cumulative net operating loss.

 
13

 

Net deferred tax assets consists of the following components:

   
September 30
   
December 31,
 
   
2009
   
2008
 
Deferred Tax Asset
  $ 165,028     $ 150,621  
Valuation Account
    (165,028 )     (150,621 )
Net Deferred Tax Asset
  $ 0     $ 0  

At December 31, 2008, The company had a net operating loss carry-forward of $427,527 for federal income tax purposes that may be offset against future taxable income from years 2009 through 2027.  No tax benefit has been reported in the September 30, 2009 consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount.

Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations.  Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.

Statement of Cash Flows Information and Supplemental Non-Cash Financing Activities
There were minimal interest payments during  the nine-month period ended September 30, 2009 and for the year ended December 31, 2008.   “Non-cash" investing and financing transactions during the reported periods related primarily to the issuance of common stock in exchange for legal and other professional services and for mineral interests and stock issued to a related party for cancellation of indebtedness, as disclosed in Note G.

Certain Equity Instruments
In June 2003, the FASB approved ASC 480-10-25-4 – Distinguishing Liabilities From Equity – Overall Recognition.  ASC 480-10-25-4 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity.  At September 30, 2009, the Company is not impacted by this requirement.

Comprehensive Income
ASC 220-10-55-2 - Comprehensive Income, requires companies to classify items of other comprehensive income by their nature in a financial statement and display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position.  For the period ended September 30, 2009, the Company recorded an unrealized loss on “available for sale” securities under Other Comprehensive Income.  On  September 30, 2008, the Company did not have any material items of comprehensive income.

Derivative Instruments
In June 1998, the FASB issued ASC 815-10 - Accounting for Derivative Instruments and Hedging Activities.    Currently, the Company does not have any derivative financial instruments and does not participate in hedging activities.  Therefore, ASC 815-10 did not have an impact on its financial position or results of operations for the periods ended September 30, 2009 and December 31, 2008.

Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board, issued ASC 718 - Share-Based Payment, requires “public” companies to recognize the cost of employee services received in exchange for equity instruments, based on the grant-date fair value of those instruments, with limited exceptions. ASC 718 also affects the pattern in which compensation cost is recognized, the accounting for employee share purchase plans, and the accounting for income tax effects of share-based payment transactions. For small-business filers, ASC 718 is effective for interim periods beginning after December 15, 2005.

 
14

 

Non-Monetary Exchanges
In December 2004, the FASB issued ASC 845 – Nonmonetary Transactions.  This Statement addresses the measurement of exchanges of non-monetary assets.  The guidance in ASC 845,Non-monetary Transactions, is based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged.  A non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange.  This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for non-monetary asset exchanges incurred during fiscal years beginning after the date that this Statement was issued.  The exchange of the Company’s common stock for a 98% interest in Metales Preciosos Atlas, S.A. de C.V. is covered under Note G.

Note C – Property, Plant and Equipment

Property, plant and equipment, exclusive of mineral interests which are reported under Note J - Exploration Costs, as required by Industry Guide 7, are comprised of the following:

   
September 30,
2009
   
December 31,
2008
 
             
Office equipment and computers
  $ 5,542     $ 5,542  
Vehicles
    0       1,125  
Less: accumulated depreciation
    ( 5,542 )      ( 6,355 )
Net Total
  $ 0     $ 312  

Note D – Deferred Financing Costs

On August 31, 2008, the Company contracted DME Capital, LLC for the purpose of obtaining venture capital and/or a joint venture agreement.  The Company paid DME Capital, LLC a due diligence fee of $40,000.  At September 30, 2009, although the Company had resurrected looking for financing options, an impairment loss was recognized, as no results had been achieved over the past fiscal year.

Note E – Investment in Securities

During 2008, the Company relinquished its holdings in the Tecoma Mining District back to the original seller, in return for the shares in common stock that were part of the consideration given on the original purchase of the property   As a result, the Company obtained 25,000 shares of the common stock of Atlas Precious Metals Inc., a privately-held and related company to International Silver, Inc.  These shares were originally held by the Company’s shareholder/officer, who transferred these shares to the seller of the Tecoma Mining District property, in exchange for a note from the Company (Refer to Note H) .  At September 30, 2009, the fair value of these securities were estimated at $0.50/share or $16,750, net of taxes.

Note F - Income Taxes

The Company has reported (for income tax purposes) net operating losses for 2008, 2007 and prior years as follows:

Net Operating Loss carry-forward to FYE 12/31/99
  $ 171,725  
Net Operating Income - Year 2000 (Applied)
    ( 63,853 )
Net Operating Loss carry-forward to Year 2001
    107,872  
Net Operating Loss - Year 2001
    179,246  
Net Operating Loss carry-forward to Year 2002
    287,118  
Net Operating Loss - Year 2002
    25,497  
Net Operating Loss carry-forward to Year 2003
    312,615  
Net Operating Income - Year 2003 (Applied)
    (172,247 )
Net Operating Loss carry-forward to Year 2004
    140,368  
Net Operating Income - Year 2004
    ( 37,634 )
Net Operating Loss carry-forward to Year 2005
    102,734  
Net Operating Loss - Year 2005
    3,774  
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
    213,791  
Net Operating Loss carry-forward to Year 2009
  $ 427,527  

 
15

 

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 September 30, the Company recorded a deferred tax benefit of $165,028, but due to a going-concern issue, Management made an allowance for a provision of an equal amount, should the Company not be able to avail itself of that tax benefit.  No permanent or temporary timing differences between book and tax income have occurred through September 30, 2009.

Note G – Shareholders’ Equity

The Company was incorporated on September 4, 1992 with the initial issuance of 1,000 shares of common stock at a par value of $1.00 per share.  On June, 2006 the Board of Directors adopted a new business strategy to change its emphasis from providing engineering services to conducting mine exploration and development.  As a result, the Board of Directors amended its Articles of Incorporation to authorize 500,000,000 shares of common stock, at a par value of $0.0001 to allow for equity financing.   Additionally, the Board of Directors passed a resolution to effectuate a stock split of 12,000 to 1.  On July 24, 2006, the shareholders of record (3) were given their new share distribution of 4,000,000 shares each.

Also during 2006, additional shares of common stock were issued in exchange for services (1,100,000), in exchange for land (30,000) and in exchange for 98% interest in the holdings of Metales Preciosos Atlas, S.A. de C.V., a Mexican subsidiary (300,000 shares).

During 2007, the Company conducted a private placement with an additional 260,000 shares of common stock issued at $0.50 per share to various individuals for cash, 500,000 shares of common stock for services rendered and also issued 336,186 shares, at $0.50 per share, to cancel Company indebtedness, as explained in Note G.

During 2008, the Company issued 150,000 shares of common stock for services and an additional 335,567 shares of common stock to cancel Company indebtedness.  In addition, the Company repurchased 30,000 of its own shares in common stock upon relinquishing its holdings in the Tecoma Mining District.  These shares are being held in Treasury as of June 30, 2009.

No activity has occurred during the nine-months ended September 30, 2009.  At September 30, 2009, the Company had authorized 500,000,000 shares of common stock and 15,011,753 shares had been issued and are outstanding.

On October 6, 2009, the company issued 3,550,000 shares of common stock to its directors, officers and select consultants for services rendered.   At September 30, 2009, compensation costs were recognized for these shares issued (Refer to Note L).

Note H - Related Party Transactions

Amounts due from and to related parties, are receivable from or payable to entities controlled by the shareholders, officers, or directors of the Company (“Related Entities”).  The underlying transactions are with these Related Parties.  These amounts are unsecured and not subject to specific terms of repayment.

   
At September 30,
   
At December 31,
 
   
2009
   
2008
 
Receivable from Related Entities
  $ 8,049     $ 12,565  
    $ 8,049     $ 12,565  
                 
Payable to Director or Officer
  $ 86,589     $ 80,824  
Payable to Related Entities
    9,063       2,900  
    $ 95,652     $ 83,724  

 
16

 

Prior to 2008, various loans were made by a shareholder/officer and in 2007, the “principal” portion of the loans were paid off, leaving only the accrued interest due the shareholder/officer. In 2008, a shareholder loan of $90,000 was made to the Company so it could avail itself of an option to purchase mineral properties in the state of California.  The principal part of this loan was also cancelled upon the receipt of an equivalent value in shares of common stock in the Company.

Note I - Litigation

At September 30, 2009 there were no outstanding legal issues.

Note J- Office Leases

The Company rents (subleases) its administrative offices from an affiliate in Tucson, Arizona and is billed an allocated portion ($500 per month), commencing October 1, 2008 based on percentage of floor space occupied.  The foreign exploration office located in Hermosillo, Sonora, Mexico has no lease and is rented on a month-to-month basis at $500 per month.  Rental expense for all administrative offices for the period ended September 30, 2009 was $4,500 and for the period ended December 31, 2008 was $4,496.

Note K – Exploration Costs

Acquired mineral interests are presented as “exploration costs” as required by Industry Guide 7. Exploration costs incurred since inception as of September 30, 2009 are $265,799.  Exploration costs incurred for the nine months ended September 30, 2009 and September 30, 2008 are $17,983 and $43,176, respectively.

Note L – Subsequent Events

On September 23, 2009, the board of directors passed a resolution for the issuance of 3,550,000 shares of common stock to its directors, officers and certain consultants for services rendered.  The share certificates, which are “restricted” pursuant to Rule 144 of the Securities Act of 1934, were not issued until October, 2009.  Compensation costs of $35,500 were accrued at September 30, 2009.

 
17

 
 

ITEM 2 – MANAGEMENT DISCUSSION’S AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

Management Discussion and Analysis Section

Forward-Looking Statements

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

We are an exploration stage company that engages in minerals exploration activities in the United States and Mexico involving silver, gold, zinc, copper and other minerals. To-date, we have not generated any revenues from any of these activities since approximately June, 2006, when we switched our emphasis in our business plan and commenced our mineral exploration business. To date, our exploration activities have been limited to the exploration and purchasing of mineral interests in the United States and Mexico.
 
 
18

 
 
Financial Condition and Changes in Financial Condition

At September 30, 2009, we had cash resources of $44,936 and receivables of $37,558, which along with revenues generated from engineering consultation, is sufficient to continue our exploration activities to meet our maturing obligations.  Our continued activities, long-term, are dependent on obtaining adequate financing as explained below. Our financial condition as of September 30, 2009, as compared to December 31, 2008 is summarized as follows:
 
Assets

As of September 30, 2009, we had total assets of $99,826 compared to total assets of $131,623 as of December 31, 2008, representing an decrease of 24% or $31,797.  Current assets comprise primarily of accounts receivables due from third parties and related entities, while other assets are comprised of an investment in securities classified as “available-for-sale”  in the amount of $16,750.

   
   
At September 30, 
2009
   
At December 31, 
2008
   
   
Net Incr./(Decr.)
   
Current Assets :
                 
Cash
 
$
44,936
   
$
50,274
   
$
(5,338
Accounts  Receivable
   
29,509
     
150
     
29,359
 
Due From Related Parties
   
8,049
     
12,565
     
(4,516)
)
Employee Advance 
   
   354
     
2,317
     
     (  1,963
Prepaid Expenses
   
228
     
1,005
     
(777
   Current Assets
 
$
83,076
   
$
66,311
   
$
                16,765
 
                         
Property, Plant & Equip.
 
$
0
   
$
 312
   
$
                   (312
Other Assets
   
16,750
     
65,000
     
   (48,250
)
   Total Assets
 
$
99,826
   
$
131,623
   
$
(31,797
)

Cash decreased by 11% or $5,338 to $44,936 at September 30, 2009, compared to $50,274 at December 31, 2008.  This decrease is attributable to administrative expenses and exploration costs related to on-going exploration activities.

Accounts Receivable, including Due From Related Parties increased by 195% or $24,843 to $37,558 at September 30, 2009, compared to $12,715 at December 31, 2008.   The bulk of the change was an increase of $29,359 in third-party receivables, as a result of a new engineering contractual arrangement.  Related party receivables decreased slightly by $4,516.
 
 
19

 
 
Liabilities and Shareholders’ Equity
 
   
   
At September 30, 
2009
   
   
At December 31, 
2008
   
   
Net Incr./(Decr.)
   
Liabilities
  
 
  
  
       
  
Accounts Payable
 
$
820
   
$
   1,656
   
$
(836
)
Due To Related Parties
   
95,652
     
80,824
     
14,828
 
Accrued Expenses
   
36,282
     
2,900
     
33,382
 
                         
   Total Liabilities
 
$
132,754
   
$
85,380
   
47,374 
 
Non-Controlling Interest
   
(3,530
   
(3,255
   
(275
 
   
                     
Shareholders’ Equity
                       
                         
Capital Stock
 
$
810,479
   
810,479
   
$
 0
 
Accumulated Deficit
   
(801,627
   
(730,981
   
(70,646
Treasury Stock
   
(30,000
   
(30,000)
     
0
 
Unrealized Loss on Sale of Securities
   
(8,250)
     
0
     
(8,250
)
                         
Shareholder’s Equity
 
$
(29,398
)
 
$
 49,498
   
$
(78,896
                         
Total Liabilities
 
$
99,826
   
$
131,623
   
$
(31,797
)

Total liabilities increased by 55% or $47,374 to $132,754 at September 30, 2009, compared to $85,380 at December 31, 2008. This increase is due to additional payables of $13,992 and increased accrued expenses of $33,382, primarily a result of the accrual of compensation for services rendered as of September 30, 2009.

Shareholders’ Equity decreased by $78,896 to $29,398 as of September 30, 2009, compared to $49,498 as of December 31, 2008.  This decrease represents the loss from operations of $70,646 and unrealized losses of $8,250 on “available for sale” securities  during the nine months ended September 30, 2009.

Liquidity and Capital Resources

Working capital decreased by $30,609 to $(49,678) at September 30, 2009, compared to $(19,069) at December 31, 2008.  Recognition of accrued compensation for services rendered were the primary reason for the net change in working capital.
 
Net cash flows from operating activities increased by 5% or $321 to ($5,556) for the nine months ended September 30, 2009 as compared to ($5,877) for the comparative nine months ended September 30, 2008.  Although overall there was a slight increase, there were substantial changes in operating activities.  There was an increase in receivables of $81,826, a net decrease in payables of $21,701 and the issuance of stock for services of $20,000, net of increased income of $20,377, and accrued expenses of $59,344 and an impairment loss of $40,000 for the comparable period ended September 30, 2008.   

No investment or financing activities occurred during the nine months ended September 30, 2009.  For the nine months ended September 30, 2008, we borrowed $90,000 from a related party (shareholder/officer) so that the Company could place an option towards the purchase of mining property, resulting in no cash flow.
 
 
20

 
 
Our business plan does not reflect, nor do we anticipate, any revenues during our exploration phase, aside from ongoing engineering services rendered to an affiliate and others.  We do not anticipate any other type of revenue until we confirm previously demonstrated mineralization, obtain operating permits, and construct mining and processing facilities at either our US or Mexican properties or both.

Our auditors have issued a going concern opinion on our audited financial statements for the nine months ended September 30, 2009, as we have an accumulated deficit of $801,627. These and other matters raise substantial doubt about our ability to continue as a going concern. We will have to supplement our currently available funds to satisfy our cash requirements for the immediate months by the continuation of providing engineering services and raising funds through an equity funding. We anticipate total spending requirements of approximately $9,289,500 pending adequate financing over the next twelve months, in the following areas:

 
·
$5,000,000 for property acquisitions;
 
 
·
$3,089,500 to proceed with the exploration of our properties and claims to determine whether there are commercially exploitable reserves of silver, gold, barite, lead, and zinc
 
 
·
$500,000 for working capital;
 
 
·
$200,000 for legal and accounting expenses; and
 
 
·
$500,000 for general and administrative expenses
 
We plan to undertake the following steps in our attempt to overcome our going concern qualification and our need for $9,289,500 of financing to accomplish our operational plan:

 
·
Contact broker-dealers to discuss and negotiate a broker dealer acting as an underwriter to conduct a public offering of our common stock sufficient to raise $10.0 million;
 
 
·
Contact other companies with sufficient financial resources to fund our operational activities to discuss and negotiate a joint venture arrangement or a merger transaction where we would combine our business interests and objectives;
 
 
·
Contact the fund managers of hedge funds and mutual funds to determine whether their interest in investing in our common stock sufficient to obtain adequate financing; and
 
 
·
Raise financing through a private placement of our common stock
 
 
21

 
 
Results of Operations

We incurred a loss $59,327 for the quarter ended September 30, 2009, compared to a loss of $44,853 for the quarter ended September 30, 2008, an increase of $14,474.   The increase in losses is due primarily to an impairment loss of $40,000 taken on financing costs, net of increased revenue from engineering consulting services ($22,739) and decreased general and administrative expenses of $2,787.

An analysis of the major components of our results of operations is, as follows:

Revenues. During the quarter ended September 30, 2009 and September 30, 2008, we had revenues of $52,164 and $31,915, respectively. Revenues increased by 63% or $20,249, attributable to increased engineering services rendered to a third-party. No revenue is being currently being generated from mineral extraction activities, as we are still in the exploration stage.

Operating Loss.   Operating losses decreased by 55% or $23,196 to ($19,327) for the quarter ended September 30, 2009, from ($42,523) for the quarter ended September 30, 2008.  This decrease is primarily due to increased revenues, with a slight decrease in operating expenses.

Exploration Expenses . Exploration costs decreased by $16,508 to $11,320 for the quarter ended September 30, 2009, from $27,828 for the comparable 2008 period.  This decrease is due to a reduction in exploration activity.

Depreciation and Depletion Expenses .  There was no depreciation expense for the quarter ended September 30, 2009, as the only depreciable asset was disposed. Depreciation for the quarter ended September 30, 2008 was $94.

Interest Expense.   There was no interest expense for the quarter ended September 30, 2009 as compared to $2,488 for the quarter ended June 30, 2008.

Exploration Costs – Inception to Date
 
On June 16, 2006, our Board of Directors passed a resolution to change the nature of its operations from an engineering services company to an exploration company. Since converting our business plan to conducting exploration activities, we have engaged in the following exploration activities and incurred the following costs:
 
1)    Hired a geotechnical consultant to assist launching an exploration program;
       
2)    Commenced the development of an exploration plan;
       
3)    Actively sought mineral interests containing precious metals; and
       
4)    Acquired the following minerals interests: 
       
a) Purchased BLM mineral claims – Calico District
 
$
12,770
 
b) Made option payment towards purchase price of $8 million of  Langtry property
 
$
100,000
 
c) Acquired a 98% interest in Metales Preciosos, S.A. de C.V., a  Mexican company, whose mineralized interests are:
       
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
 
5)    Exploration costs
 
$
 86,249
 
         
Total acquisitions and exploration costs
 
$
253,279
 

Since the commencement of exploration activities, June 16, 2006 through September 30, 2009, we have incurred a total of $589,513 in expenditures, including general & administrative expenses comprised of salaries, rent, consulting fees, interest and travel expenditures. These expenditures account for approximately 74% of the accumulated deficit of $801,627 reflected in the Shareholders’ Equity section. Engineering activities prior to June 16, 2006 accounts for the other portion of the deficit.


 
22

 
 
Uncertainties and Trends
 
Our operations, potential funding, and potential 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,
 
·
Global and regional supply and demand of silver, gold, and other minerals, including investment, industrial and jewelry demand;
 
·
Political and economic conditions of major silver, gold or other mineral-producing countries;
 
·
Threatened changes to the U.S. Mining Law that may cause increasing federal land royalties, or other unanticipated consequences and related increased costs of conduct in mining operations in the United States; and
 
·
Our Mexican properties are subject to foreign risk, such as passage of onerous regulatory exploration and mining requirements and availability of materials and supplies.
 
Off-Balance Sheet Arrangements
 
We have not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under whom we have:

 
·
an obligation under a guarantee contract,
     
 
·
a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,
     
 
·
any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or
     
 
·
any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us.
 
We do not have any off-balance sheet arrangements or commitments that have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material.

Changes in Accounting Policies

The significant accounting policies outlined within our Consolidated Financial Statements for the quarter ended September 30, 2009 have been applied consistently with the year ended December 31, 2008.
 
 
23

 
 
Recent Accounting Pronouncements
 
In June 2009, the FASB issued ASC 860, “Accounting for Transfers and Servicing of Financial Assets”  The provisions of ASC 860, amend the derecognition guidance, eliminate the exemption from consolidation for qualifying special-purpose entities and require additional disclosures. ASC 860 is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. The Company does not expect the provisions of ASC 860 to have a material effect on the financial position, results of operations or cash flows of the Company.

In June 2009, the FASB issued ASC 815-10, “Variable Interests Entities”, which provides consolidation guidance applicable to variable interest entities.  ASC 815-10 is effective as of the beginning of the first fiscal year that begins after November 15, 2009.   ASC 815-10 does not apply to the Company.

In June 2009, the FASB issued ASC 105-10-05, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles.  Under ASC 105-10-05, the “FASB Accounting Standards Codification” (“Codification”) will become the source of authoritative U. S. GAAP to be applied by nongovernmental entities.  Rules and interpretive releases of the Securities and Exchange Commission (“SEC”) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. ASC 105-10-05 is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  On the effective date, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification will become non-authoritative. ASC 105-10-05 is effective for the Company’s interim quarterly period beginning July 1, 2009. The Company does not expect the adoption of ASC 105-10-05 to have an impact on the financial statements.

In April 2009, the FASB issued ASC 825-10-50-10, Interim Disclosures about Fair Value of Financial Instruments. This ASC requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This ASC also requires those disclosures in summarized financial information at interim reporting periods. ASC 825-10-50-10 shall be effective for interim reporting periods ending after June 15, 2009. The Company does not have any fair value of financial instruments to disclose.

In April 2009, the FASB issued ASC 320, Recognition and Presentation of Other-Than-Temporary Impairments. This ASC relates to debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. ASC 320 shall be effective for interim and annual reporting periods ending after June 15, 2009. The Company currently does not have any financial assets that are other-than-temporarily impaired.
 
24

 
In April 2009, the FASB issued ASC 805, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, to address some of the application issues. ASC 805 deals with the initial recognition and measurement of an asset acquired or a liability assumed in a business combination that arises from a contingency provided the asset or liability’s fair value on the date of acquisition can be determined. When the fair value can-not be determined, ASC 805 requires using the guidance under ASC 450-20-25-2, Accounting for Contingencies. and ASC 450-20-30, Reasonable Estimation of the Amount of a Loss.
This ASC was effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after January 1, 2009. The adoption of this ASC does not have a material impact on our financial position, results of operations, or cash flows.
 
In April 2009, the FASB issued ASC 820, Fair Value Measurements and Disclosures, which guidance on estimating fair value when market activity has decreased and on identifying transactions that are not orderly.  Additionally, entities are required to disclose in interim and annual periods the inputs and valuation techniques used to measure fair value.  This ASC is effective for interim and annual periods ending after June 15, 2009.  The Company does not expect the adoption of ASC 820 will have a material impact on its financial condition or results of operation.
 
In October 2008, the FASB issued ASC 820-10, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active,”  which clarifies application of ASC 820-10 in a market that is not active.  ASC 820-10 was effective upon issuance, including prior periods for which financial statements have not been issued.  The adoption of ASC 820-10 had no impact on the Company’s results of operations, financial condition or cash flows.
 
In December 2008, the FASB issued ASC 810-10, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.”  This disclosure-only ASC improves the transparency of transfers of financial assets and an enterprise’s involvement with variable interest entities, including qualifying special-purpose entities.  This ASC is effective for the first reporting period (interim or annual) ending after December 15, 2008, with earlier application encouraged.  The Company adopted this ASC effective January 1, 2009.  The adoption of the ASC had no impact on the Company’s results of operations, financial condition or cash flows.
 
In December 2008, the FASB issued ASC 715-20, “Employers’ Disclosures about Postretirement Benefit Plan Assets”.  ASC 715.20 requires additional fair value disclosures about employers’ pension and postretirement benefit plan assets consistent with guidance contained in ASC 820-10.  Specifically, employers will be required to disclose information about how investment allocation decisions are made, the fair value of each major category of plan assets and information about the inputs and valuation techniques used to develop the fair value measurements of plan assets. This ASC is effective for fiscal years ending after December 15, 2009.  The Company does not expect the adoption of ASC 715.20 will have a material impact on its financial condition or results of operation.
 
In September 2008, the FASB issued exposure drafts that eliminate qualifying special purpose entities from the guidance of ASC 860-10, “Accounting for Transfers and Servicing of Financial  Assets and  Extinguishments of Liabilities”.  While the proposed revised pronouncements have not been finalized and the proposals are subject to further public comment, the Company anticipates the changes will not have a significant impact on the Company’s financial statements.  The changes would be effective March 1, 2010, on a prospective basis.
 
In June 2008, the FASB issued ASC 260-10-45, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities”. This ASC addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting, and therefore need to be included in the computation of earnings per share under the two-class method
 
ASC 260-10-45 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008 and earlier adoption is prohibited. We are not required to adopt ASC 260-10-45; neither do we believe that ASC 260-10-45 would have material effect on our consolidated financial position and results of operations if adopted.
 
 In May 2008, the FASB issued ASC 944-20, “Accounting for Financial Guarantee Insurance Contracts”.  ASC 944-20 clarifies application of financial guarantee insurance contracts, including the recognition and measurement of premium revenue and claims liabilities. This ASC also requires expanded disclosures about financial guarantee insurance contracts.   ASC 944-20 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those years. ASC 944-20 has no effect on the Company’s financial position, statements of operations, or cash flows at this time.

In March 2008, the FASB, issued ASC 815-10, Disclosures about Derivative Instruments and Hedging Activities  This standard requires companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under ASC 815-10 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This Statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The Company has not yet adopted the provisions of ASC 815-10, but does not expect it to have a material impact on its consolidated financial position, results of operations or cash flows.
 
 
25

 
 
PLAN OF OPERATIONS

Our Plan of Operations has been organized for each of our properties and claims to account for the similarities and differences in the location, geology, the prospective metals that may be hosted by each property or claim, and the current stage of exploration of each property and claim; accordingly, we have several Plans of Operations to account for those similarities and differences among our various properties and claims. Our Plans of Operations represent our Phase I exploration activities and are for a period of eighteen months. Based upon our analysis of the test results and feasibility studies, we will determine whether to proceed with Phase II exploration and development, which will consist of expanding identified ore blocks to the proven classification, permitting, and development. We cannot determine, predict, or assure whether we will be able to proceed with Phase II exploration and development activities regarding any of our properties or claims. Our exploration activities will be conducted under the overall direction of our Consulting Geologist, but each Plan of Operations described below will be directly managed and supervised by a Field Geologist that we hire.

Mexico Properties
A. The El Cumbro, El Cusito, and Canada de Oro Properties

We will explore the El Cumbro, El Cusito, and Canada de Oro Properties for silver, gold, lead, zinc, and copper at a total cost of $518,000.
 
Step 
 
Time Period 
to Complete 
Task 
  
Cost
  
Staffing:
 
  
     
Hire Field Geologist to manage exploration activities and manage workers.
 
12 months
 
$
65,000
 
Hire four workers to perform or assist in the tasks described below.
 
12 months
 
$
50,000
 
Administrative costs of Hermosillo Office, Administrative Manager and Secretary, rent, accounting and auditing
 
12 months
 
$
55,000
 
Exploration Phase I:
           
Repair obstructed access to the properties through bulldozing and grading in order that equipment and personnel will have full access to the property using a road contractor under the supervision of our Field Geologist.
 
1 month
 
$
50,000
 
We will cut trenches perpendicular across the veins by bulldozing and excavating to prepare to sample the veins at the surface expressions
 
3 months
 
$
0
 
Our Field Geologist will supervise sampling of trenches using the four helpers hired above
 
2 months
 
$
0
 
Our Field Geologist will supervise cleaning and repairing of existing adits to remove debris and permit unobstructed access for the purpose of conducting underground sampling
 
3 months
 
$
0
 
Our Field Geologist will supervise our helpers who will systematically sample the underground workings to determine mineralized areas using hammers and chisels to cut slots on five-foot centers.
 
2 months
 
$
0
 
Assay all samples, including trench samples, underground adit samples using a contract laboratory
 
3 months
 
$
10,000
 
Based on the above steps, our Field Geologist will generate a report with recommendations.
 
0.5 months
 
$
0
 
             
  Sub-Total
     
$
230,000
 
             
Purchase of Exploration Equipment:
           
Back Hoe Tractor with Excavator, Used
     
$
85,000
 
             
20-yard Dump Truck, Used
     
$
60,000
 
Equipment Trailer, Used
     
$
10,000
 
20 KWH Generator
     
$
20,000
 
Air Compressor
     
$
10,000
 
Office Trailer, Used
     
$
10,000
 
Sample Preparation and Storage, Portable Building, Used Container
     
$
5,000
 
Fuel Tank, Portable, Used
     
$
5,000
 
Water Tank, Portable, Used
     
$
8,000
 
Misc. Tools
     
$
25,000
 
Light Duty Transportation, Van and Pick-up and one all terrain vehicle
     
$
50,000
 
             
   Sub-total
     
$
288,000
 
             
   Total
     
$
518,000
 
 
 
26

 
 
B. The La Moneda property

We will explore the La Moneda property for gold and silver at a total cost of $44,500. We will contract a Project Geologist who will supervise all work at the project and will use two temporary workers in the local area to assist with manual sampling for two months. At the end of the La Moneda sampling program, the Project Geologist will transfer to El Cumbro/El Cusito/Canada del Oro projects as Assistant to the Field Geologist. La Moneda is a second priority project and will be evaluated to determine if there is potential for future gold production.

Step 
 
Time Period 
to Complete 
Task 
   
Cost
   
Exploration Phase I:
          
Project Geologist to supervise trench excavations, sampling and sample reparation
 
2 months
 
$
6,000
 
Our Project Geologist will hire two temporary helpers to do hammer and chisel chip samplings
 
2 months
 
$
3,000
 
Purchase of Exploration Equipment:
           
All Terrain Vehicle for rough terrain
     
$
7,000
 
10 KWH Generator
     
$
7,500
 
Miscellaneous Tools
     
$
5,000
 
Project Geologist Pick-up
     
$
10,000
 
Trailer for Field Office
     
$
6,000
 
Sub-Total
     
$
44,500
 
 
 
27

 
 
The Leviathon property in San Bernardino County, California
We will explore the Leviathon property for silver and barite at a total cost of $2,527,000. We will use one Field Geologist, four workers and infrastructure for our Leviathon property. Equipment to be used to conduct the Leviathon exploration program is shown below:
 
Step 
 
Time Period 
to Complete 
Task 
  
Cost
  
Exploration Phase I:
         
Hire Project Geologist to manage exploration, sampling and sample preparation activities and workers 
 
18 months
 
$
75,000
 
Our Project Geologist will hire 4 workers who will conduct sampling, drill core handling and cataloging, splitting and general sample preparation  
 
12 months
 
$
144,000
 
Our Project Geologist will contract a local construction company to prepare access roads and drill pads in preparation for drilling and will supervise the work 
 
2 months
 
$
50,000
 
Our Field Geologist will map the mineralized structures, which are visible at surface, to determine the strike and dip of the ore bodies, and based on this, will design our drilling program for the property. Since Leviathan is a series of wide veins, drilling will be designed to intercept the ore bodies from the surface by angling the holes.
 
3 months
 
$
0
 
Our Project Geologist will hire a drilling contractor to drill 5,000 meters at determined drill stations, probably split evenly between core and reverse circulation drilling.
 
3 months
 
$
1,000,000
 
Our Project Geologist will collect the drill samples, log and catalog them, and send them for sample preparation in anticipation of assaying. The samples will be split, with half stored in the storage building
 
4 months
 
$
20,000
 
Our Project Geologist will arrange contract assaying with an independent assay laboratory
 
4 months
 
$
100,000
 
Our Project Geologist will hire an independent mining engineer to design the mine based on the results of our drilling program
 
3 months
 
$
150,000
 
Our Project Geologist will hire an independent research firm to conduct metallurgical testing of the samples to determine the optimal recovery strategy and equipment
 
4 months
 
$
250,000
 
Our Project Geologist will hire an independent environmental engineering firm to conduct fauna, archeological, wild life, hydrology and base line studies to complete and submit project permit requests.
 
12 months
 
$
350,000
 
  Sub-total
     
$
2,139,000
 
             
Exploration Equipment Purchases:
           
Light Duty Transportation, 2 Pick-ups and 1 van
 
1 month
 
$
65,000
 
Office Trailer, used
 
12 months
 
$
15,000
 
Purchase steel building for sample preparation and storage
 
6 months
 
$
125,000
 
Purchase two core splitters
 
3 months
 
$
30,000
 
Purchase shelving for sample storage
 
2 months
 
$
25,000
 
Purchase diesel fuel tank
 
1 month
 
$
8,000
 
Purchase 20,000 gallon water head tank, Used
 
1 month
 
$
20,000
 
Purchase office furniture and equipment, including computers
 
1 month
 
$
30,000
 
Purchase a 20 kwh generator for water pumping and a 10 kwh generator for project power
 
1 month
 
$
30,000
 
Portable X-ray device for field assaying
 
1 month
 
$
40,000
 
Sub-Total
     
$
388,000
 
             
Total
     
$
2,527,000
 
 
 
28

 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None
 
ITEM 4T. - CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Our management is responsible for establishing and maintaining a system of disclosure controls and procedures as defined in Rule 13a-15(e)) under the Securities Exchange Act of 1934, as amended ("Exchange Act") that is designed to ensure that 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, within the time specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer's management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
In accordance with Exchange Act Rule 13a-15(b), our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter covered by this Quarterly Report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were ineffective, as of the end of the third quarter ending September 30, 2009, to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules 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 September 30, 2009.  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 September 30, 2009 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

None
 
 
29

 
 
ITEM 1A -  RISK FACTORS

Risk Factors
 
In addition to the other information provided in this Form 10-Q, you should carefully consider the following risk factors (and others in our S-1 Registration Statement, which may be accessed at: www.sec.gov/Archives/edgar/data/1419482/000114420408011274/v104636_s1a.htmn ) in evaluating our business before purchasing our common stock. Our exploration activities are highly risky and speculative; accordingly, an investment in our common stock shares involves a high degree of risk. You should not invest in our common stock if you cannot afford to lose your entire investment. In considering an investment in our common shares, you should carefully consider the following risk factors together with all of the other information contained in our filings with the Securities and Exchange Commission, including our S-1 Registration Statement. Any of the following (along with other risk factors that are discussed in our S-1 Registration Statement, and which includes more expansive risk factor discussions pertaining to the risk factors discussed below), may cause our exploration activities, prospects, financial condition or results of operations to be negatively impacted, which may lead to the loss of all or part of your investment.
 
Risks Related to our Business Activities .
 
Our financial condition raises substantial doubt about our ability to continue as a going concern.
 
As of September 30, 2009, we have an accumulated deficit of $801,627. Our auditor has issued a going concern opinion that there is substantial doubt whether we can continue as an ongoing business.   If we fail to obtain approximately $10 million of financing, we will be unable to pursue our planned business operations and will have to be curtailed or terminated, in which case you will lose part or all of your investment in our common stock.

Because our properties or claims may never have reserves or be profitable, your investment in our common shares may be negatively impacted.  
 
None of the properties or claims on which we have the right to explore for silver and other precious metals is known to have any confirmed commercially mineable deposits of silver or other metals that may be mined at a profit. We may be unable to develop our properties at a profit, either because:
 
·
the deposits are not of the quality or size that would enable us to make a profit from actual mining activities; or
 
·
because it may not be economically feasible to extract metals from the deposits.
 
In either case, you may lose part or all of you entire investment.
 
Because we are an exploration stage company, we have no mining operations, and our future operations are subject to substantial risks, we may never be successful in conducting any future mining operations .
 
We are not a mining company, but rather a beginning stage exploration stage. We will be unable to generate revenues or make profits, unless we actually mine deposits, if any actually exist.
 
We lack an operating history in our current business plan and we have losses, which make it difficult for you to evaluate whether we will be able to continue our operations or ever be profitable.
In June 2006, we began our current business plan of conducting exploration for silver and other minerals — our short operating history has consisted of preliminary exploration activities and non-income-producing activities. Accordingly, we have no adequate operating history for you to evaluate our future success or failure.
 
 
30

 
 
Our management has conflicts of interest that may favor the interests of our management, but to the detriment of our minority shareholders’ interests.
 
Our officers and directors also serve as officers and/or directors of other mining exploration companies and are related by family relations to one another. As a result, their personal interests and those of the companies that they are affiliated with may come into conflict with our interests and those of our minority stockholders. We as well as the other companies that our officers and directors are affiliated with may present our officers and directors with business opportunities that are simultaneously desired. Additionally, we may compete with these other companies for investment capital, technical resources, key personnel and other things. You should carefully consider these potential conflicts of interest before deciding whether to invest in our shares of our common stock. We have not yet adopted a policy for resolving such conflicts of interests. Because the interests of our officers and the companies that they are affiliated with may disfavor our own interests and those of our minority stockholders, you should carefully consider these conflicts of interest before purchasing shares of our common stock.

The services of our President and Chief Executive Officer, Executive Vice President/Chief Financial Officer, Consulting Geologist, and our Vice President of Administration and Logistics, are essential to the success of our business; the loss of any of these personnel will adversely affect our business.
 
Our business depends upon the continued involvement of our officers, directors, and consulting geologist, each of whom have mining experience from 9 to 35 years. The loss, individually or cumulatively, of these personnel would adversely affect our business, prospects, and our ability to successfully conduct our exploration activities. Before you decide whether to invest in our common stock, you should carefully consider that the loss of their expertise, may negatively impact your investment in our common stock.
  
We may be denied the government licenses and permits or otherwise fail to comply with federal and state requirements for our exploration activities.
 
Our future exploration activities will require licenses, permits, or compliance with other state and federal requirements regarding prospecting, exports, taxes, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Delays or failures to acquire required licenses or permits or successfully comply with the pertinent federal and state regulations will negatively impact our operations.

We do not carry any property or casualty insurance and do not intend to carry such insurance in the near future which may expose us to liabilities that will negatively affect our financial condition.
 
The search for valuable minerals exposes us to numerous hazards. As a result, we may become subject to liability for such hazards, including environmental pollution, cave-ins, unusual or unexpected geological conditions, ground or slope failures, cave-ins, changes in the regulatory environment and natural phenomena such as inclement weather conditions, floods and earthquakes or other hazards that we cannot insure against or which we may elect not to insure. At the present time we have no coverage to insure against these hazards, should we incur liabilities involving these hazards that may have a material adverse effect on our financial condition.
  
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3 - DEFAULTS UPON SENIOR SECURITIES

None
 
 
31

 
 
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 - OTHER INFORMATION

None

ITEM 6 - EXHIBITS
 
See Exhibit Index
 
 
32

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

INTERNATIONAL SILVER, INC.

/s/Harold R Shipes
Harold R. Shipes, Chief Executive Officer/Chairman of the Board

Dated: November 23, 2009

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
 
November 23, 2009
Harold R. Shipes  
 
Chief Executive Officer 
   
   
 
(Principal Executive Officer)
   
         
/s/John A. McKinney  
 
Chief Financial Officer
 
November 23, 2009
John A. McKinney  
 
Executive Vice President
   
   
(Principal Financial Officer)
   
 
 
33

 
 
EXHIBIT INDEX

EXHIBIT NO.
 
DESCRIPTION
 
PAGE
         
31.1
 
Certification Pursuant to Rule 13a-14(a) under the Exchange Act
   
         
31.2
 
Certification Pursuant to Rule 13a-14(a) under the Exchange Act
   
         
32.1
 
Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley act of 2002
   
 
 
34