NOTES
TO FINANCIAL STATEMENTS
NOTE
1. FORMATION AND BUSINESS OF THE COMPANY
Basis
of Presentation and Organization
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.
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 approved a 50 to 1 reverse stock split of the common stock to be effective March 9, 2015. The effect of this split was
retroactively applied to all periods reported in this filing.
NOTE
2. SIGNIFICANT ACCOUNTING POLICIES
Cash
and Cash Equivalents
The
Company maintains cash balances at one financial institution. Accounts at that institution are insured by the Federal Deposit
Insurance Corporation up to $250,000. Cash balances may at times exceed the FDIC insured limits. The Company considers all highly
liquid investments with 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.
Fixed
Assets
The
Company records fixed assets at cost and calculates depreciation using the straight-line method over the estimated useful life
of the assets, which is estimated to be between three and seven years. Maintenance, repairs and minor renewals are charged to
expense when incurred. Replacements and major renewals are capitalized.
Income
Taxes
The
Company uses 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 the
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.
NOTE
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income
Taxes (continued)
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.
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.
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.
NOTE
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair
Value Measurements (Continued)
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.
NOTE
3. GOING CONCERN
The
accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate
continuation of the Company as a going concern. To date, the Company has generated minimal revenue and has an accumulated deficit
of $13,186,044 and a working capital deficiency of $247,554 as of December 31, 2015. These factors, among others, 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 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.
The
ability of the Company to continue as a going concern is dependent upon, among other things, its ability to successfully accomplish
the plans described in the preceding paragraph and eventually begin operations in accordance with its business plan. The accompanying
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
4. CAPITAL STOCK
The
Company is authorized to issue 50,000,000 shares of its $0.001 par value preferred stock and 300,000,000 shares of its $0.001
par value common shares.
During 2015, at various times, an aggregate
of 6,500,000 shares of common stock were issued in exchange for services. 6,000,000 shares, valued at $0.29 per share were
issued to Board members and 500,000 shares were issued with a value of $0.30 per share to a consultant.
NOTE
4. CAPITAL STOCK (Continued)
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.
As
of December 31, 2015 and 2014, there were 12,316,438 and 5,816,438 shares of common stock issued and outstanding, respectively.
NOTE
5. NOTES AND DEBENTURES PAYABLE
As
of December 31, 2015, the Company had one debenture of $5,000 outstanding.
In
2009 the Company received multiple set of funds and the terms of each note payable are set forth: $5,000 note payable due upon
demand and then in 2013 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. Said notes are in default.
At
December 31, 2015, the Company has recorded accrued interest of $10,398 related to the notes and debentures payable which is included
in the $25,976 accrued interest balance on the balance sheet. A $5,000 payment of accrued interest was made in 2015.
NOTE
6. LOAN PAYABLE
We
have two short-term loans totaling $25,000 at December 31, 2015. These loans were due in 2012 and as of December 31, 2015, are
in default. These notes are accruing interest at a rate of 10% per annum. At December 31, 2015, the Company has recorded accrued
interest of $15,578 related to the loans payable which is included in the $25,976 accrued interest balance on the balance sheet.
NOTE
7. INCOME TAXES
The components of the Company’s deferred tax asset are as follows as of December 31, 2015:
|
|
December 31,
2015
|
|
|
December 31, 2014
|
|
Net operating loss carry forward at 35%
|
|
$
|
4,615,115
|
|
|
$
|
3,880,070
|
|
Valuation allowance
|
|
|
-4,615,115
|
|
|
|
-3,880,070
|
|
Net deferred tax allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
tax asset consists of accumulated net operating losses of approximately $13,186,000 and $11,086,000 as of December 31, 2015 and
2014, respectively, which expire between 2033 and 2035
The
reconciliation of income tax expense at the U.S. statutory rate of 35% for the years ended December 31, 2015 and 2014 is as follows:
|
|
2015
|
|
|
2014
|
|
US Statutory rate
|
|
|
35
|
%
|
|
|
35
|
%
|
Valuation allowance
|
|
|
-35
|
%
|
|
|
-35
|
%
|
Income tax provision
|
|
|
-
|
|
|
|
-
|
|
The
Company had no gross unrecognized tax benefits that, if recognized, would affect the effective income tax rate in future periods.
At December 31, 2015, the amount of gross unrecognized tax benefits before valuation allowances and the amount that would favorably
affect the effective income tax rate in future periods after valuation allowances were $0. The Company has not accrued any additional
interest or penalties.
The
Company files income tax returns in the United States. The Company will file its U.S. federal return for the year ended
December 31, 2015 in 2016. Once filed, the 2015 U.S. federal return and those for 2014 and 2013 will be considered as open tax
years. No tax returns are currently under examination by any tax authorities. The Company has not accrued any additional
interest or penalties or the delinquency of our outstanding tax returns as we have incurred net losses in those periods still
outstanding.
NOTE
8. RELATED PARTY 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.
As
of September 30, 2015, in consideration of past stock issued to M. Strata, M. Strata forgave $236,362 of the balance owed by the
Company relating to 2015, 2014, and December, 2013 land lease expenses
As
of June 30, 2015, 2014 and December, 2013, the Company owed M. Strata $51,033, $174,529 and $10,800, respectively.
In
2015, the Company’s four directors each received 1,500,000 shares of the company’s common stock for past and future
services. At the time of issuance, each Director held a minimum of 10% of the outstanding common stock. Refer to Item 12 herein
for actual percentages each Director holds.
On
April 21, 2016 the Company issued 800,000 shares of common stock to Dave Quincy Farber for a payable owed him in the amount
of $24,003.
NOTE
9. CONCENTRATION
The
Company has concentrated sales as follows:
|
|
% of Sales
|
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
Customer #1
|
|
|
0
|
%
|
|
|
26
|
%
|
Customer #2
|
|
|
58
|
%
|
|
|
35
|
%
|
Customer #3
|
|
|
28
|
%
|
|
|
0
|
%
|
Customer #4
|
|
|
0
|
%
|
|
|
24
|
%
|
The
Company has significant concentration of purchases from M&M Ag Supply for the year ended December 31, 2015.
NOTE
10. COMMITMENTS AND CONTINGENCIES
The
Company rents office space at 4613 Bradford Court, Reno, Nevada 89519 from it’s President, Michael Herod at no cost.
The
Company has been advised by the Bureau of Land Management that it must prepare and submit an amended plan of remediation
for Eagle 4 and related areas where mining and related activities are being conducted and also will be required to submit an environmental
assessment as well which will interrupt mining activities. The amended plan of remediation to be submitted may result
in increasing the amount of the bond presently posted by the Company. In addition, the Company has been advised by the BLM
that it owes the BLM for materials removed from the mine site in prior years. The amounts have not been determined.
The Company and the BLM are waiting also for the Army Corps of Engineers to determine if a drainage ditch adjacent to the mine
site is a stream, which is regulated by them. As of December 31, 2015 no determination has been made by the Army Corps of
Engineers.
NOTE
11. SUBSEQUENT EVENTS
In
preparing the financial statements, the Company has evaluated events and transactions for potential recognition or disclosure
through the date the financial statements were available to be issued.
15,850,000
shares of common stock were issued subsequent to December 31, 2015. 13,350,000 shares were issued to various individuals for past
and future services and certain debt reduction. 2,500,000 shares were sold to investors.
Larry
Bonafide resigned as Secretary and Treasurer effective as of February 29, 2016. Mr. Bonafide remains Chairman. The Board of Directors
appointed Donita R. Kendig, a current director of the Company, as Secretary/Treasurer and Chief Financial Officer effective as
of February 29, 2016.
On
February 29, 2016, the Board of Directors of the Company elected Daniel Potente a Director of the Company. Refer to March 3, 2016
Form 8-K.
On
May 16, 2016, the Board of Directors of the Company elected D. Quincy Farber a Director of the Company. Refer to May 17, 2016
Form 8-K.