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EXCALIBUR INDUSTRIES - 10-K - Management's Discussion and Analysis of Financial Condition and Results of Operation

August 1, 2014



Excalibur, for approximately the past approximately 20 years, has adopted a policy designed to husband the Company's assets and retain as much of its mineral interests as possible taking into account the depressed market for uranium and Excalibur's limited resources. The Company recognized that it would have to rely on royalty income from its most promising properties and that it had little if any control over when uranium producers with which it had royalty agreements would commence mining. The records show that during the period of 1993 to May 31, 2014, with exception of 2006, the Company had zero royalty income. Form 10-K of the Company for 2006 indicates that the Company received advanced royalty from Uranerz Energy Corporation of $250,000. The lack of royalties was noted in Excalibur's 10-K Annual Report for 1998, wherein it is stated that "…advanced payments ended in May 1992 after which time no additional payments will be received until production commences. Other than interest income, no other continuing material cash inflows are known to management or anticipated at this time based on current agreements." The husbanding policy of the Company was and is a survival policy which may have worked. However, one consequence is that the Company has not had audited financial statements since 1988 and cannot have a market for its shares without first attaining necessary financial audits for multiple years and compliance with all reporting standards of the Securities and Exchange Commission at considerable expense.

The Company's administrative and leasehold affairs are managed by Meriden Engineering LLC, a Minnesota limited liability company, situated in Hibbing, Minnesota ("Meriden"). Meriden is required by contract to submit an annual budget to the Company for approval. Compensation is earned by Meriden on an hourly basis for services performed at a rate of $175 per hour. While Meriden will issue monthly invoices for services rendered, payment is not due until royalty payments commence and are received. After commencement of royalty payments occurs, Meriden will prepare an annual budget for periods after the commencement of royalty payments and Meriden's compensation will be a management fee equal to 5% of the gross royalty revenue received by the Company. Extraordinary events or issues beyond the scope of the budget will be negotiated between Meriden and the Company as additional compensation. In addition, as an incentive, 5% of actual gross increase in the Company's consolidated revenues during each calendar year from all sources other than royalties shall be paid to Meriden. In the event the Company is sold, all deferred compensation will be paid in full, and in addition, a one-time termination fee in the amount of $250,000 will be paid to Meriden.

Uranium production began at the North Butte property in 2013 and the Nichols Ranch is expected to be in production in the second half of 2014. Royalty income is expected to be received by the Company in the fourth quarter of 2014.

In light of these recent developments, management has a reasonable expectation that there will be an income stream to the Company to provide liquidity. In the event the stream of revenue does not occur, the Company will, if necessary, attempt to secure loans or sell assets.

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Source: Edgar Glimpses


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