February 15, 2011
Del Toro Silver Corp. Files SEC form 10-K, Full Annual Report available on EDGAR
Form 10-K for DEL TORO SILVER CORP.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.
Our audited consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.
Plan of Operation
Our Plan of Operation is to conduct exploration activities on our Dos Naciones Property, exercise the Option under the Option Agreement with Yale and subsequently enter into the Joint Venture Agreement with Yale. The Dos Naciones Property is located approximately 140 km north northeast of the city of Hermosillo, in north-central Sonora, Mexico and is approximately 75 km southwest of the important Cananea mining district. The Dos Naciones Property is comprised of one mineral concession that covers approximately 2,391 hectares.
We intend to conduct a two phase exploration program on the Dos Naciones Property at an aggregate estimated cost of $450,000. The first phase of our exploration program was completed during the quarter ended October 31, 2010. The first phase consisted of detailed geological mapping, sampling, hand trenching and prospecting. In July, 2010 the Company's operator on the Dos Nactiones property engaged geological consultants to conduct mapping and sampling on the property. The Company has commenced the second phase of its exploration program. If the results of the second phase of our exploration
program warrant the continuation into the third phase of the program, we intend to conduct the third phase of the program consisting of diamond drilling and IP surveys of the entire property. If the results of the second phase of our exploration program warrant the continuation into the third phase of the program, we intend to conduct the third phase of the program consisting of further diamond drilling of identified IP anomalies from Phase II at an estimated cost of $180,000. A detailed breakdown of the proposed budget and work exploration program is as follows:
Estimated Dos Naciones Work Program Costs Phase One Detailed geological mapping, stripping and trenching Cost 1 Geologist for 50 days @ $300 per day: $ 15,000 3 Field Assistants for 50 days @ $100 per day: $ 15,000 Food and accommodation @ $30 per man-day: $ 6,000 Field supplies: $ 1,000 Vehicle rental, fuel and maintenance: $ 5,000 Analytical costs: 300 samples @ $30 per sample: $ 9,000 Total geological mapping, stripping and trenching: $ 51,000 Report preparation For reporting on all of the above work, including drafting: $ 2,500 Subtotal $ 53,500 Phase One Phase Two IP surveying in area of aeromagnetic low 15 days of surveying along cut grid lines with pickets at 25 m intervals (slope distance)at an all-inclusive cost $ 30,000 Diamond drilling to test mineralized vein structures at Josefina 500 meters at an all-inclusive (drilled, logged, split, sampled, water haul) cost of $180 per meter: $ 90,000 Diamond drilling to test mineralized vein structures at Dos Naciones 300 meters at an all-inclusive (drilled, logged, split, sampled, water haul) cost of $180 per meter: $ 54,000 Subtotal Phase Two $ 174,000 Phase Three (contingent on IP anomalies from Phase Two work being determined to be favourable for testing with diamond drill holes) Diamond drilling in area of IP chargeability anomalies 1,000 meters at an all-inclusive (drilled, logged, split, sampled, water haul) cost of $180 per meter: $ 180,000 Subtotal Phase Three $ 180,000 Contingency 10% $ 42,500 TOTAL THREE PHASE PROGRAM: $ 450,000
Our plan of operation is to carry out exploration work on our Dos Naciones Property in order to ascertain whether it possesses commercially exploitable quantities of gold, silver, and other metals. We intend to primarily explore for gold, silver, and copper but if we discover that our mineral property holds potential for other minerals that our management determines are worth exploring further, then we intend to explore for those other minerals. We will not be able to determine whether or not the Dos Naciones Property contains a commercially exploitable mineral deposit, or reserve, until appropriate exploratory work is done and an economic evaluation based on that work indicates economic viability.
Mineral property exploration is typically conducted in phases. Each subsequent phase of exploration work is recommended by a geologist based on the results from the most recent phase of exploration. Once we complete each phase of exploration, we will make a decision as to whether or not we proceed with each successive phase based upon the analysis of the results of that program. Our management will make these decisions based upon the recommendations of the independent geologist who oversees the program and records the results.
Anticipated Cash Requirements We anticipate that we will incur the following expenses over the next twelve months: Expense Item Cost Expenditures on the Dos Naciones Property in accordance with the $ 150,000 terms of our Option Agreement with Yale Resources Ltd. Ongoing professional expenses associated with our company being a $ 60,000 reporting issuer under the Securities Exchange Act of 1934 General and administrative expenses $ 25,000 Total $ 235,000
As of October 31, 2010, we had cash of $82,807. Effective December 3, 2010, we issued 2,000,000 units at a price of $0.10 per unit for gross proceeds of $200,000. Each unit consisted of one share of common stock and one share purchase warrant entitling the warrant holder to purchase an additional share of common stock at a price of $0.25 per share for a period of two years from closing. Based on the above estimate of $235,000 for our expenses for the next twelve months we do not have enough funds to proceed with our plan of operation over the next twelve months. We plan to rely on the equity financing in order to raise any additional funds necessary to pursue our plan of operation and to fund our working capital deficit in order to enable us to pay our accounts payable and accrued liabilities. We currently do not have any arrangements in place for the completion of any equity financings and there is no assurance that we will be successful in completing any equity financings.
Results of Operations
The following summary of our results of operations should be read in conjunction with our audited financial statements for the financial years ended October 31, 2010 and 2009 which are included herein.
Our operating results for the years ended October 31, 2010 and 2009 are summarized as follows:
Years Ended October 31, 2010 2009 Revenue $ - $ - Operating Expenses 356,094 95,942 Mineral Property Acquisition Costs 130,500 29,658 Mineral Property Exploration Costs 27,407 10,225 Net Loss $ 514,001 $ 135,825
We have not earned any revenues to date. We do not anticipate earning any revenues until we enter into commercial production of our mineral properties, of which there is no assurance.
Expenses Our expenses for the years ended October 31, 2010 and 2009 are outlined in the table below: Years Ended October 31, 2010 2009 General and Administrative Expenses Accounting and Auditing $ 27,491 $ 19,793 Advertising and Promotion 4,154 1,311 Amortization 703 926 Bank Charges and Interest 612 338 Consulting Fees 23,000 2,185 Filing Fees 9,620 7,513 Foreign Exchange Loss (gain) 1,422 (1,675 ) Legal 30,351 55,455 Meals and Entertainment 1,488 1,306 Office and Sundry 84 380 Rent 6,244 6,310 Shareholders' communication 1,960 673 Telephone 862 621 Transfer Agent 1,545 745 Travel and Accommodations 848 61 Stock based Compensation 245,710 - Total General and Administrative Expenses $ 356,094 $ 95,942 Mineral Expenses Mineral Property Acquisition Costs 130,500 29,658 Mineral Property Exploration Costs 27,407 10,225 Total Mineral Expenses $ 157,907 $ 39,883 Total Expenses $ 514,001 $ 135,825
General and Administrative
The $378,176 (178.4%) increase in our expenses for the year ended October 31, 2010 compared to October 31, 2009 was primarily due to: (i) the inclusion of $245,710 in stock compensation expenses in fiscal 2010; and (ii) and increase in property acquisition costs associated with our acquisition of additional interests in the Dos Naciones property and property exploration costs associated with our 2010 exploration program on the property. Excluding stock compensation expenses our general and administrative expenses increased by $14,442 due primarily to an increase in consulting fees paid in 2010 in connection with our 2010 exploration program.
Professional fees include our accounting and auditing expenses incurred in connection with the preparation and audit of our financial statements and professional fees that we pay to our legal counsel. Our accounting and auditing expenses were incurred in connection with the preparation of our audited financial statements and unaudited interim financial statements and our preparation and filing of a registration statement with the SEC. Our legal expenses represent amounts paid to legal counsel in connection with our corporate organization. Legal and accounting expenses will be ongoing during fiscal 2011 as we are subject to the reporting obligations of the Securities Exchange Act of 1934.
Liquidity and Capital Resources
Working Capital -------------------------------------------------------------------------------- 24 Percentage As at As at Increase / October 31, 2010 October 31, 2009 (Decrease) Current Assets $ 91,118 $ 4,535 1,909% Current Liabilities $ 130,012 $ 28,087 362.9% Working Capital (Deficiency) $ (38,894 ) $ (23,552 ) 65.1% Cash Flows Year Ended Year Ended Increase / October 31, 2010 October 31, 2009 (Decrease) Cash used in Operating $ (75,335 ) $ (128,198 ) (41.2%) Activities Cash used by Investing $ - $ - - Activities Cash provided by Financing $ 157,404 $ 128,711 22.3% Activities Net Increase (Decrease) in $ 81,619 $ 513 15,810% Cash
We anticipate that we will incur approximately $235,000 for operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months. Accordingly, we will need to obtain additional financing in order to complete our business plan.
Cash Used In Operating Activities
We used cash in operating activities in the amount of $75,335 during the year ended October 31, 2010 and $128,198 during the year ended October 31, 2009. The reduction in cash used in operating activities was primarily as a result of reduced professional fees during fiscal 2010.
Cash From Investing Activities
We used cash in investing activities in the amount of $nil during the year ended October 31, 2010 and $nil during the year ended October 31, 2009.
Cash from Financing Activities
We generated $157,404 from financing activities during the year ended October 31, 2010 compared to $128,711 during the year ended October 31, 2009.
Disclosure of Outstanding Share Data
As at the date of this annual report, we had 12,535,135 shares of common stock issued and outstanding and 3,055,135 warrants outstanding. 1,055,135 of the warrants are exercisable at a price of $0.30 per share until June 30, 2011 and 2,000,000 of the warrants are exercisable at a price of $0.25 per share until December 3, 2012. We have 1,500,000 options to acquire additional shares of common stock at a price of $0.10 per share. We do not have shares of any other class issued and outstanding as at the date of this annual report.
The financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception and has never paid any dividends and is unlikely to pay dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As at October 31, 2010, our company has accumulated losses of $828,206 since inception. We do not have sufficient working capital to enable us to carry out our stated plan of operation for the next twelve months.
Due to the uncertainty of our ability to meet our current operating expenses and the capital expenses noted above in their report on the financial statements for the year ended October 31, 2010, our independent auditors included an explanatory paragraph regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
We anticipate continuing to rely on equity sales of shares of our common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned activities.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to 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 are material to stockholders.
Critical Accounting Policies
The financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment.
The main accounting and valuation policies used by Del Toro are outlined in Note 3 to Del Toro's audited financial statements accompanying this report. While not all of the significant accounting policies require difficult, subjective or complex judgments, Del Toro considers that the following accounting policies should be considered critical accounting policies:
Mineral Property Exploration and Development
We are in the exploration stage and have not yet realized any revenue from our planned operations. We are primarily engaged in the acquisition, exploration, and development of mining properties. Mineral property acquisition and exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves, the costs incurred to develop such property are capitalized. Such costs will be depreciated using the units-of-production method over the estimated life of the probable reserve.
Use of Estimates
The process of preparing financial statements requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements; accordingly, upon settlement, actual results may differ from estimated amounts.
Foreign Currency Translation
The Company's functional and reporting currency is the U.S. dollar. Integrated foreign operations are translated using the temporal method. All transactions initiated in foreign currencies are translated into U.S. dollars as follows:
a) monetary assets and liabilities at the rate of exchange in effect at the balance sheet date;
b) non-monetary assets at historical exchange rates; and
c) revenue and expense items at the average rate of exchange prevailing during the period.
Gains and losses arising from the translation of foreign currencies are included in the determination of net loss for the period.
Recent Accounting Pronouncements
In May 2009, the FASB issued Accounting Standards Codification ("ASC") 855-10, Subsequent Events ("ASC 855-10") (amended in February 2010) (formerly SFAS Statement No 165), which establishes principles and requirements for subsequent events. In particular, ASC 855-10 sets forth: (a) the period after the balance sheet date during which management of a reporting entity shall evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements; (b) the circumstances under which an entity shall recognize events or transactions occurring after the balance sheet date in its financial statements; and (c) the disclosures that an entity shall make about events or transactions that occurred after the balance sheet date. The adoption of this new standard did not have an impact on the Company's financial statements.
In June 2009, the FASB issued new guidance which is now a part of ASC 860-10 (formerly SFAS Statement No 166), to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. The FASB undertook this project to address (1) practices that have developed since the issuance of FASB Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (which is now a part of ASC 860-10), that are not consistent with the original intent and key requirements of that Statement and (2) concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. This new guidance is effective for fiscal years beginning after November 15, 2009 and is not expected to have a material impact on the Company's financial statements.
In June 2009, the FASB issued new guidance which is now part of ASC 810-10 (formerly SFAS Statement No. 167), to improve financial reporting by enterprises involved with variable interest entities. The FASB undertook this project to address (1) the effects on certain provisions of FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities (which is now part of ASC 810-10), as a result of the elimination of the qualifying special-purpose entity, and (2) constituent concerns about the application of certain key provisions of ASC 810-10, including those in which the accounting and disclosures under ASC 810-10 do not always provide timely and useful information about an enterprise's involvement in a variable interest entity. This new guidance is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. Earlier application is prohibited. This new guidance is not expected to have a material impact on the Company's financial statements.
In June 2009, the FASB issued new guidance which is now part of ASC 105-10 (the "Codification") (formerly Statement of Financial Accounting Standards No. 168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles), which will become the source of authoritative U.S. GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of the Codification, 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. The Codification is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of the Codification only had the effect of amending references to authoritative accounting guidance in the Company's financial statements.
In September 2009, the FASB reached a consensus on Accounting Standards Update ("ASU") -2009-13 "Revenue Recognition" ("ASC 605") - "Multiple-Deliverable Revenue Arrangements" ("ASU 2009-13"), and ASU 2009-14 "Software" ("ASC 985") - "Certain Revenue Arrangements That Include Software Elements ("ASU 2009-14"). ASU 2009-13 modifies the requirements that must be met for an entity to recognize revenue from the sale of a delivered item that is part of a multiple-element arrangement when other items have not yet been delivered. ASU 2009-13 eliminates the requirement that all undelivered elements must have either: (i) VSOE or (ii) third-party evidence, or TPE, before an entity can recognize the portion of an overall arrangement consideration that is attributable to items that already have been delivered. In the absence of VSOE or TPE of the standalone selling price for one or more delivered or undelivered elements in a multiple-element arrangement, entities will be required to estimate the selling prices of those elements. Overall arrangement consideration will be allocated to each element (both delivered and undelivered items) based on their relative selling prices, regardless of whether those selling prices are evidenced by VSOE or TPE or are based on the entity's estimated selling price. The residual method of allocating arrangement consideration has been eliminated. ASU 2009-14 modifies the software revenue recognition guidance to exclude from its scope tangible products that contain both software and non-software components that function together to deliver a product's essential functionality. These new updates are effective for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. However, these provisions are not expected to have a material impact on the Company's financial statements.