June 20, 2011
Del Toro Silver Corp. Files SEC form 10-Q, Full Quarterly Report available on Edgar
Form 10-Q for DEL TORO SILVER CORP.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" and the risks set out below, any of which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
� risks and uncertainties relating to the interpretation of sampling results, the geology, grade and continuity of mineral deposits;
� risks and uncertainties that results of initial sampling and mapping will not be consistent with our expectations;
� mining and development risks, including risks related to accidents, equipment breakdowns, labor disputes or other unanticipated difficulties with or interruptions in production;
� the potential for delays in exploration activities;
� risks related to the inherent uncertainty of cost estimates and the potential for unexpected costs and expenses;
� risks related to commodity price fluctuations;
� the uncertainty of profitability based upon our limited history;
� risks related to failure to obtain adequate financing on a timely basis and on acceptable terms for our planned exploration project;
� risks related to environmental regulation and liability;
� risks that the amounts reserved or allocated for environmental compliance, reclamation, post-closure control measures, monitoring and on-going maintenance may not be sufficient to cover such costs;
� risks related to tax assessments;
� political and regulatory risks associated with mining development and exploration; and
� other risks and uncertainties related to our mineral property and business strategy.
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.
Forward looking statements are made based on management's beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars and all references to "common stock" refer to the common shares in our capital stock.
As used in this quarterly report, the terms "we", "us", "our", and "Del Toro" mean Del Toro Silver Corp., unless the context clearly requires otherwise.
Our Current Business
We are presently an exploration stage company focused on conducting exploration activities on our Dos Naciones Property in Mexico and exercising our option under the Option Agreement with Yale Resources Ltd. dated July 7, 2009, as amended June 25, 2010 and October 21, 2010. 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.
Del Toro received a technical report dated March 25, 2009 from its consulting geologist David J. Pawliuk respecting the Dos Naciones Property. Pursuant to the report, Mr. Pawliuk recommended a three phase exploration program on the Dos Naciones Property to explore potential mineralization on the property. The report found that Dos Naciones Property hosts different styles of significant metallic mineralization and that economic concentrations of silver and lead occur in quartz veins at both the Josefina and the Dos Naciones occurrence areas within the property.
We intend to conduct a three phase exploration program on the Dos Naciones Property at an aggregate estimated cost of $450,000 subject to receiving additional financing. The first phase of our exploration program commenced in July, 2010. The first phase consists of detailed geological mapping, sampling, hand trenching and prospecting. In July, 2010 our operator on the Dos Naciones property engaged geological consultants to conduct mapping and sampling on the property.
We have submitted 38 samples from the July/August work program to an assay lab to confirm the sampling results. In October, 2010, fieldwork completed by us was successful in identifying multiple new exposures of veins as well as a historic working that was previously unknown. The Josefina target now consists of a series of at least six sub-parallel veins with the core of the silver/lead system having been traced along surface for approximately 600 meters along strike and over 250 meters wide. Highlights from the 38 samples submitted are channel chip samples from the interior of the Josefina working returning 129g/t Ag with 5.23% Pb over 1.0 meters and 105g/t Ag with 4.21% Pb over 0.50 meters.
In December, 2010 we completed an ASTER (Satellite Imaging) study on the Dos Naciones property and surrounding mines, and continued our field work consisting of detailed geological mapping, sampling and prospecting towards identifying drill targets. A follow up field program in the area was commenced in January, 2011 to expand the mapping and sampling of the surrounding areas based on the ASTER report study. Based on the results of our past field program we intend to commence a drill program in July, 2011 on the La Espanola target to obtain further information on mineralization occurrences on the area. The Company determined to delay the drill program to July, 2011 due to the unavailability of drilling companies for the program.
We have commenced the initial phase of exploration on our Dos Naciones Property. 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.
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 three 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 further diamond drilling of identified IP anomalies from Phase II at an estimated cost of $174,000. 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 $ 174,000 Phase Two 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 terms of our Option Agreement with Yale Resources Ltd. $ 150,000 Ongoing professional expenses associated with our company being a reporting issuer under the Securities Exchange Act of 1934 $ 60,000 General and administrative expenses $ 25,000 Total $ 235,000
As of April 30, 2011 we had cash of $27,634. 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.
On March 11, 2011, we issued 165,517 shares of our common stock to Asher Enterprises, Inc. ("Asher") pursuant to our 8% convertible note (the "Note") with Asher dated August 25, 2010 in the amount of $55,000. Asher provided us with a notice to convert $12,000 of the principal amount of the Note.
On June 3, 2011 $15,000 of the Note was converted into shares at a rate of $0.0493 per share for a total of 304,260 shares. The conversion price was at a 42% discount on market rate of $0.085 on the date of conversion. As result of the June 3, 2011 conversion, the face value of the convertible debt has been decreased to $28,000
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 unaudited financial statements for the three month period ended April 30, 2011 which are included herein.
Our operating results for the three month period ended April 30, 2011 and 2010 are summarized as follows:
Three Months Ended Six Months Ended April 30, April 30, 2011 2010 2011 2010 Revenue $ - $ - $ - $ - Operating Expenses 76,165 19,783 115,003 26,247 Acquisition Costs - - - - Exploration Costs 5,000 12,303 11,001 12,303 Net Loss 81,165 ($32,086 ) 126,004 ($38,550 )
We have not earned any revenues to date. We do not anticipate earning revenues from our planned mineral operations until such time as we enter into commercial production of the Doc Naciones Property, or other mineral properties we may acquire from time to time, and of which there are no assurances.
Expenses Our expenses for the three and six month periods ended April 30, 2011 and 2010 are outlined in the table below: Three Months Ended Six Months Ended April 30 April 30 2011 2010 2011 2010 General and Administrative Expenses Professional Fees $ 33,130 $ 12,510 $ 39,118 $ 18,590 Accretion 9,826 - 9,826 - Amortization 134 176 268 352 Bank Charges and Interest 14,205 408 37,213 445 Consulting 15,999 - 15,999 - Foreign Exchange Loss (gain) (2,921 ) 851 (1,648 ) 963 Office Expenses 4,582 4,483 6,384 4,542 Shareholder Communication 1,210 - 3,244 - Transfer Agent - 1,355 4,599 1,355 Total $ 76,165 $ 19,783 $ 115,003 26,247
General and Administrative
The $56,382 increase in our general and administrative expenses for the three month period ended April 30, 2011 compared to April 30, 2010 was primarily due to (i) an increase in our professional fees, (ii) an increase in our consulting expenses, and (iii) an increase in our interest expenses.
The $88,756 increase in our general and administrative expenses for the six month period ended April 30, 2011 compared to April 30, 2010 was primarily due to (i) an increase in our professional fees, (ii) an increase in our consulting expenses, and (iii) an increase in our interest expenses.
Our interest expenses increased by $37,034 during the six month period ended April 30, 2011 primarily due to accretion on the convertible debt.
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 professional fees increased by $20,620 during the three month period ended April 30, 2011 primarily due to increased legal fees. Our professional fees increased by $20,528 during the six month period ended April 30, 2011 primarily due to increased legal fees. Professional fees are expected to increase during fiscal 2011 due to our ongoing reporting obligations of the Securities Exchange Act of 1934.
Our consulting expenses increased by $15,999 during the three month period ended April 30, 2011 primarily due to increased management and consulting expenses during the quarter.
Liquidity And Capital Resources Working Capital Percentage As at As at October Increase / April 30, 2011 31, 2010 (Decrease) Current Assets $ 47,422 $ 91,118 (48.0% ) Current Liabilities $ 116,790 $ 130,012 (10.2% ) Working Capital $ (69,368 ) $ (38,894 ) (78.4% ) Cash Flows Six Month Period Six Month Period Percentage Ended Ended Increase / April 30, 2011 April 30, 2010 (Decrease) Cash used in Operating $ 119,877 $ 6,152 18,485.9% Activities Cash provided by Investing $ - $ - n/a Activities Cash provided by Financing $ 64,704 $ 5,636 1,048.0% Activities Net Increase (Decrease) in Cash $ (55,173 $ (516 ) 105,924.4%
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. As of April 30, 2011 we had cash of $27,634, 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 $119,877 during the six period ended April 30, 2011 and $6,152 during the six month period ended April 30, 2010. Cash used in operating activities was funded by cash from financing activities.
Cash From Investing Activities
We generated cash of Nil in investing activities during the six month period ended April 30, 2011. No cash was used or provided in investing activities during the three month period ended April 30, 2011.
Cash from Financing Activities
We generated cash of $64,704 from financing activities during the six month period ended April 30, 2011 compared to cash of $5,636 generated from financing activities during the six month period ended April 30, 2010.
Disclosure of Outstanding Share Data
As at the date of this quarterly report, the Company had 12,700,652 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 1,000,000 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 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 April 30, 2011, our company has accumulated losses of $954,210 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 our shares of 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.
Risks And Uncertainties
Risks Associated with Mining
All of our properties are in the exploration stage. There is no assurance that we can establish the existence of any mineral resource on any of our properties in commercially exploitable quantities. Until we can do so, we cannot earn any revenues from operations and if we do not do so we will lose all of the funds that we expend on exploration. If we do not discover any mineral resource in a commercially exploitable quantity, our business could fail.
Despite exploration work on our mineral properties, we have not established that any of them contain any mineral reserve, nor can there be any assurance that we will be able to do so. If we do not, our business could fail.
A mineral reserve is defined by the Securities and Exchange Commission in its Industry Guide 7 (which can be viewed over the Internet at http://www.sec.gov/divisions/corpfin/forms/industry.htm#secguide7) as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. The probability of an individual prospect ever having a "reserve" that meets the requirements of the Securities and Exchange Commission's Industry Guide 7 is extremely remote; in all probability our mineral resource property does not contain any 'reserve' and any funds that we spend on exploration will probably be lost.
Even if we do eventually discover a mineral reserve on one or more of our properties, there can be no assurance that we will be able to develop our properties into producing mines and extract those resources. Both mineral exploration and development involve a high degree of risk and few properties which are explored are ultimately developed into producing mines.
The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the resource to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.
Mineral operations are subject to applicable law and government regulation. Even if we discover a mineral resource in a commercially exploitable quantity, these laws and regulations could restrict or prohibit the exploitation of that mineral resource. If we cannot exploit any mineral resource that we might discover on our properties, our business may fail.
Both mineral exploration and extraction require permits from various foreign, . . .