BIOXYTRAN, INC
10-Ks and 10-Qs
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
x
Annual Report Pursuant to Section 13 or 15(D) of the Securities Exchange Act of 1934
for the fiscal year ended
December 31, 2013
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Transition Report Under Section 13 or 15(D) of the Securities Exchange Act of 1934
for the transition period from
to
Commission File Number:
333-154912
U.S. RARE EARTH MINERALS, INC.
(formerly known as U.S. Natural Nutrients and Minerals, Inc.)
(Exact name of small Business Issuer as specified in its charter)
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Nevada
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26-2797630
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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6460 Medical Center St. Ste 230
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Las Vegas, NV
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89148
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(Address of principal executive offices)
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(Zip Code)
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Issuer's telephone number, including area code:
(702) 888-1450, ext 281
n/a
Former address if changed since last report
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.001 per share
Check whether the issuer (1) 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
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No
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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
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Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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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.
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Large Accelerated Filer
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Accelerated Filer
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Non-Accelerated Filer
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(Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
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Yes
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No
Registrant’s revenues for its most recent fiscal year: $417,336.
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 193,856,138.
The aggregate market value of voting and nonvoting stock held by non-affiliates of the registrant, based upon the closing price of $.06 per share for shares of the registrant’s Common Stock on December 31, 2013, the last business day of the registrant’s most recently completed fiscal year as reported by the NASDAQ OMX, was approximately $7 million. In calculating such aggregate market value, shares of Common Stock held by each officer, director and holder of 5% or more of the outstanding Common Stock (including outstanding shares with respect to which a holder has the right to acquire beneficial ownership within 60 days) were excluded because such persons may be deemed to be affiliates.
TABLE OF CONTENTS
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PART I
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ITEM 1
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BUSINESS
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ITEM 1A
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RISK FACTORS
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ITEM 1B
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UNRESOLVED STAFF COMMENTS
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5 | |||
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ITEM 2
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PROPERTIES
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ITEM 3
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LEGAL PROCEEDINGS
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ITEM 4
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SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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PART II
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ITEM 5.
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MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
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ITEM 6.
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SELECTED FINANCIAL DATA
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ITEM 7
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
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10 | |||
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ITEM 7A
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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ITEM 8
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FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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ITEM 9
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
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ITEM 9A(T).
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CONTROLS AND PROCEDURES
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ITEM 9B
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OTHER INFORMATION
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PART III
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ITEM 10
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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
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ITEM 11.
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EXECUTIVE COMPENSATION
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ITEM 12.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
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ITEM 13
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
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ITEM 14
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PRINCIPAL ACCOUNTANT FEES AND SERVICES
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PART IV
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ITEM 15.
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EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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SIGNATURES
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2
FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K (the “Report”), including ”Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding future events and the future results of U. S. Natural Nutrients & Minerals, Inc. and its consolidated subsidiaries (the “Company”) that are based on management’s current expectations, estimates, projections and assumptions about the Company’s business. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “sees,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to, those discussed in the “Risk Factors” section in Item 1A, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and elsewhere in this Report as well as those discussed from time to time in the Company’s other Securities and Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions. Such forward-looking statements speak only as of the date of this Report or, in the case of any document incorporated by reference, the date of that document, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Report. If we update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect to other forward-looking statements.
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ITEM 1.
BUSINESS.
Overview
U.S. Rare Earth Minerals (formerly U.S. Natural Nutrients and Minerals, Inc.) (the “Company”), was organized on June 9, 2008. The Company changed its name in April, 2011. The Company’s focus is on sales and distribution of certain products derived from the Company’s mining activities relating to natural mineral deposits commonly known as Calcium Montmorillonite. These activities will be carried out through a web-based and distributor-based sales program directed at agricultural and human uses of the product. The Company commenced its mining activities in 2009, the Company entered into an agreement with M Strata, LLC whereby M Strata granted the Company permission and consent to mine certain mining claims owned or controlled by M Strata located on land located in the southwestern part of southern Nevada not far from the town of Panaca. Fifty percent (50%) of the beneficial ownership of M-Strata is owned by Paul Hait and Dennis Cullison. Dennis Cullison is a director of the Company. Paul Hait was formerly a director of the Company but he resigned in February of 2013 to take care of an ailing wife. Paul Hait and Dennis Cullison each own or control more than 10% of the outstanding stock of the Company. By reason of Paul Hait owning more than 10% of the outstanding stock of the Company he is therefore deemed to be a control person as that term is defined by the Securities and Exchange Act of 1933, as amended. A copy of the First Amended and Restated Mining Agreement (the “M Strata Agreement”) effective as of November 1, 2013 was filed with the Securities and Exchange Commission in late 2013 on Form 8-K.
The Company has commenced a sales and marketing program of the product extracted in the mining process under the name “Excelerite”. Engineers employed by the Company estimate that the claims, which are the subject of the M Strata Agreement may contain as much as one hundred million tons of Calcium Montmorillonite material and perhaps more. The Company believes that Excelerite may have broad applications for plants, animals and humans. Specifically, the Company believes that by adding Excelerite back into the soil, household and commercial farmers are replacing what has been lost by the use of man-made fertilizers over hundreds of years. Farmers using Excelerite are seeing higher yields and larger and more nutritious crops. In addition, studies suggest that animals whose feed is supplemented with Excelerite grow healthier and produce more. The naturally chelated nutrients and minerals in Exceleritemay enhance the production of enzymes. Without enzymes living things cannot build protein and other vital processes. Micro “Excelerite", a supplement form of Excelerite, is believed to rejuvenate the health of the human body in many ways. In addition to its natural supply of 78 essential nutrients and minerals, its ionic charge removes toxins as it works through the digestive tract.
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The Company intends to market the product through various channels including but not limited to direct distribution, sales through third-party distributors and sales through the Company’s website. The Company has also undertaken to develop a network of distributors, both in the United States and internationally. Dennis Cullison, President and a Director of the Company, has been marketing the product to agricultural customers in Idaho and Oregon. Mr. Cullison has also devoted substantial focus on the marketing of a human supplement utilizing the product named “Micro-Excelerite”. The human supplement business was transferred into a wholly owned subsidiary called Bio-Multimin, Inc. in 2010. Bio-Multimin, Inc. was the subject of a spin-off to the Company’s shareholders in January, 2013. The shares of Bio-Multimin, Inc. are not registered and therefore cannot be publicly traded until registered with the Securities and Exchange Commission.
Employees
As of December 31, 2013, the Company had two employees.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
The Company rents office space at 6460 Medical Center St., Suite 230, Las Vegas, Nevada 89148
The Company was involved in a legal proceeding concerning the ownership of four million five hundred thousand shares of common stock paid for certain financial public relations services which were not adequately performed or not performed at all. The lawsuit was settled on terms that were favorable to the Company.
None.
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Common Stock
Our Articles of Incorporation authorizes the issuance of up to 300,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”). The Common Stock trades over the counter bulletin board. As of December 31, 2013 and 2012, there were 193,856,138 and 161,909,196, respectively of shares outstanding.
Preferred Stock
Our Certificate of Incorporation authorizes the issuance of up to 50,000,000 shares of preferred stock, par value $0.001 per share (the “Preferred Stock”). The Preferred Stock is not publicly traded. As of December 31, 2013 and 2012, there were 440,500 and 37,500, respectively of shares outstanding.
Dividend Policy
The Company has not declared or paid any cash dividends on its common stock and does not intend to declare or pay any cash dividend in the foreseeable future. The payment of dividends, if any, is within the discretion of the Board of Directors and will depend on the Company’s earnings, if any, its capital requirements and financial condition and such other factors as the Board of Directors may consider.
Securities Authorized for Issuance under Equity Compensation Plans
On January 19, 2010, the Company established a 2010 Employee, Director and Consultant Stock Plan
(the “2010 Plan”). The 2010 Plan was approved by the Company’s board of directors and by the consent of the shareholders owning a majority of the outstanding shares. The material features of the 2010 Plan are described below.
Administration
A designated Administrator, or in the absence of such, our Board of Directors, Compensation Committee or both, in the sole discretion of our Board, administers the 2010 Plan, which was approved by the Company’s Board of Directors on January 19, 2010. The Board, subject to the provisions of the 2010 Plan, has the authority to determine and designate officers, employees, directors and consultants to whom awards shall be made and the terms, conditions and restrictions applicable to each award (including, but not limited to, the option price, any restriction or limitation, any vesting schedule or acceleration thereof, and any forfeiture restrictions). The Board may, in its sole discretion, accelerate the vesting of awards. The Board of Directors must approve all grants of Options and Stock Awards issued to our officers or directors.
Types of Awards
The 2010 Plan is designed to enable us to offer certain officers, employees, directors and consultants of us and our subsidiaries equity interests in us and other incentive awards in order to attract, retain and reward such individuals and to strengthen the mutuality of interests between such individuals and our stockholders. In furtherance of this purpose, the 2010 Plan contains provisions for granting incentive and non-statutory stock options, stock wards and stock appreciation rights.
Stock Options
. A "stock option" is a contractual right to purchase a number of shares of Common Stock at a price determined on the date the option is granted. The option price per share of Common Stock purchasable upon exercise of a stock option and the time or times at which such options shall be exercisable shall be determined by the Board at the time of grant. Such option price shall not be less than 100% of the fair market value of the Common Stock on the date of grant. The option price must be paid in cash, money order, check or Common Stock of the Company. The Options may also contain at the time of grant, at the discretion of the Board, certain other cashless exercise provisions.
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Options shall be exercisable at the times and subject to the conditions determined by the Board at the date of grant, but no option may be exercisable more than ten years after the date it is granted. If the Optionee ceases to be an employee of our company for any reason other than death, any option granted as an Incentive Stock Option exercisable on the date of the termination of employment may be exercised for a period of thirty days or until the expiration of the stated term of the option, whichever period is shorter. In the event of the Optionee’s death, any granted Incentive Stock Option exercisable at the date of death may be exercised by the legal heirs of the Optionee from the date of death until the expiration of the stated term of the option or six months from the date of death, whichever event first occurs. In the event of disability of the Optionee, any granted Incentive Stock Options shall expire on the stated date that the Option would otherwise have expired or 12 months from the date of disability, whichever event first occurs. The termination and other provisions of a non-statutory stock option shall be fixed by the Board of Directors at the date of grant of each respective option.
Common Stock Award
. “Common Stock Award” is shares of Common Stock that will be issued to a recipient at the end of a restriction period, if any, specified by the Board if he or she continues to be an employee, director or consultant of us. If the recipient remains an employee, director or consultant at the end of the restriction period, the applicable restrictions will lapse and we will issue a stock certificate representing such shares of Common Stock to the participant. If the recipient ceases to be an employee, director or consultant of us for any reason (including death, disability or retirement) before the end of the restriction period unless otherwise determined by the Board, the restricted stock award will be terminated.
Eligibility
The Company’s officers, employees, directors and consultants of U.S. Natural Nutrients and Minerals, Inc. and its subsidiaries are eligible to be granted stock options, and Common Stock Awards. Eligibility shall be determined by the Board; however, all Options and Stock Awards granted to officers and directors must be approved by the Board.
Termination or Amendment of the 2010 Plan
The Board may at any time amend, discontinue, or terminate all or any part of the 2010 Plan, provided, however, that unless otherwise required by law, the rights of a participant may not be impaired without his or her consent, and provided that we will seek the approval of our stockholders for any amendment if such approval is necessary to comply with any applicable federal or state securities laws or rules or regulations.
Awards
For the calendar year ending December 31, 2013, no awards had been made under the 2010 Plan to pay for services rendered to the Company in lieu of cash. These awards are made when the Company does not have sufficient cash to pay for the services provided to the Company.
Shares Subject to the 2010 Plan
Subject to adjustment, the aggregate number of shares of Stock which may be delivered under the 2010 Plan shall not exceed a number equal to 15% of the total number of shares of Stock outstanding immediately following the Effective Time, assuming for this purpose the conversion into Stock of all outstanding securities that are convertible by their terms (directly or indirectly) into Stock
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provided, however, that, as of January 1 of each calendar year, commencing with the year 2011, the maximum number of shares of Stock which may be delivered under the 2010 Plan shall automatically increase by a number sufficient to cause the number of shares of Stock covered by the 2010 Plan to equal 15% of the total number of shares of Stock then outstanding, assuming for this purpose the conversion into Stock of all outstanding securities that are convertible by their terms (directly or indirectly) into Stock
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The Company filed a registration statement of April 13, 2013 with the Securities and Exchange Commission to issue 30,000,000 additional shares to be available to be issued from the 2010 Plan.
Federal Tax Consequences
The Federal income tax discussion set forth below is intended for general information only. State and local income tax consequences are not discussed, and may vary from locality to locality.
Incentive Stock Options.
Incentive stock options granted under the 2010 Plan are designed to qualify for the special tax treatment for incentive stock options provided for in the Internal Revenue Code (the “Code”). Under the provisions of the Code, an optionee who at all times from the date of grant until three months before the date of exercise is an employee of the Company, and who holds the shares of Common Stock obtained upon exercise of his incentive stock option for two years after the date of grant and one year after exercise, will recognize no taxable income on either the grant or exercise of such option and will recognize capital gain or loss on the sale of the shares. If such shares are held by the optionee for the required holding period, the Company will not be entitled to any tax deduction with respect to the grant or exercise of the option. If such shares are sold by the optionee prior to the expiration of the holding periods described above, the optionee will recognize ordinary income upon such disposition. Upon the exercise of an incentive stock option, the optionee will incur an item of tax preference equal to the excess of the fair market value of the shares at the time of exercise over the exercise price, which may subject the optionee to the alternative minimum tax.
Non-Qualified Options
. Under present Treasury regulations, an optionee who is granted a non-qualified option will not realize taxable income at the time the option is granted. In general, an optionee will be subject to tax for the year of exercise on an amount of ordinary income equal to the excess of the fair market value of the shares on the date of exercise over the option price, and the Company will receive a corresponding deduction. Income tax withholding requirements apply upon exercise. The optionee's basis in the shares so acquired will be equal to the option price plus the amount of ordinary income upon which he is taxed. Upon subsequent disposition of the shares, the optionee will realize capital gain or loss, long-term or short-term, depending upon the length of time the shares are held after the option is exercised.
Common Stock Awards.
Recipients of shares of restricted Common Stock that are not "transferable" and are subject to "substantial risk of forfeiture" at the time of grant will not be subject to Federal income taxes until lapse or release of the restrictions on the shares. The recipient's income and the Company's deduction will be equal to the fair market value of the shares on the date of lapse or release of such restrictions. It has been the Company’s policy to value the cost of the issuance of said unregistered shares at the then bid price of the stock when issued.
The issuance of any of our common or preferred stock is within the discretion of our Board of Directors, which has the power to issue any or all of our authorized but unissued shares without stockholder approval.
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Recent Sales of Unregistered Securities
During 2013, 32,552,942 unregistered restricted shares were issued for the payment for goods and services. Of that amount, 21,727,942 shares were issued to M Strata in lieu of a cash payment which was required pursuant to the terms of the M Strata Agreement. M Strata immediately disbursed the shares it received to its members. On February 14, 2013, the Company issued 10,000,000 shares of common stock to Michael Tague for services to be rendered to the corporation. He was to vest 1/24 of said 10,000,000 shares each month while he was a member of the Board of Directors. Therefore as of December 31, 2013, 4,375,000 shares had vested. As of the date of his resignation on March 22, 2013, Mr. Tague had 5,500,000 shares vested. 4,500,000 shares are to be returned to the treasury by Mr. Tague. Additionally, 825,000 shares were issued to multiple individuals for various other services.
Issuer Purchases of Equity Securities
None.
OTHER INFORMATION
On October 26, 2009, U.S. Rare Earth Minerals, Inc. (USMN) (formerly known as U.S. Natural Nutrients and Minerals, Inc., a Nevada corporation (entered into an Agreement with M Strata, LLC, a Nevada limited liability company (“M Strata”) (“M Strata Agreement”) whereby M Strata granted to USMN permission and consent to mine the certain mineral products (the “Product”) from certain mining claims owned or controlled by M Strata located in Panaca, Nevada. Pursuant to the terms of the M Strata Agreement, M Strata will designate which claims may be mined and USMN shall have the right to mine the Product and remove the Product from the mining claims so designated.
The M Strata Agreement further provided that it was granting USMN the exclusive right to mine and purchase the Product from M Strata (“Exclusive Right”) and M Strata agreed that it will not sell Product or permit any other person or entity to purchase Product or mine on the claims controlled by M Strata other than USMN, on condition that USNNM meets certain Purchase Minimums (as defined in the agreement) (“Purchase Minimums”) and makes timely payments therefor. In the event USMN fails to meet the Purchase Minimums for a period of one year, then such Exclusive Right shall terminate and M Strata shall be entitled to either (i) terminate the M Strata Agreement and cause USMN to terminate all mining operations on M Strata’s claims or (ii) sell Product to other purchasers in addition to USMN. USMN may cure any default in the Purchase Minimum by paying for the difference between the amount actually purchased in any one calendar year which was less than the Purchase Minimum and the amount actually ordered and paid for. Nothing in the M Strata Agreement conferred on USMN or its agents any rights of ownership in any mining claims owned or controlled by M Strata now or in the future. In addition, USMN agreed that it would only purchase Calcium Montmorillonite (“Product”) from M Strata and from no other source for the term of the M Strata Agreement or any extensions thereof.. No default has been declared by M Strata of any of the terms of the Agreement as of the date hereof.
The initial term of the M Strata Agreement was for five (5) years and there was a provision for automatic extensions of the term for consecutive additional one (1) year terms thereafter. The M Strata Agreement provided for payments by USMN of $24.00 per ton of Product removed from M Strata’s claims, subject to periodic adjustment for cost of living in accordance with the terms of the M Strata Agreement. Payments for Product were to be made by USNNM to M Strata on a monthly basis, upon presentation of invoices and in accordance with the terms of the M Strata Agreement. There were monthly minimum purchases of Product that were required to be made during the term of the M Strata Agreement dated October 26, 2009. M Strata has agreed in the past to accept unregistered shares of common stock of USMN in consideration for the obligations of the Company pursuant to the terms of the M Strata Agreement.
A copy of the Agreement was attached to the filing of a Form 8K in November, 2009.
The Agreement was supplemented in 2011 to include the right of the Company to mine various rare earth minerals on the mining claims.
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On December 9, 2013, the Company and M Strata renegotiated the M Strata Agreement dated October 26, 2009. The Company and M Strata entered into the First Amended and Restated Mining Agreement effective as of November 1, 2013 (Amended M Strata Agreement). The Amended M Strata Agreement relieved the Company of its contractual obligation to purchase a minimum annual amount of 40,000 tons of Product . The Amended M Strata Agreement, amends and substantially modifies the terms of the October 26, 2009 Agreement. At the time of the execution of the Amended M Strata Agreement, the Company owed M Strata $606.000 for Product. As part of the agreements between the Company and M Strata, M Strata agreed to accept 400,000 shares of $1, 6% Cumulative Preferred Stock in satisfaction of $400,000 of the Company’s obligation to it and to cancel the remaining $206,000 of the amount owed.
Management believes the Amended Agreement is of significant and substantial benefit and value to the Company because it eliminates the requirement that the Company purchase a minimum of 40,000 tons of Product per year (whether or not it was able to sell such amount in each year or not) at the current price calculated pursuant to the October 26, 2009 Agreement of a total of $1,080,000. Under the terms of the Amended M Strata Agreement, that minimum purchase requirement has been eliminated. Under the Amended M Strata Agreement, the Company is only required to pay for Product according to the greater of either (i) a minimum of one hundred tons a week at a price of $27 per ton (a minimum amount of $2,700 per week) or (ii) the actual amount of tons sold multiplied by $27 per ton. Accordingly, the Amended Agreement no longer obligates the Company to purchase a minimum of thousands of tons per year. The Amended Agreement contains additional modifications and provisions, which include, but are not limited to the following
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a. The $27 per ton price will be subject to adjustment based on an annual price adjustment equal to the increase in the cost of living;
b. Payment of the greater of the minimum or the actual amounts must be made weekly;
c. All mining costs and fees payable to all government agencies shall continue to be paid by the Company;
d. All insurance requirements remain the same; and,
e. The term of the Amended M Strata Agreement has been extended for an initial term of 5 years and the Company has the option to extend the term for an additional 5 years so long as it is not in default under any of its obligations at the time of the exercise of the extension.
Twenty-five percent (25%) of the beneficial ownership of M Strata is owned by Dennis Cullison, who also serves as the Chairman of the Board and President of the Company. A twenty-five percent (25%) beneficial ownership of M Strata is also owned by Paul Hait, formerly a member of the Board of Directors of the Company. Mr. Hait is a retired Chairman of the Board of the Company. Neither Mr. Cullison nor Mr. Hait participated in the negotiation of the Amended Agreement.
A copy of the Agreement was attached to the filing of a Form 8K on December 9, 2013.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
The following discussion should be read in conjunction with our audited financial statements and the notes thereto.
10
Forward-Looking Statements
This annual report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words "believe," "anticipate," "expect," "estimate," “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. These statements reflect management's current view of us concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: a general economic downturn; a downturn in the securities markets; federal or state laws or regulations having an adverse effect on proposed transactions that we desire to effect; Securities and Exchange Commission regulations which affect trading in the securities of "penny stocks,"; and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement.
RESULTS OF OPERATIONS
The following table shows the financial data of the consolidated statements of operations of the Company and its subsidiaries for the year ended December 31, 2013 and December 31, 2012. The data should be read in conjunction with the audited consolidated financial statements of the Company and related notes thereto.
YEAR ENDED DECEMBER 31, 2013 COMPARED TO YEAR ENDED DECEMBER 31, 2012
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December 31,
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December 31,
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2013
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2012
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$ Change
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% Change
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Revenues
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$ | 417,336 | $ | 312,903 | $ | 104,433 | 33 | % | ||||||||
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Cost of sales
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(197,391 | ) | (121,919 | ) | (75,472 | ) | 62 | % | ||||||||
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Gross profit
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219,945 | 190,984 | 28,961 | 15 | % | |||||||||||
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General and administrative expenses
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(2,192,425 | ) | (2,480,696 | ) | 288,271 | -11 | % | |||||||||
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Operating Loss
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$ | (1,972,480 | ) | $ | (2,289,712 | ) | $ | 317,232 | -13 | % | ||||||
During the year ended December 31, 2013, we incurred expenses of $2,192,425, a decrease of 11% from the year ended December 31, 2012. A decrease of $409,831 in professional services was partly offset by the increase of $226,918 for the land lease. During the year ended December 31, 2013, we have incurred approximately $252,646 in employee compensation expense, a decrease of approximately $40,774 from prior year.
LIQUIDITY AND CAPITAL RESOURCES
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December 31,
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December 31,
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2013
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2012
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$ Change
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% Change
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Cash
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$ | 20,689 | $ | 5,523 | $ | 15,166 | 275 | % | ||||||||
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Accounts payable and accrued expenses
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34,112 | 28,188 | 5,924 | 21 | % | |||||||||||
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Total current liabilities
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182,989 | 74,371 | 108,618 | 146 | % | |||||||||||
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Cash proceeds from the sale of
common stock
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$ | - | $ | 17,250 | $ | (17,250 | ) | -100 | % | |||||||
11
As of December 31, 2013, cash totaled $20,689. This cash position was the result of net cash provided by financing activities in the amount of $93,655, by operating activities in the amount of $9,273 and offset by cash flows used in investing activities of $87,300.
We believe that the level of financial resources is a significant factor for our future development, and accordingly we may choose at any time to raise capital through private debt or equity financing to strengthen our financial position, facilitate growth and provide us with additional flexibility to take advantage of business opportunities. The Company is in the process of an offering of shares of preferred stock to be designated by the Company. There is no guarantee that this offering will be completed, and if completed, the specific terms and conditions. We do not have immediate plans to have a public offering of our common stock and there is no guarantee that any such offering would be successful or be completed on terms which are beneficial to the Company.
CRITICAL ACCOUNTING POLICIES
In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our consolidated results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our business operates in environments where we pay a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.
Stock Based Compensation
Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.
Stock based compensation for employees is account for using the Stock Based Compensation Topic of the FASB ASC. We use the fair value method for equity instruments granted to employees and will use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
Going Concern
The Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. Currently, the Company does not have significant cash or other material assets, nor does it have operations or a source of revenues sufficient to cover its operational costs and allow it to continue as a going concern.
12
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. As of December 31, 2013, the Company’s current assets exceeded its current liabilities by $90,320 due to the increase in notes payable. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. We will need to raise funds or implement our business plan to continue operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Contractual Obligations
We have one short-term promissory note was due in 2012 with an aggregate principal balance of $25,000. The note is still in default.
The Company received funds of $91,000 and is payable within one year of receiving the funds.
The Company has a contractual obligation pursuant to the M Strata Agreement. Dennis Cullison, a director of the Company, is also an Owner of 25% of M-Strata. See Item 5 above.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Audited financial statements begin on the following page of this report.
13
(formerly known as U.S. NATURAL NUTRIENTS AND MINERALS, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 2013
DECEMBER 31, 2012
CONTENTS
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Page
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|
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON THE CONSOLIDATED FINANCIAL STATEMENTS
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F-1
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|
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CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Balance Sheets
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F-2
|
|
Statements of Operations
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F-3
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Statement of Stockholders’ Deficit
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F-3
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|
Statements of Cash Flows
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F-5
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|
Notes to Financial Statements
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F-7
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14
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
We have audited the accompanying consolidated balance sheets of U.S. Rare Earth Minerals, Inc. (formerly U.S. Natural Nutrients and Minerals, Inc.) as of December 31, 2013 and 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as, evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of U.S. Rare Earth Minerals, Inc. (formerly U.S. Natural Nutrients and Minerals, Inc.) as of December 31, 2013 and 2012 and the results of its operations and its cash flows for the years ended December 31, 2013 and December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a loss since inception, has a net accumulated deficit of $9,739,015 and may be unable to raise further equity. These factors among others, raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Paritz & Company, P.A.
Paritz & Company, P.A.
Hackensack, New Jersey
April 10, 2014
F-1
U.S. RARE EARTH MINERALS, INC.
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December 31,
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December 31,
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|||||||
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2013
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2012
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|||||||
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(Audited)
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(Audited)
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|||||||
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||||||||
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ASSETS
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||||||||
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CURRENT ASSETS
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||||||||
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Cash
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$ | 20,689 | $ | 5,523 | ||||
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Accounts receivable
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58,328 | 27,406 | ||||||
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Prepaid expenses
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- | 254,600 | ||||||
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Inventory
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14,114 | 11,846 | ||||||
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Total current assets
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93,131 | 299,375 | ||||||
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Property and Equipment, Net of Accumulated Depreciation of
$125,767 and $74,710, respectively
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165,306 | 129,063 | ||||||
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Total assets
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258,437 | 428,438 | ||||||
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LIABILITIES AND STOCKHOLDERS' EQUITY
|
||||||||
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CURRENT LIABILITIES
|
||||||||
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Accounts payable and accrued expenses
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$ | 34,112 | $ | 28,188 | ||||
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Debentures payable
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5,000 | 10,000 | ||||||
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Accrued interest
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15,376 | 11,183 | ||||||
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Customer deposits
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12,501 | - | ||||||
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Loan payable
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25,000 | 25,000 | ||||||
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Notes Payable
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91,000 | - | ||||||
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Total current liabilities
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182,989 | 74,371 | ||||||
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Total liabilities
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182,989 | 74,371 | ||||||
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STOCKHOLDERS' EQUITY
|
||||||||
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Common stock: $0.001 par value; 300,000,000 authorized,
193,856,138 and
161,303,196 share
s issued and outstanding
as of December 31, 2013 and December 31, 2012, respectively
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193,856 | 161,303 | ||||||
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Preferred stock: $.001 par value; 500,000 authorized,
440,500 and 37,500
share
s issued and outstanding
as of December 31, 2013 and December 31, 2012, respectively
|
441 | 38 | ||||||
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Additional paid in capital
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9,620,166 | 8,153,205 | ||||||
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Accumulated deficit
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(9,739,015 | ) | (7,960,479 | ) | ||||
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Total stockholders' equity
|
75,448 | 354,067 | ||||||
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 258,437 | $ | 428,438 | ||||
The accompanying notes are an integral part of these financial statements.
F-2
U.S. RARE EARTH MINERALS, INC.
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For the Years Ended
|
||||||||
|
December 31,
|
December 31,
|
|||||||
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2013
|
2012
|
|||||||
|
REVENUES
|
$ | 417,336 | $ | 312,903 | ||||
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Cost of goods sold
|
197,391 | 121,919 | ||||||
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Gross Profit
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219,945 | 190,984 | ||||||
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General, selling and administrative expenses
|
2,192,425 | 2,480,696 | ||||||
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Total operating expenses
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2,192,425 | 2,480,696 | ||||||
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Operating Loss
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(1,972,480 | ) | (2,289,712 | ) | ||||
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Other income (expense):
|
||||||||
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Other expense
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(348 | ) | - | |||||
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Interest expense
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(12,663 | ) | (3,546 | ) | ||||
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Settlement of accounts payable
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206,955 | - | ||||||
| 193,944 | (3,546 | ) | ||||||
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Net Loss
|
$ | (1,778,536 | ) | $ | (2,293,258 | ) | ||
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Net loss per common share - basic and diluted
|
$ | (0.01 | ) | $ | (0.02 | ) | ||
|
Weighted average of common shares outstanding
|
187,530,423 | 131,907,134 | ||||||
The accompanying notes are an integral part of these financial statements
.
F-3
U.S. RARE EARTH MINERALS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 2013 and 2012
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Additional
|
||||||||||||||||||||||||||||||||
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Common Stock
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Preferred Stock
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Paid In Capital
|
Accumulated
|
|||||||||||||||||||||||||||||
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Shares
|
Amount
|
Shares
|
Amount
|
Common
|
Preferred
|
Deficit
|
Total
|
|||||||||||||||||||||||||
|
Balance December 31, 2011 Restated
|
120,584,353 | $ | 120,584 | - | $ | - | $ | 5,709,911 | $ | - | $ | (5,667,221 | ) | $ | 163,274 | |||||||||||||||||
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Issuance of stock for cash
|
290,000 | 290 | 37,500 | 38 | 16,960 | 37,462 | - | 54,750 | ||||||||||||||||||||||||
|
Issuance of stock for services
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40,428,843 | 40,429 | - | - | 2,388,872 | - | - | 2,429,301 | ||||||||||||||||||||||||
|
Net loss
|
- | - | - | - | - | - | (2,293,258 | ) | (2,293,258 | ) | ||||||||||||||||||||||
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Balance December 31, 2012
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161,303,196 | 161,303 | 37,500 | 38 | 8,115,743 | 37,462 | (7,960,479 | ) | 354,067 | |||||||||||||||||||||||
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Issuance of stock for cash
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- | - | 3,000 | 3 | - | 2,997 | - | 3,000 | ||||||||||||||||||||||||
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Issuance of stock for services
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32,552,942 | 32,553 | - | - | 1,064,364 | - | - | 1,096,917 | ||||||||||||||||||||||||
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Issuance of stock in exchange for payables
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- | - | 400,000 | 400 | - | 399,600 | - | 400,000 | ||||||||||||||||||||||||
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Net loss
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- | - | - | - | - | - | (1,778,536 | ) | (1,778,536 | ) | ||||||||||||||||||||||
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Balance December 31, 2013
|
193,856,138 | $ | 193,856 | 440,500 | $ | 441 | $ | 9,180,107 | $ | 440,059 | $ | (9,739,015 | ) | $ | 75,448 | |||||||||||||||||
The accompanying notes are an integral part of these financial statements.
F-4
U.S. RARE EARTH MINERALS, INC.
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For the Year Ended
|
||||||||
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December 31,
|
December 31,
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|||||||
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2013
|
2012
|
|||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net Loss
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$ | (1,778,536 | ) | $ | (2,293,258 | ) | ||
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Adjustments to reconcile net loss to net cash provided by operations
|
||||||||
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Depreciation
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51,057 | 40,643 | ||||||
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Stock for services
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1,096,917 | 2,429,303 | ||||||
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Settlement of accounts payable
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(206,955 | ) | - | |||||
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Accrued interest
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4,193 | 3,516 | ||||||
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Changes in assets and liabilities:
|
||||||||
|
Decrease(Increase) accounts receivable
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(30,922 | ) | (27,409 | ) | ||||
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Decrease(Increase) decrease prepaid expenses
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254,600 | (248,101 | ) | |||||
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Decrease(Increase) inventory
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(2,268 | ) | 13,581 | |||||
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Increase (decrease) accounts payable and accrued expenses
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612,879 | 18,045 | ||||||
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Increase (decrease) customer deposits
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12,501 | - | ||||||
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Net cash used in operating activities
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13,466 | (63,680 | ) | |||||
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Cash flows used in Investing Activities:
|
||||||||
|
Capital expenditures
|
(87,300 | ) | (2,060 | ) | ||||
|
Net cash used in investing activities
|
(87,300 | ) | (2,060 | ) | ||||
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Cash flows from Financing Activities:
|
||||||||
|
Payment of debentures
|
(5,000 | ) | - | |||||
|
Common stock issued for cash
|
- | 17,250 | ||||||
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Preferred stock issued for cash
|
3,000 | 37,500 | ||||||
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Note payable
|
91,000 | - | ||||||
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Net cash provided by financing activities
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89,000 | 54,750 | ||||||
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Net increase (decrease) in cash
|
15,166 | (10,990 | ) | |||||
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Cash, beginning of year
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5,523 | 16,513 | ||||||
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Cash, end of year
|
$ | 20,689 | $ | 5,523 | ||||
|
Cash paid for:
|
||||||||
|
Interest
|
$ | 8,470 | $ | 30 | ||||
|
Supplemental schedule of non-cash activities:
|
||||||||
|
Shares issued in settlement of payables
|
$ | 606,955 | $ | - | ||||
The accompanying notes are an integral part of these financial statements
.
F-5
U.S. RARE EARTH MINERALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation and Organization
Basis of Presentation
U.S. Rare Earth Minerals, Inc. was incorporated in the state of Nevada on June 9, 2008. As used in these Notes to the Financial Statements, the terms the "Company", "we", "us", "our" and similar terms refer to U.S. Rare Earth Minerals, Inc.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Bio Multimin, Inc All significant intercompany accounts and transactions have been eliminated.
BUSINESS DESCRIPTION
U. S Rare Earth Minerals, Inc., formerly known as U.S. Natural Nutrients and Minerals, Inc. is in the business of mining a certain high quality Calcium Montmorillonite clay which is high in minerals and other nutrients that is used for agricultural purposes to restore minerals to mineral depleted soil and for mineral supplements for animals and humans.
The Company determined during calendar 2012 that it was conducting substantial business activities and is no longer primarily seeking to raise capital or develop a business plan and accordingly, is therefore no longer considered a development stage company.
Cash and Cash Equivalents
The company considers all highly liquid debt instruments purchased with a maturity of three months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and equipment
Depreciation and amortization of property and equipment are computed using the straight-line method over the estimated useful lives of the related assets as follows:
Leasehold improvements are amortized over the life of the related asset or the life of the lease, whichever is shorter.
F-6
Revenue Recognition
The Company purchases Calcium Montmorillonite Clay pursuant to an agreement with a party, who owns the land and mine containing such clay, and resells the product for agricultural uses. Revenue from the sale of product obtained from our mining contractor is recognized when ownership passes to the purchaser at which time the following conditions are met:
|
i)
|
persuasive evidence that an agreement exists;
|
|
ii)
|
the risks and rewards of ownership pass to the purchaser including delivery of the product;
|
|
iii)
|
the selling price is fixed and determinable; or,
|
|
iv)
|
collectively is reasonably assured.
|
Stock Based Compensation
Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.
Stock based compensation for employees is account for using the Stock Based Compensation Topic of the FASB ASC. We use the fair value method for equity instruments granted to employees and will use the Black Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.
Income Taxes
We use the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. We have no material uncertain tax positions for any of the reporting periods presented.
Fair Value Measurements
We adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements. The estimated fair value of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments. The carrying amounts of our short and long term credit obligations approximate fair value because the effective yields on these obligations, which include contractual interest rates taken together with other features such as concurrent issuances of warrants and/or embedded conversion options, are comparable to rates of returns for instruments of similar credit risk.
F-7
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
Level 1 — quoted prices in active markets for identical assets or liabilities
Level 2 — quoted prices for similar assets and liabilities in active markets or inputs that are observable
Level 3 — inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
Recent Accounting Pronouncements
From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred a loss since inception, has a net accumulated deficit of $9,739,015 and may be unable to raise further equity. These factors among others, raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described below. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital sufficient to meet its minimal operating expenses by seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
At December 31, 2013, the Company has recorded accrued interest for $15,376. The Company issued two debentures in March 2010 for $4,750 each totaling $9,500 plus accrued interest for a total of $10,000. The debentures matured six months from issue and are now payable upon demand. At December 31, 2013, the principal balance is $5,000.
In 2013, the Company received multiple set of funds and the terms of each note payable are set forth: $5,000 Note payable upon demand, a $6,000 Note payable upon demand and an $80,000 Note bearing 6% per annum, simple interest, payable on or before August 23, 2013. The Company and note holders are in discussions with respect to the payoff of the notes.
F-8
We have one short-term loan, which was due in 2012 with an aggregate principal balance of $25,000. The loan is now in default.
The Company’s authorized preferred stock is 500,000 with a $0.001 par value and common stock is 300,000,000 common shares with $0.001 par value.
During 2013, at various times, an aggregate of 32,552,942 shares of common stock were issued in exchange for services. 21,727,942 shares were issued to M Strata for the lease of the mine. 10,000,000 shares of common stock were issued to Michael Tague pursuant for services to be rendered to the corporation through 2/14/15 and 825,000 shares were issued to multiple individuals for various services.
During 2012, 40,428,843 shares of common stock were issued in exchange for services. 31,001,652 shares were issued to M Strata to pay for its obligations pursuant to the Mining Agreement between the Company and M Strata dated October 26, 2009. Another 7,575,578 shares were issued to multiple individuals for various services.
As of December 31, 2013 and 2012, the Company had 193,856,138 and 161,303,196, respectively, shares of common stock issued and outstanding.
In August 2012, the Company paid a stock dividend of one share for every twenty (20) shares of common stock outstanding as of July 31, 2012. The dividend is reflected as a stock split in the accompanying financial statements to the earliest date contained therein.
During 2013, 3,000 shares of preferred stock were issued for cash to Betancourt. Another 400,000 shares of preferred stock were issued for satisfy certain payables owed to M Strata pursuant to the Mining Agreement between the Company and M Strata dated October 26, 2009 .
These shares are issued as Class “A” 6% Cumulative, Convertible Voting Preferred Stock.
Each share is valued at $1.00 per share for purposes of calculating interest and for conversion purposes and accrues interest at 6% per annum from the date of issue. Interest is cumulative for a maximum of two years and compounds annually. Interest accrued thereon shall become due and payable and shall be paid by the Company on or prior to thirty (30) days after the second anniversary of issue date and each consecutive two year period thereafter. Each share is convertible at any time from date of issue into five (5) shares of Company common stock. Each share shall be entitled to five (5) votes that may be cast by the holder at any shareholder meeting or event requiring a shareholder vote. All interest accrued to date of conversion will be paid by Company to holder within sixty (60) days of date of conversion by holder. Class “A” 6% Cumulative, Convertible Voting Preferred Stock is callable by the Company at any time after three (3) years from date of issue at $1.00 plus accrued but unpaid interest unless previously converted.
The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts.
The Company entered into an agreement in 2009 with M Strata, LLC whereby M Strata granted the Company permission and consent to mine certain mining claims owned or controlled by M Strata located in Panaca, Nevada. M Strata’s principal owners are Paul Hait and Dennis Cullison. Dennis Cullison is director of the Company. At December 31, 2013, the lease agreement with M Strata provides that the Company agrees to pay $2,700 per week to M Strata as a minimum lease payment in exchange for the mining rights. For the years ended December 31, 2013 and 2012, the Company paid M Strata $1,752,073 and $1,525,155, respectively, pursuant to this arrangement.
F-9
In preparing the financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through March 15, 2014, the date that the financial statements were available to be issued.
No shares of common stock were issued subsequent to December 31, 2013.
The Company completed the announced "spin-off" of its wholly owned subsidiary, Bio-Multimin, Inc. to the shareholders in January, 2013. Bio-Multimin, Inc. had no operations, assets or liabilities at the time of the spinoff.
F-10
None
.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:
|
|
·
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
|
|
|
·
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
14
As of December 31, 2010, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures may not be effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matter involving internal controls and procedures that our management considered may be a material weakness under the standards of the COSO was the lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in the potential for ineffective oversight in the establishment and monitoring of required internal controls and procedures. The aforementioned material weakness was identified by our Chief Executive Officer.
Management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management’s Remediation Initiatives
In an effort to remediate the identified material weakness and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully-functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2014. Additionally, we plan to test our updated controls and remediate our deficiencies by December 31, 2014.
Changes in internal controls over financial reporting
There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
None.
15
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set forth below are the names of our directors and executive officers, their ages, all positions and offices that they held with us, the period during which they have served as such, and their business experience during at least the last five years.
|
Name
|
Age
|
Position
|
|||
|
Dennis Cullison
|
53 |
Chairman of the Board, President, and Director
|
|||
|
Larry Bonafide
|
70 |
Secretary, Chief Financial Officer and Director
|
|||
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David Lee
|
68 |
Director
|
|||
Dennis Cullison (54)
Mr. Cullison has been the President, Treasurer, and a director of the Company since 2009. Upon the retirement of Paul Hait, Mr. Cullison has become also Chairman of the Board of Directors. Mr. Cullison resides in Bend, Oregon. Mr. Cullison graduated in 1978 from Benson Polytechnic High School. Mr. Cullison attended Portland State University and Portland Community College where he received his Business Degree, Certificate in Computer Programming and Certificate in Graphic Arts. Prior to joining the Company he was the Secretary and Chief Financial Officer and a Director of HERB-VITA, Inc. and the co-founder of US Organic Marketing, LLC, the company that brought the EXCELERITE product opportunity to the our Company. He is active in developing the operations systems for controlling product production, tracking product sales and overseeing the Web design to promote and sell our products world-wide. Prior to becoming involved with Herb Vita and US Organics, Mr. Cullison co-designed, patented and developed the third brake light (above the rear window) innovation for automobiles. This product afforded Mr. Cullison the opportunity to travel world-wide promoting his and become familiar with a host of foreign customs and business practices.
Larry Bonafide (70).
On February 10, 2014, the Board of Directors of the Company elected Larry Bonafide a Director of the Company.
Mr. Bonafide
attended the Pennsylvania State University followed by a successful and rewarding professional career that
spanned 45+ years. He
had an excellent record of accomplishments as an
executive with ChevronTexaco, Marriott, U S Foodservice and Stouffer Restaurants and Inns. He has also been active as an independent Marketing and Business Development consultant.
16
Mr. Bonafide has vast experience and expertise in the following areas: Strategic, financial, and organization planning; Organization management; Contract negotiations, compliance and oversight; Marketing and sales management; Operating systems design and implementation; Purchasing/procurement; Human resource recruiting, training and development; and, Performance measured incentive Compensation programs.
David Lee (68)
is a graduate of El Camino College, Torrance, California, with a degree in Business Administration. Mr. Lee, also, has extensive sales and marketing experience in various industries including Alternative Energy (Photovoltaic and Solar Heating of fluids for domestic and commercial applications). He was General Manager, Solar Division for Reliable Steel Corp., Los Angeles. His other sales experience was for various Wholesale Distributors in the Heating, Ventilating and Air Conditioning (HVAC) including one of the largest Manufacture Direct to Wholesale, Williams Furnace Company, Colton, California.
He has been a professional pilot for thirty-five years. During his flying career, he flew Boeing 727-200 for Kitty Hawk Air Cargo, various passenger aircraft for AMR Eagle Airlines and was Director of Operations and Chief Pilot for Empire Airways in New York. He continues to pilot charted, twin engine jets throughout North America as a contract pilot. He has more than 10,000 hours of flight time.
Larry Bonafide was appointed to the Board of Directors on February 10, 2014. He was appointed Chief Financial Officer and Director of the Company on March 24, 2014.
David Lee was appointed to the Board of Directors on March 24, 2014 to fill the vacancy created by Michael Tague’s resignation.
Paul Hait, 73, Chairman of the Board of Directors of the U.S. Rare Earth Minerals, Inc. (“Company”) retired effective as of February 6, 2013, as it was necessary to attend to the caring for his wife who was quite ill. Caring for his wife required all of his attention and time and meant he would have no time available to devote to the Company’s business activities.
Michael Tague, formerly a member of the Board of Directors and Chief Financial Officer resigned on February 22, 2013, to pursue other business opportunities.
Audit Committee and Audit Committee Financial Expert
We do not currently have an audit committee financial expert, nor do we have an audit committee. Our entire board of directors handles the functions that would otherwise be handled by an audit committee. We do not currently have the capital resources to pay director fees to a qualified independent expert who would be willing to serve on our board and who would be willing to act as an audit committee financial expert. As our business expands and as we appoint others to our board of directors we expect that we will seek a qualified independent expert to become a member of our board of directors. Before retaining any such expert our board would make a determination as to whether such person is independent.
Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Act of 1934 requires the Company's officers and directors, and greater than 10% stockholders, to file reports of ownership and changes in ownership of its securities with the Securities and Exchange Commission. Copies of the reports are required by SEC regulation to be furnished to the Company. Based on management's review of these reports during the fiscal year ended December 31, 2013, all reports required to be filed were filed on a timely basis.
17
Code of Ethics
Our board of directors has adopted a code of ethics that our officers, directors and any person who may perform similar functions are subject to. The Code of Ethics does not indicate the consequences of a breach of the code. If there is a breach, the board of directors would review the facts and circumstances surrounding the breach and take action that it deems appropriate, which action may include dismissal of the employee who breached
the code. The board of directors is responsible for reviewing their own conduct under the Code of Ethics and determining what action to take in the event of a breach of the Code of Ethics by any director(s).
No past officer or director of the Company has received any salary and none is due or payable. We currently have no formal written salary arrangement with any of our officers or directors. Notwithstanding, any or all of our officers and /or directors may receive a salary or other compensation for services that they provide to the Company in the future. No retirement, pension, profit sharing or insurance programs or other similar programs have been adopted by the Company for the benefit of the Company’s employees. The Company did adopt its 2010 Employee, Director and Consultant Stock Plan in January 2010 (see Item 5, above).
Mr. Michael Tague has been awarded 10 million shares of unregistered common stock as compensation for the calendar years 2013 and 2014 in lieu of any salary or other compensation and such shares shall vest monthly over said period.
The following table sets forth certain information regarding beneficial stock ownership as of December 31, 2011 of (i) all persons known to us to be beneficial owners of more than 5% of our outstanding common stock; (ii) each director of our company and our executive officers, and (iii) all of our officers and directors as a group. Each of the persons in the table below has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them, except as otherwise indicated.
The following table sets forth information regarding beneficial ownership of our common stock as of December 31, 2013 (i) by each person who is known by us to beneficially own more than five percent of our common stock; (ii) by each of our officers and directors; and (iii) by all of our officers and directors as a group:
|
Title of Class
|
Name & Address of
Beneficial Owner
|
Office, If Any
|
Amount &
Nature of
Beneficial
Ownership (1)
|
Percent of
Class (2)
|
||||||||||
|
Common Stock
$0.001 par
value
|
Cede & Co
P.O. Box 20
Bowling Green Station
New York, NY 10274
|
N/A | 32,190,169 | 28.25 | ||||||||||
|
Common Stock
$0.001 par value
|
Michael Tague
18614 Riverwoods Dr.
Bend, OR 97702
|
Chief Financial
Officer and
Director
|
10,000,000 | 6.21 | ||||||||||
|
Common Stock
$0.001 par value
|
Dennis Cullison
18614 Riverwoods Dr.
Bend, OR 97702
|
Treasurer,
Director
|
20,408,674 | 12.68 | ||||||||||
|
Common Stock
$0.001 par value
|
All officers and directors as a group
(2 persons named above)
|
40,303,500
|
25.40
|
|||||||||||
|
Common Stock
$0.001 par
value
|
Paul Hait
|
21,000,000
|
13.04
|
|||||||||||
|
|
(1)
|
Beneficial Ownership is determined in accordance with Rule 13d-3 of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of our common stock. For each Beneficial Owner above, any options exercisable within 60 days have been included in the denominator.
|
|
|
(2)
|
Based on 193,856,138 shares of our Common Stock outstanding as of December 31, 2013.
|
18
Certain Relationships and Related Transactions
The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interest. The Company has not formulated a policy for the resolution of such conflicts.
The Company has commenced its mining activities. The Company entered into an agreement in 2009 with M Strata, LLC whereby M Strata granted the Company permission and consent to mine certain mining claims owned or controlled by M Strata located in Panaca, Nevada. M Strata’s principal owners are Paul Hait and Dennis Cullison. Dennis Cullison is director of the Company. See item 5 above.
Director Independence
As of December 31, 2013, Mr. Cullison is not considered "independent" in accordance with rule 4200(a)(15) of the NASDAQ Marketplace Rules. We are currently traded on the Over the Counter Bulletin Board. The Over the Counter Bulletin Board does not require that a majority of the board be independent.
AUDIT FEES
The aggregate fees billed by our auditors, Paritz & Co., P.A., for professional services rendered for the audit of our annual financial statements for fiscal year ended December 31, 2013 and review of our interim financial statements for the first, second and third quarters of 2013 was approximately
$12,685
. The aggregate fees billed by our auditors for professional services rendered for the audit of our annual financial statements for fiscal year ended December 31, 2012 and review of our interim financial statements for the first, second and third quarters of 2012 was approximately
$
12,685.
19
AUDIT-RELATED FEES
During the last two fiscal years, no fees were billed or incurred for assurance or related services by our auditors that were reasonably related to the audit or review of financial statements reported above.
TAX FEES
Tax preparation fees billed for the fiscal years ended December 31, 2013 and 2012 were approximately
$750 and $750, respectively.
ALL OTHER FEES
During the last two fiscal years, no other fees were billed or incurred for services by our auditors other than the fees noted above. Our board, acting as an audit committee, deemed the fees charged to be compatible with maintenance of the independence of our auditors.
THE BOARD OF DIRECTORS PRE-APPROVAL POLICIES
We do not have a separate audit committee. Our full board of directors performs the functions of an audit committee. Before an independent auditor is engaged by us to render audit or non-audit services, our board of directors pre-approves the engagement. Board of directors pre-approval of audit and non-audit services will not be required if the engagement for the services is entered into pursuant to pre-approval policies and procedures established by our board of directors regarding our engagement of the independent auditor, provided the policies and procedures are detailed as to the particular service, our board of directors is informed of each service provided, and such policies and procedures do not include delegation of our board of directors' responsibilities under the Exchange Act to our management. Our board of directors may delegate to one or more designated members of our board of directors the authority to grant pre-approvals, provided such approvals are presented to the board of directors at a subsequent meeting. If our board of directors elects to establish pre-approval policies and procedures regarding non-audit services, the board of directors must be informed of each non-audit service provided by the independent auditor. Board of directors pre-approval of non-audit services, other than review and attest services, also will not be required if such services fall within available exceptions established by the SEC. For the fiscal year ended December 31, 2013, 100% of audit-related services, tax services and other services performed by our independent auditors were pre-approved by our board of directors.
Our board has considered whether the services described above under the caption "All Other Fees", which are currently none, is compatible with maintaining the auditor's independence.
The board approved all fees described above.
20
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this 10-K:
1. FINANCIAL STATEMENTS
The following documents are filed in Part II, Item 8 of this annual report on Form 10-K:
Report of Paritz & Co., P.A., Independent Registered Certified Public Accounting Firm
Balance Sheets as of December 31, 2013 and 2012
Statements of Operations for the years ended December 31, 2013 and 2012
Statements of Stockholders’ Deficit for the year ended December 31, 2013 and 2012 (audited)
Statement of Cash Flows for the years ended December 31, 2013 and 2012
Notes to Financial Statements (audited)
2. FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.
3. EXHIBITS
The exhibits listed below are filed as part of or incorporated by reference in this report.
| Exhibit No. | Identification of Exhibit | |
|
31.1.
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
31.2.
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
|
32.1
|
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.
|
|
|
32.2
|
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.
|
21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
U.S. Rare Earth Minerals, Inc.
|
|||
|
(Registrant)
|
|||
|
Date
April 11, 2014
|
By:
|
/s/ Dennis Cullison | |
| Dennis Cullison | |||
| Chairman of the Board, Principal Operating Officer, and Director | |||
|
Date
April 11, 2014
|
By:
|
/s/ Larry Bonafide | |
| Principal Financial Officer and Director | |||
22
TABLE OF CONTENTS
Part IItem 1. BusinessItem 1A . Risk FactorsItem 1B. Unresolved Staff CommentsItem 2. Description Of PropertyItem 3. Legal ProceedingsItem 4. Submission Of Matters To A Vote Of Security HoldersPart IIItem 5. Market For Common Equity, Related Stockholder Matters and Small Business Issuer Purchases Of Equity SecuritiesItem 6. Selected Financial DataItem 7. Management S Discussion and Analysis Of Financial Condition and Results Of OperationItem 7A. Quantitative and Qualitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataNote 1. Basis Of Presentation and Organization and Significant Accounting PoliciesNote 3. Notes and Debentures PayableNote 4. Loan PayableNote 5. Common Stock and Preferred StockNote 6. Related Party TransactionsNote 7. Subsequent EventsNote 8. Discontinued OperationsItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9at. Internal Control Over Financial ReportingItem 9B. Other InformationPart IIIItem 10. Directors, Executive Officers and Corporate GovernanceItem 11. Executive CompensationItem 12. Security Ownership Of Certain Beneficial Owners and Management and Related Stockholder MattersItem 13. Certain Relationships and Related Transactions and Director IndependenceItem 14. Principal Accountant Fees and ServicesPart IVItem 15. Exhibits, Financial Statement Schedules