IFAM Infrastructure Materials Corp (CE)

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of Infrastructure Materials Corp. (the “Company”), have been prepared in accordance with the instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles ("GAAP"); however, such information reflects all adjustments that are, in the opinion of management, necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto together with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the year ended June 30, 2013. In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments of a normal recurring nature considered necessary to fairly state the financial position of the Company at September 30, 2013 and June 30, 2013, the results of its operations for the three month periods ended September 30, 2013 and September 30, 2012, and its cash flows for the three-month periods ended September 30, 2013 and September 30, 2012. In addition, some of the Company’s statements in this Quarterly Report on Form 10-Q may be considered forward-looking and involve risks and uncertainties that could significantly impact expected results. The results of operations for the three- month period ended September 30, 2013 are not necessarily indicative of results to be expected for the full year.

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries, Infrastructure Materials Corp US (“IMC US”), Silver Reserve Corp. (“SRC”) and Canadian Infrastructure Corp. (“CIC”). All material inter-company accounts and transactions have been eliminated.

Recently Adopted Accounting Standards

In October 2012, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update, Technical Corrections and Improvements (“ASU 2012-04”). The amendments in this update covered a wide range of topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update are effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 did not have a material impact on the financial statements of the Company.

In January 2013, the FASB issued ASU No. 2013-01, " Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities ". This ASU clarifies that the scope of ASU No. 2011-11, " Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. " applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in FASB Accounting Standards Codification or subject to a master netting arrangement or similar agreement. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning on or after January 1, 2013. The adoption of this guidance did not have a material impact on the financial statements of the Company.

Basis of Presentation – Cont’d

Recently Issued Accounting Standards

In August 2012, the FASB issued ASU 2012-03, Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update) in (“ASU 2012-03”). This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a significant impact on our financial position or results of operations.

In July 2013, the FASB amended its guidance related to the presentation of unrecognized tax benefits. The standard provides that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. This guidance is effective for annual reporting periods beginning on or after December 15, 2013, and interim periods within those annual periods. The guidance is to be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted. The Company is currently assessing the impacts of this guidance.

In February 2013, the FASB issued ASU No. 2013-04, " Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation Is Fixed at the Reporting Date ." This ASU addresses the recognition, measurement, and disclosure of certain obligations resulting from joint and several arrangements including debt arrangements, other contractual obligations, and settled litigation and judicial rulings. This ASU is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company is currently assessing the impact of this guidance.

In March 2013, the FASB issued ASU No. 2013-05, " Foreign Currency Matters (Topic 830): Parent's Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity ." This ASU addresses the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The guidance outlines the events when cumulative translation adjustments should be released into net income and is intended by FASB to eliminate some disparity in current accounting practice. This ASU is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2013. The Company is currently assessing the impact of this guidance.

Nature of Business and Operations

The Company’s focus is on the exploration and development, if feasible, of limestone and precious metals from its claims in the State of Nevada.

The Company is an exploration stage company and has not yet realized any revenue from its operations. It is primarily engaged in the acquisition and exploration of mineral properties. Mineral property acquisition costs are initially capitalized in accordance with ASC 805-20-55-37, previously referenced as the FASB Emerging Issues Task Force ("EITF") Issue 04-2. The Company assesses the carrying costs for impairment under ASC 360 and evaluates its carrying value under ASC 930 at each fiscal quarter end. 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 will be capitalized. In February 2010, the Company capitalized $514,525 as Mineral Property Interests, and has written off all other property payments to project expenses as impaired costs. The previously capitalized Mineral Property Interests were written off as impaired costs in December 2012 as discussed in Note 8, Mineral Property Interests.

To date, mineral property exploration costs have been expensed as incurred. To date the Company has not established any proven or probable reserves on its mineral properties.

The Company’s limestone assets are held by its wholly owned subsidiary, IMC US, a Nevada corporation that was acquired as of November 2008. As of the date of the financial statements, IMC US controls 2 limestone projects in Nevada, made up of 115 mineral claims covering approximately 4,940 acres on land owned or controlled by the United States Department of Interior Bureau of Land Management (the “BLM”). IMC US has also acquired 100% of the mineral rights on an additional 1,120 acres, 50% of the mineral rights on 7,400 acres, and 25% of the mineral rights on 160 acres.

On December 18, 2008, the Company incorporated a second wholly owned subsidiary in the State of Delaware under its former name, “Silver Reserve Corp.” (“SRC”). The Company assigned all fourteen of its silver/base metal projects in Nevada to SRC. SRC has since terminated its interests in four of the projects. As of the date of the financial statements, the remaining ten projects contain 600 mineral claims covering approximately 12,385 acres on BLM land and 14 patented claims and 6 leased patented claims covering approximately 365 acres. SRC also has a milling facility located in Mina, Nevada on six mill site claims covering 30 acres.

The Company has not yet determined that any of its claims, mineral rights, mineral exploration permits or quarry leases can be economically developed and has expensed related costs to project expense. The Company’s assessment of the claims, mineral exploration permits, mineral rights and quarry leases may change after further exploration.

Going Concern

The Company's financial statements have been prepared in accordance with United States GAAP and are presented on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company is in the exploration stage and has not yet realized revenues from its planned operations. The Company has incurred a cumulative loss of $23,731,372 from inception to September 30, 2013. The Company has no source of operating revenue and expects to incur significant expenses before establishing operating revenue. Due to continuing operating losses and cash outflows from continuing operations, the Company’s continuation as a going concern is dependent upon its ability to obtain adequate financing and to reach profitable levels of operation. In the event that the Company is unable to raise additional capital, as to which there is no assurance, the Company will not be able to continue doing business. The Company’s future success is dependent upon its continued ability to raise sufficient capital, not only to finance its operating expenses, but to continue its exploration activities and its assessments of the commercial viability of its claims. There is no assurance that such capital will be available on acceptable terms, if at all, or that the Company will attain profitable levels of operation. Historically, the Company has funded operations through the issuance of capital stock, convertible debentures and redeemable preferred stock. Prior to December 2011 the Company received net proceeds of $12,718,365 pursuant to the issuance of such securities. In December 2011 the Company completed a public offering in Canada of shares of its common stock ("Common Shares") for net proceeds of $2,215,399. On August 28, 2013, the Company completed a private placement of its Common Shares for net proceeds of approximately $465,343. Management's plan is to continue raising additional funds through future equity or debt financing until it achieves profitable operations from production of minerals or metals on its properties, if feasible.

Fair Value of Financial Instruments

The fair values of financial assets measured at the balance sheet date of September 30, 2013 were as follows:

Restricted Cash

Amounts reflected as Restricted Cash represent either cash held as collateral or certificates of deposits pledged toward reclamation liabilities assessed by the BLM. Periodically, the BLM may require the Company to pledge additional cash as collateral or the Company may be allowed to remove restrictions on this cash by completing its reclamation obligations, as the case may be.

Reclamation Deposit

The Company posted a reclamation bond of $240,805 pursuant to the Plan of Operations for its Blue Nose limestone project, as required by the BLM to secure remediation costs if the project is abandoned or closed. The Company has submitted an amended Plan of Operations and is seeking a refund from the BLM of a portion of the reclamation bond.

Plant and Equipment, Net

Plant and equipment are recorded at cost less accumulated depreciation. Depreciation is provided commencing in the month following acquisition using the following annual rate and method:

During the three months ended September 30, 2013, the Company recorded depreciation expense of $22,533. During the twelve months ended June 30, 2013, the Company recorded depreciation expense of $107,344.

Mineral Property Interests

The Company entered into an agreement to acquire, as a wholly owned subsidiary, Canadian Infrastructure Corp. (“CIC”), a Canadian corporation, pursuant to a share exchange agreement (the “CIC Agreement”) dated as of December 15, 2009, between the Company, CIC and Todd D. Montgomery. Under the terms of the CIC Agreement, the Company acquired all of the issued and outstanding stock of CIC in exchange for 1,021,777 Common Shares of the Company. The CIC Agreement closed on February 9, 2010.

Mineral Property Interests – Cont’d

The Company accounted for the acquisition of CIC as a business combination under the acquisition method as discussed in FASB ASC Topic 805. ASC 805 requires acquisition-date fair value measurement of identifiable assets, liabilities assumed and non-controlling interests in the acquiree. The only assets acquired were CIC’S quarry leases having a fair value of $514,525 (CDN$550,000) that were recorded as an asset, “Mineral Property Interests,” on the date of acquisition. The Company obtained an independent appraisal and market study to determine the fair value of the quarry leases acquired. The stock of the Company traded at $0.27 per share on February 9, 2010, and the Company recorded a $275,880 increase in shareholders’ equity reflecting the issuance of 1,021,777 Common Shares of the Company in exchange for all issued and outstanding shares of CIC. There were no liabilities recorded in the financial records of CIC as of the date of acquisition. Further, the Company acquired all the issued and outstanding shares of CIC, resulting in the absence of non-controlling interests in the acquiree yielding a bargain purchase price of $238,645 that was recorded as Other Income in the Company’s Consolidated Statements of Operations and Comprehensive Loss. Costs incurred in connection with the acquisition were expensed.

Amounts recognized as assets as of the acquisition date:

Notes Payable

On April 22, 2013, the Company borrowed $140,000 from Mont Strategies Inc., a corporation that is owned and controlled by a member of the Company’s Board of Directors. This demand loan was made pursuant to a promissory note that calls for all principal and interest to be paid upon demand. The principal amount of the promissory note bears interest at four percent (4%) per annum and may be prepaid by the Company at any time without penalty. If the Company fails to make payment within five business days of demand by Mont Strategies Inc., the promissory note will bear interest at ten percent (10%) per annum. The Company intends to use the proceeds of the promissory note for working capital. For the three-month period ended September 30, 2013, the Company recorded interest expense of $1,412 for the promissory note.

On July 19, 2013, the Company borrowed $150,000 from Mont Strategies Inc., a corporation that is owned and controlled by a member of the Company’s Board of Directors. This demand loan was made pursuant to a promissory note that calls for all principal and interest to be paid upon demand. The principal amount of the promissory note bears interest at 4 percent (4%) per annum and may be prepaid by the Company at any time without penalty. If the Company fails to make payment within five business days of demand by Mont Strategies Inc., the promissory note will bear interest at ten percent (10%) per annum. The Company intends to use the proceeds of the promissory note for working capital. For the three-month period ended September 30, 2013, the Company recorded interest expense of $1,216 for the promissory note.

Also see Note 16, Subsequent Events.

Deferred Revenue, Marketable Securities and Accumulated Other Comprehensive Loss

On February 25, 2011, SRC entered into an option and joint venture agreement (the “Option Agreement”) with International Millennium Mining Inc. (“IMMI”), a wholly owned subsidiary of International Millennium Mining Corp. (“IMMC”), to sell an 85% interest in SRC’s NL Extension Project (the “NL Project”) for total consideration of $350,000 cash and 1,925,000 shares of IMMC’s common stock (together, the “Consideration”). The NL Project consists of 18 mineral claims located in Esmeralda County, Nevada, approximately 6 miles southwest of Silver Peak, Nevada on Highway 47. Under the terms of the Option Agreement, the Consideration is payable over a five-year period that ends on September 15, 2015, with IMMI’s interest in the NL Project vesting at the end of such period. Also see Note 14, Commitments and Contingencies.

As of June 30, 2013, the Company had received Consideration of $264,960, consisting of 875,000 shares of IMMC with a fair market value of $154,960 that is recorded as Marketable Securities in the Company’s Consolidated Balance Sheets and $110,000 in cash. In September 2013, the Company received additional Consideration of $81,876 consisting of 350,000 shares of IMMC’s common stock with a fair market value of $11,876 and $70,000 in cash. Because IMMI’s interest in the NL Project vests at the end of the five-year period, this Consideration is accounted for in the Consolidated Balance Sheets as Deferred Revenue, a non-current liability. The unrealized loss of $125,222 arising from the reduction in the market value of the Company’s shares of IMMC’s common stock as of September 30, 2013, is accounted for in the Stockholders’ Equity section of the Consolidated Balance Sheets as Accumulated Other Comprehensive Loss.

On March 5, 2013, SRC executed a Sale and Purchase Agreement (the “Sale Agreement”) with IMMI to sell to IMMI (1) all of SRC’s interest in the NL Project and (2) all of its interest in the Option Agreement. Pursuant to the terms of the Sale Agreement, upon closing IMMI will pay SRC a purchase price of US$425,000 and the Option Agreement will terminate. Also, upon closing of the Sale Agreement, SRC will transfer 100% of its interest in the NL Project to IMMI. The closing date was scheduled to occur on or about April 30, 2013, and has been extended several times. In connection with the closing date extensions, IMMI paid a 10% (ten percent) non-refundable deposit of US$42,500 towards the purchase price, which is also accounted for as Deferred Revenue until such time as the Sale Agreement closes or is cancelled. The terms of the Sale Agreement provide that all Consideration paid by IMMI under the Option Agreement prior to closing will be retained by the Company. Also see Note 16, Subsequent Events.

Asset Retirement Obligation

The Company is required to recognize a liability for its legal obligation to perform reclamation and disturbance monitoring activities once any of its projects are abandoned or closed. Although these activities are conditional upon future events, the Company is required to make a reasonable estimate of the fair value of the liability. Based on the existing level of ground disturbance and monitoring requirements, the discounted asset retirement obligations ("ARO's") were estimated to be $22,455 as of June 30, 2011, assuming payments made over a three-year period. Determination of the undiscounted ARO and the timing of these obligations were based on internal estimates using information currently available and existing regulations.

Asset Retirement Obligation – Cont’d

At the end of each reporting period, ARO’s are equal to the present value of all estimated future costs required to remediate any ground disturbances that exist as of the end of the period, using discount rates applicable at the time of initial recognition of each component of the liability. A liability for an asset retirement obligation may be incurred over more than one reporting period if the events that create the obligation occur over more than one reporting period. Any incremental liability incurred in a subsequent reporting period shall be considered to be an additional layer of the original liability. Each layer shall be initially measured at fair value. Included in this liability are the costs of reclamation and monitoring and maintenance costs. A discount rate of 10% was determined to be applicable. The Company recorded accretion expense of $2,244 for the year ended June 30, 2012, $2,472 for the year ended June 30, 2013, and $679 for the three-month period ended September 30, 2013. The Company’s entire ARO relates to the Company’s Blue Nose project.

Issuance of Common Shares and Warrants

Common Shares:

Three-month period ended September 30, 2013

On August 28, 2013, the Company completed a private placement (the “Private Placement”) of 33,333,333 Common Shares at a price of $0.014 (CDN$0.015) per share for gross proceeds of $474,203 (CDN$500,000). The Private Placement was exempt from registration under the Securities Act of 1933, as amended, pursuant to an exemption afforded by Regulation S promulgated thereunder.

Also see Note 16, Subsequent Events.

Year ended June 30, 2013

There were no securities issued during this period.

Issuance of Common Shares and Warrants – Cont’d

Warrants:

On December 16, 2011, the Company completed the sale of 26,000,000 Common Shares to the public in Canada at a price of $0.096 (CDN$0.10) per share to raise gross proceeds of $2,507,180 (CDN$2,600,000). PI Financial Corp. (“PI Financial”) acted as lead agent and received, among other compensation, non-transferable Agent's Warrants valued at $14,644 entitling PI Financial to acquire 209,850 Common Shares at a price of $0.096 (CDN$0.10) per share exercisable for 24 months. The fair value of the Agent’s Warrants was determined using the Black-Scholes option pricing model with the following assumptions: risk-free rate of 1.63%, expected dividend yield of 0%, annualized volatility of 142.45% and expected life of two years. These Agent’s Warrants were not granted pursuant to the Company’s stock option plan then in effect.

Stock Based Compensation

In July of 2011 the shareholders of the Company approved an amendment and restatement of the Company’s 2006 Stock Option Plan. This amended and restated stock option plan is referred to herein as the “2011 Amended Plan.” The purpose of the 2011 Amended Plan was to enhance the Company's stockholder value and financial performance by attracting, retaining and motivating the Company's officers, directors, key employees and consultants and to encourage stock ownership by such individuals by providing them with a means to acquire a proprietary interest in the Company's success through stock ownership.

The material terms of the 2011 Amended Plan include (a) officers, directors, employees and consultants who provide services to the Company may be granted options to acquire shares of the Company’s Common Shares at the fair market value of the stock on the date of grant, (b) options may have a term of up to 10 years, (c) the Company may issue options in a number up to a maximum of 10% of the outstanding Common Shares, and (d) outstanding stock options previously granted pursuant to the 2006 Stock Option Plan will remain in effect and be exercisable in accordance with, and be deemed to be issued under, the terms of the 2011 Amended Plan. It was expected that options issued pursuant to the 2011 Amended Plan would not be “qualified” options under the provisions of section 422 of the Internal Revenue Code of 1986, as amended from time to time.

In July of 2013 the shareholders of the Company approved the Company’s 2013 Amended Stock Option Plan (the “Current Stock Option Plan”), which amends and restates in its entirety the 2011 Amended Plan. The Current Stock Option Plan effected minor technical clarifications to the 2011 Amended Plan and did not materially change its terms.

Stock Based Compensation – Cont’d

Three-month period ended September 30, 2013

No options were granted pursuant to the Current Stock Option Plan during the three-month period ended September 30, 2013.

For the three-month period ended September 30, 2013, the Company recognized in the financial statements, stock-based compensation costs as per the following details. The fair value of each option used for the purpose of estimating the stock compensation is based on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions:

The expected term calculation is based upon the expected term the option is to be held, which is the full term of the option. The risk-free interest rate is based upon the U.S. Treasury yield in effect at the time of grant for an instrument with a maturity that is commensurate with the expected term of the stock options. The dividend yield of zero is based on the fact that the Company has never paid cash dividends on our common stock and has no present intention to pay cash dividends. The expected forfeiture rate of 0% is based on the vesting of stock options in a short period of time.

Commitments and Contingencies

On August 1, 2006, the Company acquired the Pansy Lee Project from Anglo Gold Mining Inc. in exchange for 1,850,000 Common Shares pursuant to an Asset Purchase Agreement dated August 1, 2006 (the “Pansy Lee Purchase Agreement”). Pursuant to the Pansy Lee Purchase Agreement, a 2% net smelter royalty pertains to 8 of the 30 claims in this project. In the event that any one or more of the 8 claims becomes a producing claim, our revenue is subject to a 2% net smelter return royalty where net smelter returns are based upon gross revenue less deductions as provided in the Pansy Lee Purchase Agreement.

The Company obtained 25 mineral claims (the “Option Claims”), located in Elko County, Nevada pursuant to an option agreement (the “Option Agreement”) dated as of May 1, 2008 (the “Date of Closing”) with Nevada Eagle Resources, LLC and Steve Sutherland (together, the “Optionees”). The provisions of the Option Agreement included, among others, payments of specified annual amounts ranging from $10,000 to $80,000 by the Company to the Optionees over a period of ten years. Effective June 1, 2010, the Company and the Optionees agreed to terminate the Company’s interests in the Option Claims pursuant to (1) payment by the Company of $8,750 to each of the Optionees, (2) performance by the Company of such reclamation and remediation as required to discharge the surface management bond posted by the Company pursuant to a Notice of Intent filed with the BLM prior to undertaking exploration activity on the Option Claims, and (3) conveyance by the Company to Nevada Eagle Resources, LLC of the 124 mineral claims staked by the Company after the Date of Closing that are within the Area of Interest described in the Option Agreement. As of September 30, 2013, the undertakings described in (1) and (3) above have been completed and the reclamation and remediation described in (2) above are in progress. The 25 Option Claims together with 124 mineral claims staked by the Company have been referred to by the Company as the “Medicine Claim Group.”

On December 8, 2008 IMC US entered into a Mineral Rights Lease Agreement (the “Edgar Lease Agreement”) with the Earl Edgar Mineral Trust (“Edgar”) to lease certain mineral rights in Elko County, Nevada described below (the “Edgar Property”). The term of the Edgar Lease Agreement is ten years and will automatically renew on the same terms and conditions for additional ten-year periods, provided IMC US is conducting exploration, development or mining either on the surface or underground at the property. The rent is to be paid each year on January 1st. $1.00 per net acre was paid upon execution of the Edgar Lease Agreement. On January 1 of each year commencing in 2010 and extending for so long as the Edgar Lease Agreement is in effect, IMC US is obligated to make the following payments:

Commitments and Contingencies – Cont’d

The Edgar Lease Agreement covers 100% of the mineral rights on 1,120 acres of the Edgar Property (“Property A”) and 50% of the mineral rights on 6,720 acres of the Edgar Property (“Property B”). Edgar is entitled to receive a royalty of $0.50 per ton for material mined and removed from Property A and $0.25 per ton for material mined and removed from Property B during the term of the Edgar Lease Agreement and any renewal thereof.

On April 9, 2009, the Company and Edgar entered into an Amendment to the Edgar Lease Agreement (the “Amendment”), effective as of December 8, 2008. The Amendment provides for Standard Steam LLC to carry out exploration for geothermal energy sources on the Edgar Property after obtaining the written consent of the Company. The Amendment also provides for other cooperation with Standard Steam LLC regarding mineral rights on Property B of the Edgar Property.

On November 30, 2009, IMC US entered into a Mineral Rights Agreement with Perdriau Investment Corp. (“Perdriau”) to purchase 50% of the mineral rights, including all easements, rights of way and appurtenant rights of any type that run with the mineral rights in certain sections of Elko County, Nevada (the “Perdriau Property”). The purchase price was $10 per net acre. IMC US purchased 340 net acres for a total purchase price of $3,400. Perdriau will be entitled to receive a royalty of $0.25 per ton for material mined and removed from the Perdriau Property. Material mined and stored on the Perdriau Property or adjacent property for reclamation purposes will not be subject to any royalty. Material removed from the Perdriau Property for the purposes of testing or bulk sampling, provided it does not exceed 50,000 tons, will also not be subject to any royalty. The royalty will be calculated and paid within 45 days after the end of each calendar quarter.

As of January 15, 2010, the Company entered into a Property Lease Agreement with Eugene M. Hammond (the “Hammond Lease”) for surface rights on 80 acres in Elko County, Nevada (the “Hammond Surface Rights”). The term of the Hammond Lease is five years and the annual rent is $500. The Company is responsible for the payment of all real estate taxes on the Hammond Surface Rights. During the term of the Hammond Lease, the Company has the exclusive right to conduct exploration and development work on the Hammond Surface Rights. The results of all drilling and exploration are the property of the Company. The Company is responsible for any environmental damage caused by the Company and any reclamation costs required as a result of drilling and testing. The Company has an option to purchase the property covered by the Hammond Lease for $15,000, less the amount paid in rent during the term of the Hammond Lease.

Also as of January 15, 2010, IMC US entered into a Mineral Rights Agreement with Eugene M. Hammond (the “Hammond Mineral Rights Agreement”) pursuant to which the Company purchased a 25% interest in any and all minerals extracted from 160 acres (the “Hammond Mineral Rights Property”) covered by the Hammond Mineral Rights Agreement. The purchase price was $400. In addition, the seller is entitled to receive a royalty of $0.125 per ton on material mined and removed from the Hammond Mineral Rights Property. The Hammond Mineral Rights Agreement does not cover petroleum.

Commitments and Contingencies – Cont’d

Effective July 1, 2010, the Company entered into an employment agreement with an individual to provide business and administrative services. The employment agreement has a term of one year and is automatically renewable thereafter. Either party may terminate the employment agreement upon 60 days notice. According to the terms of the employment agreement as amended effective March 1, 2012, the Company will pay the individual no less than $8,333 per month and reimburse related business expenses.

Effective July 1, 2010, the Company entered into an employment agreement with an individual to provide receptionist and administrative services at its Reno, Nevada corporate headquarters. The employment agreement has a term of one year and is automatically renewable thereafter. Either party may terminate the employment agreement upon 30 days notice. Pursuant to this employment agreement, the Company will pay no less than $51,000 per year for such services.

On February 25, 2011, SRC entered into an option and joint venture agreement (the “IMMI Option Agreement”) with International Millennium Mining Inc. (“IMMI”), a wholly owned subsidiary of International Millennium Mining Corp. (“IMMC”), to sell an 85% interest in SRC’s NL Extension Project (the “NL Project”) for total consideration of $350,000 and 1,925,000 shares of IMMC’s common stock (the “Consideration”). The NL Project consists of 18 mineral claims located in Esmeralda County, Nevada, approximately 6 miles southwest of Silver Peak, Nevada on Highway 47.  Under the terms of the IMMI Option Agreement, the Consideration is payable over a five-year period that ends on September 15, 2015, with IMMI’s interest in the NL Project vesting at the end of such period. In the event of early termination, IMMI is not entitled to the return of Consideration previously paid to SRC. If the NL Project is determined to be economically feasible, based upon criteria contained in the IMMI Option Agreement, SRC will be required to fund its portion of an operating budget proposed by IMMI in order to retain its 15% interest in the NL Project and to acquire a 15% interest in IMMI’s Nivloc Mine Project (the NL Project and the Nivloc Mine Project, collectively, the “IMMI Project”). In the event that SRC decides not to fund its portion of the budget, its 15% interest would be forfeited, but SRC would be entitled to a 2% net smelter return royalty if and when the IMMI Project enters the production phase. Upon funding of the operating budget and SRC’s acquisition of a 15% interest in the IMMI Project, SRC and IMMI would enter into a joint venture agreement.

On March 5, 2013, SRC executed a Sale and Purchase Agreement (the “Sale Agreement”) with IMMI to sell to IMMI (1) all of SRC’s interest in the NL Project and (2) all of its interest in the IMMI Option Agreement. Pursuant to the terms of the Sale Agreement, upon closing IMMI will pay SRC a purchase price of US$425,000 and the IMMI Option Agreement will terminate. Also, upon closing of the Sale Agreement, SRC will transfer 100% of its interest in the NL Project to IMMI. The closing date was scheduled to occur on or about April 30, 2013, and was extended several times. In connection with the closing date extensions, IMMI paid a 10% (ten percent) non-refundable deposit of US$42,500 towards the purchase price. The terms of the Sale Agreement provide that all Consideration paid by IMMI under the IMMI Option Agreement prior to closing will be retained by the Company. Also see Note 16, Subsequent Events.

Commitments and Contingencies – Cont’d

Effective February 29, 2012, SRC entered into a mineral lease agreement (the “Gumaskas Agreement”) with Joseph W Gumaskas (“Gumaskas”) to lease a patented claim covering approximately 10 acres (the “Claim”) in Mineral County, Nevada. Unless terminated earlier by SRC, the term of the Gumaskas Agreement is ten years and will automatically renew on the same terms and conditions for additional five-year periods. The Gumaskas Agreement requires SRC to pay Gumaskas advance minimum royalty payments of $500 annually. In the event that the Claim becomes a producing claim, SRC will pay Gumaskas a 3% royalty based upon gross revenue less deductions as permitted by the Gumaskas Agreement. SRC may terminate the Gumaskas Agreement at any time by giving 60 days advance written notice to Gumaskas.

On May 15, 2012, SRC entered into an Exploration License with Option to Purchase (the “Buhrman Agreement”) with Ralph L. Buhrman and Jacqueline Buhrman (together, the “Owner”) for three patented claims, covering approximately 59 acres (the “Property”) situated in Mineral County, Nevada. Under the terms of the Buhrman Agreement, SRC was granted the exclusive right and option to enter and examine the Property (the “Exploration License”) in consideration of a $30,000 payment to the Owner (the License Payment”). During the term of the Exploration License, SRC has the exclusive right to undertake geological, geophysical, and geochemical examinations of the Property; to sample the Property by means of pits, trenches, and drilling; and to take bulk samples from the Property for the purpose of conducting metallurgical and leaching tests. However, SRC may not commence development or mining activities on the Property unless it exercises the Purchase Option as defined below. SRC will be responsible for reclamation of its pits, trenches, drill sites, and other such disturbances arising out of its activities on the Property. The Exploration License had an initial one-year term beginning on May 1, 2012 (the “Effective Date”) and ending on April 30, 2013. On April 30, 2013, SRC exercised its right to extend the Exploration License for an additional period of one year by making an additional License Payment of $30,000 to the Owner. SRC was also granted exclusive right and option to purchase the Owner’s ownership interest in the Property (the “Purchase Option”) for the sum of $90,000 less all License Payments previously made. SRC may exercise the Purchase Option at any time during the term of the Exploration License by giving written notice to the Owner. If SRC exercises the Purchase Option, SRC will also pay the Owner a two percent (2%) royalty based upon gross revenues less deductions as defined by the Buhrman Agreement, and SRC will also have the exclusive right and option to purchase such royalty at any time for the sum of $1,000,000 less any payments previously made by SRC to the Owner pursuant to such royalty. SRC may terminate the Buhrman Agreement at any time by giving 30 days’ notice in writing to the Owner.

Commitments and Contingencies – Cont’d

Effective as of June 23, 2008, the Company appointed Mason Douglas as the President of the Company. Mr. Douglas is also a director of the Company. In connection with the appointment, the Company entered into a consulting services agreement with a Canadian corporation that is controlled by Mr. Douglas (the “Consulting Agreement”). The Consulting Agreement has a term of one year and is then automatically renewable. Either party may terminate the Consulting Agreement upon 90 days notice to the other party. According to the terms of the Consulting Agreement as amended effective March 1, 2012, the Company will pay a fee of $10,417 per month and reimburse related business expenses. The Consulting Agreement permits Mr. Douglas to fulfill his duties for the Company from his office in Canada. Mr. Douglas does not receive a salary from the Company. Effective October 1, 2012 the Company appointed Mr. Douglas to also serve as its Chief Executive Officer. In connection with this appointment, the Consulting Agreement was amended to increase the consulting fee to $155,000 annually, payable in 12 equal monthly installments. By mutual agreement between the Company and Mr. Douglas, effective as of March 1, 2013, the consulting fee was changed to an annual rate of $93,000.

On March 19, 2013, the Company accepted a proposal from Great Basin Ecology, Inc. to perform a biological baseline survey of time sensitive resources in the area of the Company’s Clay Peters Project in order to develop an exploration plan of operations. The survey is estimated to cost approximately $24,000. As of September 30, 2013, the Company has recorded total expenses of $21,310 for this contract.

On April 23, 2013, the Company received a summons from the United States District Court, District of Nevada, naming the Company as a co-defendant in a lawsuit filed by the U.S. Attorney on behalf of the BLM seeking reimbursement for the cost of putting out a fire that occurred on May 8, 2008, and other non-quantified damages. The fire damaged approximately 451 acres of land administered by the BLM near Dayton, Nevada. The lawsuit alleges that the cost of putting out the fire was approximately $510,000. The Company has denied any responsibility for the fire and notified its liability insurance carrier. The Company has not accrued any costs for this claim in its financial statements.

The Company has entered into operating leases for its office space and certain office furniture and equipment. Rent payments associated with those leases for the three-month periods ended September 30, 2013, and September 30, 2012, were $6,274 and $5,891, respectively. As of September 30, 2013, the Company’s estimated future minimum cash payments under non-cancelable operating leases for the years ending June 30, 2014, June 30, 2015, and June 30, 2016, are $5,521, $382, and $0, respectively.

Commitments and Contingencies – Cont’d

Maintaining Claims in Good Standing

The Company is required to pay to the BLM on or before September 1 ^st of each year, a fee in the amount of $140 per mineral claim held by the Company. The total amount paid in August 2013, was $98,420 for 703 claims held by the Company at that date. The BLM fee for the 18 NL Project claims held by the Company were paid by IMMI pursuant to the IMMI Option Agreement described above.

The Company is also required to pay on or before November 1 ^st of each year, annual fees to counties in Nevada in which the claims are held. In October 2013, the Company paid $7,406 to six counties in Nevada for annual claims-related fees.

The Company also holds certain patented claims and leases other patented claims in Nevada. A patented claim is fee simple title to the property. Patented claims are subject to taxes assessed by the local community based on assessment rates set annually.

Related Party Transactions

There are no amounts owed to or from related parties as of September 30, 2013, or June 30, 2013 except as discussed in Note 9, Notes Payable.

The following transactions were undertaken in the normal course of operations and are measured at the exchange amount, which is the amount of consideration established and agreed to by the Company and the related parties.

Three-months ended September 30, 2013

A corporation owned and operated by the Company’s President and Chief Executive Officer, Mason Douglas, who is also a member of the Company’s Board of Directors, received $23,250 for his services.

A law firm, a partner of which is also a member of the Company’s Board of Directors, Brent Walter, received $8,903 for legal services rendered and expenses incurred on behalf of the Company.

The Company’s Corporate Secretary, Anne Macko, received $14,000 for administrative services provided to the Company.

The Company recorded interest expense of $2,628 pursuant to promissory notes issued to a corporation that is owned and controlled by a member of the Company’s Board of Directors, Todd Montgomery. Also see Note 9, Notes Payable.

Three-months ended September 30, 2012

A corporation owned and operated by the Company’s President and Chief Executive Officer, Mason Douglas, who is also a member of the Company’s Board of Directors, received $31,251 for his services.

Related Party Transactions – Cont’d

A law firm, a partner of which is also a member of the Company’s Board of Directors, Brent Walter, received $3,925 for legal services rendered and expenses incurred on behalf of the Company.

The Company’s Corporate Secretary, Anne Macko, received $14,000 for administrative services provided to the Company.

On April 25, 2012, the Company granted options to certain of its officers and directors to purchase up to an aggregate of 4,825,000 Common Shares at an exercise price of CDN$0.10 per share. On the same date, the Company also granted options to a consultant who is a family member of a director to purchase up to 250,000 Common Shares at the same exercise price. The options were granted in accordance with the Company’s 2011 Amended Plan and vested at the rate of one twelfth (1/12) each month until fully vested. The options granted have a term of ten years. For the three months ended September 30, 2012, the Company expensed stock based compensation costs of $47,746 for options granted to officers and directors, and $2,474 for options granted to the director’s family member.

Subsequent Events

On October 4, 2013, the Company announced that its wholly owned subsidiary, SRC, elected to terminate the Sale Agreement between SRC and IMMI with respect to the NL Project. SRC exercised its termination option after IMMI failed to close the transaction as contemplated in the Sale Agreement. The IMMI Option Agreement governing the NL Project, between SRC and IMMI remains in effect. Because the termination of the Sale Agreement is effective after the date of this report, the effect of the termination will be reflected in the Company’s consolidated financial statements for the period ending December 31, 2013.

On October 8, 2013 the Company completed a debt conversion transaction (the “Conversion”) with Mont Strategies Inc. (“Mont Strategies”), a company that is controlled by a member of the Company’s Board of Directors. Under the terms of the Conversion, the Company converted approximately US$293,000 of indebtedness owed by the Company to Mont Strategies into Common Shares at a conversion price of CDN$0.05 per share. As a result of the Conversion, the Company issued a total of 6,035,800 Common Shares. The Conversion was exempt from registration under the Securities Act of 1933, as amended, pursuant to an exemption afforded by Regulation S promulgated thereunder.

As of November 5, 2013 the Company accepted the resignation of Anne Macko as Corporate Secretary. There were no disagreements between the Company and Ms. Macko with respect to the management, operations, policies, procedures, practices, internal controls or public disclosure documents of the Company.

As of November 5, 2013 the Company appointed Jeanette Durbin to the position of Corporate Secretary.