MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITION AND RESULTS OF OPERATION
Our name is Infrastructure Materials Corp. and we sometimes
refer to ourselves in this report as Infrastructure Materials or
Infrastructure, or the Company or as we, our, or us.
Forward-Looking Statements
Except for historical information, this report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such
forward-looking statements involve risks and uncertainties, including, among
other things, statements regarding our business strategy, exploration strategy,
future revenues and anticipated costs and expenses. Such forward-looking
statements include, among others, those statements including the words
expects, anticipates, intends, believes and similar language. Our actual
results may differ significantly from those projected in the forward-looking
statements. Factors that might cause or contribute to such differences include,
but are not limited to, those discussed herein as well as in the RISK FACTORS
section herein. You are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date of this report. We
undertake no obligation to publicly release any revisions to the forward-looking
statements or reflect events or circumstances after the date of this document.
Although we believe that the expectations reflected in these
forward-looking statements are based on reasonable assumptions, there are a
number of risks and uncertainties that could cause actual results to differ
materially from such forward-looking statements.
FOR THE NINE-MONTH AND THREE-MONTH PERIODS ENDED MARCH 31,
2014
PLAN OF OPERATIONS
We will require additional capital to maintain our operations
and implement the further exploration and possible development of our projects.
We expect to raise this capital through the sale of additional securities,
monetizing non-essential corporate assets, short-term debt financing or some
combination of the foregoing. We have limited cash to fund operations and have
taken steps to reduce our operating costs. Management is actively pursuing all
of its options to address the Companys operating capital requirements.
Discussion of Operations and Financial Condition
Nine-Month and Three-Months Periods ended March 31, 2014
The Company is in the exploration stage and has not yet
realized revenues from its planned operations. Given the present unfavorable
climate for raising capital for exploration stage projects, the Company
currently plans to spend very little on exploration efforts. The Company has
incurred a cumulative loss of $24,052,239 from inception to March 31, 2014. We
expect our operating losses to continue for so long as we remain in an
exploration stage and perhaps thereafter. Our ability to emerge from the
exploration stage and conduct mining operations is dependent, in large part,
upon our raising additional capital. The Companys major financial endeavor over
the years has been its effort to raise capital to pursue its exploration
activities. These efforts continue to be our priority.
-
27
-
Corporate Structure
The following diagram illustrates the Companys present
structure and ownership of its mineral properties and Milling Facility:
The Companys exploration efforts on its portfolio of limestone
and precious metal projects have been reduced primarily due to diminishing
working capital. Exploration of the Companys precious metals properties held by
our wholly owned subsidiary, Silver Reserve Corp. (SRC), is focused on the
Clay Peters Project. Though the Fall 2013, 7,000 ft reverse circulation drill
program was cut short due to unfavorable results, the Company has tentative
plans to resume drilling on a number of other high priority targets on the
Project, depending on the availability of funds. Management believes that the
Clay Peters Project, as well as the Silver Queen and Klondyke Projects,
currently provide the best opportunity for development of resources that could
go to production. The Company is also considering joint venture opportunities
with third parties to further explore and develop, if warranted, those
properties.
Though funds remain limited, the Company also continues to look
for opportunities to develop mineral deposits of other commodities in high
demand or which we anticipate will be in high demand in the future. We continue
to believe that the United States federal government will embark on major
infrastructure expenditures in the next 10 years, though we have been
disappointed that these investments have not come sooner. When significant
infrastructure investment does occur, we believe it will create a demand for
cement that will exceed the current sources of supply in certain areas of the
United States. Because cement is made from limestone, we believe our
acquisitions in this area could have significant potential.
Despite the challenges to raising capital, we are moving
forward with exploration on our Projects to the extent that funding permits. The
Company intends to continue to study and accumulate information about cement
grade limestone properties in strategic locations with a view to filling an
anticipated increased demand for cement in the United States, with a focus on
the States of Nevada, California, Utah, Idaho and Arizona. We believe that our
Blue Nose and Morgan Hill Projects currently provide an excellent opportunity
for development of resources that could go to production.
The Company is also looking for opportunities to monetize its
Red Rock milling facility located in Mina, Nevada on six mill site claims
covering 30 acres as well as non-essential mineral projects. With the Red Rock
mill at its current permitting stage and given its components and processing
capacities, we believe that we have the opportunity to either sell the mill or
enter into leasing arrangements. The Company intends to use any funds realized
from these efforts towards further exploration of its mineral claims.
-
28
-
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.
On October 4, 2013, the Companys wholly owned subsidiary, SRC,
elected to terminate a Sale and Purchase Agreement dated March 5, 2013 (the
Sale Agreement) between SRC and International Millennium Mining Inc (IMMI)
with respect to the mineral claims group located in Esmeralda County, Nevada
known as the NL Project. Among other terms, the Sale Agreement provided that,
upon a closing to occur on or about April 30, 2013, IMMI would pay SRC a
purchase price of $425,000. The closing date was extended several times. In
connection with the closing date extensions, IMMI paid a ten percent (10%)
non-refundable deposit of $42,500 towards the purchase price. SRC exercised its
termination option after IMMI failed to close the transaction as contemplated in
the Sale Agreement. Accordingly, the non-refundable deposit of $42,500 was
forfeited by IMMI and recognized as Other Income in the Companys Consolidated
Statement of Operations. An option and joint venture agreement governing the NL
Project between SRC and IMMI dated February 25, 2011, and described in
Contractual Obligations and Commercial Commitments, below, remains in effect.
On October 8, 2013, the Company issued 6,035,800 shares of its
common stock (Common Shares) as full settlement of a debt conversion
transaction (the Conversion) with Mont Strategies Inc., a company that is
owned and controlled by a member of the Companys Board of Directors. Under the
terms of the Conversion, the Company converted $293,000 of indebtedness owed by
the Company to Mont Strategies Inc. into 6,035,800 Common Shares at a conversion
price of CDN$0.05 per share. The Conversion was exempt from registration under
the Securities Act of 1933, as amended, pursuant to an exemption afforded by
Regulation S promulgated thereunder.
Stock Based Compensation
In July of 2011, the shareholders of the Company approved an
amendment and restatement of the Companys 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 Common Shares of the Company 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
Companys 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.
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29
-
SELECTED FINANCIAL
INFORMATION
|
|
|
Three months
|
|
|
Three months
|
|
|
|
|
ended
|
|
|
ended
|
|
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
Nil
|
|
|
Nil
|
|
|
Net (Loss)
|
|
($162,934
|
)
|
|
($435,887
|
)
|
|
(Loss) per share-basic and diluted
|
|
(0.001
|
)
|
|
(0.004
|
)
|
|
|
|
Nine months
|
|
|
Nine months
|
|
|
|
|
ended
|
|
|
ended
|
|
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
Nil
|
|
|
Nil
|
|
|
Net (Loss)
|
|
($716,824
|
)
|
|
($2,180,663
|
)
|
|
(Loss) per share-basic and diluted
|
|
(0.006
|
)
|
|
(0.022
|
)
|
|
|
|
As of
|
|
|
As of
|
|
|
|
|
March 31, 2014
|
|
|
June
30, 2013
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
1,000,713
|
|
$
|
1,120,998
|
|
|
Total Liabilities
|
$
|
419,571
|
|
$
|
573,795
|
|
|
Cash dividends declared per share
|
|
Nil
|
|
|
Nil
|
|
Total assets as of March 31, 2014,
include cash and cash equivalents of $304,448, marketable securities of $44,325,
prepaid expenses and other receivables of $29,498, restricted cash of $61,000,
reclamation deposits of $21,600, and plant and equipment of $539,842, net of
depreciation. As of June 30, 2013, total assets include cash and cash
equivalents of $106,847, marketable securities of $49,917, prepaid expenses and
other receivables of $15,988, restricted cash of $100,000, reclamation deposits
of $240,805, and plant and equipment of $607,441, net of depreciation.
The revenues and net loss (unaudited)
of the Company for the quarter ended March 31, 2014 as well as the seven
quarterly periods completed immediately prior thereto are set out below:
|
For the
three months
ended
March
2014
$
|
For the
three months
ended
December
2013
$
|
For the
three months
ended
September
2013
$
|
For the
three months
ended
June
2013
$
|
For the
three months
ended
March
2013
$
|
For the
three months
ended
December
2012
$
|
For the
nine months
ended
September
2012
$
|
For the
three months
ended
June
2012
$
|
|
|
|
|
|
|
|
|
|
Revenues
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
|
|
|
|
|
|
|
|
|
Net Loss
|
(162,934)
|
(157,933)
|
(395,957)
|
(333,935)
|
(435,887)
|
(1,076,238)
|
(668,538)
|
(438,177)
|
|
|
|
|
|
|
|
|
|
Loss per Weighted
Average Number
of
Shares Outstanding
-Basic and Fully Diluted
|
(0.001)
|
(0.001)
|
(0.004)
|
(0.003)
|
(0.004)
|
(0.011)
|
(0.007)
|
(0.004)
|
-
30
-
Revenues
No revenue was generated by the Companys operations during the
three-month and nine-month periods ended March 31, 2014 and March 31, 2013. The
Company is an exploration stage company and has not yet realized any revenue
from its operations.
Net Loss
The Companys expenses are reflected in the Statements of
Operation under the category of Operating Expenses. To meet the criteria of
United States generally accepted accounting principles (GAAP), all mineral
property acquisition and exploration costs are expensed as incurred. 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 930 at each fiscal quarter end. The Company has determined that all
property payments are impaired and accordingly the Company has written off the
acquisition costs. 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. For the purpose of
preparing financial information, all costs associated with a property that has
the potential to add to the Company's proven and probable reserves are expensed
until a final feasibility study demonstrating the existence of proven and
probable reserve is completed. No costs have been capitalized in the periods
covered by these financial statements. Once capitalized, such costs will be
amortized using the units-of-production method over the estimated life of the
probable reserve.
The significant components of expense that have contributed to
the total operating expense are discussed as follows:
(a) General and Administration Expense
Included in operating expenses for the three-month period ended
March 31, 2014, is general and administration expense of $131,560 as compared
with $283,300 for the three-month period ended March 31, 2013. During the
nine-month period ended March 31, 2014, general and administration expense was
$390,081 as compared to $786,811 for the nine-month period ended March 31, 2013.
General and administration expense consists of professional, consulting, office
and general and other miscellaneous costs. General and administration expense
represents approximately 52% of the total operating expense for the nine-month
period ended March 31, 2014 and approximately 36% of the total operating expense
for the nine-month period ended March 31, 2013. General and administration
expense decreased by $396,730 in the current nine-month period, as compared to
the similar nine-month period for the prior year. The decrease in general and
administration expense during the three and nine-month periods ended March 31,
2014, is mainly due to decreases in expenses for stock based compensation,
executive compensation and investor relations and the cost of a cement study
performed in the prior year.
-
31
-
(b) Project Expense
During the three-month period ended March 31, 2014, project
expense was $8,853 as compared to $125,823 for the three-month period ended
March 31, 2013. During the nine-month period ended March 31, 2014, project
expense was $298,880 as compared to $799,187 for the nine-month period ended
March 31, 2013. Project expense represents approximately 39% of the total
operating expenses for the nine-month period ended March 31, 2014 and
approximately 37% of the total operating expenses for the nine-month period
ended March 31, 2013. Project expense decreased significantly during the three
and nine-month periods ended March 31, 2014, primarily due to the Company
conducting a smaller drill program at its Clay Peters Project during the current
nine-month period and the purchase by the Company of several patented claims
during the nine-month period ended March 31, 2013.
Liquidity and Capital Resources
The following table summarizes the Companys cash flow and cash
in hand for the nine-month periods:
|
|
|
March 31, 2014
|
|
|
March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
304,448
|
|
$
|
148,091
|
|
|
Working capital
|
$
|
334,744
|
|
$
|
182,595
|
|
|
Cash (used) in operating
activities
|
$
|
(745,947
|
)
|
$
|
(1,450,048
|
)
|
|
Cash provided in investing activities
|
$
|
328,205
|
|
$
|
65,000
|
|
|
Cash provided by financing
activities
|
$
|
615,343
|
|
$
|
-
|
|
As of March 31, 2014, the Company had working capital of
$334,744 as compared to $182,595 as of March 31, 2013.
Off-Balance Sheet Arrangements
The Company had no off-balance sheet arrangements as of March
31, 2014 and March 31, 2013.
Contractual Obligations and Commercial Commitments
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 Companys 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 March 31,
2014, all of the undertakings described in (1), (2) and (3) above have been
completed. 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.
-
32
-
On May 30, 2008, the Company entered into an agreement (the
Harting Lease Agreement) with Ovidia Harting (Harting) to lease two patented
claims covering approximately 35 acres in Esmeralda County. The Harting Lease
Agreement has a renewable term of 10 years and permits the Company to explore
the area covered by the patented claims. The Harting Lease Agreement provides
for annual payments of $1,000 per claim to Harting. The Harting Lease Agreement
also provides that Company pay the real estate taxes imposed by Esmeralda
County. These two patented claims are subject to a 3% net smelter return royalty
to be calculated and paid to Harting within 45 days after the end of each
calendar quarter. The Company may terminate the Harting Lease Agreement at any
time by giving 60 days notice in writing to Harting.
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 was ten years. The
rent was 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
was obligated to make the following payments:
|
2010
|
$1.00 per net
acre
|
|
2011
|
$2.00 per net acre
|
|
2012
|
$2.00 per net
acre
|
|
2013
|
$3.00 per net acre
|
|
2014
|
$3.00 per net
acre
|
|
2015
|
$4.00 per net acre
|
|
2016
|
$4.00 per net
acre
|
|
2017
|
$5.00 per net acre in each year
for the duration of the Edgar Lease Agreement.
|
The Edgar Lease Agreement covered 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 was 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 provided 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 provided for other
cooperation with Standard Steam LLC regarding mineral rights on Property B of
the Edgar Property.
On November 6, 2013, the Edgar Lease Agreement was terminated
by the Company.
-
33
-
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.
On 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 was five years and the annual rent was $500. The Company was
responsible for the payment of all real estate taxes on the Hammond Surface
Rights. During the term of the Hammond Lease, the Company had 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 was responsible for any environmental damage caused by the Company and
any reclamation costs required as a result of drilling and testing. The Company
had 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.
On December 18, 2013, the Hammond Lease was terminated by the
Company.
On 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,
Eugene M. Hammond 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.
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.
-
34
-
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 SRCs NL Extension Project
(the NL Project) for total consideration of $350,000 and 1,925,000 shares of
IMMCs 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 IMMIs 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 IMMIs 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 SRCs acquisition of a 15% interest in the IMMI Project, SRC and IMMI
would enter into a joint venture agreement.
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 Owners 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. Also see Subsequent Event, below.
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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, payable in 12 equal
monthly installments.
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, which has retained counsel to defend the Company. Settlement
negotiations are ongoing and the Company has accrued $5,000 for this claim,
which is equal to the Companys deductible on the relevant insurance policy.
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 nine-month periods ended March 31, 2014, and March 31,
2013, were $18,821 and $18,438, respectively. As of March 31, 2014, the
Companys 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
$4,374, $382, and $0, respectively.
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 was 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.
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36
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Cash Requirements
At March 31, 2014, the Company had cash and cash equivalents of
$304,448, marketable securities of $44,325 and prepaid expenses and other
receivables of $29,498
for total current assets of $378,271.
Given the present unfavorable climate for raising venture
capital, the Company currently plans to spend very little on exploration
efforts. During the twelve month period ending March 31, 2015, the Company
expects to incur approximately $150,000 of Project expenses including
approximately $20,000 of expenses in connection with its Blue Nose limestone
project, $30,000 in connection with its Clay Peters precious metals project and
minor additional expenses related to other precious metals projects. Our ability
to incur Project expenses is subject to permitting programs with the Bureau of
Land Management and results of drilling as it progresses. The Company has no
firm commitment for additional financing and may not be able to incur all of the
Project and General and administration expenses planned in the current fiscal
year unless additional capital is raised.
Subsequent Event
On April 28, 2014, the Company gave notice to Ralph L. Buhrman
and Jacqueline Buhrman to exercise the Purchase Option for the three patented
lode claims that are the subject of the Buhrman Agreement.