UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q 

 

 

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED March 31, 2012

 

OR

 

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM ___________ TO ___________

 

Commission file number 000-14691

 

 

INDEPENDENCE RESOURCES PLC

(Exact name of registrant as specified in its charter)

 

 

England	77-0039728
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)
7 Office Way, Suite 218
Hilton Head, SC	29928
(Address of principal executive offices)	(Zip Code)

 

Registrant’s telephone number including area code: (843) 715-9504

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company)	Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes ¨   No x

 

As of May 16, 2012, the registrant had 17,355,760 ordinary shares outstanding, including 7,795,191 shares issued as of May 16, 2012 represented by American Depositary shares.

 

 

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

INDEPENDENCE RESOURCES PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		March 31,
		2012				December 31,
		(unaudited)				2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	711,426			$	1,520,321
Investments - available for sale			185,957				122,421
Trade receivables (net of allowances of $0 in 2011 and $5,000 in 2010)			14,738				25,476
Receivable - related party			5,500				5,500
Other current assets			89,992				88,992
Deposit on equipment			328,500				-
Total Current Assets			1,336,113				1,762,710
PROPERTY, PLANT AND EQUIPMENT, net			368,514				353,605
OIL AND GAS PROPERTIES, USING SUCCESSFUL EFFORTS ACCOUNTING
Unproved properties			108,397				149,647
Wells and related equipment			581,123				578,843
			689,520				728,490
MINING PROPERTIES
Mining claims			6,448,170				6,357,000
OTHER ASSETS
Deposit on equipment			-				328,500
Total Other Assets			-				328,500
TOTAL ASSETS		$	8,842,317			$	9,530,305
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable		$	309,840			$	462,417
Accrued liabilities			155,373				215,145
Deferred revenue and license fee			172,154				172,154
Total Current Liabilities			637,367				849,716
LONG TERM LIABILITIES
Deferred license fee			28,693				71,731
Total Long Term Liabilities			28,693				71,731
TOTAL LIABILTIES			666,060				921,447
COMMITMENTS AND CONTINGENCIES (See Note 10)
STOCKHOLDERS' EQUITY
Ordinary shares
Authorized shares: $0.65 (40 pence) par value, 100,000,000; 17,355,760 and 17,355,760 shares issued and outstanding			10,999,743				10,999,743
Share premium			88,351,983				88,351,983
Accumulated deficit			(91,139,868	)			(90,672,350	)
Accumulated other comprehensive income - change in exchange rate			(5,888	)			(4,044	)
Accumulated other comprehensive income - change in market value			(29,713	)			(66,474	)
Total Stockholders' Equity			8,176,257				8,608,858
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	8,842,317			$	9,530,305

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

INDEPENDENCE RESOURCES PLC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 

		Three Months				Three Months
		Ended				Ended
		March 31,				March 31,
		2012				2011
		(unaudited)				(unaudited)
REVENUES
Oil and gas revenue		$	14,599			$	27,272
OPERATING EXPENSES
Administration, sales and marketing			266,470				597,001
Exploration expense			218,136				10,219
Loss on impairment of investment – oil and gas property			41,250				-
TOTAL OPERATING EXPENSES			525,856				607,220
LOSS FROM OPERATIONS			(511,257	)			(579,948	)
OTHER INCOME (EXPENSE)
Interest income			337				19,547
Interest expense			(48	)			(121,925	)
Other income (expense)			412				(1,260	)
Change in fair value of option liability			-				(105,515	)
TOTAL OTHER INCOME(EXPENSE)			701				(209,153	)
LOSS FROM CONTINUING OPERATION BEFORE TAXES			(510,556	)			(789,101	)
INCOME TAX BENEFIT (EXPENSE)			-				-
NET LOSS FROM CONTINUING OPERATIONS			(510,556	)			(789,101	)
INCOME FROM DISCONTINUED OPERATIONS			43,038				178,632
NET LOSS			(467,518	)			(610,469	)
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized gain on investments available for sale			36,671				536,012
Translation adjustments			(1,861	)			(3,126	)
NET COMPREHENSIVE LOSS		$	(432,708	)		$	(77,583	)
NET LOSS PER COMMON SHARE,
Loss from continuing operations		$	(0.03	)		$	(0.08	)
Income from discontinued operations			0.00				0.02
Loss per common share		$	(0.03	)		$	(0.06	)
WEIGHTED AVERAGE NUMBER OF COMMON STOCK SHARES OUTSTANDING, BASIC AND DILUTED			17,355,760				10,450,175

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

INDEPENDENCE RESOURCES PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		Three Months Ended
		March 31				March 31,
		2012				2011
		(unaudited)				(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(467,518	)		$	(610,469	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation			2,091				-
Stock based compensation			-				90,883
Amortization of debt discount and deferred financing fees			-				121,926
Change in fair value of option liability			-				105,515
Impairment of investment			41,250				-
Changes in operating assets and liabilities
Decrease (increase) in:
Trade receivables			10,738				(43,774	)
Other receivables			-				(26,974	)
Other current assets			(1,000	)			(8,302	)
Prepaid oil and gas expense			-				160,649
Interest receivable – related party			-				(18,641	)
Receivable related party			-				(235,328	)
Increase (decrease) in:
Accounts payable			(152,577	)			130,520
Accrued liabilities			(59,772	)			(41,120	)
Deferred revenue and license fee			(43,038	)			(43,038	)
Net cash used by operating activities			(669,826	)			(418,153	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investments – available for sale			(26,865	)			-
Purchase of equipment			(17,000	)			-
Purchase of oil and gas lease and wells and related equipment			(2,280	)			(220,964	)
Acquisition of oil and gas unproved properties			-				(41,250	)
Acquisition of mining claims			(91,170	)			-
Net cash provided (used) by investing activities			(137,315	)			(262,214	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net cash provided by financing activities			-				-
Net increase (decrease) in cash and cash equivalents			(807,141	)			(680,367	)
Net foreign exchange differences			(1,754	)			(2,691	)
Cash and cash equivalents, beginning of period			1,520,321				1,714,697
Cash and cash equivalents, end of period		$	711,426			$	1,031,639
			-
NON-CASH TRANSACTIONS:
Stock issued for acquisition of Iron Eagle Acquisitions, Inc.		$				$	6,357,000

 

The accompanying notes are an integral part of these interim condensed consolidated financial statements.

 

 

INDEPENDENCE RESOURCES PLC

 

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2012

(Unaudited)

 

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Historically, Independence Resources PLC was a life sciences company engaged in the research, development and commercialization of technologies that targeted the science of healthy aging. In early 2010, after an extensive review by the Board of Directors of the Company and outside advisors, the Board elected to change the overall direction of the Company from these sectors to the natural resources sector.

 

Independence Resources PLC, together with its subsidiaries (the “Company” which may be referred to as “Independence”), is a public limited company organized under the laws of England in 1983. Independence has four wholly-owned subsidiaries, Senetek Drug Delivery Technologies Inc. (“SSDT”) and Carmé Cosmeceutical Sciences Inc. (“CCSI”), both Delaware corporations, Iron Eagle Acquisitions, Inc. (“Iron Eagle”), a Nevada corporation, and Senetek Denmark ApS, formed by Senetek under the laws of Denmark.

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information. Accordingly, the unaudited condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011.

 

In the opinion of management, the unaudited interim financial statements included herein reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s consolidated financial position as of March 31, 2012 and the results of operations and cash flows for the periods ended March 31, 2012 and 2011. The interim results of operations are not necessarily indicative of the results that may be expected for the full fiscal year.

 

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Revenue Recognition

Oil and gas revenues are recorded using the sales method. Under this method, the Company recognized revenues based on actual volumes of oil and gas sold to purchasers.

 

Earnings per Ordinary Share

Basic earnings per share are computed using the weighted average number of ordinary shares outstanding during the period. Diluted earnings per share incorporate the incremental shares issuable upon the assumed exercise of dilutive stock options and warrants using the treasury stock method.

 

Options, warrants, and shares related to the convertible note totaling 5,148,233 and 8,460,220 shares were outstanding at March 31, 2012 and 2011, respectively, but were excluded from the calculation of diluted earnings per share as their effect would have been antidilutive.

 

NOTE 3 – INVESTMENTS – AVAILABLE FOR SALE

 

The following summarizes the securities available for sale at March 31, 2012.

 

		Number of Shares				Cost Basis				Fair Value (Level 1 Inputs)
Security
Consolidated Goldfields*			111,657			$	13,732			$	55,829
Hecla Mining			200				1,760				924
Merger Mines Corp			4,700				705				569
Metropolitan Mines, Ltd			35,850				6,453				4,302
Mineral Mountain Mining and Milling Co*			19,947				8,378				3,989
New Jersey Mining Company			20,000				4,200				3,200
PM Pan Minerals			3,050,000				-				-
Shoshone Silver / Gold Mining*			500,000				91,840				70,000
Thunder Mountain Gold			523,535				88,602				47,144
						$	215,670			$	185,957

* Related parties, see Note 11

 

The fair value of securities is determined by quoted market prices.

 

 

NOTE 4 – STOCK EXCHANGE AGREEMENT

 

On March 16, 2011, Independence consummated a stock for stock exchange agreement with Iron Eagle Acquisitions, Inc., a Nevada corporation (“Iron Eagle”), and the two shareholders of Iron Eagle, namely Chester Mining Company, an Idaho corporation (“CHMN), and Brush Prairie Minerals, Inc., a Delaware corporation (“BPMI”) (collectively the “Shareholders”).  Pursuant to the terms of the agreement, the Company issued 8,150,000 ordinary shares in exchange for all of the issued and outstanding shares of Iron Eagle.  John Ryan, the Chief Executive Officer and Chairman of the Company was appointed as the sole director and officer of Iron Eagle.  As a result of this transaction, the Company acquired one hundred percent of the outstanding stock of Iron Eagle thereby making it a wholly owned subsidiary of the Company.  The transaction was valued at the market price of the Company’s common stock on the date of the transaction, which was $0.78 for a total value of $6,357,000.

 

Iron Eagle’s sole assets are mining claims, consisting of approximately 294 acres located in Siskiyou County, CA, known as the Grey Eagle Mine, valued at $4,290,000, and approximately 118 acres located in Lemhi County, Idaho, valued at $2,067,000, and no outstanding liabilities.  The value of the acquisition was allocated wholly to the mining claims.

 

Subsequent to the acquisition, both Mr. Ryan and Mr. Howard Crosby, directors of the Company, were each appointed as Directors of Brush Prairie Minerals, Inc. and of Chester Mining Company.

 

NOTE 5 – OIL AND GAS PROPERTIES

 

In May 2010, the Company entered into a Participation Agreement (“Agreement”) with SDX Resources, Inc. (“SDX”) in which the Company purchased a 15% of a 69% working interest in certain oil and gas leases located in Dawson County, Texas (“Subject Leases”) of which SDX is the Lessee of record, for $108,397. Under the terms of the Agreement, the Company will pay 20% of the actual cost to casing point of the Initial Test Well, and if necessary, the cost to plug and abandon the initial test well as a dry hole. The drilling of the Initial Test Well commenced on September 1, 2010, and $195,137 in intangible drilling cost, $69,975 in lease and well equipment, $22,952 in prepaid expense and $8,305 in lease operating expense was spent per the Participation Agreement. This well was completed for production and achieved commercial production in early 2011. The well was completed in the Mississippian formation, which was the lowest of the targeted production horizons, and after initial production rates in the 50-70 barrel per day ranges, has leveled off at a steady production rate of approximately 30 barrels per day, with virtually no water cut. The Company received approximately $2,179 in income from this well during the three months ended March 31, 2012 and plans no further investment in this project in the near term.

 

Additionally, the Company will pay 17.647059% of the actual cost to casing point of the Second Test Well, and if necessary, the cost to plug an abandon it as a dry hole. During the year ended December 31, 2010 drilling commenced on the second  test well, the McCarthy #1,  and $171,048 in prepaid expense, $21,803 in intangible drilling costs, $20,326 in lease and well equipment, and $1,452 in lease operating expense was spent per the Participation Agreement. The well commenced drilling during the first week of January 2011, and achieved a total depth of 10,500 feet.

 

Contemporaneously with the Agreement, SDX executed an operating agreement naming Breck Operating Corp. as the Operator of all operations and other activities conducted on the Subject Leases.

 

On January 6, 2011, the Company entered into a Joint Venture (“Agreement”) with Ameratex Securities, in which the Company purchased a 4.5% working interest (3% net revenue interest) in three oil wells located in Clinton County, Kentucky for $41,250. Two of the three wells have been drilled and one is in production as of September 30, 2011. The Company received approximately $12,090 in income during the three months ended March 31, 2012 from this well and plans no further investment in the project. This investment was fully impaired as of March 31, 2012 in consideration of the low volume.

 

NOTE 6 – MINERAL PROPERTIES

 

Iron Creek Project, Salmon, Idaho

 

The Iron Creek Project consists of seven patented mining claims of approximately 118 acres in Lemhi County, and 187 unpatented mining claims and located about 26 miles southwest of the town of Salmon, Idaho. We acquired by staking an additional 187 unpatented mining claims in and around the seven patented claims.

 

Gray Eagle Copper Mine, Happy Camp, California

 

The Gray Eagle Copper Mine (“Gray Eagle”) consists of approximately 294 acres of patented mining claims and 42 unpatented mining claims in Siskiyou County, the northernmost county of the State of California. We acquired by staking an additional 42 unpatented claims.

 

 

The Gray Eagle Mine has been subject to an EPA clean up action in the past. According to publicly available EPA documents, the EPA has expended about $3 million in response costs cleaning up old mining tailings. The Company understands that several companies have been identified as potential responsible parties for this clean up. The Company has not to date received any communication from the EPA with respect to recovery of these costs or any environmental issues that may be present at the Gray Eagle property.

 

East Mullan Claims

 

The East Mullan Claims consist of fifteen unpatented mining claims, three of which are very proximate to the east of the Lucky Friday/Gold Hunter Mine complex in Shoshone County, Idaho. The remainder of the claims are located on a down dip possible extension of the historic Snowstorm Mine. These claims were purchased during the first quarter of 2012 from Consolidated Goldfields for $60,000 in cash. This transaction is considered related party as the Company and Consolidated Goldfields have directors in common.

 

NOTE 7– STOCKHOLDERS EQUITY

 

The following warrants were outstanding at March 31, 2012:

 

Warrant Type		Warrants Issued and Unexercised				Exercise Price				Expiration Date
Convertible Debt Warrants			1,800,000			$	1.00				March 2015
Warrants			800,000				.60	p			June 2014
Warrants			536,538				.60	p			July 2014
			3,136,538

 

The following warrants were outstanding at March 31, 2011:

Warrant  Type

Warrants Issued and Unexercised

Exercise Price

Expiration Date

Convertible Debt Warrants

1,800,000

$

0.70

March 2015

 

The convertible debt warrants were issued in association with the March 2010 Security Purchase Agreement with DMRJ Group, LLC. The warrants entitle the holder to purchase ordinary shares of the Company at the purchase price referred to above at any time prior to the expiration date. Although the related convertible debt was paid off in 2011, the warrants are still exercisable and were repriced to $1.00 per the termination agreement.

 

NOTE 8– SEGMENT REPORTING AND CONCENTRATION OF RISK

 

Financial information regarding the operating segments was as follows:

 

		Three Months Ended March 31, 2012
		Mining Exploration				Oil & Gas				Total
Revenues		$	-			$	14,599			$	14,599
Exploration expense			(197,884	)			(20,252	)			(307,720	)
Unallocated operating expenses			-				-				(266,380	)
Operating loss		$	(197,884	)		$	(5,653	)		$	(511,257	)
Assets		$	7,081,170			$	704,258			$	7,785,428
Unallocated Assets											1,056,889
Total Assets										$	8,842,317

 

 

		Three Months Ended March 31, 2011
		Mining Exploration				Oil & Gas				Total
Revenues		$	-			$	27,272			$	27,272
Exploration expense			-				(10,219	)			(10,219	)
Unallocated operating expenses			-								(597,001	)
Operating gain (loss)			-				17,053				(579,948	)
Assets		$	6,357,000			$	1,183,245			$	7,540,245
Unallocated Assets											9,072,814
Total Assets										$	16,613,059

 

The Company’s customers are principally in the United States.

 

NOTE 9 – DISCONTINUED OPERATIONS

 

During the year ended December 31, 2011, with the exception of the Reliaject product, the Company has sold or otherwise disposed of the remainder of its pharmaceutical and skincare assets which has continued to reduce expenses associated with the biomedical lines of business.

 

The following table details selected financial information included in the income from discontinued operations in the consolidated statements of operations for the three months ended March 31, 2012 and 2011:

 

		March 31, 2012				March 31, 2011
Royalties and licensing		$	43,038				345,150
Product sales			-				-
Cost of sales			-				(135,950	)
General administration			-				-
Research and development			-				(30,568	)
Income from discontinued operations		$	43,038				178,632

 

NOTE 10 – COMMITMENTS AND CONTINGENCIES

 

Claims against the Company

 

In the fall of 2010 Miller Tabak & Company, a New York based investment banking firm, filed a breach of contract action against us in New York Supreme Court seeking an amount of approximately $360,000 for alleged non-payment of a commission. We do not believe the claim has

any merit and intend to defend the claim vigorously, it is however possible that a settlement will be reached between the Company and Miller Tabak in a range of $0 to $360,000. No amount has been accrued at March 31, 2012 relating to this claim.

 

NOTE 11 – RELATED PARTY

 

Mr. Anthony Williams, a Director of the Company, has been a partner of the law firm DLA Piper US, LLP since November 2009. DLA Piper has rendered legal services to the Company, as of March 31, 2012 and 2011 legal fees paid to DLA Piper US, LLP totaled $0 and $76,874, respectively.

 

Wesley Holland, one or our directors, provides certain consulting services to us in connection with developing and marketing our life science technologies and products. The Company has paid Dr. Holland a total of approximately $6,750 and $30,000 during the three months ended March 31, 2012 and 2011, respectively.

 

During the year ended December 31, 2011, the Company purchased 15,000 shares of Silver Scott Mines, Inc. for $5,266 and sold the shares prior to year end for $4,066. Mr. Ryan, Mr. Crosby and Mr. Holland are Directors of Silver Scott Mines, Inc. In addition, Mr. Ryan and Mr. Crosby are Directors of Shoshone Silver/Gold Mines, Inc and Mineral Mountain Mining and Milling Co. Also, Mr. Ryan is a Director of Consolidated Goldfields. At December 31, 2011, the Company has investments in shares of common stock in these companies.

In August 2011, the Company loaned $5,500 to Big Bear Mining Co which has directors in common with the Company.

 

 

NOTE 12 – SUBSEQUENT EVENTS

 

Subsequent to the end of the reporting period the Company has negotiated an agreement to acquire a sand and gravel lease covering prospective properties located on the Chippewa Indian Reservation (Turtle Mountain Band) in North Dakota. The Company believes that certain of the sands may have applications as fracturing proppant sands (“frac sands”). The Company believes there are ready markets for such frac sands, as well as conventional sand and gravel markets, in Western North Dakota and Eastern Montana in the rapidly developing Bakken oil fields. The terms of the deal required the Company to pay a $200,000 initial payment while the Company undertakes due diligence on the frac sand potential, as well as on the overall sand and gravel potential of the property. This payment was made in April 2012. Upon successful conclusion of due diligence and initiation of production from any of the properties covered under the sand and gravel lease, the Company would make an additional $250,000 cash payment, as well as grant a royalty interest to the current owner of the sand lease.

 

Also subsequent to the end of the reporting period, the Company reached an agreement in principal to acquire 70 percent of Coeur d’Alene Mine Contracting LLC. This contracting company is focused on underground mine development and production. Upon completion of the acquisition, the Company will issue 2,250,000 shares of its common stock and pay the principals of the LLC a total of $200,000 in cash as well as pay a third party consultant a finder’s fee of $25,000. The payments were made in May 2012.

 

On April 16, 2012 the Company sold mining equipment with a carrying value of approximately $576,500 to ABM Mining Company (“ABM”); no gain was recognized on the sale. This transaction is considered related party as the Company and ABM have directors in common.

 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Certain statements in this report, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives and expected operating results and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believe,” “project,” “expect,” “anticipate,” “estimate,” “intend,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “would,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. The risk factors described in the Company’s Form 10-K for the fiscal year ended December 31, 2011 provide examples of risks, uncertainties and events that may cause the Company’s actual results to differ materially from the expectations described in its forward-looking statements.   The Company assumes no obligation to correct or update any forward-looking statements which may prove to be inaccurate, whether as a result of new information, future events or otherwise, except as may be required by law.

 

Overview

 

Historically, Independence Resources PLC (the “Company”) had been focused on the skincare and pharmaceutical businesses. In March 2010, after an extensive review by our Board of Directors and our outside advisors, our Board elected to change our overall direction from these sectors to the natural resources sector. Our Board realized that the business prospects of the existing portfolio of assets were not capable of generating sufficient revenue, and we had insufficient cash on hand to reach significant revenue generation from any of the product lines in our portfolio. We elected to pursue additional opportunities in the resources sector because this sector has experienced significant growth and investor interest in the past few years and our Board believes the resources sector has continued growth prospects and significant opportunities.

 

During 2011 we continued the transition from a biomedical company to one focused on natural resources. The Company terminated its participation in the secured notes related to the Relief Canyon Mine and in the process it eliminated the convertible debt associated with that acquisition leaving the Company debt free. With the exception of the Reliaject product the Company has sold or otherwise disposed of the remainder of its biomedical assets which has continued to reduce expenses associated with the biomedical lines of business. We made significant progress during the 2011 work season at our Iron Creek Project by conducting a number of geophysical surveys which have identified the existing known zones of mineralization. As a result, we believe we have discovered additional extensions to the known zones as well as possibly identified several new zones of mineralization. We plan on undertaking a drilling program to verify these results for the 2012 work season.

 

For detailed financial information, please consult our financial statements included in this Report.

 

Unless the context otherwise requires, throughout this report, the words “Independence,” “the Company,” “we,” “us,” and “our” mean Independence Resources PLC and its consolidated subsidiaries. All amounts in this report are in U.S. Dollars, unless otherwise indicated.

 

Mineral Property Operations

 

In March 2011, we acquired 100% ownership of Iron Eagle Acquisitions, Inc (“Iron Eagle”) by issuing 8,150,000 ordinary shares valued at $0.78 or a total value of $6,357,000. As a result of the acquisition, Iron Eagle became our wholly-owned subsidiary. The acquisition agreement, dated March 16, 2011, was with Iron Eagle and its two shareholders, namely Chester Mining Company, an Idaho Corporation (“CHMN”), and Brush Prairie Minerals, Inc., a Delaware corporation (“BPMI”) (collectively the “Shareholders”). At closing, which was held on March 17, 2011, we issued 5,500,000 shares of common stock to BPMT and 2,650,000 shares to CHMN, and John Ryan, our CEO and a director, was appointed as the sole director and officer Iron Eagle. Also at closing CHMN appointed Mr. Ryan and Howard Crosby, our President, Chief Financial Officer, and a director, as directors of CHMN. BPMI appointed Messrs. Ryan and Crosby as directors of BPMI. William L. Campbell is the CEO of CHMN and BPMI and a principal shareholder of both entities. As a result of the transaction, control of the Company changed to Mr. Campbell.

 

Iron Eagle owns two mineral projects, one in Idaho known as the Iron Creek project and one in California known as the Gray Eagle Copper Mine.

 

Iron Creek Project, Salmon, Idaho

 

The Iron Creek Project consists of seven patented mining claims of approximately 118 acres in Lemhi County, and 187 unpatented mining claims and located about 26 miles southwest of the town of Salmon, Idaho.

 

Past work by previous operators has identified several mineralized zones of copper and cobalt, and numerous other exploration targets on the property that have not as yet been evaluated. However, extensive drilling, sampling, and geologic work have been done on two of the most advanced areas. In these areas, previous operators calculated tonnages and grades (which are non-43-101 compliant) contained in an area called the “No Name Zone”.

 

 

The first mineral resource of interest referenced in the literature is an underground target described by Noranda Exploration in a 1980 report as “two distinct lenses of cobalt mineralization”. The first lens was called a “reserve” and was estimated to contain 1,050,000 tons grading 0.61% cobalt and 0.3% copper and having a strike length of about 750 feet. A second lens of high-grade cobalt mineralization occurs to the northwest, and again is described as a “reserve”. This lens extends for 600 feet of strike length, is deeper than the first lens, and averages about 0.48% cobalt and 0.24% copper. The authors estimated this resource to be around 229,000 tons.

 

The second area of major interest, also in the "No Name Zone" is described by Centurion Minerals in a 1988 report as containing at least 10,000,000 tons of open pit resources grading 2% copper equivalent grade (accounting for the cobalt as a by-product). This number was based on over 20 diamond drill holes along approximately 5,000 feet of strike length and over 200 feet of width, at an average spacing of around 200 feet. The author of the report concluded that these resources could be classified as “possible” reserves (under a S.E.C. classification) and recommended an additional 30 holes be drilled to reduce the drill spacing to something less than 200 feet. Significantly more infill drilling will be required to upgrade and verify this mineral resource, and this drilling will be guided by the work done at the project during the summer and fall of 2011.

 

Based on these reports and our own internal evaluations, in order to expand the land package and cover more of the potential targets on the property, we acquired by staking an additional 187 unpatented mining claims in and around the seven patented claims.

 

Additionally, we obtained permits from the Forest Service to undertake sampling, induced polarization, magnetic surveys, and geologic mapping on the ground. These activities were undertaken during the field season of 2011. These activities confirmed the mineral zones as outlined in historic reports and identified several potential new zones of mineralization that were previously not recognized.

 

We are currently filing a drill plan and requesting permits from the Forest Service to allow a drill program on the project to begin the summer of 2012 to confirm the resources that were previously identified, and also to target some new possible mineral resources which are indicated by the work we have completed so far.

 

Gray Eagle Copper Mine, Happy Camp, California

 

The Gray Eagle Copper Mine (“Gray Eagle”) is a past producer of significant amounts of both copper and gold. The property consists of approximately 294 acres of patented mining claims and 42 unpatented mining claims in Siskiyou County, the northernmost county of the State of California. Major production of valuable metals occurred during two different periods at Gray Eagle. Newmont Mining produced significant copper at the property in the 1940’s and Noranda Mining produced significant gold at the property in the 1980’s.

 

In the early 1990’s, a feasibility study was completed by Siskon Corporation which was reviewed by a major U.S. based mineral consulting firm which concluded that a mineral resource of just over 1.1 million tons of ore grading 2.59% copper and .027 ounces per ton gold using a 3.3 to 1 strip ratio, a copper cutoff grade of 1%, and recovery factors of 90% on copper and 30% on gold. We intend to confirm this resource and undertake additional drilling to further refine the mineral resources which have been identified by past work at this project, and to explore for undiscovered possible deposits in the area.

 

Based upon our internal evaluations we elected to acquire by staking an additional 42 unpatented claims. During the upcoming months we plan on obtaining the needed permits to undertake sampling and geophysical surveys on the property. We plan on beginning these geologic activities in the spring of 2012 as weather and ground conditions allow. Once we have the results from this testing, these results will aid the Company in designing a drill program which we intend to undertake in the fall of 2012 field and season of 2013. All of these activities are dependent on raising additional capital in order to undertake this work.

 

The Gray Eagle Mine has been subject to an EPA clean up action in the past. According to publicly available EPA documents, the EPA has expended about $3 million in response costs cleaning up old mining tailings. The Company understands that several companies have been identified as potential responsible parties for this clean up. The Company has not to date received any communication from the EPA with respect to recovery of these costs or any environmental issues that may be present at the Gray Eagle property.

 

East Mullan Claims

 

The East Mullan Claims consist of fifteen unpatented mining claims, three of which are very proximate to the east of the Lucky Friday/Gold Hunter Mine complex in Shoshone County, Idaho. The remainder of the claims are located on a down dip possible extension of the historic Snowstorm Mine. These claims were purchased during the first quarter of 2012 from Consolidated Goldfields for $60,000 in cash. This transaction is considered related party as the Company and Consolidated Goldfields have directors in common.

 

 

Oil and Gas Operations

 

South Fork II Prospect, Clinton County Kentucky

 

On January 6, 2011, the Company entered into a Joint Venture (“Agreement”) with Ameratex Securities, in which the Company purchased a 4.5% working interest and 3% net revenue interest in three oil wells located in Clinton County, Kentucky for $41,250. The Company is receiving a small royalty from this project and plans no further investment in these wells. Management has determined that this oil and gas project is not material to the current business of the Company.

 

Working Interest, Dawson County, Texas

 

In May 2010, we entered into a participation agreement (the “SDX Participation Agreement”) with SDX Resources, Inc (“SDX”) pursuant to which we purchased a 15% working interest in certain oil and gas leases located in Dawson County, Texas (“Subject Leases”) of which SDX is the lessee of record, for $108,397. Under the SDX Participation Agreement, we will pay 20% of the actual cost to casing point of the initial test well, and, if necessary, the cost to plug and abandon it as a dry hole. Additionally, we will pay 17.647059% of the actual cost to casing point of the second test well, and, if necessary, the cost to plug and abandon it as a dry hole. Both of these test wells were successful and have been put into production.

 

We are now receiving income on a quarterly basis from the two wells that we participated in. We plan no further investment in this project in the near term. The Company has received estimates from SDX that the cost of plugging these wells will be approximately $17,000 to $25,000 per well. SDX does not expect this plugging to happen for several years, possibly as long as twenty years. At this time the Company will be responsible for its pro rata share of the plugging costs.

 

Management has determined that this oil and gas project is not material to the current business of the Company.

 

Overview of Operating Results

 

Revenues for the three months ended March 31, 2012 totaled $14,599 compared to revenues of $27,272 for the three months ended March 31, 2011.  

 

Operating expenses for the three months ended March 31, 2012 decreased 13% as compared to the three months ended March 31, 2011, primarily due to a decrease in administration and sales expense offset by an increase in exploration expense.

 

Net loss for the three months ended March 31, 2012 was $467,428 as compared to a net loss of $610,469 for the three months ended March 31, 2011. The decrease in net loss is primarily due to the change in the fair value of the option liability and a decrease in interest expense, offset by an increase in exploration expense.

 

Discontinued Operations

 

During the year ended December 31, 2011, with the exception of the Reliaject product, the Company has sold or otherwise disposed of the remainder of its pharmaceutical and skincare assets which has continued to reduce expenses associated with the biomedical lines of business.

 

Income from discontinued operations for the three months ended March 31, 2012 decreased 76% as compared to the three months ended March 31, 2011.

 

Results of Operations for the three months ended March 31, 2012 and 2011

 

This data has been derived from the statements of operations elsewhere in this Report and in the Form 10-Q for the quarterly period ended March 31, 2012. The operating results for any period should not be considered indicative of results for any future period. This information should be read in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Report and in the Annual Report on Form 10-K for the year ended December 31, 2011.

 

Total revenues for the three months ended March 31, 2012 were $14,599, a 47% decrease from total revenue of $27,272 for the three months ended March 31, 2011 The decrease is principally attributed to a reduction in revenue from oil and gas revenue.

 

Total operating expenses for the three months ended March 31, 2012 were $525,856, a decrease from total operating expenses of $607,220 for the three months ended March 31, 2011. The decrease is principally attributed to a reduction in administration, sales and marketing expense, offset by an increase in exploration expense.

 

 

Administrative, sales and marketing expenses of the Company in comparable form are shown below by major categories of expense.

 

		Three Months Ended March 31,
		2012				2011
Expense Category
Payroll, benefits and consulting		$	209,360			$	172,477
Stock-based compensation expense			-				90,883
Advertising and marketing			(20,083	)			20,083
Legal and other professional fees			33,672				177,475
Travel and related			31,185				45,462
Rent and office expenses			6,386				41,406
Insurance-liability			-				-
Depreciation and other non-cash expenses			2,091				-
Other			3,769				49,215
Total		$	266,380			$	597,001

 

For the three months ended March 31, 2012, administration, sales and marketing expenses decreased 55%, primarily due to a decrease in advertising and marketing, stock based compensation and legal and professional fees.

 

Liquidity and Capital Resources

 

As of March 31, 2012, the Company’s principal sources of liquidity included cash and cash equivalents resulting from the Company’s financing activities. Management believes its cash and cash equivalents and cash expected to be generated by its business and financing activities will be sufficient to meet its working capital needs for at least the next twelve months. Should the Company be faced with currently unanticipated significant cash requirements, the Company’s present capital resources might be inadequate to fund its capital needs. Additionally, if the Company were to engage in a business combination transaction, its current cash position could be adversely impacted and its need for additional financing accelerated, although the impact of any such transaction cannot be evaluated at this time.

 

Net cash used by operating activities totaled $669,736 for the three months ended March 31, 2012 compared to net cash used by operating activities of $418,153 for the three months ended March 31, 2011. The increase is primarily due to a decrease in net loss adjusted for non-cash items and accounts payable. The Company expects to continue to use cash in operating activities and investments for the remainder of 2012.

 

Net cash used by investing activities totaled $137,315 for the three months ended March 31, 2012 compared to net cash used by investing activities of $262,214 for the three months ended March 31, 2011. The decrease is due to a reduction in the purchase of oil and gas properties, offset by an increase in the purchase of available for sales securities and equipment.

 

Net cash provided by financing activities totaled $0 for the three months ended March 31, 2012 and March 31, 2011.

 

Cash and cash equivalents decreased to $711,426 at March 31, 2012, from $1,520,321 at December 31, 2011.

 

Critical Accounting Policies and Estimates

 

Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon its condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles for interim period financial reports. Management reviews the accounting policies used in reporting Independence’s financial results on a regular basis. The preparation of these condensed consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an ongoing basis, the Company evaluates processes used to develop estimates, including those related to the allowance for doubtful accounts, sales reserves, depreciation and amortization, contingencies, deferred tax assets, and other assets. Estimates are based on historical experience, expectations of future results, and on various other assumptions that are believed to be reasonable for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates due to actual outcomes being different from those on which assumptions were based. Management, on an ongoing basis, reviews these estimates and judgments. Independence’s Board of Directors reviews any changes in the Company’s methodology for arriving at its estimates, and discusses the appropriateness of any such changes with management and its independent auditors on a quarterly basis.

 

Refer to Item 7 of Independence’s Annual Report on Form 10-K for the year ended December 31, 2011, for information pertaining to its critical accounting policies, which include the following:

 

 

·

Revenue recognition;

 

·

Impairment of long-lived assets, including other intangible assets;

 

·

Income taxes;

 

·

Stock-based compensation; and

 

·

Derivatives.

 

There have been no changes to Independence’s critical accounting policies since December 31, 2011, the date of its last audited financial statements.

 

Interest Income and Expense

 

Interest income for the three month period ended March 31, 2012 has decreased $19,210 as compared to the same period in the prior year due primarily to the impairment of a note receivable in the previous year. Interest expense for the three month period ended March 31, 2012 has decreased $121,877, as compared to the same period in the prior year due primarily to amortization of debt discount associated with the $3.0 million Secured Convertible Promissory Note from the March 10, 2010 transaction.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting companies.

 

Item 4. CONTROLS AND PROCEDURES

 

The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended as of the end of the period covered by this Report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective. There were no changes in the Company’s internal control over financial reporting during the quarter ended March 31, 2012 that have materially affected, or are reasonably likely to materially affect, the Company’s  internal control over financial reporting. 

 

PART II - OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

In the fall of 2010 Miller Tabak & Company, a New York based investment banking firm, filed a breach of contract action against us in New York Supreme Court seeking an amount of approximately $360,000 for alleged non-payment of a commission. We do not believe the claim has any merit and intend to defend the claim vigorously, it is however possible that a settlement will be reached between the Company and Miller Tabak in a range of $0 to $360,000.

 

Item 6. EXHIBITS

 

(a) Exhibits

 

31.01	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.02	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.01	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.02	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101. INS	XBRL Instance Document
101. SCH	XBRL Taxonomy Extension Schema Document
101. CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101. DEF	XBRL Taxonomy Extension Definition Linkbase Document
101. LAB	XBRL Taxonomy Extension Label Linkbase Document
101. PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

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

 

	INDEPENDENCE RESOURCES PLC
	(Registrant)
Date: May 17, 2012	By:	/s/ JOHN. P. RYAN
		John P. Ryan
		Chairman of the Board and Chief Executive
		Officer
		(Principal Executive Officer)
Date: May 17, 2012	By:	/s/ DONNA MILLER
		Donna Miller
		Chief Financial Officer
		(Principal Financial and Accounting Officer)