UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K/A

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended August 31, 2019

 

OR

 

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

 

For the transition period from to

Commission file number: 000-53482

TMRC10K001.JPG  

TEXAS MINERAL RESOURCES CORP.

(Exact Name of Registrant as Specified in its Charter)

 

Delaware

 

87-0294969

(State of other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

516 South Spring Avenue

 

 

Tyler, Texas

 

75702

(Address of Principal Executive Offices)

 

(Zip Code)

 

(361) 790-5831 

(Registrant’s Telephone Number, including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

--

--

--

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, par value $0.01

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [   ] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [   ] No [X]

 

Indicate by checkmark whether the registrant (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 [X] No [   ]

 

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [   ]



 

 

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [   ]

 

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

 

[   ]

Large accelerated filer

 

[   ]

Accelerated filer

[   ]

Non-accelerated filer (Do not check if a smaller reporting company)

 

[X]

Smaller reporting company

[   ]

Emerging growth company

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: As of February 28, 2019 the aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant was $9,721,556 based upon the closing sale price of the common stock as reported by the OTC.QB. For purposes of this calculation, shares of common stock held by executive officers, directors and holders of greater than 10% of the registrant’s outstanding common stock are assumed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

 

The number of shares of the Registrant’s common stock outstanding as of November 22, 2019 was 56,204,994.



 

 

EXPLANATORY NOTE

 

Texas Mineral Resources Corp. (“we”, “our” or “us”) is filing this Amendment No. 1 (this “Form 10–K/A”) to amend our Annual Report on Form 10–K for the year ended August 31, 2019, originally filed with the Securities and Exchange Commission (the “SEC”) on November 27, 2019, to amend and restate our financial statements and related footnote disclosures as of August 31, 2019 resulting from a re–evaluation of our accounting in fiscal 2019 to reflect non-cash charges resulting from (i) issuances of common stock for settlement of accrued compensation due employees, officers and directors based upon a stock price on the date that the Board approved the issuance of stock for services rendered rather than at the end of each quarter in which the liability was incurred, and (ii) amendments to our debt agreements with related parties and the Rio Grande Valley Foundation. As a result of this re-evaluation as of August 31, 2019, total liabilities at August 31, 2019 were increased by $51,486, a non-cash expense charge increased net loss during fiscal 2019 and total accumulated deficit at August 31, 2019 by $1,175,199. In addition, after the filing of this Form 10–K/A, we will be filing an amendment to our Quarterly Report on Form 10–Q for the quarterly period ended November 30, 2019.

 

Background of the Restatement

 

Effective February 6, 2020, LBB & Associates (“LBB”), the Company’s independent registered public accounting firm, was suspended by the SEC. As a result of this suspension, on March 2, 2020, LBB resigned as the independent registered public accounting firm of the Company.

 

On March 6, 2020, the Audit Committee of the Board of Directors of the Company appointed Ham, Langston and Brezina, L.L.P. (“HLB”) to serve as the Company’s independent registered public accounting firm for the fiscal year ended August 31, 2020. In addition, we received notification from the SEC that we may not include audit reports or consents issued by LBB in our filings with the SEC. The Audit Committee of the Board of Directors of the Company engaged HLB to re-audit the fiscal years ended August 31, 2019 and 2018 contained in this Form 10-K/A.

 

In May 2020, our management and Board of Directors concluded that our previously issued financial statements and financial information relating to the fiscal year ended August 31, 2019, and quarter ended November 30, 2019, required adjustment. The Audit Committee’s and the Board’s decision to restate our financial statements for the fiscal year ended August 30, 2019 and for the quarter ended November 30, 2019 arose from the re–evaluation of our accounting for (i) issuances of common stock for noncash settlement of accrued compensation due employees, officers and directors based upon a stock price on the date that the Board approved the issuance of stock for services rendered rather than at the end of each quarter in which the liability was incurred, and (ii) amendments to our debt agreements with related parties and the Rio Grande Valley Foundation. The Audit Committee discussed this accounting issue with HLB, our independent registered public accounting firm, and the firm supported this determination.

 

Effect of the Restatement on Financial Statements

 

For a description of the effect of the restatement as of and for the year ended August 31, 2019 (including the unaudited quarterly periods for the year then ended), see “Note 3. Restatement” and “Note 12. Quarterly Data” to our financial statements in “Item 8. Financial Statements and Supplementary Data” contained herein.

 

Our Principal Executive Officer and Principal Financial Officer are providing currently dated certifications in connection with this Annual Report on Form 10–K/A. These certifications are filed as Exhibits 31.1, 31.2, 32.1 and 32.2.



 

 

TABLE OF CONTENTS

 

 

PRELIMINARY NOTES

1

 

GLOSSARY OF TERMS

1

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

3

 

 

 

 

PART I

 

 

ITEM 1

BUSINESS

5

ITEM 1A

RISK FACTORS

9

ITEM 1B

UNRESOLVED STAFF COMMENTS

21

ITEM 2

PROPERTIES

21

ITEM 3

LEGAL PROCEEDINGS

27

ITEM 4

MINE SAFETY DISCLOSURES

27

 

 

 

 

PART II

 

 

ITEM 5

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

28

ITEM 6

SELECTED FINANCIAL DATA

29

ITEM 7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

29

ITEM 7A

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

31

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

F-1

ITEM 9

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

32

ITEM 9A

CONTROLS AND PROCEDURES

32

ITEM 9B

OTHER INFORMATION

33

 

 

 

 

PART III

 

 

ITEM 10

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

34

ITEM 11

EXECUTIVE COMPENSATION

41

ITEM 12

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

43

ITEM 13

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

45

ITEM 14

PRINCIPAL ACCOUNTANT FEES AND SERVICES

45

 

 

 

 

PART IV

 

 

ITEM 15

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

47

 

SIGNATURES

49

 



 

 

PRELIMINARY NOTES

 

As used in this Annual Report on Form 10-K (“Annual Report”), references to “Texas Mineral”, “the Company,” “we,” “our,” “us” or “TMRC” mean Texas Mineral Resources Corp. and its predecessors, as the context requires.

 

GLOSSARY OF TERMS

 

Alteration

Any physical or chemical change in a rock or mineral subsequent to its formation.

 

 

Breccia

A rock in which angular fragments are surrounded by a mass of fine-grained minerals.

 

 

Concession

A grant of a tract of land made by a government or other controlling authority in return for stipulated services or a promise that the land will be used for a specific purpose.

 

 

Core

The long cylindrical piece of a rock, about an inch in diameter, brought to the surface by diamond drilling.

 

 

Diamond drilling

A drilling method in which the cutting is done by abrasion using diamonds embedded in a matrix rather than by percussion. The drill cuts a core of rock, which is recovered in long cylindrical sections.

 

 

Drift

A horizontal underground opening that follows along the length of a vein or rock formation as opposed to a cross-cut which crosses the rock formation.

 

 

Exploration

Work involved in searching for ore, usually by drilling or driving a drift.

 

 

Exploration expenditures

Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects that may contain mineral deposit reserves.

 

 

GLO

Texas General Land Office.

 

 

Grade

The average assay of a ton of ore, reflecting metal content.

 

 

HREE

Heavy rare earth element(s).

 

 

Host rock

The rock surrounding an ore deposit.

 

 

Intrusive

A body of igneous rock formed by the consolidation of magma intruded into other rocks, in contrast to lavas, which are extruded upon the surface.

 

 

Lode

A mineral deposit in solid rock.

 

 

LREE

Light rare earth element(s).

 

 

Ore

The naturally occurring material from which a mineral or minerals of economic value can be extracted profitably or to satisfy social or political objectives. The term is generally but not always used to refer to metalliferous material, and is often modified by the names of the valuable constituent; e.g., iron ore.

 

 

Ore body

A continuous, well-defined mass of material of sufficient ore content to make extraction economically feasible.

 

 

Mine development

The work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction possible.

 

 

Mineral

A naturally occurring homogeneous substance having definite physical properties and chemical composition, and if formed under favorable conditions, a definite crystal forms.

 

 

Mineralization

The presence of minerals in a specific area or geological formation.

 


1


 

 

Mineral Reserve

That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of “Ore” when dealing with metalliferous minerals.

 

 

PEA

Preliminary economic assessment.

 

 

Probable (Indicated) Reserves

Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation.

 

 

Prospect

A mining property, the value of which has not been determined by exploration.

 

 

Proven (Measured) Reserves

Reserves for which (i) (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes and (b) grade and/or quality are computed from the results of detailed sampling and (ii) the sites for inspection, sampling and measurement are spaced so closely and the geologic character is so well defined that size, shape, depth and mineral content of reserves are well-established.

 

 

REE

Rare earth element(s).

 

 

REO

Rare earth oxide(s).

 

 

Tonne

A metric ton which is equivalent to 2,200 pounds.

 

 

Trend

A general term for the direction or bearing of the outcrop of a geological feature of any dimension, such as a layer, vein, ore body, or fold.

 

 

Unpatented mining claim

A parcel of property located on federal lands pursuant to the General Mining Law and the requirements of the state in which the unpatented claim is located, the paramount title of which remains with the federal government. The holder of a valid, unpatented lode-mining claim is granted certain rights including the right to explore and mine such claim.

 

 

Vein

A mineralized zone having a more or less regular development in length, width, and depth, which clearly separates it from neighboring rock.

 


2


 

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Annual Report contains “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 (collectively, “forward-looking statements”). Such forward-looking statements concern the Company’s anticipated results and developments in the Company’s operations in future periods, planned exploration and development of its properties, plans related to its business and other matters that may occur in the future. These statements relate to analyses and other information that are based on forecasts of future results, estimates of amounts not yet determinable and assumptions of management.

 

Any statements that express or involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions or future events or performance (often, but not always, using words or phrases such as “expects” or “does not expect”, “is expected”, “anticipates” or “does not anticipate”, “plans”, “estimates” or “intends”, or stating that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved) are not statements of historical fact and may be forward-looking statements. Forward-looking statements in this Annual Report include, but are not limited to:

 

the progress, potential and uncertainties of our 2019-2020 rare-earth exploration program at our Round Top Project, located near Sierra Blanca, Texas; 

 

cost, timing and actual obtainable results from and of feasibility studies, including PEAs for our Round Top Project; 

 

the success of getting the necessary permits for future drill programs and future project exploration; 

 

expectation that USA Rare Earth will fund its up to $10 million obligation to further develop the Round Top Project; 

 

expectations regarding the ability to raise the significant required capital to continue our exploration plans on the Round Top Project (subsequent to completion of the assumed $10 million of USA Rare Earth funding); and 

 

plans regarding anticipated expenditures at the Round Top Project. 

 

Forward-looking statements are subject to a variety of known and unknown risks, uncertainties and other factors which could cause actual events or results to differ from those expressed or implied by the forward-looking statements, including, without limitation:

 

risks associated with our ability to continue as a going concern; 

 

risks associated with our history of losses and need for additional financing (both from the contemplated USA Rare Earth funding and subsequent to such expected financing); 

 

risks associated with our limited operating history; 

 

risks associated with our properties all being in the exploration stage; 

 

risks associated with our lack of history in producing metals from the Round Top Project; 

 

risks associated with a shortage of equipment and supplies; 

 

risks associated with our need for additional financing to develop the Round Top Project; 

 

risks associated with our exploration activities not being commercially successful; 

 

risks associated with ownership of surface rights and other title issues with respect to our Round Top Project; 

 

risks associated with increased costs affecting our financial condition; 

 

risks associated with a shortage of equipment and supplies adversely affecting our ability to operate; 

 

risks associated with mining and mineral exploration being inherently dangerous; 

 

risks associated with mineralization estimates; 

 


3


 

 

risks associated with changes in mineralization estimates affecting the economic viability of our properties; 

 

risks associated with uninsured risks; 

 

risks associated with mineral operations being subject to market forces beyond our control; 

 

risks associated with fluctuations in commodity prices; 

 

risks associated with permitting, licenses and approval processes; 

 

risks associated with the governmental and environmental regulations; 

 

risks associated with future legislation regarding the mining industry and climate change; 

 

risks associated with potential environmental lawsuits; 

 

risks associated with our land reclamation requirements; 

 

risks associated with rare earth and beryllium mining presenting potential health risks; 

 

risks related to competition in the mining and rare earth elements industries; 

 

risks related to economic conditions; 

 

risks related to our ability to manage growth; 

 

risks related to the potential difficulty of attracting and retaining qualified personnel; 

 

risks related to our dependence on key personnel; 

 

risks related to our United States Securities and Exchange Commission (the “SEC”) filing history; and 

 

risks related to our securities. 

 

This list is not exhaustive of the factors that may affect the Company’s forward-looking statements. Some of the important risks and uncertainties that could affect forward-looking statements are described further under the section headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those described in forward-looking statements, there may be other factors that cause results not to be as anticipated, estimated or intended. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, believed, estimated or expected. The Company cautions readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Except as required by law, the Company disclaims any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We qualify all the forward-looking statements contained in this Annual Report by the foregoing cautionary statements.

 


4


 

 

PART I

 

ITEM 1. BUSINESS

 

Corporate Organization and History

 

We were incorporated in the State of Nevada in 1970 as Standard Silver Corporation. In September 2008, we amended and restated our Articles of Incorporation to (i) increase of the number of shares of Common Stock from 25,000,000 to 100,000,000, and (ii) authorize an additional 10,000,000 shares of preferred stock, to be issued at management’s discretion. In August 2012, we changed our state of incorporation from the State of Nevada to the State of Delaware (the “Reincorporation”) pursuant to a plan of conversion. In March 2016, the Company amended its Certificate of Incorporation to change the name of the Company from “Texas Rare Earth Resources Corp” to “Texas Mineral Resources Corp”.

 

Narrative Description of Business

 

We are a mining company engaged in the business of the acquisition, exploration and development of mineral properties. We currently hold two eleven year leases with the GLO, executed in September 2011 and November 2011, respectively, to explore and develop a 950 acre rare earths project located in Hudspeth County, Texas, known as the Round Top Project. We also have prospecting permits covering 9,345 acres adjacent to the Round Top Project. Our principal focus is on developing a metallurgical process to concentrate or otherwise extract the metals from the Round Top Project’s rhyolite, and to conduct additional engineering, design, geotechnical work and permitting necessary for a bankable feasibility study. We currently have limited operations and have not established that any of our projects or properties contain any Proven or Probable Reserves under Guide 7.

 

In March 2013, we purchased the 54,990 acre surface lease at the Round Top Project, known as the West Lease, from the Southwest Wildlife and Range Foundation (the “Foundation”) for $500,000 and the issuance of 1,063,830 shares of our Common Stock. We also agreed to support the Foundation through an annual payment of $45,000 for ten years to support conservation efforts within the Rio Grande Basin and in particular engaging in stewardship of Lake Amistad, a large and well-known fishing lake near Del Rio, Texas. The West Lease provides unrestricted surface access for the potential development and mining of our Round Top Project.

 

In October 2014, we executed agreements with the GLO securing the option to purchase the surface rights covering the potential Round Top Project mine and plant areas and, separately, a lease to develop the water necessary for the potential Round Top Project mine operations. The option to purchase the surface rights covers approximately 5,670 acres over the mining lease and the additional acreage adequate to site all potential heap leaching and processing operations as currently anticipated by the Company. We may exercise the option for all or part of the option acreage at any time during the sixteen-year primary term of the mineral lease. The option can be kept current by an annual payment of $10,000. The purchase price will be the appraised value of the surface at the time of exercising the option. The ground water lease secures our right to develop the ground water within a 13,120-acre lease area located approximately 4 miles from the Round Top deposit. The lease area contains five existing water wells. It is anticipated that all potential water needs for the Round Top Project mine operations will be satisfied by the existing wells covered by this water lease. This lease has an annual minimum production payment of $5,000 prior to production of water for the operation. After initiation of production we will pay $0.95 per thousand gallons or $20,000 annually, whichever is greater. This lease remains effective as long as the mineral lease is in effect.

 

In March 2015, we conducted a trial mining test during which we mined 500-tonnes of rhyolite, transported and crushed the ore to 80% passing a one-inch screen. This rock is now stockpiled and is expected to be used in our contemplated pilot plant development.

 

In April 2015, we announced the execution of a uranium offtake agreement with UG USA, a subsidiary of Areva. According to the agreement, TMRC will supply up to 300,000 pounds of natural uranium concentrates (U308) per year based upon a pricing formula indexed to U308 spot prices at the times of delivery. The Agreement is for a term of five years commencing in 2018 or as soon thereafter, contingent upon development and production at its Round Top Project. Other terms and conditions of the Agreement reflect industry standards.

 

During 2017, TMRC in association with Penn State University, REE Tech and Inventure Renewables of Tuscaloosa, Alabama, jointly applied for a Department of Energy grant to evaluate the economic potential of rare earth elements associated with Appalachian coal deposits. Our group was awarded the first phase of this grant on October 19, 2017. Work in progress consists of our identification of a resource, developing the physical metallurgy to concentrate the minerals (Penn State) and developing the CIX/CIC process to separate the individual rare earth elements and to separate and refine various other elements including iron and aluminum (Inventure and K-Tech).

 

In August 2019, we published a PEA prepared in accordance with Canadian NI 43-101 specifications. The PEA calls for a 20,000 tons per day heap leach operation producing three basic revenue streams, one a REE stream, two a tech metal stream that includes lithium and uranium, and a third consisting of a variety of industrial and fertilizer sulfate products.


5


 

 

Cautionary Note to Investors: The PEA has been prepared in accordance with Canadian National Instrument 43-101 — Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) — CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. The Company has voluntarily had the PEA prepared in accordance with NI 43-101 but the Company is not subject to regulation by Canadian regulatory authorities and no Canadian regulatory authority has reviewed the PEA or passed upon its accuracy or compliance with NI 43-101. The terms “mineral reserve”, “proven mineral reserve” and “probable mineral reserve” are Canadian mining terms as defined in accordance with NI 43-101. These definitions differ from the definitions in SEC Industry Guide 7 under the United States Securities Act of 1933, as amended (the “Securities Act”). Under SEC Industry Guide 7 standards, a “final” or “bankable” feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves and the primary environmental analysis or report must be filed with the appropriate governmental authority. In addition, the terms “mineral resource”, “measured mineral resource”, “indicated mineral resource” and “inferred mineral resource” are defined in NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. “Inferred mineral resources” have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all or any part of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. Disclosure of “contained ounces” in a resource is permitted disclosure under Canadian regulations; however, the SEC normally only permits issuers to report mineralization that does not constitute “reserves” by SEC Industry Guide 7 standards as in place tonnage and grade without reference to unit measures. Accordingly, information in the PEA contains descriptions of our mineral deposits that may not be comparable to similar information made public by United States companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder. Our project as described in the PEA currently does not contain any known proven or probable ore reserves under SEC Industry Guide 7 reporting standards. U.S. investors are urged to consider closely the disclosure in the Registrant’s latest reports and registration statements filed with the SEC. U.S. Investors are cautioned not to assume that any defined resources in these categories will ever be converted into SEC Guide 7 compliant reserves. 

 

In August 2018, we executed a joint venture agreement with Morzev, to develop the Round Top Deposit. Terms of the agreement require Morzev to expend up to $10 million to produce a bankable feasibility study. The funds will be allocated in two tranches, the first of $2.5 million to optimize and finalize the metallurgical processing and the remaining $7.5 million to fund the engineering, design, geotechnical work, and permitting necessary for a bankable feasibility study. Upon completion of these funding milestones, Morzev will earn and own 70% of the Round Top Project and will have a six-month option to purchase an additional 10% (bringing its ownership in the Round Top Project to 80%) for a purchase price of $3 million. In August 2019, Morzev assigned this ownership right to USA Rare Earth LLC. In connection with entering into this agreement, Morzev purchased 646,054 shares of Common Stock for $140,000.

 

Current and Planned Exploration Activities

 

USA Rare Earth is currently funding and engaging in the advancement of the Round Top Project, towards obtaining a definitive banking feasibility study per its agreement. Approximately $185,500 has been funded by USA Rare Earth through the date of the original filing of our 10-K with the SEC on November 27, 2019.

 

Trends – Rare-Earth Market

 

Rare earth elements, or REEs, are a group of chemically similar elements that usually are found together in nature – they are referred to as the “lanthanide series.” These individual elements have a variety of characteristics that are important in a wide range of technologies, products, and applications and are critical inputs in existing and emerging applications including: computer hard drives, cell phones, clean energy technologies, such as hybrid and electric vehicles and wind power turbines; multiple high-tech uses, including fiber optics, lasers and hard disk drives; numerous defense applications, such as guidance and control systems and global positioning systems; and advanced water treatment technology for use in industrial, military and outdoor recreation applications. As a result, global demand for REE is projected to steadily increase due to continuing growth in existing applications and increased innovation and development of new end uses. Interest in developing resources domestically has become a strategic necessity as there is limited production of these elements outside of China. Our ability to raise additional funds in order to complete our plan of exploration and, if warranted, development at the Round Top Project may be impacted by future prices for REEs.

 


6


 

 

Sources and Availability of Raw Materials

 

We are currently in the exploration stage and as such we do not require any significant raw materials in order to carry out our primary operating activities. Our primary operating objective is to explore and develop the Round Top Project. For at least the next 12 months, we expect to continue to require the use of contract drilling services in order to obtain additional geological information. In the past year we have been able to secure contract drilling services without excessive delay and costs. We expect the contract drilling services will continue to be available over the next 12 months.

 

The raw materials that our current operations rely on are gasoline and diesel fuel for the exploration vehicles and for the heavy equipment required to build roads and conduct drilling operations. Water is provided per service contract by Eagle Mountain Gang which is used for the drilling operations.

 

Seasonality

 

Seasonality in the State of Texas is not a material factor to our operations for our project.

 

Competition

 

The mining industry is highly competitive. We compete with numerous companies, substantially all with greater financial resources available to them. We therefore are operating at a significant disadvantage in the course of acquiring mining properties and obtaining materials, supplies, labor, and equipment. Additionally, we are and will continue to be an insignificant participant in the business of exploration and mineral property development. A large number of established and well-financed companies are active in the mining industry and will have an advantage over us if they are competing for the same properties. Nearly all such entities have greater financial resources, technical expertise and managerial capabilities than ourselves and, consequently, we will be at a competitive disadvantage in identifying possible mining properties and procuring the same.

 

China accounts for the vast majority of rare earth element production. While rare earth element projects exist outside of China, very few are in actual production. Further, given the timeline for current exploration projects to come into production, if at all, it is likely that the Chinese will be able to dominate the market for rare earth elements into the future. This gives the Chinese a competitive advantage in controlling the supply of rare earth elements and engaging in competitive price reductions to discourage competition. Any increase in the amount of rare earth elements exported from other nations, and increased competition, may result in price reductions, reduced margins and loss of potential market share, any of which could materially adversely affect our profitability. As a result of these factors, we may not be able to compete effectively against current and future competitors.

 

Government Approvals

 

The exploration, drilling and mining industries operate in a legal environment that requires permits to conduct virtually all operations. Thus permits are required by local, state and federal government agencies. Local authorities, usually counties, also have control over mining activity. The various permits address such issues as prospecting, development, production, labor standards, taxes, occupational health and safety, toxic substances, air quality, water use, water discharge, water quality, noise, dust, wildlife impacts, as well as other environmental and socioeconomic issues.

 

Prior to receiving the necessary permits to explore or mine, the operator must comply with all regulatory requirements imposed by all governmental authorities having jurisdiction over the project area. Very often, in order to obtain the requisite permits, the operator must have its land reclamation, restoration or replacement plans pre-approved. Specifically, the operator must present its plan as to how it intends to restore or replace the affected area. Often all or any of these requirements can cause delays or involve costly studies or alterations of the proposed activity or time frame of operations, in order to mitigate impacts. All of these factors make it more difficult and costly to operate and have a negative and sometimes fatal impact on the viability of the exploration or mining operation. Finally, it is possible that future changes in these laws or regulations could have a significant impact on our business, causing those activities to be economically reevaluated at that time.

 


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Effect of Existing or Probable Government and Environmental Regulations

 

Mineral exploration, including mining operations are subject to governmental regulation. Our operations may be affected in varying degrees by government regulation such as restrictions on production, price controls, tax increases, expropriation of property, environmental and pollution controls or changes in conditions under which minerals may be marketed. An excess supply of certain minerals may exist from time to time due to lack of markets, restrictions on exports, and numerous factors beyond our control. These factors include market fluctuations and government regulations relating to prices, taxes, royalties, allowable production and importing and exporting minerals. The effect of these factors cannot be accurately determined, and we are not aware of any probable government regulations that would impact the Company. This section is intended as a brief overview of the laws and regulations described herein and is not intended to be a comprehensive treatment of the subject matter.

 

Overview. Like all other mining companies doing business in the United States, we are subject to a variety of federal, state and local statutes, rules and regulations designed to protect the quality of the air and water, and threatened or endangered species, in the vicinity of its operations. These include “permitting” or pre-operating approval requirements designed to ensure the environmental integrity of a proposed mining facility, operating requirements designed to mitigate the effects of discharges into the environment during exploration, mining operations, and reclamation or post-operation requirements designed to remediate the lands affected by a mining facility once commercial mining operations have ceased.

 

Federal legislation in the United States and implementing regulations adopted and administered by the Environmental Protection Agency, the Forest Service, the Bureau of Land Management, the Fish and Wildlife Service, the Army Corps of Engineers and other agencies—in particular, legislation such as the federal Clean Water Act, the Clean Air Act, the National Environmental Policy Act, the Endangered Species Act, the National Forest Management Act, the Wilderness Act, and the Comprehensive Environmental Response, Compensation and Liability Act—have a direct bearing on domestic mining operations. These federal initiatives are often administered and enforced through state agencies operating under parallel state statutes and regulations.

 

The Clean Water Act. The federal Clean Water Act is the principal federal environmental protection law regulating mining operations in the United States as it pertains to water quality.

 

At the state level, water quality is regulated by the Environment Department, Water and Waste Management Division under the Water Quality Act (state). If our exploration or any future development activities might affect a ground water aquifer, it will have to apply for a Ground Water Discharge Permit from the Ground Water Quality Bureau in compliance with the Groundwater Regulations. If exploration affects surface water, then compliance with the Surface Water Regulations is required.

 

The Clean Air Act. The federal Clean Air Act establishes ambient air quality standards, limits the discharges of new sources and hazardous air pollutants and establishes a federal air quality permitting program for such discharges. Hazardous materials are defined in the federal Clean Air Act and enabling regulations adopted under the federal Clean Air Act to include various metals. The federal Clean Air Act also imposes limitations on the level of particulate matter generated from mining operations.

 

National Environmental Policy Act (NEPA). NEPA requires all governmental agencies to consider the impact on the human environment of major federal actions as therein defined.

 

Endangered Species Act (ESA). The ESA requires federal agencies to ensure that any action authorized, funded or carried out by such agency is not likely to jeopardize the continued existence of any endangered or threatened species or result in the destruction or adverse modification of their critical habitat. In order to facilitate the conservation of imperiled species, the ESA establishes an interagency consultation process. When a federal agency proposes an action that “may affect” a listed species, it must consult with the USFWS and must prepare a “biological assessment” of the effects of a major construction activity if the USFWS advises that a threatened species may be present in the area of the activity.

 

National Forest Management Act. The National Forest Management Act, as implemented through title 36 of the Code of Federal Regulations, provides a planning framework for lands and resource management of the National Forests. The planning framework seeks to manage the National Forest System resources in a combination that best serves the public interest without impairment of the productivity of the land, consistent with the Multiple Use Sustained Yield Act of 1960.

 

Wilderness Act. The Wilderness Act of 1964 created a National Wilderness Preservation System composed of federally owned areas designated by Congress as “wilderness areas” to be preserved for future use and enjoyment.

 

The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA). CERCLA imposes clean-up and reclamation responsibilities with respect to discharges into the environment, and establishes significant criminal and civil penalties against those persons who are primarily responsible for such discharges.


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The Resource Conservation and Recovery Act (RCRA). RCRA was designed and implemented to regulate the disposal of solid and hazardous wastes. It restricts solid waste disposal practices and the management, reuse or recovery of solid wastes and imposes substantial additional requirements on the subcategory of solid wastes that are determined to be hazardous. Like the Clean Water Act, RCRA provides for citizens’ suits to enforce the provisions of the law.

 

National Historic Preservation Act. The National Historic Preservation Act was designed and implemented to protect historic and cultural properties. Compliance with the Act is necessary where federal properties or federal actions are undertaken, such as mineral exploration on federal land, which may impact historic or traditional cultural properties, including native or Indian cultural sites.

 

In the fiscal year ended August 31, 2019, we incurred minimal costs in complying with environmental laws and regulations in relation to our operating activities.

 

Employees

 

Including our executive officers, we currently have two full time employees. A portion of these salaries for these employees are in arrears. We also utilize the services of qualified consultants with geological and mineralogical expertise as well as individuals for accounting services.

 

Available Information

 

We make available, free of charge, on or through our Internet website, at www.TMRC.com our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934, as amended (“Exchange Act”). Our Internet website and the information contained therein or connected thereto are not intended to be, and are not incorporated into this annual report.

 

Our filings can also be viewed at our corporate offices located at 516 South Spring Avenue, Tyler, Texas 75702. Our reports, registration statements and other information can be inspected on the SEC’s website at www.sec.gov and such information can also be inspected and copies ordered at the public reference facilities maintained by the SEC at the following location: Judiciary Plaza, 100 F Street NE, Washington, D.C. 20549.

 

ITEM 1A. RISK FACTORS

 

The following sets forth certain risks and uncertainties that could have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock which may decline and investors may lose all or part of their investment. These risk factors should be considered along with the forward-looking statements contained in this Annual Report on Form 10-K because these factors could cause our actual results or financial condition to differ materially from those projected in forward-looking statements. Additional risks and uncertainties that we do not presently know or that we currently deem immaterial also may impair our business operations. We cannot assure you that we will successfully address these risks or that other unknown risks exist that may affect our business.

 

Risk Related to Our Business

 

We have a history of losses and will require additional financing to fund operations. Failure to obtain additional financing could have a material adverse effect on our financial condition and results of operation and could cast uncertainty on our ability to continue as a going concern.

 

During the fiscal year ended August 31, 2019, we had no revenues. For the fiscal year ended August 31, 2019, our net loss was approximately $2.4 million and our accumulated deficit at August 31, 2019 was approximately $37.8 million. At August 31, 2019, our cash position was approximately $1.8 million and our working capital surplus was approximately $0.4 million. We have not commenced commercial production on any of our mineral properties. We have no revenues from operations and anticipate we will have no operating revenues until we place one or more of our properties into production. All of our properties are in the exploration stage. We will need to raise additional funding to implement our business strategy (whether from USA Rare Earth or through other best efforts), the failure of which could cause us to curtail or cease our operations.

 


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During the next 12 months, USA Rare Earth is expected to fund the expenditure of up to $2,500,000 to optimize the leaching and developing of the CIX/CIC processing of the Round Top Project. This work will consist of mining and crushing an additional 500 tonnes of rhyolite and setting up and equipping a facility to conduct the column leaching. It is estimated that the project will require additional time and further expenditure of an approximate amount of up to $7,500,000 to prepare a bankable feasibility study. We anticipate (but there can be no assurance) that USA Rare Earth will fund these required expenditures, and the failure of USA Rare Earth to fund will require us to effect best efforts to raise sufficient capital to finish this work. We currently do not have any funds to complete exploration and development work on the Round Top Project, which means that we are reliant upon USA Rare Earth or best efforts financings for our immediate working capital needs. Failure to obtain sufficient financing may result in the delay or indefinite postponement of exploration and development or contemplated production at the Round Top Project. This includes our leases over claims covering the principal deposits at the Round Top Project, which may expire unless we expend minimum levels of expenditures over the terms of such leases. We cannot be certain that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable or acceptable to us. Our ability to arrange additional financing in the future will depend, in part, on the prevailing capital market conditions as well as our business performance.

 

The most likely source of future financing presently available to us (other than through our agreement with USA Rare Earth) is through the sale of our securities. Any sale of our shares of Common Stock will result in dilution of equity ownership to existing stockholders. This means that if we sell shares of Common Stock, more shares will be outstanding and each existing stockholder will own a smaller percentage of the shares then outstanding. Alternatively, we may rely on debt financing and assume debt obligations that require us to make substantial interest and capital payments. Also, we may issue or grant warrants or options in the future pursuant to which additional shares of Common Stock may be issued. Exercise of such warrants or options will result in dilution of equity ownership to our existing stockholders.

 

We have a limited operating history on which to base an evaluation of our business and properties.

 

Any investment in the Company should be considered a high-risk investment because investors will be placing funds at risk in an early stage, under-capitalized business with unforeseen costs, expenses, competition, a history of operating losses and other problems to which start-up ventures are often subject. Investors should not invest in the Company unless they can afford to lose their entire investment. Your investment must be considered in light of the risks, expenses, and difficulties encountered in establishing a new business in a highly competitive and mature industry. Our operating history has been restricted to the acquisition and sampling of our Round Top Project and this does not provide a meaningful basis for an evaluation of our Round Top Project. Other than through conventional and typical exploration methods and procedures, we have no additional way to evaluate the likelihood of whether our Round Top Project or our other mineral properties contain commercial quantities of mineral reserves or, if they do, that they will be operated successfully. We anticipate that we will continue to incur operating costs without realizing any revenues during the period when we are exploring our properties.

 

The Round Top Project is in the exploration stage. There is no assurance that we can establish the existence of any mineral reserve from the Round Top Project in commercially exploitable quantities. Until we can do so, we cannot earn any revenues from the Round Top Project, and our business could fail.

 

We have not established that the Round Top Project contains any commercial exploitable quantities of mineral reserve, nor can there be any assurance that we will be able to do so. The probability of the Round Top Project ever having a commercial exploitable mineral reserve that meets the requirements of the SEC is extremely remote. Even if we do eventually discover commercial exploitable quantities of mineral reserve on the Round Top Project, there can be no assurance that it can be developed into a producing mine and extract those minerals. Both mineral exploration and development involve a high degree of risk and few properties, which are explored, are ultimately developed into producing mines.

 

The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the deposit to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral deposit unprofitable.

 

Even if commercial viability of a mineral deposit is established, it may take several years in the initial phases of drilling until production is possible, during which time the economic feasibility of production may change. Substantial expenditures are required to establish proven and probable reserves through drilling and bulk sampling, to determine the optimal metallurgical process to extract the metals from the ore and, in the case of new properties, to construct mining and processing facilities. Because of these uncertainties, no assurance can be given that our exploration programs will result in the establishment or expansion of a mineral deposit or reserves.

 


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We have no history of producing metals from the Round Top Project.

 

We have no history of producing metals from the Round Top Project. The Round Top Project is an exploration stage property in the early stage of exploration and evaluation. Advancing properties from exploration into the development stage requires significant capital and time, and successful commercial production from the Round Top Project, if any, will be subject to completing feasibility studies, permitting and construction of the mine, processing plants, roads, and other related works and infrastructure. As a result, we are subject to all of the risks associated with developing and establishing new mining operations and business enterprises including:

 

completion of feasibility studies to verify reserves and commercial viability, including the ability to find sufficient REE or gold reserves to support a commercial mining operation; 

 

the timing and cost, which can be considerable, of further exploration, preparing feasibility studies, permitting and construction of infrastructure, mining and processing facilities; 

 

the availability and costs of drill equipment, exploration personnel, skilled labor and mining and processing equipment, if required; 

 

the availability and cost of appropriate smelting and/or refining arrangements, if required, and securing a commercially viable sales outlet for our products; 

 

compliance with environmental and other governmental approval and permit requirements; 

 

the availability of funds to finance exploration, development and construction activities, as warranted; 

 

potential opposition from non-governmental organizations, environmental groups, local groups or local inhabitants which may delay or prevent development activities; 

 

potential increases in exploration, construction and operating costs due to changes in the cost of fuel, power, materials and supplies; and 

 

potential shortages of mineral processing, construction and other facilities related supplies. 

 

The costs, timing and complexities of exploration, development and construction activities may be increased by the location of the Round Top Project (or other properties that may subsequently be acquired) and demand by other mineral exploration and mining companies. It is common in exploration programs to experience unexpected problems and delays during drill programs and, if warranted, development, construction and mine start-up. Accordingly, our activities may not result in profitable mining operations and we may not succeed in establishing mining operations or profitably producing metals at any of our properties.

 

If we establish the existence of a mineral reserve in the Round Top Project in a commercially exploitable quantity, we will require additional capital in order to develop the property into a producing mine. If we cannot raise this additional capital, we will not be able to exploit the reserve, and our business could fail.

 

If we do discover mineral reserves in commercially exploitable quantities in the Round Top Project (or any of our properties that may subsequently be acquired), we will be required to expend substantial sums of money to establish the extent of the reserve, develop processes to extract it and develop extraction and processing facilities and infrastructure. We do not have adequate capital to develop necessary facilities and infrastructure and will need to raise additional funds (the expected capital from USA Rare Earth will not address these needs). Although we may derive substantial benefits from the discovery of a major mineral deposit, there can be no assurance that such a deposit will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis. If we cannot raise the necessary capital or complete the necessary facilities and infrastructure, our business may fail and your investment in our Common Stock will be lost.

 


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Our exploration activities may not be commercially successful.

 

Our long-term success depends on our ability to identify mineral deposits in the Round Top Project or other properties we may acquire, if any, that we can then develop into commercially viable mining operations. Our belief that the Round Top Project contains commercially exploitable minerals has been based solely on preliminary tests that we have conducted and data provided by third parties, including the data published in various third party reports. There can be no assurance that the tests and data upon which we have relied is correct or accurate. Moreover, mineral exploration is highly speculative in nature, involves many risks and is frequently non-productive. Unusual or unexpected geologic formations and the inability to obtain suitable or adequate machinery, equipment or labor are risks involved in the conduct of exploration programs. The success of mineral exploration and development is determined in part by the following factors:

 

the identification of potential mineralization based on analysis; 

 

the availability of exploration permits; 

 

the quality of our management and our geological and technical expertise; and 

 

the capital available for exploration. 

 

Substantial expenditures and time are required to establish existing proven and probable reserves through drilling and analysis, to develop metallurgical processes to extract metal, and to develop the mining and processing facilities and infrastructure at any site chosen for mining. Whether a mineral deposit will be commercially viable depends on a number of factors, which include, without limitation, the particular attributes of the deposit, such as size, grade and proximity to infrastructure; metal prices, which fluctuate widely; and government regulations, including, without limitation, regulations relating to prices, taxes, royalties, land tenure, land use, allowable production, importing and exporting of minerals and environmental protection. Any one or a combination of these factors may result in us not receiving an adequate return on our investment capital. The decision to abandon a project may have an adverse effect on the market value of our securities and our ability to raise future financing.

 

Increased costs could affect our financial condition.

 

We anticipate that costs at the Round Top Project as it is developed, if warranted, will frequently be subject to variation from one year to the next due to a number of factors, such as changing ore grade, metallurgy and revisions to mine plans, if any, in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities such as fuel, rubber, and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. A material increase in costs at any significant location could have a significant effect on our profitability.

 

A shortage of equipment and supplies could adversely affect our ability to operate our business.

 

We are dependent on various supplies and equipment to carry out our mining exploration and, if warranted, development operations. The shortage of such supplies, equipment and parts could have a material adverse effect on our ability to carry out our operations and therefore limit or increase the cost of production.

 

Mining and mineral exploration is inherently dangerous and subject to conditions or events beyond our control, which could have a material adverse effect on our business and plans.

 

Mining and mineral exploration involves various types of risks and hazards, including:

 

environmental hazards; 

 

power outages; 

 

metallurgical and other processing problems; 

 

unusual or unexpected geological formations; 

 

personal injury, flooding, fire, explosions, cave-ins, landslides and rock-bursts; 

 

inability to obtain suitable or adequate machinery, equipment, or labor; 


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metals losses; 

 

fluctuations in exploration, development and production costs; 

 

labor disputes; 

 

unanticipated variations in grade; 

 

mechanical equipment failure; and 

 

periodic interruptions due to inclement or hazardous weather conditions. 

 

These risks could result in damage to, or destruction of, the Round Top Project, production facilities or other properties, personal injury, environmental damage, delays in mining, increased production costs, monetary losses and possible legal liability. We may not be able to obtain insurance to cover these risks at economically feasible premiums. Insurance against certain environmental risks, including potential liability for pollution or other hazards as a result of the disposal of waste products occurring from production, may be prohibitively expensive. We may suffer a material adverse effect on our business if we incur losses related to any significant events that are not covered by our insurance policies.

 

The figures for our mineralization are estimates based on interpretation and assumptions and may yield less mineral production under actual conditions than is currently estimated.

 

Unless otherwise indicated, mineralization figures presented in this prospectus and in our filings with securities regulatory authorities, press releases and other public statements that may be made from time to time are based upon estimates made by independent geologists and our internal geologists. When making determinations about whether to advance any of our projects to development, we must rely upon such estimated calculations as to the mineral reserves and grades of mineralization on our properties. Until ore is actually mined and processed, mineral reserves and grades of mineralization must be considered as estimates only.

 

Estimates can be imprecise and depend upon geological interpretation and statistical inferences drawn from drilling and sampling analysis, which may prove to be unreliable. We cannot assure you that:

 

these interpretations and inferences will be accurate; 

 

mineralization estimates will be accurate; or 

 

this mineralization can be mined or processed profitably. 

 

Any material changes in mineralization estimates and grades of mineralization will affect the economic viability of placing the Round Top Project into production and the Round Top Project’s return on capital.

 

Because we have not completed feasibility studies on the Round Top Project and have not commenced actual production, mineralization estimates for the Round Top Project may require adjustments or downward revisions. In addition, the grade of ore ultimately mined, if any, may differ from that indicated by our feasibility studies and drill results. Minerals recovered in small scale tests may not be duplicated in large scale tests under on-site conditions or in production scale.

 

The mineralization estimates contained in this prospectus have been determined and valued based on assumed future prices, cut-off grades and operating costs that may prove to be inaccurate. Extended declines in market prices for rare earth minerals may render portions of our mineralization estimates uneconomic and result in reduced reported mineralization or adversely affect the commercial viability determinations we reach. Any material reductions in estimates of mineralization, or of our ability to extract this mineralization, could have a material adverse effect on our share price and the value of our properties.

 

Analytical Uncertainties

 

All resource and grade estimates are based on state of the art analytical methods. However, any procedure for analyzing small amounts of metals in a chemically complex matrix may be subject to error and other uncertainties.

 


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Our operations contain significant uninsured risks which could negatively impact future profitability as we maintain no insurance against our operations.

 

Our exploration of the Round Top Project contains certain risks, including unexpected or unusual operating conditions including rock bursts, cave-ins, flooding, fire and earthquakes. It is not always possible to insure against these risks. Should events such as these arise, they could reduce or eliminate our assets and shareholder equity as well as result in increased costs and a decline in the value of our securities. We expect to maintain only general liability and director and officer insurance but no insurance against our properties or operations. We may decide to take out this insurance in the future if it is available at economically viable rates.

 

Mineral operations are subject to market forces outside of our control which could negatively impact our operations.

 

The marketability of minerals is affected by numerous factors beyond our control including market fluctuations, government regulations relating to prices, taxes, royalties, allowable production, imports, exports and supply and demand. One or more of these risk elements could have an impact on the costs of our operations and if significant enough, reduce the profitability of our operations.

 

We may be adversely affected by fluctuations in demand for, and prices of, rare earth products.

 

We expect to derive revenues, if any, from sale of rare earth and related minerals. Changes in demand for, and the market price of, these minerals could significantly affect our profitability. The value and price of our Common Stock and our financial results may be significantly adversely affected by declines in the prices of rare earth minerals and products. Rare earth minerals and product prices may fluctuate and are affected by numerous factors beyond our control such as interest rates, exchange rates, inflation or deflation, fluctuation in the relative value of the U.S. dollar against foreign currencies on the world market, global and regional supply and demand for rare earth minerals and products, and the political and economic conditions of countries that produce rare earth minerals and products.

 

A prolonged or significant economic contraction in the United States or worldwide could put further downward pressure on market prices of rare earth minerals and products. Protracted periods of low prices for rare earth minerals and products could significantly reduce revenues and the availability of required development funds in the future. This could cause substantial reductions to, or a suspension of, REO production operations, impair asset values and if reserves are established on our prospects, reduce our proven and probable rare earth ore reserves.

 

In contrast, extended periods of high commodity prices may create economic dislocations that may be destabilizing to rare earth minerals supply and demand and ultimately to the broader markets. Periods of high rare earth mineral market prices generally are beneficial to our financial performance. However, strong rare earth mineral prices also create economic pressure to identify or create alternate technologies that ultimately could depress future long-term demand for rare earth minerals and products, and at the same time may incentivize development of otherwise marginal mining properties.

 

Permitting, licensing and approval processes are required for our operations at the Round Top Project and obtaining and maintaining required permits and licenses is subject to conditions which we may be unable to achieve.

 

Both mineral exploration and extraction at the Round Top Project requires permits from various federal, state, provincial and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. Permits known to be required are (i) an operating plan for the conduct of exploration and development approved by the GLO, (ii) an operating plan for production approved by the GLO, (iii) various reporting to and approval by the Texas Railroad Commission regarding drilling and plugging of drill holes, and (v) reporting to and compliance with regulations of the Texas Commission of Environmental Quality. If we recover uranium at the Round Top Project, we will be required to obtain a source material license from the United States Nuclear Regulatory Commission. We may also be subject to the reporting requirements and regulations of the Texas Department of Health. Such licenses and permits are subject to changes in regulations and changes in various operating circumstances. Companies such as ours that engage in exploration activities often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Issuance of permits for our activities is subject to the discretion of government authorities, and we may be unable to obtain or maintain such permits. Permits required for future exploration or development may not be obtainable on reasonable terms or on a timely basis. There can be no assurance that we will be able to obtain or maintain any of the permits required for the continued exploration or development of the Round Top Project (or any other of our mineral properties that we may subsequently acquire) or for the construction and operation of a mine on our properties that we may subsequently acquire at economically viable costs. If we cannot accomplish these objectives, our business could face difficulty and/or fail.

 


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We are subject to significant governmental regulations, which affect our operations and costs of conducting our business.

 

Our current and future operations are and will be governed by laws and regulations, including:

 

laws and regulations governing mineral concession acquisition, prospecting, development, mining and production; 

 

laws and regulations related to exports, taxes and fees; 

 

labor standards and regulations related to occupational health and mine safety; 

 

environmental standards and regulations related to waste disposal, toxic substances, land use and environmental protection; and 

 

other matters. 

 

Companies engaged in exploration activities often experience increased costs and delays in production and other schedules as a result of the need to comply with applicable laws, regulations and permits. Failure to comply with applicable laws, regulations and permits may result in enforcement actions, including the forfeiture of claims, orders issued by regulatory or judicial authorities requiring operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment or costly remedial actions. We may be required to compensate those suffering loss or damage by reason of our mineral exploration activities and may have civil or criminal fines or penalties imposed for violations of such laws, regulations and permits.

 

Existing and possible future laws, regulations and permits governing operations and activities of exploration companies, or more stringent implementation, could have a material adverse impact on our business and cause increases in capital expenditures or require abandonment or delays in exploration.

 

Regulations and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material adverse effect on our business.

 

A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on us, our venture partners and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Given the emotion, political significance and uncertainty around the impact of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation. The potential physical impacts of climate change on our operations are highly uncertain, and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels and changing temperatures. These impacts may adversely impact the cost, production and financial performance of our operations.

 

Our exploration and development activities are subject to environmental risks, which could expose us to significant liability and delay, suspension or termination of our operations.

 

The exploration, possible future development and production phases of our business will be subject to federal, state and local environmental regulation. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set out limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments, and a heightened degree of responsibility for companies and their officers, directors and employees. Future changes in environmental regulations, if any, may adversely affect our operations. If we fail to comply with any of the applicable environmental laws, regulations or permit requirements, we could face regulatory or judicial sanctions. Penalties imposed by either the courts or administrative bodies could delay or stop our operations or require a considerable capital expenditure. Although we intend to comply with all environmental laws and permitting obligations in conducting our business, there is a possibility that those opposed to exploration and mining will attempt to interfere with our operations, whether by legal process, regulatory process or otherwise.

 


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Environmental hazards unknown to us, which have been caused by previous or existing owners or operators of the properties, may exist on the properties in which we hold an interest. It is possible that our properties could be located on or near the site of a Federal Superfund cleanup project. Although we will endeavor to avoid such sites, it is possible that environmental cleanup or other environmental restoration procedures could remain to be completed or mandated by law, causing unpredictable and unexpected liabilities to arise.

 

U.S. Federal Laws

 

The Comprehensive Environmental, Response, Compensation, and Liability Act (“CERCLA”), and comparable state statutes, impose strict, joint and several liability on current and former owners and operators of sites and on persons who disposed of or arranged for the disposal of hazardous substances found at such sites. It is not uncommon for the government to file claims requiring cleanup actions, demands for reimbursement for government-incurred cleanup costs, or natural resource damages, or for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances released into the environment. The Federal Resource Conservation and Recovery Act (“RCRA”), and comparable state statutes, govern the disposal of solid waste and hazardous waste and authorize the imposition of substantial fines and penalties for noncompliance, as well as requirements for corrective actions. CERCLA, RCRA and comparable state statutes can impose liability for clean-up of sites and disposal of substances found on exploration, mining and processing sites long after activities on such sites have been completed.

 

The Clean Air Act, as amended, restricts the emission of air pollutants from many sources, including mining and processing activities. Our mining operations may produce air emissions, including fugitive dust and other air pollutants from stationary equipment, storage facilities and the use of mobile sources such as trucks and heavy construction equipment, which are subject to review, monitoring and/or control requirements under the Clean Air Act and state air quality laws. New facilities may be required to obtain permits before work can begin, and existing facilities may be required to incur capital costs in order to remain in compliance. In addition, permitting rules may impose limitations on our production levels or result in additional capital expenditures in order to comply with the rules.

 

The National Environmental Policy Act (“NEPA”) requires federal agencies to integrate environmental considerations into their decision-making processes by evaluating the environmental impacts of their proposed actions, including issuance of permits to mining facilities, and assessing alternatives to those actions. If a proposed action could significantly affect the environment, the agency must prepare a detailed statement known as an Environmental Impact Statement (“EIS”). The U.S. Environmental Protection Agency, other federal agencies, and any interested third parties will review and comment on the scoping of the EIS and the adequacy of and findings set forth in the draft and final EIS. This process can cause delays in issuance of required permits or result in changes to a project to mitigate its potential environmental impacts, which can in turn impact the economic feasibility of a proposed project.

 

The Clean Water Act (“CWA”), and comparable state statutes, imposes restrictions and controls on the discharge of pollutants into waters of the United States. The discharge of pollutants into regulated waters is prohibited, except in accordance with the terms of a permit issued by the Environmental Protection Agency (“EPA”) or an analogous state agency. The CWA regulates storm water mining facilities and requires a storm water discharge permit for certain activities. Such a permit requires the regulated facility to monitor and sample storm water run-off from its operations. The CWA and regulations implemented thereunder also prohibit discharges of dredged and fill material in wetlands and other waters of the United States unless authorized by an appropriately issued permit. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for unauthorized discharges of pollutants and impose liability on parties responsible for those discharges for the costs of cleaning up any environmental damage caused by the release and for natural resource damages resulting from the release.

 

The Safe Drinking Water Act (“SDWA”) and the Underground Injection Control (“UIC”) program promulgated thereunder, regulate the drilling and operation of subsurface injection wells. EPA directly administers the UIC program in some states and in others the responsibility for the program has been delegated to the state. The program requires that a permit be obtained before drilling a disposal or injection well. Violation of these regulations and/or contamination of groundwater by mining related activities may result in fines, penalties, and remediation costs, among other sanctions and liabilities under the SWDA and state laws. In addition, third party claims may be filed by landowners and other parties claiming damages for alternative water supplies, property damages, and bodily injury.

 

We could be subject to environmental lawsuits.

 

Neighboring landowners and other third parties could file claims based on environmental statutes and common law for personal injury and property damage allegedly caused by the release of hazardous substances or other waste material into the environment on or around our properties. There can be no assurance that our defense of such claims will be successful. A successful claim against us could have an adverse effect on our business prospects, financial condition and results of operation.

 

Land reclamation requirements for our properties may be burdensome and expensive.

 

Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long term effects of land disturbance.


16


 

 

Reclamation may include requirements to:

 

control dispersion of potentially deleterious effluents; 

 

treat ground and surface water to drinking water standards; and 

 

reasonably re-establish pre-disturbance land forms and vegetation. 

 

In order to carry out reclamation obligations imposed on us in connection with our potential development activities, we must allocate financial resources that might otherwise be spent on further exploration and development programs. We plan to set up a provision for our reclamation obligations on our properties, as appropriate, but this provision may not be adequate. If we are required to carry out unanticipated reclamation work, our financial position could be adversely affected. In accordance with our GLO lease/prospecting permits all the areas impacted by the surface operations shall be reclaimed upon completion of the activity such that: (a) Remove all trash, debris, plastic and contaminated soil by off-site disposal; and (b) Upon completion of surface grading, the soil surface shall be left in a roughened condition to negate wind and enhance water infiltration.

 

Rare earth and beryllium mining presents potential health risks; payment of any liabilities that arise from these health risks may adversely impact our Company.

 

Complying with health and safety standards will require additional expenditure on testing and the installation of safety equipment. Moreover, inhalation of certain minerals, such as beryllium can result in specific potential health risks ranging from acute pneumonitis, tracheobronchitis, and chronic beryllium disease to an increased risk of cancer. Symptoms of these diseases may take years to manifest. Failure to comply with health and safety standards could result in statutory penalties and civil liability. We do not currently maintain any insurance coverage against these health risks. The payment of any liabilities that arise from any such occurrences would have a material, adverse impact on our Company.

 

There may be challenges to the title of our Round Top Project or any other mineral properties that we may acquire.

 

We expect that any additional properties will be acquired by unpatented claims or by lease from those owning the property. The lease of our Round Top property was issued by the State of Texas. The validity of title to many types of natural resource property depends upon numerous circumstances and factual matters (many of which are not discoverable of record or by other readily available means) and is subject to many uncertainties of existing law and its application. We cannot assure you that the validity of our titles to our properties will be upheld or that third parties will not otherwise invalidate those rights. In the event the validity of our titles are not upheld, such an event would have a material adverse effect on us.

 

Part of our metallurgical processes are being developed by K-Technologies, Inc. TMRC also has a joint venture with K-Technologies to introduce this technology to other potential rare earth developers. This joint venture is subject to the risks normally associated with the conduct of joint ventures.

 

The development of our rare earth metallurgical processing efforts are currently focused on CIX/CIC processing. Initial work on this process to date was done on a fee basis by K-Technologies, Inc. (“K-Tech”). Initial testing has been favorable and as a result of this early success a joint venture was formed with K-Tech for the purpose of introducing this process to other potential rare earth developers. TMRC is not vested in this joint venture and vesting will require additional expenditure by TMRC at TMRC’s discretion. If TMRC elects to vest in this joint venture it would be subject to the risks normally associated with the conduct of joint ventures. Such risks include: inability to exert control over strategic decisions made in respect of the development and use of the processes; disagreement with partners on how to develop and operate the processes efficiently; inability of partners to meet their obligations to the joint venture or third parties; and litigation between partners regarding joint venture matters. Any failure of such other companies to meet their obligations to us, the joint venture or to third parties, or any disputes with respect to the parties’ respective rights and obligations, could have a material adverse effect on the joint venture or the development and use of the processes, which could have a material adverse effect on our results of operations and financial condition.

 


17


 

 

Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

 

The mining industry is intensely competitive. Significant competition exists for the acquisition of properties producing or capable of producing, REE, gold or other metals. We may be at a competitive disadvantage in acquiring additional mining properties because we must compete with other individuals and companies, many of which have greater financial resources, operational experience and technical capabilities than us. We may also encounter increasing competition from other mining companies in our efforts to hire experienced mining professionals. Competition for exploration resources at all levels is currently very intense, particularly affecting the availability of manpower, drill rigs, mining equipment and production equipment. Increased competition could adversely affect our ability to attract necessary capital funding or acquire suitable producing properties or prospects for mineral exploration in the future.

 

We compete with larger, better capitalized competitors in the mining industry.

 

The mining industry is competitive in all of its phases, including financing, technical resources, personnel and property acquisition. We will require significant capital, technical resources, personnel and operational experience to effectively compete in the mining industry. Because of the high costs associated with exploration, the expertise required to analyze a project’s potential and the capital required to develop a mine, larger companies with significant resources may have a competitive advantage over us. We face strong competition from other mining companies, some with greater financial resources, operational experience and technical capabilities than us. As a result of this competition, we may be unable to maintain or acquire financing, personnel, technical resources or attractive mining properties on terms we consider acceptable or at all.

 

Current economic conditions and capital markets are subject to fluctuations which could adversely affect our ability to access the capital markets, and thus adversely affect our business and liquidity.

 

The current economic conditions are in a state of flux that could have a negative impact on our ability to access the capital markets, and thus have a negative impact on our business and liquidity. Our ability to access the capital markets has been and continues to be severely restricted at a time when we need to access such markets, which could have a negative impact on our business plans. Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future financial disruptions or how long the current market conditions may continue.

 

Our resources may not be sufficient to manage our expected growth; failure to properly manage our potential growth would be detrimental to our business.

 

We may fail to adequately manage our anticipated future growth. Any growth in our operations will place a significant strain on our administrative, financial and operational resources, and increase demands on our management and on our operational and administrative systems, controls and other resources. We cannot assure you that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employee base, and maintain close coordination among our staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems.

 

If we are unable to manage growth effectively, our business, operating results and financial condition could be materially adversely affected. As with all expanding businesses, the potential exists that growth will occur rapidly. If we are unable to effectively manage this growth, our business and operating results could suffer. Anticipated growth in future operations may place a significant strain on management systems and resources. In addition, the integration of new personnel will continue to result in some disruption to ongoing operations. The ability to effectively manage growth in a rapidly evolving market requires effective planning and management processes. We will need to continue to improve operational, financial and managerial controls, reporting systems and procedures, and will need to continue to expand, train and manage our work force.

 

We may experience difficulty attracting and retaining qualified management to meet the needs of our anticipated growth, and the failure to manage our growth effectively could have a material adverse effect on our business and financial condition.

 

Competition for additional qualified management is intense, and we may be unable to attract and retain additional key personnel, or to attract and retain personnel on terms acceptable to us. Management personnel are currently limited and they may be unable to manage our expansion successfully and the failure to do so could have a material adverse effect on our business, results of operations and financial condition. We have not entered into non-competition agreements. As our business is substantially dependent upon the directors, executive officers and consultants, the lack of non-competition agreements poses a significant risk to us in the event such persons were to resign or be terminated from such positions. Under such circumstances, such persons may provide confidential information and key contacts to our competitors and we may have difficulties in preventing the disclosure of such information. Such disclosure would have a material adverse effect on our business and operations.


18


 

 

Our operations are dependent upon key personnel, the loss of which would be detrimental to our business.

 

The nature of our business, including our ability to continue our exploration and development activities, depends, in large part, on the efforts of key personnel such as Daniel Gorski, our Chief Executive Officer. The loss of Mr. Gorski could have a material adverse effect on our business. We do not maintain “key man” life insurance policies on any of our officers or employees.

 

Pandemics, including the recent outbreak of the coronavirus, could cause delays in our exploration and development activities and could negatively impact the availability and cost of future borrowings.

 

In March 2020, the World Health Organization designated the new coronavirus (“COVID-19”) as a global pandemic. Federal, state and local governments have mandated orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, restrictions on travel, and work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has resulted in significant volatility in the financial markets.

 

The restrictions put in place by federal, state and local governments could delay our exploration and development plans related to the Round Top Project. We continue to move forward on the project in an effort to obtain a bank feasibility study; however, restrictions on the number of personnel that can gather in a single location and work restrictions on vendor businesses may delay aspects of the project until such restrictions are lifted. Furthermore, the impact of the pandemic on the global economy could also negatively impact the availability and cost of future borrowings should the need arise.

 

Risks Associated with our Common Stock

 

Our stock price is highly volatile.

 

The market price of our Common Stock has fluctuated and may continue to fluctuate. These fluctuations may be exaggerated since the trading volume of its Common Stock is volatile, limited, and sporadic. These fluctuations may or may not be based upon any business or operating results. Our Common Stock may experience similar or even more dramatic price and volume fluctuations in the future.

 

The market for our Common Stock is limited, sporadic and volatile. Any failure to develop or maintain an active trading market could negatively affect the value of our shares and make it difficult or impossible for you to sell your shares.

 

Our Common Stock is currently traded on the OTCQB. Although our Common Stock is traded on the OTCQB, a regular trading market for our securities may not be sustained in the future. Quotes for stocks traded on the OTCQB generally are not listed in the financial sections of newspapers and prices for, and coverage of, securities quoted solely on the OTCQB may be difficult to obtain. In addition, stocks quoted solely on the OTCQB tend to have a limited number of market makers and a larger spread between the bid and ask prices than those listed on an exchange. All of these factors may cause holders of our Common Stock to be unable to resell their securities at any price. This limited trading also could decrease or eliminate our ability to raise additional funds through issuances of our securities.

 

Failure to develop or maintain an active trading market could negatively affect the value of our shares and make it difficult for you to sell your shares or recover any part of your investment in us. Even if an active market for our Common Stock does develop, the market price of our Common Stock may be highly volatile. In addition to the uncertainties relating to our future operating performance and the profitability of our operations, factors such as variations in our interim financial results, or various, as yet unpredictable factors, many of which are beyond our control, may have a negative effect on the market price of our Common Stock. Accordingly, there can be no assurance as to the liquidity of any active markets that may develop for our Common Stock, the ability of holders of our Common Stock to sell our Common Stock, or the prices at which holders may be able to sell our Common Stock.

 

The sale of substantial shares of our Common Stock or the issuance of shares upon exercise of our derivative securities, including the Warrants, will cause immediate and substantial dilution to our existing stockholders and may depress the market price of our Common Stock.

 

In order to provide capital for the operation of our business, we may enter into additional financing arrangements. These arrangements may involve the issuance of new Common Stock, preferred stock that is convertible into Common Stock, debt securities that are convertible into Common Stock or warrants for the purchase of Common Stock. Any of these items could result in a material increase in the number of shares of Common Stock outstanding which would in turn result in a dilution of the ownership interest of existing Common Stockholders. In addition, these new securities could contain provisions, such as priorities on distributions and voting rights, which could affect the value of our existing Common Stock.

 

As of February 29, 2020, we have 60,995,775 shares of Common Stock issued and outstanding, and 16,719,922 shares of our Common Stock underlying derivative securities at exercise prices between $0.19 and $0.50 per share, expiring through 2028.


19


 

 

A low market price may severely limit the potential market for our Common Stock.

 

An equity security that trades below a certain price per share is subject to SEC rules requiring additional disclosures by broker-dealers. These rules generally apply to any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions (a “penny stock”). Such rules require the delivery, prior to any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and institutional or wealthy investors. For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Since our Common Stock trades at a price of less than $5.00 per share, the additional burdens imposed upon broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our Common Stock.

 

We do not currently intend to pay cash dividends.

 

We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Our present policy is to retain all available funds for use in our operations and the expansion of our business. Payment of future cash dividends, if any, will be at the discretion of our Board and will depend on our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our Board considers relevant. Accordingly, investors will only see a return on their investment if the value of our securities appreciates.

 

Control by current stockholders.

 

The current stockholders have elected the directors and the directors have appointed current executive officers to serve our Company. The voting power of these stockholders could also discourage others from seeking to acquire control of us through the purchase of our Common Stock which might depress the price of our Common Stock.

 

Investment in our Company has a high degree of risk. Before you invest you should carefully consider the risks and uncertainties described below. If any of the following risks actually occur, our business, operating results and financial condition could be harmed and the value of our stock could go down.

 

There is not now, and there may never be, an active market for our Common Stock.

 

Shares of our Common Stock have historically been thinly traded. Currently there is a limited, sporadic and highly volatile market for our Common Stock, and no active market for our Common Stock may develop in the future. As a result, our stock price as quoted by the OTC QB may not reflect an actual or perceived value. Moreover, several days may pass before any shares are traded; meaning that the number of persons interested in purchasing our common shares at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including, but not limited to:

 

we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume; and 

 

stock analysts, stock brokers and institutional investors may be risk-averse and reluctant to follow a micro-cap company such as ours that faces financing and operational risk until such time as we become more viable. 

 

As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, our Common Stock. Accordingly, investors must assume they may have to bear the economic risk of an investment in our Common Stock for an indefinite period of time, and may lose their entire investment. There can be no assurance that a more active market for our Common Stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our Common Stock and would likely have a material adverse effect on the market price of our Common Stock and on our ability to raise additional capital.

 


20


 

 

We cannot assure that our Common Stock will become liquid or that it will be listed on a national securities exchange.

 

Until our Common Stock is listed on a national securities exchange such as Nasdaq or the NYSE, we expect our Common Stock to remain eligible for quotation on the OTC. If we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our Common Stock, which may further affect the liquidity of our Common Stock. This would also make it more difficult for us to raise capital.

 

We may issue shares of preferred stock.

 

Our Certificate of Incorporation authorizes the issuance of blank check preferred stock with designations, rights and preferences determined from time to time by the board of directors. There are currently no shares of preferred stock issued and outstanding. Our board of directors is empowered, without stockholder approval, to issue preferred stock with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the preferred stock could be utilized, under certain circumstances, as a method of discouraging, delaying or preventing a change in control of the Company.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Executive and Field Offices. Our headquarters are located at 539 El Paso Street, Sierra Blanca, Texas 79851. Our accounting functions are conducted by personnel in Galveston, Texas, and Denver, Colorado, all under the supervision of our chief executive officer.

 

Overview of the Round Top Rare Earth-Uranium-Beryllium Project. We are currently in the exploration stage and have not established that our Round Top Project contains Proven or Probable Reserves as defined under SEC Guide 7.

 

Description and Access

 

Round Top is a small mountain, one of a group of five that comprises the Sierra Blanca, located in Hudspeth County approximately eight miles northwest of the town of Sierra Blanca. The property is reached by truck on a private dirt road that turns north off Interstate 10 access road approximately one mile west of the town of Sierra Blanca. A railroad line is located approximately one to three miles from the Round Top Project and a spur line stops at a stone quarry within three miles of the Round Top Project.

 

Round Top Location Map

TMRC10K002.JPG  


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Acquisition and Ownership

 

Prospecting Permits

 

TMRC currently holds prospecting permits covering land in Hudspeth County. The prospecting permits allow for exploration activities on approximately 7,110 acres. Currently, TMRC has yet to complete drilling on lands identified within the permits due to the requirement of completing archeological studies. TMRC intends to complete archeological studies in all areas for future exploration. To date, all exploration work has occurred on areas with approved archeological assessments. A summary of the prospecting permits is listed in Table 1 below:

 

TMRC Permit Numbers and Associated Acres

 

Permit #

Acres

M-114639

640

M-114640

640

M- 114641

250

M-114642

640

M-114643

400

M-114644

360

M-114645

340

M-115990

640

M-115991

640

M-115992

640

M-115993

640

M-115994

640

M-115995

640

 

September 2011 Lease

 

In September 2011, we entered into a new mining lease with the GLO covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres at Round Top Mountain in Hudspeth County, Texas. The mining lease issued by the GLO gives us the right to explore, produce, develop, mine, extract, mill, remove, and market beryllium, uranium, rare earth elements, all other base and precious metals, industrial minerals and construction materials and all other minerals excluding oil, gas, coal, lignite, sulfur, salt, and potash. The term of the lease is nineteen years from execution date of lease so long as minerals are produced in paying quantities.

 

Under the lease, we will pay the State of Texas a lease bonus of $142,518; $44,718 of which was paid upon the execution of the lease, and $97,800 which will be due when we submit a supplemental plan of operations to conduct mining. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $500,000 minimum advance royalty.

 

Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (61/4%) of the market value of all other minerals removed and sold from Round Top.

 

Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:

 

 

 

Per Acre

 

Total

 

 

Amount

 

Amount

September 2, 2015 – 2019

$

75

$

67,077

September 2, 2020 – 2024

 

150

 

134,155

September 2, 2025 – 2029

 

200

 

178,873

 

In August 2019, we paid the State of Texas a delay rental of $67,077.

 


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November 2011 Lease

 

In November 2011, we entered into a mining lease with the State of Texas covering 90 acres, more or less, of land that we purchased in September 2011 near our Round Top site. The deed was recorded with Hudspeth County on September 16, 2011. Under the lease, we paid the State of Texas a lease bonus of $20,700 which was paid upon the execution of the lease. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $50,000 minimum advance royalty. Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (61/4%) of the market value of all other minerals sold from Round Top. The term of the lease is nineteen years from execution date of lease so long as minerals are produced in paying quantities.

 

Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:

 

 

 

Per Acre

 

Total

 

 

Amount

 

Amount

November 1, 2015 – 2019

$

75

$

6,750

November 1, 2020 – 2024

 

150

 

13,500

November 1, 2025 – 2029

 

200

 

18,000

 

In August 2019, we paid the State of Texas a delay rental to extend the term of the lease in an amount equal to $6,750.

 

March 2013 Lease

 

In March 2013, we purchased the surface lease at the Round Top Project, known as the West Lease, from the Foundation for $500,000 cash and 1,063,830 shares of our Common Stock. We also agreed to support the Foundation through an annual payment of $45,000 for ten years to support conservation efforts within the Rio Grande Basin and in particular engaging in stewardship of Lake Amistad, a large and well-known fishing lake near Del Rio, Texas. The West Lease comprises approximately 54,990 acres. The purchase of the surface lease provided unrestricted surface access for the potential development and mining of our Round Top Project.

 

October 2014 Surface Option and Water Lease

 

In October 2014, we announced that we had executed agreements with the GLO securing the option to purchase the surface rights covering the potential Round Top Project mine and plant areas and, separately, a lease to develop the water necessary for the potential Round Top Project mine operations. The option to purchase the surface rights covers approximately 5,670 acres over the mining lease and the additional acreage adequate to site all potential heap leaching and processing operations as currently anticipated by the Company. We may exercise the option for all or part of the option acreage at any time during the sixteen year primary term of the mineral lease. The option can be kept current by an annual payment of $10,000. The purchase price will be the appraised value of the surface at the time of exercising the option.

 

The ground water lease secures our right to develop the ground water within a 13,120 acre lease area located approximately 4 miles from the Round Top deposit. The lease area contains five existing water wells. It is anticipated that all potential water needs for the Round Top Project mine operations will be satisfied by the existing wells covered by this water lease. This lease has an annual minimum production payment of $5,000 prior to production of water for the operation. After initiation of production we will pay $0.95 per thousand gallons or $20,000 annually, whichever is greater. This lease remains effective as long as the mineral lease is in effect.

 

Existing Infrastructure

 

The Round Top rare earth prospect was initially developed in the late 1980s as a beryllium resource. As a result, several pieces of equipment were present at the property when we acquired the lease, some of which we have repaired as described below. The previous operators had also built out several roads at the prospect site, which we believe are suitable for our current exploration plans.

 

There exists on the Round Top site a 1,115 foot, 10 foot by 10 foot decline from the surface into the Round Top prospect. There are steel sets every five feet, in some cases less, and the entire working is lagged with timber. There are “escape holes” at intervals to allow personnel to avoid equipment. The escape holes are all in good operating condition. There is also a 36 foot steel ventilation line in place that runs for approximately 75 feet into the prospect. There is a 125 hp axial plane ventilation fan in place. We have leveled the fan and rehabilitated the control panel, and have operated this ventilation system during the evaluation of the historic Cabot-Cyprus work. We intend to install a “soft start” motor starter switch for the vent fan in the future in order to be able to use a 100kw generator.

 


23


 

 

A bag house is also located on the property that will need its electronic controls rehabilitated and modernized and filters installed. There is a 6” Victaulic compressed air line extending from the compressor station outside to the faces. There are numerous valves at strategic locations underground. There is one 2’ steel Victaulic water line for drill water and an additional partly plastic Victaulic water line for dust suppression sprayers, which also has sprayers in place.

 

There is electric cable from the portal to the face and a switch box underground. Some additional switching gear will need to be installed at the portal. The mine portal has a sturdy locking steel door in place that we have reconditioned.

 

There is a 500 barrel (23,000 gal) water tank below the mine dump for water to be hauled in and stored. This tank appears to be in good shape. The water line from the tank to the mine portal is missing and will have to be replaced. The water system will need a submersible pump, switching gear and approximately 1000 ft of 2” poly line to render the water system serviceable.

 

The nearest population center to the Round Top Project is Sierra Blanca, Texas. The town of Sierra Blanca is approximately six miles to the southeast of the Round Top Project site. The population was 533 in 2000 and 510 during the 2007 census. Skilled mining labor and support could be found in El Paso, approximately 85 miles to the northeast.

 

A major rail line parallels Interstate 10 approximately three to four miles west and south of the mine site. Approximately three miles from the Project site is a commercial rock quarry in operation which produces ballast for the railroad. The rock quarry operation has a rail road spur which is approximately two to three miles from the project.

 

Power is currently supplied to Sierra Blanca through El Paso Electric Services. El Paso Electric Services has approximately 1,643 megawatts of generating capacity. As the greater power needs of a floatation operation have been eliminated by the proposed heap leach mine plan the existing 69 kV is thought to be adequate to supply the envisioned heap leach operation.

 

Water for the project may be obtained from a well field approximately 3 miles east of the mine site. In October 2014, we executed a lease with the GLO to develop the water necessary for the potential Round Top Project mine operations. The ground water lease secures our right to develop the ground water within a 13,120 acre lease area located approximately 4 miles from the Round Top deposit. The lease area contains five existing water wells. It is anticipated that all potential water needs for the Round Top Project mine operations would be satisfied by the existing wells covered by this water lease. This lease has an annual minimum production payment of $5,000 prior to production of water for the operation, which has not been paid as of the date of this filing. After initiation of production we will pay $0.95 per thousand gallons or $20,000 annually, whichever is greater. This lease remains effective as long as the mineral lease is in effect.

 

This well field was originally developed to supply water for a proposed real estate project in the late 1970’s. One of the existing wells is reported to have pump tested 950 gallons per minute and another 450 gallons per minute. This water is high enough in total dissolved solids to not meet drinking water standards, thus there is no competition for its use. The quality of the water is believed to be adequate for process water needs and the water will require treatment to be potable.

 

Geology

 

The Round Top Project area lies within the Texas Lineament Zone or Trans-Pecos Trend. The lineament is a northwest trending structural zone where Laramide thrust faulting followed by basin and range normal faulting were active. Tertiary igneous activity is also associated with the lineament zone, both intrusive and extrusive.

 

Locally the project area is characterized by five Tertiary microgranite bodies that intruded Cretaceous sedimentary rocks. The microgranites occur as laccoliths, mushroom-shaped bodies emplaced at relatively shallow depths. At the current erosional levels, laccoliths form resistant peaks with relief up to 2,000 feet. The microgranites, which are called rhyolites in the literature, are enriched with various metals which may or not be economical to recover. The rare earth elements are located with-in the intrusive rhyolite body.

 

Tertiary Diorite which predate the microgranites are intruded the cretaceous section. The diorites occur as sills, five to 100 feet thick and less frequently as dikes and plugs. Sedimentary rocks exposed in the area are middle to upper Cretaceous limestones shales and sandstones. The limestone, where it is in contact with the microgranites, is the host for Beryllium and uranium mineralization.

 

The Round Top Project was initially developed in the late 1980’s as a beryllium resource. During the course of the beryllium exploration, approximately 200 drill holes penetrated varying thicknesses of the rhyolite volcanic rock that makes up the mass of Round Top Mountain and caps the beryllium-uranium deposits which occur in the underlying limestone; some 50 more holes were drilled on Little Round Top, Sierra Blanca and Little Blanca Mountains.

 


24


 

 

The Texas Bureau of Economic Geology, working with the project geologists, conducted an investigation of the rhyolite to better understand its rare metal content. This research shows that the rhyolite laccoliths at Sierra Blanca are enriched in a variety of REEs such as tantalum, niobium, thorium and lithium. They analyzed a series of samples from outcrop and drill holes and studied the geochemistry and mineralogy of the rhyolite. The results of their research were published in the GSA, Geological Society of America, Special Paper 246, 1990.

 

Mineralization

 

Round Top rhyolite is enriched in HREEs. Statistical review of the current data shows that an estimated 70% of the total REE’s grade being HREEs. REE mineralization occurs primarily as disseminated microcrystals of varieties of fluorite (such as yttrium-rich yttrofluorite) where HREEs have substituted for calcium, and as other REE-bearing accessory minerals. REE minerals occur mainly in vugs and as crystal coatings, suggesting late-stage crystallization from an incompatible element-rich fluid.

 

The Round Top rhyolite was divided into five different alteration phases based on the intensity of hematitic and hydrothermal alteration: red rhyolite, pink rhyolite, tan rhyolite; brown rhyolite and gray rhyolite. Hematitic alteration is a replacement of the magnetite by hematite and gives the rhyolite a red to pink color. Hydrothermal alteration was late and gives the rhyolite a tan to brown color. Mostly unaltered, gray rhyolite was also documented.

 

Initial geochemical testwork, presented in Section 13, suggests that the gray and pink rhyolite units have the highest REE content, averaging between 554 and 615 parts per million (ppm) total REE + Yttrium (Y). Red and tan rhyolites, which may be strongly vapor-phase altered, contain about 8% lower abundance of REE and the brown rhyolite, which may be altered hydrothermally or by groundwater, contains about 23% less REE than the gray and pink varieties.

 

Metallurgy

 

In September 2013, we completed the first phase of heap leach testing. The products recovered from the heap leaching are categorized as rare earth elements, tech metals and industrial/fertilizer products. The results are summarized below:

 

REE + Y + Sc

 

 

 

Tech Metals

 

 

 

ppm

% REE

Heap Leach

 

 

ppm

 

Heap Leach

 

Ore

Dist.

Recovery

 

 

Ore

 

Recovery

 

 

 

RDI Col 2

 

 

 

 

RDI Col 2

La

19.8

4%

73.8%

 

U

45

 

31.0%

Ce

77.8

15%

69.2%

 

Th

180

 

91.0%

Pr

10.3

2%

81.6%

 

Li

465

 

58.0%

Nd

28.3

5%

81.4%

 

Hf

79

 

5.9%

Sm

10.3

2%

83.6%

 

Be

22

 

9.5%

Eu

0.1

0%

74.4%

 

Ga

88

 

6.4%

Gd

10.1

2%

90.2%

 

Zr

1,177

 

5.7%

Tb

3.5

1%

87.1%

 

Nb

387

 

2.7%

Dy

31.1

6%

87.4%

 

Ta

66

 

0.0%

Ho

7.9

1%

86.5%

 

Sn

132

 

5.7%

Er

33.1

6%

83.4%

 

 

 

 

 

Tm

7.2

1%

77.8%

 

Industrial Sulfates

 

 

Yb

57.4

11%

74.5%

 

Al

74,694

 

7.2%

Lu

9.0

2%

67.2%

 

Fe

10,915

 

36.8%

Y

221.9

42%

92.2%

 

Mg

1,447

 

93.1%

Sc

0.8

0.15%

68.4%

 

Mn

527

 

50.1%

TREE

527.9

100%

83.6%

 

K

30,549

 

7.0%

 

 

 

 

 

Na

36,985

 

3.5%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Questionable Market

 

 

 

 

 

 

 

Cs

52.8

 

41.9%

 

 

 

 

 

Sr

66.18

 

71.3%

 

 

 

 

 

Rb

2,120

 

13.2%

 


25


 

 

In December 2013 we published a PEA based on a 20,000 tonness per day heap leaching operation. This PEA called for the marketing of rare earth elements and uranium only and used the prices existing at that time.

 

In April 2015 we completed the first stage of hydrometallurgical testing at K-Tech, Lakeland Florida, that demonstrated it was possible to use ion exchange to extract the rare earth elements and the uranium and thorium from the primary leach solution. These tests also indicated that ion exchange and ion chromatography would be the most efficient process for refining and purifying the various products.

 

In July 2016 we completed a contract awarded by the Department of Defense, Defense Logistic Agency to TMRC and K-Tech demonstrating the ability of ion exchange and ion chromatography to make high purity rare earth products from leached Round Top rhyolite.

 

On August 16 2019 we published an expanded and upgraded PEA that included the various by-product elements in the resource base. This PEA is based on using ion exchange and ion chromatography for the refining of the rare earth group of elements and other various elements and other processes for lithium and the industrial and fertilizer elements.

 

Project Exploration History and Timeline

 

The Round Top rare earths and uranium-beryllium prospects were initially drilled in 1984 and 1985, during which time the ore body known as the “West End Ore Zone” was discovered by Cabot Corporation. In subsequent years, Cyprus Minerals Corporation took over the exploration activities. Cyprus drilled additional exploration holes and also put an adit into the ore zone where 1,115 feet of underground workings were driven. Cyprus developed the underground workings in order to obtain bulk samples for pilot plant testing and beryllium oxide concentrate generation. Cyprus ultimately put the project on hold as a result of poor beryllium market conditions. Cyprus eventually allowed the lease with the state of Texas to lapse.

 

In March 2011, the Company completed an analysis of 1,103 drill samples from the 1984-88 drilling program initially conducted on the Round Top Project by third party operators. All or a portion of forty-six out of an estimated two hundred fifty existing drill holes have been re-logged and re-analyzed. The rare earth element and other metals are consistent with the original study by the Texas Bureau of Geology that was published in the Geological Society of America, Special Paper 246 in 1990. This study first described the rare metal content of the large mass of intrusive igneous rock that makes up the body of Round Top Mountain, and is the basis for our interest in this deposit. The nine drill holes cited below were selected because they are widely distributed and roughly define an area approximately six thousand feet by four thousand feet within the approximate seven thousand-foot known diameter of the intrusive rhyolite body. They intersected the entire body of the rhyolite.

 

Costs

 

At the end of 2019 fiscal year, we had incurred exploration costs at the Round Top Project of approximately $13 million.

 

Morzev Agreement

 

In August 2018, the Company and Morzev entered into an agreement where Morzev has the exclusive right to earn and acquire a seventy percent (70%) interest, increasable to an eighty percent (80%) interest, in the Round Top Project from the Company by funding certain expenditures described below. In connection therewith, Morzev purchased 646,054 shares of Common Stock for $140,000.

 

In order to acquire and earn the 70% interest in the Round Top Project, Morzev must perform and complete the following:

 

(i)expend a total of $2,500,000 for mining operations on the Round Top Project within 12 – 18 months of August 2018 (inclusion of the $140,000 common stock purchase); and 

 

(ii)fund what is remaining to complete a bank feasibility study on the Round Top Project, up to a maximum of $7,500,000, with the remaining amount to be contributed equally between Morzev and the Company. 

 

If and when Morzev satisfies the earning requirements above, its beneficial interest in the Round Top Project will immediately increase to 70% and the Company’s interest in Round Top will immediately reduce to 30%. Upon Morzev earning a 70% interest in Round Top, the parties shall formalize a joint venture in respect of Round Top, with each party being required to contribute to future expenditures with respect to Round Top in proportion to their ownership and all budgets and timelines to be determined and agreed by a management committee established between the parties, consisting of 2 appointees of Morzev and Mr. Gorski. Additionally, the failure of a party to fund its proportionate expenditure request may result in dilution of an ownership interest.

 


26


 

 

Morzev shall have the option to acquire from the Company an additional 10 percent interest (10%) in the Round Top Project by:

 

(i)providing written notice to the Company within 180 days of the completion of the bankable feasibility study; and 

 

(ii)paying to the Company $3,000,000. 

 

The additional option is only relevant if Morzev earns a 70% interest in the Round Top Project.

 

Morzev presently serves as the project manager of Round Top, with responsibility to manage, supervise, direct, and control the mining operations with respect to Round Top.

 

On August 26, 2019, we executed an amended and restated option agreement whereby Morzev assigned its interest in the option to USA Rare Earth LLC.

 

ITEM 3. LEGAL PROCEEDINGS

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Pursuant to Section 1503(a) of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the fiscal year ended August 31, 2019, our U.S. exploration properties were not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”).

 


27


 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Our Common Stock is listed for quotation on the OTC QB operated by OTC Markets Group Inc. under the symbol “TMRC.” The market for our Common Stock on the OTC QB is limited, sporadic and highly volatile. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission and may not represent actual transactions. The following table sets forth the range of high and low bid prices during the periods indicated.

 

Fiscal Year 2019

 

High

 

Low

Quarter ended August 31, 2019

$

0.5

$

0.28

Quarter ended May 31, 2019

$

0.45

$

0.19

Quarter ended February 28, 2019

$

0.25

$

0.21

Quarter ended November 30, 2018

$

0.29

$

0.17

 

Fiscal Year 2018

 

High

 

Low

Quarter ended August 31, 2018

$

0.34

$

0.17

Quarter ended May 31, 2018

$

0.20

$

0.15

Quarter ended February 28, 2018

$

0.21

$

0.14

Quarter ended November 30, 2017

$

0.22

$

0.17

 

The last bid price of our Common Stock on November 22, 2019 was $0.285 per share.

 

Holders

 

The approximate number of holders of record of our Common Stock as of November 22, 2019 was 498.

 

Dividends

 

We have not paid any cash dividends on our equity security and our Board has no present intention of declaring any cash dividends. We are not prohibited from paying any dividends pursuant to any agreement or contract.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

We have adopted a stock option plan, approved by our shareholders. As of August 31, 2019, a total of 9,000,000 shares of our Common Stock have been reserved for issuances under our plan, with 4,635,000 shares being reserved for future issuance.

 

The following table sets forth certain information as of August 31, 2019 concerning our Common Stock that may be issued upon the exercise of options or warrants or pursuant to purchases of stock under the Amended 2008 Plan:

 

Plan Category

 

(a)

Number of

Securities to be

Issued Upon the Exercise of

Outstanding

Options

 

(b)

Weighted-

Average

Exercise

Price of

Outstanding

Options

 

I

Available for

Future

Issuance Under

Equity

Compensation

Plans

(Excluding

Securities

Reflected in

Column (a))

Equity compensation plans approved by stockholders

 

4,365,000

$

0.28

 

4,635,000

Nonplan equity compensation

 

1,345,000

$

0.27

 

-

Total

 

5,710,000

$

0.28

 

4,635,000

 

 

 

 

 

 

 


28


 

 

Recent Sales of Unregistered Securities During Fiscal 2019

 

Except as set forth below, all unregistered sales of equity securities during the period covered by the Annual Report were previously disclosed in our current reports on Form 8-K or quarterly reports on Form 10-Q.

 

Date

Description

Number

Purchaser

Proceeds

($)

Consideration

Exemption(E)

August 2019

Common Stock

5,111,626

Investor

$1,840,185

Cash

Sec. 4(a)(2)

August 2019

Common Stock

2,142,897(A)

Directors

non-cash

Services

Sec. 4(a)(2)

August 2019

Common Stock

2,076,825(B)

Directors

non-cash

Debt conversions

Sec. 4(a)(2)

August 2019

Common Stock Warrants

2,564,190(C)

Directors

non-cash

Consideration for Debt Extension

Sec. 4(a)(2)

August 2019

Common Stock Warrants

720,000(D)

Consultant

non-cash

Services

Sec. 4(a)(2)

 

(A)Common Stock issued pursuant to Board services in lieu of cash compensation.  

 

(B)Common Stock issued pursuant to loans made to the Company on behalf of certain Directors and Officers.  

 

(C)Common Stock Warrants issued pursuant to consideration for debt extensions on behalf of certain Directors and Officers. Each warrant is exercisable for a 5-year term at an exercise price of $0.20. 

 

(D)Common Stock Warrants issued pursuant to a consulting agreement for legal services. 

 

(E)With respect to sales designated by “Sec. 4(a)(2),” these shares were issued pursuant to the exemption from registration contained in to Section 4(a)(2) of the Securities Act as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. None of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. 

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable. 

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this Annual Report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See “Cautionary Note Regarding Forward-Looking Statements.” Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this Annual Report.

 

Overview

 

We currently do not have any producing properties and consequently, we have no current operating income or cash flow and have not generated any revenues. Further exploration will be required before a final evaluation as to the economic and practical feasibility of any of our properties is determined.

 

Liquidity and Capital Resources

 

At August 31, 2019, our accumulated deficit was approximately $37,752,000 and our cash position was approximately $1,825,000. In August 2019, we issued 5,111,626 shares of common stock for $1,840,185. We had a working capital surplus of approximately $397,000. We have not commenced commercial production on any of our mineral properties. We have no revenues from operations and anticipate we will have no operating revenues until we place one or more of our properties into production. All properties are in the exploration stage.

 

During the fiscal year ending August 31, 2019, we expended approximately $139,000 in certain metallurgical activities and we expect to expend additional amounts to fund metallurgical activities during our current fiscal year.

 


29


 

 

Other than the financial commitment with USA Rare Earth to fund operations to earn a 70% interest in the Round Top Project, we currently do not have funds to pursue exploration or development work on the Round Top Project, which means that we will be required to raise additional capital on best efforts terms if USA Rare Earth ceases funding, or find alternative means to finance the Round Top Project continued exploration activities, if warranted. Subsequent to the funding of the USA Rare Earth amount, we will need to raise a significant amount of additional capital to exploit the Round Top Project. Failure to obtain required and sufficient financing may result in the (i) delay or indefinite postponement of exploration and, if warranted, development or production in the Round Top Project and/or (ii) curtailment or cessation of our operations. This includes our leases over claims covering the Round Top Project. We cannot be certain that additional capital or other types of financing will be available if needed or that, if available, the terms of such financing will be favorable or acceptable to us. Our ability to arrange additional financing in the future is dependent upon third parties. Failure of obtaining the required capital will result in the curtailment or cessation of our business operations.

 

Results of Operations

 

Fiscal Years ended August 31, 2019 and 2018

 

Revenue

 

During the fiscal year ended August 31, 2019 we had no revenues For the fiscal year ended August 31, 2019, our net loss was approximately $2,381,000. We had no operating revenues during the fiscal years ended August 31, 2019 and 2018. We are not currently profitable. As a result of ongoing operating losses, we had an accumulated deficit of approximately $37,752,000 as of August 31, 2019.

 

Operating expenses and resulting losses from Operations.

 

We incurred exploration costs for the fiscal years ended August 31, 2019 and 2018, in the amount of approximately $139,000 and $95,000, respectively. Expenditures during fiscal year 2019 and 2018 were primarily for metallurgical testing.

 

Our general and administrative expenses for the fiscal year ended August 31, 2019 were approximately $866,000 of which approximately $570,000 were stock compensation for services. The remaining expenditures were primarily for accrued payroll, professional fees and other general administrative expenses necessary for our operations.

 

Our general and administrative expenses for the fiscal year ended August 31, 2018 were approximately $518,000 of which approximately $109,000 were for stock compensation for services. The remaining expenditures were primarily for accrued payroll and related taxes and benefits, professional fees and other general and administrative expenses necessary for our operations.

 

We had losses from operations for the fiscal years ended August 31, 2019 and 2018 totaling approximately $1,005,000 and $618,000, respectively and net losses for the fiscal years ended August 31, 2019 and 2018 totaling approximately $2,381,000 and $738,000, respectively. During the year ended August 31, 2019, we recognized a noncash loss on extinguishment of debt totaling $722,000 related to modifications to advances received from related parties which included the addition of a substantive conversion option. In addition, we recognized a noncash loss on settlement of accrued liabilities totaling $642,000 during the year ended August 31, 2019 related to shares issued for settlement of accrued compensation due employees, officers and directors. We had interest expense of approximately $21,000 and $121,000 for the fiscal years ended August 31, 2019 and 2018, respectively.

 

Off-Balance Sheet Arrangements

 

For the fiscal years ended August 31, 2019 and 2018, we have off-balance sheet arrangements for annual payments in relation to the mineral leases as disclosed in foot note 4 of the financial statements.

 

Recently Issued Accounting Pronouncements

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position, or cash flow.

 


30


 

 

Critical Accounting Estimates

 

Management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. Preparation of financial statements requires management to make assumptions, estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses, and the related disclosures of contingencies. Management bases its estimates on various assumptions and historical experience, which are believed to be reasonable; however, due to the inherent nature of estimates, actual results may differ significantly due to changed conditions or assumptions. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are fairly presented in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material. Management believes that the following critical accounting estimates and judgments have a significant impact on our financial statements; Valuation of options granted to directors and officers using the Black-Scholes model, and fair value of mineral properties. The accounting policies are described in greater detail in Note 2 to our audited financial statements for the fiscal year ended August 31, 2019.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.


31


 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Texas Mineral Resources Corp.

Sierra Blanca, Texas

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Texas Mineral Resources Corp. (the Company) as of August 31, 2019 and 2018, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended August 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of August 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the two-year period ended August 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

 

Emphasis of Matter

 

As discussed in Note 3, the accompanying financial statements have been restated for accounting adjustments. In connection with the restatement of the accompanying financial statements, the Company has identified material weaknesses in internal control over financial reporting related to the ineffectiveness of controls over accounting for complex transactions. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses referred to above are described in Management’s Report on Internal Control over Financial Reporting appearing under Item 9A. We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audits of the financial statements.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/S/ HAM, LANGSTON & BREZINA, L.L.P.

 

We have served as the Company’s auditor since 2019.

 

Houston, Texas

 

May 29, 2020


F-1


 

 

TEXAS MINERAL RESOURCES CORP.

BALANCE SHEETS

 

 

 

August 31,

2019

 

August 31,

2018

 

 

(As Restated)

 

 

ASSETS

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

Cash and cash equivalents

$

1,824,546

$

31,591

Prepaid expenses and other current assets

 

4,450

 

3,333

Total current assets

 

1,828,996

 

34,924

 

 

 

 

 

Mineral properties, net

 

354,234

 

354,234

Deposits

 

-

 

4,000

 

 

 

 

 

TOTAL ASSETS

$

2,183,230

$

393,158

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

Accounts payable and accrued liabilities

$

1,118,070

$

1,314,763

Advance– due to - related party

 

190,454

 

421,415

Current portion of note payable

 

123,542

 

302,637

Total current liabilities

 

1,432,066

 

2,038,815

Total liabilities

 

1,432,066

 

2,038,815

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

Preferred stock, par value $0.001; 10,000,000 shares authorized, no shares issued and outstanding as of August 31, 2019 and August 31, 2018, respectively

 

-

 

-

Common stock, par value $0.01; 100,000,000 shares authorized, 56,204,994 and 44,941,532 shares issued and outstanding as of August 31, 2019 and August 31, 2018, respectively

 

562,050

 

449,416

Additional paid-in capital

 

37,940,809

 

33,275,248

Accumulated deficit

 

(37,751,695)

 

(35,370,321)

Total shareholders’ equity (deficit)

 

751,164

 

(1,645,657)

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)

$

2,183,230

$

393,158

 

 

 

 

 

 

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

 


F-2


 

 

 

 

TEXAS MINERAL RESOURCES CORP.

STATEMENTS OF OPERATIONS

For the Years Ended August 31, 2019 and 2018

 

 

 

2019

 

2018

 

 

(As Restated)

 

 

OPERATING EXPENSES

 

 

 

 

Exploration costs

$

139,198

$

95,452

Impairment of mineral properties

 

-

 

4,360

General and administrative expenses

 

865,566

 

518,001

 

 

 

 

 

Total operating expenses

 

1,004,764

 

617,813

 

 

 

 

 

LOSS FROM OPERATIONS

 

(1,004,764)

 

(617,813)

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

Loss on extinguishment of debt

 

(721,689)

 

-

Loss on settlement of accrued liabilities

 

(641,677)

 

-

Other income

 

7,767

 

-

Interest and other expense

 

(21,011)

 

(120,525)

Total other income (expense)

 

(1,376,610)

 

(120,525)

 

 

 

 

 

NET LOSS

$

(2,381,374)

$

(738,338)

 

 

 

 

 

Net loss per share:

 

 

 

 

Basic and diluted net loss per share

$

(0.05)

$

(0.02)

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

Basic and diluted

 

46,737,894

 

44,941,533

 

 

 

 

 

 

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


F-3


 

 

TEXAS MINERAL RESOURCES CORP.

STATEMENTS OF CASH FLOWS

For the Years Ended August 31, 2019

 

 

2019

 

2018

 

 

(As Restated)

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

Net loss

$

(2,381,374)

$

(738,338)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

Accretion of debt discount

 

21,011

 

97,508

Impairment of mineral properties

 

-

 

4,360

Depreciation expense

 

-

 

5,421

Common stock issued for services

 

279,130

 

109,431

Other stock based compensation

 

256,637

 

-

Loss on settlement of accrued liabilities

 

641,677

 

-

Loss on extinguishment of debt

 

721,689

 

-

Changes in current assets and liabilities:

 

 

 

 

Prepaid expenses and other assets

 

2,883

 

23,334

Accounts payable and accrued expenses

 

125,934

 

353,545

Net cash used in operating activities

 

(332,413)

 

(144,739)

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

Net cash used in investing activities

 

-

 

-

 

 

 

 

-

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

Proceeds from notes–payable - related party

 

-

 

175,250

Payments on note payable

 

(67,188)

 

-

Advances from related party

 

185,454

 

-

Proceeds from sale of common stock, net

 

1,971,785

 

-

Proceeds from exercise of common stock warrants

 

35,317

 

-

Net cash provided by financing activities

 

2,125,368

 

175,250

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

1,792,955

 

30,511

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

31,591

 

1,080

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

1,824,546

$

31,591

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION:

 

 

 

 

Cash paid for interest expense

$

-

$

-

Cash paid for income taxes

$

-

$

-

 

 

 

 

 

Non-cash Investing and Financing Transactions:

 

 

 

 

Common stock and warrants issued to reduce and modify note payable

$

133,968

$

-

 

 

 

 

 

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

 


F-4


 

 

 

TEXAS MINERAL RESOURCES CORP.

STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

For the Years Ended August 31, 2019 (Restated) and 2018

 

Common Stock

Shares

 

Amount

 

Additional

Paid-in

Capital

 

Accumulated

Deficit

 

Total

Balance at August 31, 2017

44,941,532

$

449,416

$

33,068,309

$

(34,631,983)

$

(1,114,258)

 

 

 

 

 

 

 

 

 

 

2018 Activity:

 

 

 

 

 

 

 

 

 

Options issued to Officers and Directors

-

 

-

 

88,697

 

-

 

88,697

Options issued for services

-

 

-

 

118,242

 

-

 

118,242

Net loss

-

 

-

 

-

 

(738,338)

 

(738,338)

 

 

 

 

 

 

 

 

 

 

Balance at August 31, 2018

44,941,532

 

449,416

 

33,275,248

 

(35,370,321)

 

(1,645,657)

 

 

 

 

 

 

 

 

 

 

2019 Activity (As Restated):

 

 

 

 

 

 

 

 

 

Options issued to Officers and Directors

-

 

-

 

256,637

 

-

 

256,637

Common stock and warrants issued for services

22,500

 

225

 

278,905

 

-

 

279,130

Common stock issued for cash

5,757,680

 

57,576

 

1,922,609

 

-

 

1,980,185

Syndication costs

598,666

 

5,987

 

(14,387)

 

-

 

(8,400)

Common stock issued in connection with debt settlement

500,000

 

5,000

 

100,000

 

-

 

105,000

Common stock issued to settle accrued liabilities

2,084,073

 

20,841

 

943,463

 

-

 

964,304

Modification of note payable

-

 

-

 

28,968

 

-

 

28,968

Cashless exercise of warrants

122,811

 

1,228

 

(1,228)

 

-

 

-

Warrant conversion

100,907

 

1,009

 

34,308

 

-

 

35,317

Modification of related party advances

-

 

-

 

1,137,054

 

-

 

1,137,054

Common stock issued for note conversion

2,076,825

 

20,768

 

(20,768)

 

-

 

-

Net loss

-

 

-

 

-

 

(2,381,374)

 

(2,381,374)

 

 

 

 

 

 

 

 

 

 

Balance at August 31, 2019, (As Restated)

56,204,994

$

562,050

$

37,940,809

$

(37,751,695)

$

751,164

 

 

 

 

 

 

 

 

 

 

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


F-5


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 1 – ORGANIZATION AND NATURE OF BUSINESS

 

Texas Mineral Resources Corp. (the “Company”) was incorporated in the State of Nevada in 1970 as Standard Silver Corporation. In 2010, we changed our name from “Standard Silver Corporation” to “Texas Rare Earth Resources Corp”. In 2012, we changed our state of incorporation from Nevada to Delaware under a plan of conversion dated August 24, 2012. In 2016, we changed the name of the Company to Texas Mineral Resources Corp.

 

We are a mining company engaged in the business of the acquisition and development of mineral properties. We hold two nineteen-year leases, executed in September and November of 2011, to explore and develop a 950-acre rare earths project located in Hudspeth County, Texas known as the Round Top Project and prospecting permits covering an adjacent 9,345 acres. We also own unpatented mining claims in New Mexico. We are currently not evaluating any additional prospects, and our company’s focus is the development of the Round Top rare earth prospect.

 

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES

 

Exploration-Stage Company

 

Since January 1, 2009, the Company has been classified as an “exploration stage” company for purposes of Industry Guide 7 of the U.S. Securities and Exchange Commission (“SEC”). Under Industry Guide 7, companies engaged in significant mining operations are classified into three categories, referred to as –stages” - exploration, development, and production. Exploration stage includes all companies that do not have established reserves in accordance with Industry Guide 7. Such companies are deemed to be “in the search for mineral deposits.” Notwithstanding the nature and extent of development-type or production-type activities that have been undertaken or completed, a company cannot be classified as a development or production stage company unless it has established reserves in accordance with Industry Guide 7.

 

Basis of Presentation

 

Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred, in accordance with generally accepted accounting principles (“GAAP”) – United States.

 

Cash and Cash Equivalents

 

We consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of demand deposits at commercial banks. We maintain our cash and cash equivalents at banks selected by management based upon their assessment of the financial stability of the institution. Balances periodically exceed the federal depository insurance limit; however, we have not experienced any losses on deposits.

 

Property and Equipment

 

Our property and equipment consist primarily of vehicles, furniture and equipment, and are recorded at cost. Expenditures related to acquiring or extending the useful life of our property and equipment are capitalized. Expenditures for repair and maintenance are charged to operations as incurred. Depreciation is computed using the straight-line method over an estimated useful life of 3-20 years.

 

Lease Deposits

 

From time to time, the Company makes deposits in anticipation of executing leases. The deposits are capitalized upon execution of the applicable agreements. 

 

Long-lived Assets

 


F-6


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

 

The Company reviews the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through operations. To determine if these costs are in excess of their recoverable amount, periodic evaluation of carrying value of capitalized costs and any related property and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 360”), Property, Plant and Equipment. The Company’s assets susceptible to impairment analysis are the mineral properties described in Note 6.

 

Revenue Recognition

 

Revenue is recognized when title passes to the buyer and when collectability is reasonably assured. Title passes to the buyer based on terms of the sales contract. Product pricing is determined based on contractual arrangements with the Company’s customers.

 

Effective September 1, 2018, the Company adopted ASC Topic 606. In May 2014, the Financial Accounting Standards Board (“FASB”) issued guidance on revenue recognition, which provides a single, comprehensive revenue recognition model for all contracts with customers and supersedes most existing revenue recognition guidance. The main principle under this guidance is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or services to customers.

 

The Company identified the predominant changes to its accounting policies resulting from the application of this guidance and quantified the impact on its financial statements. The cumulative effect of the initial adoption of this guidance did not have any significant impact on the Company’s financial statements, as the Company did not have any significant customer contracts in place at August 31, 2018. As a result, comparative prior periods have not been adjusted and continue to be reported under FASB ASC Topic 605, Revenue Recognition (“ASC 605”).

 

The Company’s revenue recognition policies are established in accordance with the Revenue Recognition topics of ASC 606, and accordingly, revenue is recognized when control of the promised goods or services is transferred to our clients, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. 

 

Mineral Exploration and Development Costs

 

All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If the Company does not continue with exploration after the completion of the feasibility study, the mineral rights will be expensed at that time. Costs of abandoned projects are charged to mining costs including related property and equipment costs. To determine if these costs are in excess of their recoverable amount, periodic evaluation of carrying value of capitalized costs and any related property and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with ASC 360-10-35-15, Impairment or Disposal of Long-Lived Assets.

 

Share-based Payments

 

We estimate the fair value of share-based compensation using the Black-Scholes valuation model, in accordance with the provisions of ASC 718, Stock Compensation and ASC 505, Share-Based Payments. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of our stock, the risk-free rate, and dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the option holders, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by us.

 

Income Taxes

 

Income taxes are computed using the asset and liability method, in accordance with ASC 740, Income Taxes. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities, and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.

 


F-7


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

 

Basic and Diluted Loss Per Share

 

The Company computes loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share on the face of the Statements of Operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period, including stock options and warrants using the treasury method. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management believes that these financial statements include all normal and recurring adjustments necessary for a fair presentation under Generally Accepted Accounting Principles.

 

Fair Value Measurements

 

We account for assets and liabilities measured at fair value in accordance with ASC 820, Fair Value Measurements and Disclosures. ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified with Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).The three levels of inputs used to measure fair value are as follows:

 

Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. 

 

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. 

 

Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. 

 

Our financial instruments consist principally of cash, accounts payable and accrued liabilities and note payable. The carrying amounts of such financial instruments in the accompanying financial statements approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.

 

Joint Venture Arrangements

 

The accounting for the Company’s involvement in joint venture arrangements is determined by the amount of influence the Company exercises over the operations of the joint venture. The amount of influence the Company exercises depends on an evaluation of the Company’s representation on the joint venture’s board and ownership level. Joint ventures in which the Company holds a greater than 50% voting interest, are generally consolidated. Joint ventures that are not consolidated, but over which the Company exercises significant influence, which is generally those in which the Company’s interest is between 20% to 50%, are accounted for under the equity method of accounting. Under the equity method of accounting, the Company’s share of the earnings or losses of a joint venture is reflected in a single line item in the statements of operations. The Company’s carrying value in an equity method investment is reflected in a single line item in the Company’s balance sheets. Investments in joint ventures in which the Company does not exercise significant influence, generally those in which the Company owns less than a 20% interest, are accounted for at fair value, except for non-public joint ventures without readily determinable fair values. Investments in non-public joint ventures without readily determinable fair values are carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment in the joint venture.


F-8


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

 

Reclassification of Prior Year Presentation

 

Certain prior period amounts have been reclassified to conform to current period presentation. These reclassifications had no effect on the reported results of operations or cash flows.

 

Recent Accounting Pronouncements

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. This ASU eliminates, modifies and adds disclosure requirements for fair value measurements. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the effects of this ASU on its financial statements and related disclosures.

 

In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. The Company does not anticipate that the adoption of these SEC amendments will have a material effect on the Company’s financial position, results of operations, cash flows or shareholders’ equity.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The amendments in this ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. This new guidance is effective for the Company in fiscal years beginning after December 15, 2018, and interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the effects of this ASU on its financial statements and related disclosures.

 

In July 2017, the FASB issued ASU 2017-11, “Earnings per share”, which allows companies to exclude a down round feature when determining whether a financial instrument is considered indexed to the entity’s own stock. As a result, financial instruments with down round features may no longer be required to be accounted classified as liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, such as warrants, an entity will treat the value of the effect of the down round, when triggered, as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company is currently evaluating the effects of this ASU on its financial statements and related disclosures.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. This ASU clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The guidance is effective for the Company for fiscal years beginning after December 15, 2017, and interim periods within those years. Early adoption is permitted. The Company adopted this ASU effective September 1, 2018 and its adoption did not have a significant impact on its financial statements and related disclosures.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230: Classification of Certain Cash Receipts and Cash Payments). This guidance addresses specific cash flow issues with the objective of reducing the diversity in practice for the treatment of these issues. The areas identified include: debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies; distributions received from equity method investees; beneficial interests in securitization transactions; and application of the predominance principle with respect to separately identifiable cash flows. The guidance will generally be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company adopted this ASU effective September 1, 2018 and its adoption did not have a significant impact on its financial statements.

 


F-9


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 2 – SUMMARY OF ACCOUNTING POLICIES (CONTINUED)

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which supersedes the guidance in former ASC 840, Leases. The new standard, as amended by subsequent ASUs on the Topic, requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. For the Company, this standard is effective for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted.

 

The FASB issued ASU No. 2018-10 “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11 “Leases (Topic 842) Targeted Improvements” in July 2018. ASU 2018-10 provides certain amendments that affect narrow aspects of the guidance issued in ASU 2016-02. ASU 2018-11 provides an optional transition method allowing entities to apply the new lease standard at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption (modified retrospective approach) as opposed to restating prior period financial statements. The Company elected to adopt the standard on September 1, 2019. The Company is finalizing its new accounting policies, processes and internal controls. The Company is in the process of quantifying the full impact of the application of the new guidance; however, it expects that adoption of the new standard will not have a material effect on its statements of operations, will result in a gross-up on its balance sheets and will have no effect on its statements of cash flows.

 

NOTE 3 – RESTATEMENT

 

The accompanying August 31, 2019 financial statements have been restated to properly account for the following:

 

Issuance of common stock for settlement of accrued compensation due employees, officers and directors 

 

Modification of debt to related parties to include issuance of warrants and a conversion option that triggered the debt to be accounted for using extinguishment accounting 

 

Issuance of common stock in connection with the modification of a long-term debt agreement with the Rio Grande Valley Foundation.  


F-10


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 3 – RESTATEMENT (CONTINUED)

 

The following summarizes the effects of the adjustments on our previously issued August 31, 2019 financial statements:

 

BALANCE SHEET

 

As Previously

Reported

 

Adjustments

 

 

As Restated

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

$

1,828,996

$

-

 

$

1,828,996

Mineral properties, net

 

354,234

 

-

 

 

354,234

 

 

 

 

 

 

 

 

Total assets

$

2,183,230

$

-

 

$

2,183,230

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

$

1,181,820

$

(63,750)

(a)

$

1,118,070

Advances from related parties

 

5,000

 

185,454

(b)

 

190,454

Current portion of note payable

 

193,760

 

(70,218)

(c)

 

123,542

 

 

 

 

 

 

 

 

Current liabilities

 

1,380,580

 

51,486

 

 

1,432,066

 

 

 

 

 

 

 

 

Total liabilities

 

1,380,580

 

51,486

 

 

1,432,066

 

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ equity (deficit)

 

 

 

 

 

 

 

Preferred stock

 

-

 

-

 

 

-

Common stock

 

562,050

 

-

 

 

562,050

Additional paid-in capital

 

36,817,096

 

1,123,713

(d)

 

37,940,809

Accumulated deficit

 

(36,576,496)

 

(1,175,199)

(d)

 

(37,751,695)

 

 

 

 

 

 

 

 

Total shareholders’ equity (deficit)

 

802,650

 

(51,486)

 

 

751,164

 

 

 

 

 

 

 

 

Total liabilities and shareholders’ equity (deficit)

$

2,183,230

$

-

 

$

2,183,230

 

 

 

 

 

 

 

 


F-11


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 3 – RESTATEMENT (CONTINUED)

 

STATEMENT OF OPERATIONS

 

As Previously

Reported

 

Adjustments

 

 

As Restated

Operating expenses:

 

 

 

 

 

 

 

Exploration costs

$

139,198

$

-

 

$

139,198

General and administrative expenses

 

785,112

 

80,454

(e)

 

865,566

 

 

 

 

 

 

 

 

Total operating expenses

 

924,310

 

80,454

 

 

1,004,764

 

 

 

 

 

 

 

 

Loss from operations

 

(924,310)

 

(80,454)

 

 

(1,004,764)

 

 

 

 

 

 

 

 

Other income (expense):

 

 

 

 

 

 

 

Loss on extinguishment of debt

 

-

 

(721,689)

(f)

 

(721,689)

Loss on settlement of accrued liabilities

 

-

 

(641,677)

(g)

 

(641,677)

Non-cash interest expense

 

(268,621)

 

268,621

(h)

 

-

Interest and other income

 

6,874

 

893

(i)

 

7,767

Interest and other expense

 

(20,118)

 

(893)

(i)

 

(21,011)

 

 

 

 

 

 

 

 

Total other income (expense)

 

(281,865)

 

(1,094,745)

 

 

(1,376,610)

 

 

 

 

 

 

 

 

Net loss

$

(1,206,175)

$

(1,175,199)

 

$

(2,381,374)

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

$

(0.03)

$

(0.02)

 

$

(0.05)

Weighted average shares outstanding -

 

 

 

 

 

 

 

basic and diluted

 

46,737,894

 

 

 

 

46,737,894

 

(a)To reclassify accrued interest improperly included in accrued liabilities rather than as a reduction in discount on the note. 

 

(b)To properly recognize amounts received from a related party (joint venture partner) as a related party advance rather than as a reduction of expenses because it was received outside of the joint venture arrangement and not subject to a separate agreement. See Note 8 for additional discussion. 

 

(c)To properly recognize: 1) the discount on the note payable shown in (a) above, 2) a $105,000 payment on the note made in common stock of the Company in connection with the modification of the note and 3) an increase in the discount on the note balance of $28,968 as a result of the modification. See Note 8 for additional discussion. 

 

(d)To properly recognize the changes to paid in capital related to: 1) settlement of accrued compensation to officers, directors and employees based on the estimated fair value of the common stock issued at the date the settlements were negotiated rather than the balance of the liability, 2) extinguishment of related party debt based on the estimated fair value of common stock and common stock warrants issued to change the terms of the related party debt to include a conversion feature, waive existing defaults and facilitate the conversion of the debt to equity. 

 

(e) To properly recognize: 1) an increase of $185,454 in expenses of the Company that were improperly offset by advances described in (b) above and 2) a decrease of $105,000 for the issuance of common stock to the Rio Grande Valley Foundation that were improperly recorded as consulting fees but have been recognized as a component of a debt modification discussed in (c) above. 

 

(f)To properly recognize the loss on debt extinguishment transactions related to $415,365 of notes payable to related parties. See Note 8 for additional discussion. 

 

(g)To properly recognize the settlement of accrued compensation as described in (d) above. 


F-12


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 3 – RESTATEMENT (CONTINUED)

 

(h)To properly remove non-cash interest expense that was recognized for warrants issued in connection with the extinguishment of related party debt described in (d) above and considered these warrants in the extinguishment transaction. 

 

(i)To properly reclassify interest expense and interest income. 

 

NOTE 4 – JOINT VENTURE ARRANGEMENTS

 

In August 2018, we executed a joint venture agreement (the “USARE Agreement”), with Morzev Pty Ltd (Morzev”) to develop the Round Top Deposit. The terms of the JV Agreement require Morzev to expend up to $10 million, in two tranches, to produce a bankable feasibility study, as follows:

 

$2.5 million to optimize and finalize the metallurgical processing and  

 

$7.5 million to fund the engineering, design, geotechnical work, and permitting necessary for a bankable feasibility study.  

 

Upon completion of these funding milestones, Morzev will earn and own 70% of the Round Top Project as well as a $3 million six-month option to purchase an additional 10% ownership interest (bringing its total ownership interest in the Round Top Project to 80%). In August 2019, Morzev assigned its ownership right to a wholly owned subsidiary, USA Rare Earth LLC (“USARE”). In connection with the JV Agreement, Morzev also purchased 646,054 shares of our Common Stock for $140,000.

 

On July 15, 2015, we entered into an operating agreement with K-Technologies, Inc. (“K-Tech”), to formalize our joint venture company, Reetech, LLC, a Delaware limited liability company (“Reetech”). Reetech will develop, refine and market K-Tech’s Continuous Ion Exchange (CIX) and Continuous Ion Chromatography (CIC) technology as it applies to the extraction of rare earth elements (REE) from native ores (the “Technology”). The JV intends to license the Technology to TMRC, as well as other rare earth production companies. Reetech may also build and operate processing facilities to separate and purify mixed rare earth concentrates into individual purified rare earth oxides for rare earth production companies other than TMRC.

 

Our operating agreement K-Tech is still in effect; however, due to the inactivity of our Round Top project, there has been no ongoing advancement under the operating agreement during the years ended August 31, 2019 and 2018.

 

We incurred significant costs in establishing Reetech which were expensed in prior years as exploration expenses. Based upon our assessment we have determined that there are currently no significant future potential loss liabilities. The Company’s interest in the joint venture remains $-0-. 

 

NOTE 5 – PROPERTY AND EQUIPMENT, NET

 

Property and equipment consist of office furniture, equipment and vehicles. The property and equipment are depreciated using the straight-line method over their estimated useful life of 3-20 years. Our property and equipment, net consist of the following:

 

 

 

August 31,

 

August 31,

 

2019

 

2018

Furniture & office equipment

$

75,606

$

75,606

Vehicles

 

89,185

 

89,185

Computers & software

 

48,711

 

48,711

Field equipment

 

71,396

 

71,396

Total cost basis

 

284,898

 

284,898

Less: Accumulated depreciation

 

(284,898)

 

(284,898)

Property & equipment, net

$

-

$

-

 

Depreciation expense for the years ending August 31, 2019 and 2018 was $-0- and $5,421, respectively and is included in general and administrative expenses.


F-13


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 6 – MINERAL PROPERTIES

 

September 2011 Lease

 

On September 2, 2011, we entered into a new mining lease with the Texas General Land Office covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres at Round Top Mountain in Hudspeth County, Texas. The mining lease issued by the Texas General Land Office gives us the right to explore, produce, develop, mine, extract, mill, remove, and market beryllium, uranium, rare earth elements, all other base and precious metals, industrial minerals and construction materials and all other minerals excluding oil, gas, coal, lignite, sulfur, salt, and potash. The term of the lease is nineteen years so long as minerals are produced in paying quantities.

 

Under the lease, we will pay the State of Texas a lease bonus of $142,518; $44,718 of which was paid upon the execution of the lease, and $97,800 which will be due when we submit a supplemental plan of operations to conduct mining. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $500,000 minimum advance royalty.

 

Thereafter, if paying quantities of minerals are obtained, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (61/4%) of the market value of all other minerals removed and sold from Round Top. If paying quantities have not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule: 

 

 

 

Per Acre

 

Total

 

Amount

 

Amount

September 2, 2015 – 2019

$

75

$

67,077

September 2, 2020 – 2024

 

150

 

134,155

September 2, 2025 – 2029

 

200

 

178,873

 

In August 2019, we paid a delay rental to the State of Texas in the amount of $67,077.

 

November 2011 Lease

 

On November 1, 2011, we entered into a mining lease with the State of Texas covering 90 acres, more or less, of land that is adjacent to the land we purchased in September 2011 near our Round Top site. The deed was recorded with Hudspeth County on September 16, 2011. Under the lease, we paid the State of Texas a lease bonus of $20,700 which was paid upon the execution of the lease. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $50,000 minimum advance royalty.

 

Thereafter, if paying quantities of minerals are obtained, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quar¼ percent (6 1/4%) of the market value of all other minerals sold from Round Top. If paying quantities have not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule¼:

 

 

 

Per Acre

 

Total

 

 

Amount

 

Amount

November 1, 2015 – 2019

$

75

$

6,750

November 1, 2020 – 2024

 

150

 

13,500

November 1, 2025 – 2029

 

200

 

18,000

 

In August 2019, we paid a delay rental to the State of Texas of $6,750.


F-14


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 6 – MINERAL PROPERTIES (CONTINUED)

 

March 2013 Lease

 

On March 6, 2013, we purchased the surface lease at the Round Top Project, known as the West Lease, from the Southwest Wildlife and Range Foundation, since renamed the Rio Grande Foundation for $500,000 cash and 1,063,830 shares of our common stock. We also agreed to support the Foundation through an annual payment of $45,000 for ten years to support conservation efforts within the Rio Grande Basin and in particular engaging in stewardship of Lake Amistad, a large and well-known fishing lake near Del Rio, Texas. The West Lease comprises approximately 54,990 acres. Most importantly, the purchase of the surface lease gave us unrestricted surface access for the potential development and mining of our Round Top Project. Through our JV partner, we are currently paying $13,235 monthly until the balance owed to the Foundation has been fully paid. We fully intend to continue with the evaluation of the mineral potential of the property, to ultimately mine the property, and to bring the lease current when funds are available.

 

October 2014 Surface Option and Water Lease

 

On October 29, 2014, we announced that we had executed agreements with the Texas General Land Office securing the option to purchase the surface rights covering the potential Round Top project mine and plant areas and, separately, a lease to develop the water necessary for the potential Round Top project mine operations. The option to purchase the surface rights covers approximately 5,670 acres over the mining lease and the additional acreage adequate to site all potential heap leaching and processing operations as currently anticipated by the Company. We may exercise the option for all or part of the option acreage at any time during the sixteen year primary term of the mineral lease. The option can be kept current by an annual payment of $10,000. The purchase price will be the appraised value of the surface at the time of exercising the option. All annual payments have been made as of the date of this filing.

 

The ground water lease secures our right to develop the ground water within a 13,120 acre lease area located approximately 4 miles from the Round Top deposit. The lease area contains five existing water wells. It is anticipated that all potential water needs for the Round Top project mine operations would be satisfied by the existing wells covered by this water lease. This lease has an annual minimum production payment of $5,000 prior to production of water for the operation. After initiation of production we will pay $0.95 per thousand gallons or $20,000 annually, whichever is greater. This lease remains effective as long as the mineral lease is in effect. The minimum production payment for all the fiscal years have been made as of the date of this filing.

 

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

 

Accounts payable and accrued liabilities consist of the following:

 

 

 

August 31,

 

August 31,

 

2019

 

2018

Accounts payable – trade

$

376,077

$

419,191

Accrued payroll and related expenses

 

731,011

 

872,517

Other

 

10,982

 

23,055

 

 

 

 

 

Total accounts payable and accrued liabilities

$

1,118,070

$

1,314,763


F-15


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 8 – NOTES PAYABLE

 

In relation to the Foundation lease discussed in Note 6, the Company recorded a note payable for an amount for the initial $45,000 due upon signing of lease and the nine (9) future payments due of $45,000 which has been recorded at its present value discounted with an imputed interest rate of 5% for a total note payable of $364,852. As of the date of this filing, we have not paid the June 2018, 2017 or 2016 installments of our surface lease, in the amount of $45,000 each, to the Rio Grande Foundation, formerly the Southwest Range & Wildlife Foundation. As a result, the full amount of the note payable has been classified as currently due. In October 2018, the Company issued 500,000 shares with a fair value of $105,000 to the director of the Rio Grande Foundation as consideration for not placing the Company in default on the note and in connection with settlement negotiations. In January 2019, the Company and the Rio Grande Foundation reached a settlement agreement pursuant to which the Company agreed to pay the three (3) past installments totaling $135,000 and two (2) future installments of $45,000, for a grand total of $225,000, and two (2) installments of $45,000, each, totaling $90,000 were waived. The outstanding balance is payable in one (1) payment of $10,000 upon signing the settlement agreement and sixteen (16) monthly installments of approximately $13,000 beginning March 1, 2019. During the year ended August 31, 2019, the Company made five (5) monthly installments with advances received from USARE totaling $66,626. Pursuant to ASC 470-50, the modification was accounted for as a modification of the note payable. At August 31, 2019, the principal amount owed on the note is $148,374, the unamortized discount on the note is $24,832 and the carrying amount is $123,542.

 

Related Party Notes Payable and Advances

 

We had notes payable to directors totaling $421,415 at August 31, 2018. The loans were due March 1, 2017, are non-interest bearing, and unsecured.

 

In July 2019, we amended notes payable totaling $415,365 to include a conversion option allowing the holders to convert the outstanding principal at a rate of $0.20 per share. As additional consideration for the loans, we issued in total 832,830 common stock purchase warrants. The warrants have an exercise price of $0.20 and term of five years. The warrants have a fair value of $268,621 at the date of issuance determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.880% (ii) estimated volatility of 91% (iii) dividend yield of 0.00% and (iv) expected life of the warrants of five years.

 

We determined that the added conversion option was substantive, as defined in ASC 470, and the debt modification requires extinguishment accounting. The new debt instrument was recorded at its fair value which was determined to be the value of the common stock on the modification date multiplied by the number of shares issuable upon conversion, or $868,433. In addition, the $268,621 fair value of the warrants was included in the extinguishment transaction resulting in a loss on extinguishment of $721,689.

 

Upon conversion of the notes, the Company issued 2,076,825 common shares to the various directors. The following summarizes warrants issued with the modification of the debt and common stock issued upon conversion, by director:

 

 

 

 

 

Common

 

 

 

Warrants

 

 

Amount

 

Shares

 

Warrants

 

Fair Value

Director

$

3,000

 

15,000

 

6,000

$

1,919

Director

 

165,500

 

827,500

 

333,000

 

107,627

Director

 

5,000

 

25,000

 

10,000

 

4,155

Director

 

1,000

 

5,000

 

2,000

 

831

Director

 

89,625

 

448,125

 

179,250

 

57,336

Director

 

151,240

 

756,200

 

302,580

 

96,753

Total converted

$

415,365

 

2,076,825

 

832,830

$

268,621

 

On January 12, 2017 the Company entered into a loan totaling $10,000 from an officer of the Company. The loans are due July 12, 2017, are non-interest accruing, and unsecured. As of this filing the loans are in default and due upon demand. At origination, as additional consideration for the loans, we issued 20,000 common stock purchase warrants. The warrants have an exercise price of $0.10 and term of five years. The loans have a relative fair value of $6,771 and the warrants have a relative fair value of $3,229 at the date of issuance determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.87% (ii) estimated volatility of 240% (iii) dividend yield of 0.00% and (iv) expected life of the warrants of five years. The notes payable balance as of August 31, 2019 and August 31, 2018 was $4,000 and $10,000. The value of the warrant was amortized to interest expense over the term of the note payable.


F-16


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 8 – NOTES PAYABLE (CONTINUED)

 

During the year ended August 31, 2019, the Company received $185,454 in advances from its joint venture partner, USARE, to pay certain deferred lease rental costs and amounts due under the Rio Grande Foundation note discussed above. 

 

The Company has an advance due upon demand of $1,000 as of August 31, 2019 and 2018.

 

NOTE 9 – INCOME TAXES

 

The following table sets forth a reconciliation of the federal income tax benefit to the United States federal statutory rate of 21% for the years ended August 31, 2019 and 2018:

 

 

 

2019

 

2018

Income tax benefit at 21% statutory rate

$

500,088

$

155,050

Stock-based compensation

 

-

 

(22,981)

Non-deductible loss on extinguishment of debt

 

(151,555)

 

-

Non-deductible loss on settlement of accrued compensation

 

(315,014)

 

-

Change in statutory rate

 

-

 

(3,237,348)

Other

 

11,831

 

-

Decrease (increase) in valuation allowance

 

(45,350)

 

3,105,279

 

 

 

 

 

 

$

-

$

-

 

The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as a deferred tax asset and liability. Significant components of the deferred tax assets are set out below along with a valuation allowance to reduce the net deferred tax asset to zero.

 

Management has established a valuation allowance because of the potential that the tax benefits underlying deferred tax asset may not be realized. Significant components of our deferred tax asset at August 31, 2019 and 2018 are as follows:

 

 

 

2019

 

2018

Net operating loss carryforward

$

3,126,016

$

3,070,952

Assets, exploration cost, depreciation and amortization 

 

2,187,841

 

2,158,610

Accrued liabilities

 

(38,945)

 

-

Less valuation allowance

 

(5,274,912)

 

(5,229,562)

 

 

 

 

 

Net deferred tax asset

$

-

$

-

 

As a result of a change in control effective in April 2007, our net operating losses prior to that date may be partially or entirely unavailable, by law, to offset future income and, accordingly, are excluded from the associated deferred tax asset.

 

On December 22, 2017, the U.S. Congress enacted the Tax Cuts and Jobs Act (the “Act”) which made significant changes to U.S. federal income tax law, including lowering the federal statutory corporate income tax rate to 21% from 35% beginning January 1, 2018. The income tax effects of changes in tax laws are recognized in the period when enacted. While the Company continues to assess the impact of the tax reform legislation on its business and consolidated financial statements, the Company re-measured its deferred tax balances by applying the reduced rate and recorded a deferred tax expense of $3,237,348 during the year ended August 31, 2018. This provisional deferred tax expense was fully offset by a $3,237,348 deferred tax benefit as a result of the associated change in the valuation allowance against the net deferred tax assets. As reflected in the rate reconciliation above, the change in the deferred tax balances due to the rate reduction had no impact on the net deferred tax balances reported in the consolidated balance sheets as of August 31, 2018 and no impact in the consolidated statements of operations for the year ended August 31, 2018.


F-17


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 9 – INCOME TAXES (CONTINUED)

 

The net operating loss carryforward in the approximate amount of $14,886,000 will begin to expire in 2022. We file income tax returns in the United States and in one state jurisdiction. With few exceptions, we are no longer subject to United States federal income tax examinations for fiscal years ending before 2011 and are no longer subject to state tax examinations for years before 2010.

 

We also record any financial statement recognition and disclosure requirements for uncertain tax positions taken or expected to be taken in a tax return. Financial statement recognition of the tax position is dependent on an assessment of a 50% or greater likelihood that the tax position will be sustained upon examination, based on the technical merits of the position. Any interest and penalties related to uncertain tax positions are recorded as interest expense. We believe we have no uncertain tax positions at August 31, 2019 and 2018.

 

NOTE 10 – SHAREHOLDERS’ EQUITY

 

Our authorized capital stock consists of 100,000,000 shares of common stock, with a par value of $0.01 per share, and 10,000,000 preferred shares with a par value of $0.001 per share.

 

All shares of common stock have equal voting rights and, when validly issued and outstanding, are entitled to one non-cumulative vote per share in all matters to be voted upon by shareholders. The shares of common stock have no pre-emptive, subscription, conversion or redemption rights and may be issued only as fully paid and non-assessable shares. Holders of the common stock are entitled to equal ratable rights to dividends and distributions with respect to the common stock, as may be declared by our Board of Directors (our “Board”) out of funds legally available. In the event of a liquidation, dissolution or winding up of the affairs of the Corporation, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding.

 

There were no issuances of our common stock for the year ended August 31, 2018. Following is an analysis of our common stock issuances during the year ended August 31, 2019:

 

In October 2018, we issued 500,000 common shares valued at $105,000 to the director of the Rio Grande Foundation as consideration for not placing us in default on the note payable to the Foundation and in connection with settlement negotiations. 

 

In June 2019, we issued 22,500 shares of our common stock for website services recognizing an expense of $11,500. 

 

In June 2019, we received proceeds in the amount of $35,317 for 100,907 shares of our Common Stock issued upon the exercise of common stock warrants. 

 

In July 2019, we issued 122,811 shares for a cashless exercise of 122,811 Common Stock warrants. 

 

In August 2019, we issued 2,084,073 shares of our common stock to our directors for director’s fees in arrears recognizing a loss on settlement of accrued liability in the amount of $641,677. 

 

In August 2019, we issued 2,076,825 shares of our common stock to certain directors for the conversion of notes owed to them. 

 

In August 2019, we issued 5,757,680 shares of our common stock for $1,971,785 to an investor, including cost of capital in the amount of $8,400 and 598,666 shares of our common stock. 

 

We have 56,204,994 shares of our common stock outstanding as of August 31, 2019.

 

During the fiscal year ended August 31, 2019, we issued 1,300,000 options to our directors and issued 830,000 options for services.

 


F-18


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 10 – SHAREHOLDERS’ EQUITY (CONTINUED)

 

The following table sets forth certain information as of August 31, 2019 and 2018 concerning our common stock that may be issued upon the exercise of options not covered by the Amended 2008 plan and pursuant to purchases of stock under the Amended 2008 Plan (All options are fully vested and exercisable at August 31, 2019 and 2018):

 

 

Shares

 

Weighted

Average

Exercise Price

 

Weighted

Average

Remaining

Contractual Life

(In Years)

 

Grant

Date

Fair

Value

Outstanding at August 31, 2017

5,085,000

$

0.36

 

5.37

$

1,808,350

 

 

 

 

 

 

 

 

Vested and exercisable at August 31, 2017

5,085,000

 

0.36

 

5.37

 

1,808,350

Options granted

620,000

 

0.21

 

7.77

 

109,431

Options exercised

-

 

-

 

-

 

-

Options cancelled/forfeited/expired

1,785,000

 

0.44

 

-

 

533,296

Outstanding at August 31, 2018

3,920,000

 

0.32

 

4.31

 

1,384,485

Vested and exercisable at August 31, 2018

3,920,000

 

0.32

 

4.31

 

1,384,485

Options granted

2,130,000

 

0.21

 

7.48

 

524,517

Options exercised

-

 

-

 

-

 

-

Options cancelled/forfeited/expired

340,000

 

0.41

 

-

 

146,162

Vested and exercisable at August 31, 2019

5,710,000

$

0.28

 

5.41

$

1,762,840

 

 

 

 

 

 

 

 

Amended 2008 Stock Option Plan

 

In September 2008, the Board adopted our 2008 Stock Option Plan (the “2008 Plan”), which was approved by our shareholders and provided 2,000,000 shares available for grant. In 2011, 2012, and 2016 our board of directors adopted amendments to the 2008 Plan, approved by the shareholders, that increased the shares available for issuance under the 2008 Plan by 3,000,000, 2,000,000 and 2,000,000, respectively. Accordingly, at August 31, 2019 and 2018, 9,000,000 shares were designated for issuance under the 2008 Plan as amended. At August 31, 2019, a total of 4,635,000 shares of our common stock remained available for future grants under the Amended 2008 Plan.

 

During the year ended August 31, 2019, the Company granted a total of 2,130,000 stock options with a fair value of approximately $524,000 on the date of grant. The fair value of the options was determined using the Black-Scholes option-pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 2.5 to 2.9% (ii) estimated volatility of 84% (iii) dividend yield of 0.00% and (iv) expected life of all options of 5 years.

 

During the year ended August 31, 2018, the Company granted a total of 620,000 stock options with a fair value of approximately $109,000 on the date of grant. The fair value of the options was determined using the Black-Scholes option-pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 2.9% (ii) estimated volatility of 102% (iii) dividend yield of 0.00% and (iv) expected life of all options of 5 years.

 

During the years ended August 31, 2019 and 2018, the Company recognized total stock based compensation expenses of $535,767 and $109,431, respectively, for vesting options.

 


F-19


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 10 – SHAREHOLDERS’ EQUITY (CONTINUED)

 

Warrants

 

Warrant activity for the years ended August 31, 2019 and 2018 are as follows: 

 

 

Shares

 

Weighted

Average

Exercise Price

 

Weighted

Average

Remaining

Contractual Life

(In Years)

 

Grant

Date

Fair

Value

Outstanding at August 31, 2017

16,148,010

$

0.38

 

0.84

$

3,180,071.35

 

 

 

 

 

 

 

 

Vested and exercisable at August 31, 2017

16,148,010

 

0.38

 

0.84

 

3,180,071

Warrants granted

701,000

 

0.2

 

3.72

 

97,508

Outstanding at August 31, 2018

16,849,010

 

0.37

 

0.96

 

3,277,579

Vested and exercisable at August 31, 2018

16,849,010

 

0.37

 

0.96

 

3,277,579

Warrants granted

832,830

 

0.2

 

4.88

 

268,621

Warrants exercised

(223,718)

 

0.35

 

-

 

(44,868)

Outstanding at August 31, 2019

17,458,122

$

0.36

 

1.16

$

3,501,332

 

During the year ended August 31, 2019, the Company granted a total of 832,830 common stock warrants with a fair value of approximately $269,000 on the date of grant. The fair value of the options was determined using the Black-Scholes option-pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 2.5 to 2.9% (ii) estimated volatility of 84% (iii) dividend yield of 0.00% and (iv) expected life of all warrants of 5 years.

 

During the year ended August 31, 2018, the Company granted a total of 701,000 stock options with a fair value of approximately $98,000 on the date of grant. The fair value of the options was determined using the Black-Scholes option-pricing model. The weighted average assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 2.9% (ii) estimated volatility of 102% (iii) dividend yield of 0.00% and (iv) expected life of all warrants of 5 years.

 

During the year ended August 31, 2019, the fair value of the warrants totaling $268,621 were treated as a component of a debt extinguishment transaction more fully described in Note 8 and included in loss on extinguishment of debt. During the year ended August 31, 2018, the Company recognized total non-cash interest expense of $97,508 related to the warrants.

 

NOTE 11 – RELATED PARTY TRANSACTIONS

 

In July 2019, as additional consideration for the loans, we issued in total 832,830 common stock purchase warrants. The warrants have an exercise price of $0.40 and term of five years. The warrants have a fair value of $268,621 at the date of issuance determined using the Black-Scholes option-pricing model. The assumptions used to calculate the fair market value are as follows: (i) risk-free interest rate of 1.880% (ii) estimated volatility of 91% (iii) dividend yield of 0.00% and (iv) expected life of the warrants of five years. The $268,621 was recognized as loss on extinguishment of debt during the year ended August 31, 2019.

 

The Company issued 2,076,825 common shares to various directors upon conversion of $415,365 in notes payable on August 16, 2019.


F-20


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 12 – QUARTERLY DATA (UNAUDITED) (RESTATED)

 

The following tables reconcile our previously reported quarterly financial information with the restated quarterly financial information as of and for the nine months ended May 31, 2019, six months ended February 28, 2019 and three months ended November 30, 2018:

 

 

 

Nine Months Ended May 31, 2019

 

 

Previously

 

 

 

 

 

 

Reported

 

Adjustments

 

Restated

Operating Expenses

 

 

 

 

 

 

Exploration costs

$

48,437

$

-

$

48,437

General and administrative expenses

 

595,476

 

(105,000)

 

490,476

 

 

 

 

 

 

 

Total operating expenses

 

643,913

 

(105,000)

 

538,913

 

 

 

 

 

 

 

Loss from operations

 

(643,913)

 

105,000

 

(538,913)

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

Interest and other expense

 

(15,695)

 

-

 

(15,695)

 

 

 

 

 

 

 

Total other income (expense)

 

(15,695)

 

-

 

(15,695)

 

 

 

 

 

 

 

Net loss

$

(659,608)

$

105,000

$

(554,608)

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

Basic and diluted loss per share

$

(0.01)

$

-

$

(0.01)

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

Basic and diluted

 

45,956,600

 

-

 

45,956,600

 

 

 

 

 

 

 

Balance Sheet Data (at end of period):

 

 

 

 

 

 

Current assets

$

24,987

$

-

$

24,987

Total assets

 

383,221

 

-

 

383,221

Current and total liabilities

 

2,176,676

 

(105,000)

 

2,071,676

Total shareholders' equity (deficit)

 

(1,793,455)

 

105,000

 

(1,688,455)


F-21


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 12 – QUARTERLY DATA (UNAUDITED) (RESTATED) (CONTINUED)

 

The following tables reconcile our previously reported quarterly financial information with the restated quarterly financial information as of and for the nine months ended May 31, 2019, six months ended February 28, 2019 and three months ended November 30, 2018:

 

 

 

Six Months Ended February 28, 2019

 

 

Previously

 

 

 

 

 

 

Reported

 

Adjustments

 

Restated

Operating Expenses

 

 

 

 

 

 

Exploration costs

$

30,109

$

-

$

30,109

General and administrative expenses

 

510,877

 

(105,000)

 

405,877

 

 

 

 

 

 

 

Total operating expenses

 

540,986

 

(105,000)

 

435,986

 

 

 

 

 

 

 

Loss from operations

 

(540,986)

 

105,000

 

(435,986)

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

Interest and other expense

 

(10,790)

 

-

 

(10,790)

 

 

 

 

 

 

 

Total other income (expense)

 

(10,790)

 

-

 

(10,790)

 

 

 

 

 

 

 

Net loss

$

(551,776)

$

105,000

$

(446,776)

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

Basic and diluted loss per share

$

(0.01)

$

-

$

(0.01)

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

Basic and diluted

 

45,585,727

 

-

 

45,585,727

 

 

 

 

 

 

 

Balance Sheet Data (at end of period):

 

 

 

 

 

 

Current assets

$

72,116

$

-

$

72,116

Total assets

 

430,350

 

-

 

430,350

Current and total liabilities

 

2,124,543

 

(105,000)

 

2,019,543

Total shareholders' equity (deficit)

 

(1,694,193)

 

105,000

 

(1,589,193)


F-22


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 12 – QUARTERLY DATA (UNAUDITED) (RESTATED) (CONTINUED)

 

 

 

Three Months Ended November 30, 2018

 

 

Previously

 

 

 

 

 

 

Reported

 

Adjustments

 

Restated

Operating Expenses

 

 

 

 

 

 

Exploration costs

$

6,750

$

-

$

6,750

General and administrative expenses

 

442,675

 

(105,000)

 

337,675

 

 

 

 

 

 

 

Total operating expenses

 

449,425

 

(105,000)

 

344,425

 

 

 

 

 

 

 

Loss from operations

 

(449,425

 

105,000

 

(344,425)

 

 

 

 

 

 

 

Other income (expense)

 

 

 

 

 

 

Interest and other expense

 

(5,575)

 

-

 

(5,575)

 

 

 

 

 

 

 

Total other income (expense)

 

(5,575)

 

-

 

(5,575

 

 

 

 

 

 

 

Net loss

$

(455,000)

$

105,000

$

(350,000)

 

 

 

 

 

 

 

Net loss per share

 

 

 

 

 

 

Basic and diluted loss per share

$

(0.01)

$

-

$

(0.01)

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

Basic and diluted

 

45,183,290

 

-

 

45,183,290

 

 

 

 

 

 

 

Balance Sheet Data (at end of period):

 

 

 

 

 

 

Current assets

$

125,060

$

-

$

125,060

Total assets

 

483,294

 

-

 

483,294

Current and total liabilities

 

2,079,003

 

(105,000)

 

1,974,003

Total shareholders' equity (deficit)

 

(1,595,709)

 

105,000

 

(1,490,709)

 

NOTE 13 – SUBSEQUENT EVENTS

 

During the period from September 1, 2019 through February 29, 2020, we had the following equity transactions:

 

a.710,000 common stock options were exercised on a cashless basis by a consultant into 510,000 shares of our common stock,  

 

b.500,000 common stock options were exercised on a cashless basis by our CFO into 410,377 shares of our common stock, 

 

c.130,892 shares of common stock were issued to settle accrued compensation payable to an ex-employee in the amount of $45,000, resulting in a loss on settlement of $66,335 representing the difference in the carrying amount of the liability and the fair value of the stock issued, 

 

d.1,350,000 common stock warrants were exercised by investors at an exercise price of $0.35 per warrant for cash totaling $472,500,  

 

e.4,147,279 common stock warrants were exercised by investors on a cashless basis into 2,375,998 shares of our common stock, and 


F-23


 

 

TEXAS MINERAL RESOURCES CORP.

NOTES TO FINANCIAL STATEMENTS

AUGUST 31, 2019 AND 2018

 

NOTE 13 – SUBSEQUENT EVENTS (CONTINUED)

 

f.We agreed to issue 699,999 shares of common stock to consultants that vest ratably over a 24-month period. At February 29, 2020, 29,165 shares had vested and were unissued. The grant date fair value of the shares totaled approximately $450,000. When issued, we will hold these shares in trust until the end of the two-year term, or if requested by the contractor, such shares will be issued in tranches throughout the term of the agreements. 

 

g.We issued 13,514 shares of our common stock to a new Advisory Board Member. 

 

In December 2019, we announced the extension of the expiration date of the Class A and Class B warrants to December 7, 2020. As of May 1, 2020, there are issued and outstanding Class A warrants to purchase an aggregate of 1,556,507 shares of Company common stock at an exercise price of $0.35 per share, and Class B warrants to purchase an aggregate of 1,579,225 shares of Company common stock at an exercise price of $0.50 per share.

 

In March 2020, the World Health Organization designated the new coronavirus (“COVID-19”) as a global pandemic. Federal, state and local governments have mandated orders to slow the transmission of the virus, including but not limited to shelter-in-place orders, quarantines, restrictions on travel, and work restrictions that prohibit many employees from going to work. Uncertainty with respect to the economic effects of the pandemic has resulted in significant volatility in the financial markets.

 

The restrictions put in place by federal, state and local governments could delay our exploration and development plans related to the Round Top Project. We continue to move forward on the project in an effort to obtain a bank feasibility study; however, restrictions on the number of personnel that can gather in a single location and work restrictions on vendor businesses may delay aspects of the project until such restrictions are lifted. Furthermore, the impact of the pandemic on the global economy could also negatively impact the availability and cost of future borrowings should the need arise.


F-24


 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

(a)Effective February 6, 2020, LBB & Associates Ltd, LLP, the independent registered public accounting firm for the Company, was suspended by the SEC. As a result of this suspension, on March 2, 2020, LBB resigned as the independent registered public accounting firm for the Company.  

 

The audit reports of LBB on the Company’s financial statements for the years ended August 31, 2019 and August 31, 2018 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

 

During the two most recent fiscal years ended August 31, 2019 and through the subsequent interim period preceding LBB’s resignation, there were no disagreements between the Company and LBB on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of LBB would have caused them to make reference thereto in their reports on the Company’s financial statements for such years.

 

During the two most recent fiscal years ended August 31, 2019 and through the subsequent interim period preceding LBB’s resignation, there were no reportable events within the meaning set forth in Item 304(a)(1)(v) of Regulation S-K.

 

(b)On March 6, 2020, the Audit Committee of our Board of Directors appointed Ham, Langston and Brezina, L.L.P. to serve as our independent registered public accounting firm for the fiscal year ending March 31, 2020, effective immediately.  

 

During our two most recent fiscal years and through the interim period through March 6, 2020, neither we nor anyone on our behalf consulted HLB regarding (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and no written report or oral advice was provided by HLB to us that HLB concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue, or (ii) any matter that was either the subject of a disagreement (as described in Item 304(a)(1)(iv) of regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

At the end of the period covered by this Annual Report on Form 10-K for the fiscal year ended August 31, 2019, an evaluation was carried out under the supervision of and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operations of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act). Based on that evaluation the CEO and the CFO have concluded that as of the end of the period covered by this Annual Report, our disclosure controls and procedures were not effective in ensuring that: (i) information required to be disclosed by us in reports that we file or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms and (ii) material information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow for accurate and timely decisions regarding required disclosure.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”). Management has assessed the effectiveness of internal control over financial reporting based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. A material weakness, as defined by SEC rules, is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weaknesses in internal control over financial reporting that were identified are:


32


 

 

a)We did not maintain sufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements. We have limited personnel in the areas of financial reporting and disclosure controls and procedures. As a result, there is a lack of monitoring of the financial reporting process and there is a reasonable possibility that material misstatements of the consolidated financial statements, including disclosures, will not be prevented or detected on a timely basis; and 

 

b)Due to our small size, we do not have a proper segregation of duties in certain areas of our financial reporting process. The areas where we have a lack of segregation of duties include cash receipts and disbursements, approval of purchases and approval of accounts payable invoices for payment. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis. 

 

As a result of the existence of these material weaknesses as of August 31, 2019, management has concluded that we did not maintain effective internal control over financial reporting as of August 31, 2019, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.

 

This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management’s report in this annual report.

 

Changes to Internal Controls and Procedures over Financial Reporting

 

We intend that our internal control over financial reporting will be modified now that we have adequate funding to allow adding additional advisors to address deficiencies in the financial closing, review and analysis process, which will improve our internal control over financial reporting.

 

Management’s Remediation Plans

 

We will look to increase our personnel resources and technical accounting expertise within the accounting function. Management believes that contracting additional knowledgeable personnel with technical accounting expertise will remedy the material weakness: insufficient personnel with an appropriate level of technical accounting knowledge, experience, and training in the application of GAAP commensurate with our complexity and our financial accounting and reporting requirements.

 

ITEM 9B. OTHER INFORMATION

 

None.


33


 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

The following table sets forth certain information with respect to our current directors and executive officers. The term for each director expires at our next Annual Meeting or until his or her successor is appointed and qualified. The ages of the directors and officers are shown as of August 2019:

 

Name

 

Age

 

Current Office with Company

 

Positions Held Since

Daniel E. Gorski

 

82

 

Director

Chief Executive Officer

 

January 2007

August 2012

Anthony Marchese

 

63

 

Director

 

December 2009

Cecil Wall

 

88

 

Director

 

August 2012

Nicholas Pingitore

 

75

 

Director

 

August 2012

James Wolfe

 

83

 

Director

 

August 2012

Peter Denetclaw

 

60

 

Director

 

August 2019

Clark Moseley

 

68

 

Director

 

August 2019

Wm Chris Mathers

 

60

 

Chief Financial Officer

 

February 2016

 

Daniel E. Gorski – Mr. Gorski has served as a director of the Company since January 2006 and as the Company’s chief executive officer since August 2012. Prior thereto, Mr. Gorski served as the Company’s president and chief executive officer from January 2007 to May 2011 and chief operating officer from May 2011 to December 2011. From July 2004 to January 2006, Mr. Gorski was the co-founder and vice president of operations for High Plains Uranium Inc., a uranium exploration and development company that went public on the Toronto Stock Exchange in December 2005. Between June 1996 to May 2004, Mr. Gorski served as an officer and director of Metalline Mining Co., a publicly traded mining and development company with holdings in the Sierra Mojada Mining District, Coahuila, Mexico. From January 1992 to June 1996, Mr. Gorski was the exploration geologist under contract to USMX Inc. and worked exclusively in Latin America. Mr. Gorski earned a BS in 1960 from Sul Ross State College, in Alpine, Texas and an MA in 1970 from the University of Texas in Austin, Texas. Mr. Gorski has over forty-three years of experience in the mining industry.

 

Mr. Gorski’s extensive technical knowledge and experience in the mining industry combined with his historical relationship with the Company’s principal property, the Round Top project, permits Mr. Gorski to provide the Board with valuable insight to the exploration and development of the Round Top project. Accordingly, the Board believes that Mr. Gorski should serve on the Board.

 

Anthony Marchese – Mr. Marchese has served as a director since December 2009. Since July 2018, Mr. Marchese has served as President of Marchese Management Co., LLC., a strategic advisory firm that consults to both public and private emerging growth companies. Mr. Marchese also serves as the general partner and chief investment officer of the Insiders Trend Fund, LP, an investment partnership whose mandate is to invest in those public companies whose officers and/or directors have been active acquirers of their own stock. Mr. Marchese’s prior experience includes TriPoint Global Equities (Managing Director/Capital Markets- 2012-2018), Axiom Capital Management, Inc. (Managing Director – 2011-2012), Monarch Capital Group, LLC (President and Chief Operating Officer – 2003 to 2011), Laidlaw Equities (senior vice president - April 1997 to March 2002), Southcoast Capital (senior vice president – May 1988 to April 1997), Oppenheimer & Co (limited partner – September 1982 to May 1988), Prudential-Bache (vice president – July 1981 to August 1982) and the General Motors Corporation (analyst – June 1980 to June 1981). Mr. Marchese served in the military with the Army Security Agency and the U.S. Army Intelligence and Security Command. Mr. Marchese received an MBA in Finance from the University of Chicago. Mr. Marchese provides the Board with exceptional leadership and management knowledge, having gained extensive management and corporate finance experience during the course of his career. Mr. Marchese’s specific experience, qualifications, attributes and skills described above led the Board to conclude that Mr. Marchese should serve as a member of the Board of Directors.

 

Cecil C. Wall – Cecil C. Wall was born in Duchene County, Utah in 1931. Mr. Wall attended Carbon County College and Utah State University. In 1969, he acquired control of a publicly traded company, Altex Oil Co. (formerly known as Mountain Valley Uranium), listed on the American Stock Exchange. Under Mr. Wall’s leadership, Altex established a 20,000 acre position in what became the Greater Altamont Field at Altamont, Utah. Mr. Wall sold his interest in Altex in 1985. Mr. Wall was also part of the founding group for the 2007 reorganization of Standard Silver Corp. which became TMRC. He sat on the TMRC board of directors and served as the Secretary and Treasurer from January 2004 to April 2012. He is currently the manager for C-Wall Investment Company, LLC, a Utah Limited Liability Company. In addition, he is the president of several family-owned private companies, and he brings wide business experience and close relations with many of the original shareholders.

 


34


 

 

Mr. Wall’s past experience with the Company as its Secretary and Treasurer and his past experience with public companies serve the Board at this time by providing needed guidance on public company matters and insight into the Company’s historical operations. Mr. Wall’s specific experience, qualifications, attributes and skills described above led the Board to conclude that Mr. Wall should serve as a member of the Board of Directors.

 

Dr. Nicholas Pingitore – Dr. Nicholas Pingitore was born in New York City in 1944. Dr. Pingitore holds an AB degree from Columbia College (NYC, 1965) and a Masters (ScM) and PhD from Brown University (Providence RI, 1968 & 1973) in Geology. Since 1977, he has held a full-time faculty appointment at UTEP. In addition to being a Texas Licensed Geoscientist, Dr. Pingitore is a member of the American Chemical Society, Geochemical Society, American Association for the Advancement of Science, American Geophysical Union, Materials Research Society, Mineralogical Society of America, Society of Economic Paleontologists and Mineralogists, and Society of the Sigma Xi. He has served for 25 years as Director of UTEP’s Electron Microprobe Laboratory, and he expects to use this instrument to study the Round Top minerals. The 2,500-foot-square geochemical laboratory that Dr. Pingitore also anticipates using to conduct research sponsored by TMRC includes three x-ray fluorescence units, a high resolution inductively coupled plasma mass spectrometer, various optical microscopes, and sample preparation facilities. Since 2000, he has been project director of approximately $7,000,000 in research funding, and a co-investigator on another $10,000,000 in grants. He has established a record for successfully managing and completing large institutional projects on time and on budget. Dr. Pingitore considers Round Top to be a national treasure. He is ready to bring his wide geologic and chemical experience, his project skills, and his insight from decades of investment in the extractive industries, to help unlock the riches of this deposit. Mr. Pingitore’s extensive experience and education in geology bring valuable expertise to the Board in relation to the Board’s oversight of the Company’s exploration and potential development activities at its Round Top project. Mr. Pingitore’s specific experience, qualifications, attributes and skills described above led the Board to conclude that Mr. Pingitore should serve as a member of the Board of Directors. 

 

Dr. James R. Wolfe – Dr. Wolfe and the firm he co-founded in 1995, Pacific Materials Resources, Inc. (“PMR”), were among the pioneers of the China-U.S. rare earth industry and trade. As Vice President of PMR from 1995 to 2010, Dr. Wolfe interfaced between the major rare earth producers in China and a broad spectrum of rare earth consumers in the U.S. Prior to founding PMR, from 1992 to 1995, Dr. Wolfe was President of MPV Lanthanides, Inc., a rare earth joint venture between China Metallurgical Import/Export of Inner Mongolia and U.S. interests. From 1979 to 1995, Dr. Wolfe’s professional interests centered on resource recovery from industrial and mining wastes. He served as a consultant to the steel industry, co-founded Exmet Corporation (zinc from smelter dust) and served as Executive Vice President of Williams Strategic Metals, Inc. and its predecessor, Nedlog Technology Group, Inc. Dr. Wolfe developed and implemented projects for the recovery of cobalt from slags, indium from smelter dusts, and rare earths from mine tailings. In 1970, while he was employed by the Lawrence Livermore Laboratory, Dr. Wolfe invented and patented a plasma method for producing ultra-fine refractory metal carbides. He co-founded Cal-Met Industries, Inc. in 1973 to commercialize the plasma technology. Cal-Met was bought by Fansteel Corporation in 1975. Dr. Wolfe was employed by Fansteel from 1975 to 1979 to implement the plasma technology for the manufacture of drill bits and cutting tools. Dr. Wolfe was employed by the AVCO Corporation as a space research scientist from 1965 to 1968, while working for his doctorate. Dr. Wolfe received his BS and MS in Metallurgical Engineering from the University of Washington and his PhD from the University of Missouri-Rolla in 1968. He is currently the Secretary and Trustee of The Biella Foundation.

 

Mr. Wolf’s experience and knowledge in the rare earth sector and his education metallurigcal engineering are valuable to the Board as it assesses its potential mine development plan at its exploration stage Round Top project. Mr. Wolf’s specific experience, qualifications, attributes and skills described above led the Board to conclude that Mr. Wolf should serve as a member of the Board of Directors.

 

Peter Denetclaw, Jr., – Mr. Denetclaw has served as a manager of Freeport McMoran since 2008. Mr. Denetclaw has served as vice-chair of the management committee for Navajo Transitional Energy Company since 2014.

 

Clark A. Moseley – Mr. Moseley has served as chief executive officer of the Morrow Pacific Project on behalf of Ambre Energy from February 2010 through September 2014. Mr. Moseley has served as chief executive officer for Navajo Transitional Energy Company since December 2014.

 

Wm. Chris Mathers – Mr. Mathers is a senior finance and accounting professional with more than 30 years of experience in financial accounting, mergers and acquisition, Securities and Exchange Commission compliance and operational and administrative support. Mr. Mathers holds a BBA in Accounting from Southwestern University at Georgetown, Texas, and is a certified public accountant. Mr. Mathers began his career in public accounting in 1981 with the accounting firm of Price Waterhouse focusing on multi-national public audits. From 1983 through 1989, Mr. Mathers was in private practice focusing on tax preparation, and the financial audits of corporations, partnerships and individuals. From 1989 through 1993, Mr. Mathers was a Controller and Administrative Officer of GJR Investments, Inc., a national real estate firm.

 


35


 

 

Beginning in 1994, Mr. Mathers began work as chief financial officer for several privately and publicly held companies, including: InterSystems, Inc. of Houston, Texas, a multi-state manufacturing firm; Nexus Custom Electronics, Inc., a manufacturer of circuit boards to private industry and the U.S. Department of Defense; Interactive Nutrition International, Inc., Ottawa, Canada, a manufacturer of Nutritional products.

 

Arrangements between Officers and Directors

 

To our knowledge, there is no arrangement or understanding between any of our officers and any other person, including directors, pursuant to which the officer was selected to serve as an officer.

 

Family Relationships

 

None of our Directors are related by blood, marriage, or adoption to any other Director, executive officer, or other key employees.

 

Other Directorships

 

No directors of the Company are also directors of issuers with a class of securities registered under Section 12 of the United States Securities Exchange Act (or which otherwise are required to file periodic reports under the Exchange Act).

 

Legal Proceedings

 

No director or officer of the Company is a party adverse to the Company or any of its subsidiaries, or has a material interest adverse to the Company or any of its subsidiaries. During the past ten years, no director or executive officer of the Company has:

 

(a)filed or has had filed against such person, a petition under the U.S. federal bankruptcy laws or any state insolvency law, nor has a receiver, fiscal agent or similar officer been appointed by a court for the business or property of such person, or any partnership in which such person was a general partner, at or within two years before the time of filing, or any corporation or business association of which such person was an executive officer, at or within two years before such filings; 

 

(b)been convicted or pleaded guilty or nolo contendere in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offences); 

 

(c)been the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting such person’s activities in any type of business, securities, trading, commodity or banking activities; 

 

(d)been the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any U.S. federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any type of business, securities, trading, commodity or banking activities, or to be associated with persons engaged in any such activity; 

 

(e)been found by a court of competent jurisdiction in a civil action or by the U.S. Securities and Exchange Commission (the “SEC”), or by the U.S. Commodity Futures Trading Commission to have violated a U.S. federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; 

 

(f)been the subject of, or a party to, any U.S. federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (i) any U.S. federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or 

 

(g)been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C.78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the U.S. Commodity Exchange Act (7 U.S.C.1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. 


36


 

 

Board of Directors Structure

 

The Company’s current bylaws require the Board to consist of one or more directors, the number of directors to be determined from time to time by resolution of the stockholders or by resolution of the Board. The current Board is composed of seven directors.

 

Director Independence

 

The Company has four independent directors as of August 31, 2019 as follows:

 

Anthony Marchese 

 

Cecil Wall 

 

Nicholas Pingitore 

 

James R Wolfe 

 

Meetings of the Board and Board Member Attendance at Annual Meeting

 

During the fiscal year ending August 31, 2019, the Board held two (2) meetings of the Board. None of the incumbent Directors attended fewer than 75% of the board meetings which occurred during their tenure on the Board.

 

Communications to the Board

 

Stockholders who are interested in communicating directly with members of the Board, or the Board as a group, may do so by writing directly to the individual Board member c/o Corporate Secretary, at 516 South Spring Avenue, Tyler, Texas 75702. The Company’s Secretary will forward communications directly to the appropriate Board member. If the correspondence is not addressed to the particular member, the communication will be forwarded to a Board member to bring to the attention of the Board. The Company’s Secretary will review all communications before forwarding them to the appropriate Board member.

 

Board Committees

 

The Board has established three board committees: an Audit Committee, a Compensation Committee, and a Corporate Governance and Nominating Committee.

 

The information below sets out the current members of each of the Company’s board committees and summarizes the functions of each of the committees in accordance with their mandates.

 

Audit Committee and Audit Committee Financial Experts

 

The Company has a standing Audit Committee and audit committee charter, which complies with Rule 10A-3 of the Exchange Act. The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. The Audit Committee is comprised of three (3) directors all of whom, in the opinion of the Board, are independent (in accordance with Rule 10A-3 of the Exchange Act: Anthony Marchese (Chairman), Cecil Wall and Nicholas Pingitore. Mr. Marchese is a “financial expert” as defined under Item 407(d)(5) of Regulation S-K.

 

The Audit Committee is responsible for the oversight of the Company’s accounting and financial reporting processes. This includes the selection and engagement of the Company’s independent registered public accounting firm and review of the scope of the annual audit, audit fees and results of the audit.

 

The Audit Committee monitors the Company’s audit and the preparation of financial statements and all financial disclosure contained in the Company’s SEC filings. The Audit Committee appoints the Company’s external auditors, monitors their qualifications and independence and determines the appropriate level of their remuneration. The external auditors report directly to the Audit Committee. The Audit Committee has the authority to terminate the Company’s external auditors’ engagement and approve in advance any services to be provided by the external auditors that are not related to the audit.


37


 

 

Audit Committee Report

 

The Company’s Audit Committee oversees the Company’s financial reporting process on behalf of the Board. The Committee has three (3) members, each of whom is “independent” as determined under Rule 10A-3 of the Exchange Act. The Committee operates under a written charter adopted by the Board.

 

The Committee assists the Board by overseeing the (1) integrity of the Company’s financial reporting and internal control, (2) independence and performance of the Company’s independent auditors, (3) and provides an avenue of communication between management, the independent auditors and the Board.

 

In the course of providing its oversight responsibilities regarding the audited annual financial statements for the year ended August 31, 2019, the Committee reviewed the audited annual financial statements for the year ended August 31, 2019 with management and the Company’s independent auditors. The Committee reviewed accounting principles, practices, and judgments as well as the adequacy and clarity of the notes to the financial statements.

 

The Committee reviewed the independence and performance of the independent auditors who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, and such other matters as required to be communicated by the independent auditors in accordance with Statement of Auditing Standards 61, as superseded by Statement of Auditing Standard 114 – the Auditor’s Communication With Those Charged With Governance, as modified or supplemented.

 

The Committee meets with the independent auditors to discuss their audit plans, scope and timing on a regular basis, with or without management present. The Committee has received the written disclosures and the letter from the independent auditors required by applicable requirements of the Public Company Accounting Oversight Board for independent auditor communications with Audit Committees concerning independence, as may be modified or supplemented.

 

In reliance on the reviews and discussions referred to above, the Committee recommended to the Board, and the Board has approved, that the audited financial statements be included in the Annual Report to the SEC on Form 10-K for the year ended August 31, 2019. The Committee and the Board have also recommended the selection of LBB & Associates Ltd., LLP as independent auditors for the Company for the fiscal year ending August 31, 2019.

 

Submitted by the Audit Committee Members

 

Anthony Marchese (Chairman) 

 

Nicolas Pingitore 

 

Cecil Wall 

 

Compensation Committee

 

The Company has a Compensation Committee comprised of three (3) directors, each of whom, in the opinion of the Board, are independent: Cecil Wall (Chairman), James Wolfe and Anthony Marchese.

 

The Compensation Committee has adopted a charter. The Compensation Committee is responsible for considering and authorizing terms of employment and compensation of executive officers and providing advice on compensation structures in the various jurisdictions in which the Company operates. The Company’s Chief Executive Officer may not be present during the voting determination or deliberations of his or her compensation; however, the Compensation Committee does consult with the Company’s Chief Executive Officer in determining and recommending the compensation of directors and other executive officers.

 

In addition, the Company’s Compensation Committee reviews both our overall salary objectives and significant modifications made to employee benefit plans, including those applicable to executive officers, and proposes awards of stock options. The Compensation Committee has determined that the Company’s compensation policies and practices for its employees generally, not just executive officers, are not reasonably likely to have a material adverse effect on the Company.

 

The Compensation Committee does not and cannot delegate its authority to determine director and executive officer compensation. Our Compensation Committee and management did not engage the services of an external compensation consultant during fiscal year 2019.

 

A copy of the Compensation Committee charter is available on the Company’s website at www.TMRC.com.


38


 

 

Compensation Committee Interlocks and Insider Participation

 

There are no Compensation Committee or Board interlocks among the members of the Company’s Board.

 

Corporate Governance and Nominating Committee

 

General

 

The Company has a Corporate Governance and Nominating Committee composed of 2 directors, James Wolfe and Nicholas Pingitore. It is the opinion of the Board that these two individuals are independent.

 

The Company’s Corporate Governance and Nominating Committee are responsible for developing the Company’s approach to corporate governance issues. The Committee evaluates the qualifications of potential candidates for director and recommends to the Board nominees for election at the next annual meeting or any special meeting of stockholders, and any person to be considered to fill a Board vacancy resulting from death, disability, removal, resignation or an increase in Board size. The Committee has not adopted a formal policy which sets forth the criteria the Board will assess in connection with the consideration of a candidate. Instead the Committee considers a multitude of qualifications and characteristics, including the candidate’s integrity, reputation, judgment, knowledge, independence, experience, accomplishments, commitment and skills, all in the context of an assessment of the perceived needs of the Board at that time.

 

A copy of the Corporate Governance and Nominating Committee charter is available on the Company’s website at www.TMRC.com.

 

Board Diversity

 

The Company does not have a formal policy regarding diversity in the selection of nominees for directors. The Corporate Governance and Nominating Committee does, however, consider diversity as part of its overall selection strategy. In considering diversity of the Board as a criteria for selecting nominees, the Corporate Governance and Nominating Committee takes into account various factors and perspectives, including differences of viewpoint, professional experience, education, skills and other individual qualities and attributes that contribute to Board heterogeneity, as well as race, gender and national origin. The Corporate Governance and Nominating Committee seeks persons with leadership experience in a variety of contexts. The Corporate Governance and Nominating Committee believes that this conceptualization of diversity is the most effective means to implement Board diversity. The Corporate Governance and Nominating Committee will assess the effectiveness of this approach as part of its annual review of its charter.

 

Recommendations to the Board

 

The Committee will consider recommendations for director nominees made by stockholders and others if these individuals meet the criteria for consideration. For consideration by the Committee, the nominating stockholder or other person must provide the Corporate Secretary at the Company’s principal offices with information about the nominee, including the detailed background of the suggested candidate that will demonstrate how the individual meets the Company’s director nomination criteria. If a candidate proposed by a stockholder meets the criteria, the individual will be considered on the same basis as other candidates.

 

Board Leadership Structure

 

The Board has reviewed the Company’s current Board leadership structure in light of the composition of the Board, the Company’s size, the nature of the Company’s business, the regulatory framework under which the Company operates, the Company’s stockholder base, the Company’s peer group and other relevant factors. Considering these factors the Board has determined to have a separate Chief Executive Officer and Chairman of the Board. The Chairman of the Board is a non-executive position. The Board has determined that this structure is currently the most appropriate Board leadership structure for the Company. The Board noted the following factors in reaching its determination:

 

The Board acts efficiently and effectively under its current structure. 

 

A structure of a separate Chief Executive Officer and non-executive Chairman of the Board puts the Company in the best position efficiently handle major issues facing the Company on a day-to-day and long-term basis, and still ensure that the Board is in the best position to have an independent director identify key risks and developments facing the Company and have those risks and developments brought promptly to the Board’s attention. 

 

This structure eliminates the potential for confusion and duplication of efforts at the highest executive level. 


39


 

 

Companies within the Company’s peer group utilize similar Board structures. 

 

The Company’s non-executive Chairman of the Board acts as a lead independent director. Given the size of the Board, the Board believes that having a non-executive Chairman of the Board combined with the presence of three other independent directors out of the five directors on the Board and independent directors sitting on all of the Board’s committees is sufficient independent oversight of the Chief Executive Officer. The independent directors work well together in the current board structure and the Board does not believe that selecting a lead independent director outside of the non-executive Chairman of the Board would add significant benefits to the Board’s oversight role.

 

The Board of Director’s Role in Risk Management Oversight

 

The understanding, identification and management of risk are essential elements for the successful management of the Company. Risk oversight begins with the Board and the Audit Committee. The Audit Committee reviews and discusses policies with respect to risk assessment and risk management. The Audit Committee also has oversight responsibility with respect to the integrity of the Company’s financial reporting process and systems of internal control regarding finance and accounting, as well as its financial statements.

 

At the management level, an internal audit provides reliable and timely information to the Board and management regarding the Company’s effectiveness in identifying and appropriately controlling risks. Annually, management presents to the Audit Committee a report summarizing the review of the Company’s methods for identifying and managing risks.

 

Based on a review of the nature of operations, the Board does not believe that any areas of the Company have incentive to take excessive risks that would likely have a material adverse effect on the Company’s operations.

 

Code of Business and Ethical Conduct

 

The Company has adopted a corporate Code of Business and Ethical Conduct administered by its President and Chief Executive Officer, Daniel Gorski. The Company believes its Code of Business and Ethical Conduct is reasonably designed to deter wrongdoing and promote honest and ethical conduct, to provide full, fair, accurate, timely and understandable disclosure in public reports, to comply with applicable laws, to ensure prompt internal reporting of code violations, and to provide accountability for adherence to the code. The Company’s Code of Business and Ethical Conduct provides written standards that are reasonably designed to deter wrongdoing and to promote:

 

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; 

 

Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer; 

 

Compliance with applicable governmental laws, rules and regulations; and 

 

The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and 

 

Accountability for adherence to the code. 

 

The Company’s Code of Business and Ethical Conduct is available on its web site at www.TMRC.com. A copy of the Code of Business and Ethical Conduct will be provided to any person without charge upon written request to the Company at its executive offices: 516 S. Spring Avenue, Tyler, Texas 75702. We intend to disclose any waiver from a provision of the Code of Business and Ethical Conduct that applies to any of the Company’s principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions that relates to any element of the Company’s Code of Business and Ethical Conduct on the Company’s website. No waivers were granted from the requirements of the Code of Business and Ethical Conduct during the year ended August 31, 2017, or during the subsequent period to the date of this Proxy Statement.

 


40


 

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following summary compensation tables set forth information concerning the annual and long-term compensation for services in all capacities to the Company for the years stated for those persons who were, at August 31, 2019 named executive officers. “Named Executive Officer” means: (a) each Chief Executive Officer, (b) each Chief Financial Officer, (c) each of the three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the Chief Executive Officer and Chief Financial Officer, at the end of the most recently completed financial year; and (d) each individual who would be an Named Executive Officer under paragraph (c) but for the fact that the individual was neither an executive officer of the Company, nor acting in a similar capacity, at the end of that financial year.

 

Summary Compensation Table

 

Name and principal position

 

Year

 

Salary

(US$)

 

Option

Awards

(US$)

 

 

All Other

Compensation

(US$)

 

Total

compensation

(US$)

Daniel Gorski

 

2019

$

120,000

$

100,000

(1)

$

-

$

220,000

Chief Executive Officer

 

2018

$

120,000

$

-

 

$

-

$

120,000

 

 

 

 

 

 

 

 

 

 

 

 

Wm Chris Mathers

 

2019

$

60,000

$

-

 

$

-

$

60,000

Chief Financial Officer

 

2018

$

60,000

$

93,876

(2)

$

-

$

153,876

 

(1)In October 2018, our Board approved and granted an option to purchase 500,000 shares of common stock to Mr. Gorski. These options are exercisable at $0.20 per share for a period of ten years, vesting immediately and at a fair value of approximately $100,000 using the Black-Sholes pricing model. With respect to these options, the Black-Sholes pricing model was used to estimate the fail value of the option, using the assumption of a risk free interest rate of 2.880%, a dividend yield of 0%, volatility of 220.02 and an expected life of 10 years 

 

(2)On June 12, 2018, our Board approved and granted an option to purchase 500,000 shares of common stock to Mr. Mathers. These options are exercisable at $0.19 per share for a period of ten years, vesting immediately and at a fair value of $93,876 using the Black-Sholes pricing model. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the option, using the assumptions of a risk free interest rate of 2.880%, a dividend yield of 0%, volatility of 222.87% and an expected life of 10 years. 

 

In August 2012, the Company agreed to accrue Mr. Daniel Gorski, in the amount of $120,000 annually in connection with his appointment as Chief Executive Officer of the Company. The Company and Mr. Gorski have not entered into a formal written employment agreement in relation to Mr. Gorski’s compensation and employment terms as Chief Executive Officer. Mr. Mathers has been accruing $60,000 per year pursuant to an at-will employment arrangement. The Company does not believe that its compensation arrangements with its named executive officers creates inherent risks that may have a material adverse effect on the Company. Mr. Gorski is currently owed approximately $381,000 and Mr. Mathers is currently owed approximately $131,000.

 

Executive Compensation Agreements and Summary of Executive Compensation

 

Report on Executive Compensation

 

During the year ended August 31, 2019, the Board and the Company’s Compensation Committee, was responsible for establishing a compensation policy and administering the compensation programs of the Company’s executive officers.

 

Salary

 

The amount of compensation paid by the Company to each of the Company’s officers and the terms of those persons’ employment is determined by the Compensation Committee. The Compensation Committee evaluates past performance and considers future incentive and retention in considering the appropriate compensation for the Company’s officers. The Company believes that the compensation paid to the Company’s directors and officers is fair to the Company.

 


41


 

 

Stock Incentive Awards

 

The Compensation Committee believes that the use of direct stock awards is at times appropriate for employees, and in the future intends to use direct stock awards to reward outstanding service or to attract and retain individuals with exceptional talent and credentials. The use of stock options and other awards is intended to strengthen the alignment of interests of executive officers and other key employees with those of our stockholders.

 

 In this regard, during the fiscal year ended August 31, 2019, the Compensation Committee and the Board authorized the issuance of 500,000 stock option awards to Mr. Gorski.

 

Executive Compensation Agreements

 

Agreement with Mr. Gorski

 

The Company pays Mr. Daniel Gorski a salary in the amount of $120,000 annually in connection with his appointment as Chief Executive Officer of the Company. The Company and Mr. Gorski have not entered into a formal written employment agreement.

 

Agreement with Wm. Chris Mathers

 

The Company pays Mr. Wm. Chris Mathers a salary in the amount of $60,000 annually in connection with his appointment as Chief Financial Officer of the Company. The Company and Mr. Mathers have not entered into a formal written employment agreement.

 

Outstanding Equity Awards At Fiscal Year-End

 

There were 4,365,000 stock options fully vested and outstanding as of August 31, 2019.

 

Nonqualified Deferred Compensation

 

The Company does not offer nonqualified deferred compensation to any of its named executive officers.

 

Director Compensation

 

The following table sets forth the compensation granted to our directors during the fiscal year ended August 31, 2019. Compensation to directors that are also named executive officers is detailed above and is not included on this table.

 

Name

 

Fees Paid or

 

Fee Paid or

 

 

 

 

 

Earned in

 

Earned in

 

Option

 

 

 

Cash

 

Stock

 

Awards

 

Total

 

($)

 

($)

 

($)

 

($)

Anthony Marchese

$

-

$

18,750

$

-

$

18.750

Cecil Wall

$

-

$

10,500

$

-

$

10,500

Nicholas Pingitore

$

-

$

7,500

$

-

$

7,500

James Wolfe

$

-

$

7,500

$

-

$

7,500

Peter Denetclaw, Jr.

$

-

$

-

$

-

$

-

Clark A. Moseley

$

-

$

-

$

-

$

-

 

The Company does not currently pay directors’ fees in cash and paid the above-referenced directors’ fees in fiscal 2018 through the issuance of shares of common stock valued at the market price at the time such fees were earned. Each of our directors are reimbursed reasonable out of pocket expenses associated with attending our board meetings.


42


 

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following tables set forth information as of November 20, 2019, regarding the ownership of the Company’s common stock by: (i) each named officer, each director and all of the Company’s directors and executive officers as a group; and (ii) each person who is known by us to own more than 5% of the Company’s shares of common stock.  The number of shares beneficially owned and the percentage of shares beneficially owned are based on 56,204,994 shares of common stock outstanding as of November 20, 2019.

 

Beneficial ownership is determined in accordance with the rules and regulations of the Securities and Exchange Commission. Shares subject to options that are exercisable within 60 days following November 20, 2019 are deemed to be outstanding and beneficially owned by the optionee for the purpose of computing share and percentage ownership of that optionee but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table, and as affected by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them. 

 

Name and Address of Beneficial Owner

 

Number of

 

 

 

Shares of

 

 

Common

Percent of

 

Stock

Class

 

Beneficially

Beneficially

 

Owned

Owned

Daniel E. Gorski

 

7,819,400

(1)

13.4%

Anthony Marchese

 

5,595,499

(2)

9.5%

Cecil Wall

 

956,154

(3)

1.7%

Nicholas Pingitore

 

1,040,239

(4)

1.8%

James Wolfe

 

626,351

(5)

1.1%

Wm Chris Mathers

 

540,000

(6)

1.0%

Peter Denetclaw, Jr.

 

10,111,883

(7)

18.0%

Clark A. Moseley

 

10,111,883

(8)

18.0%

All directors and executive officers as a group (8 persons)

 

26,689,526

 

42.5%

 

 

 

 

 

SC Fundamental Value Fund LP

 

3,600,000

(9)

6.0%

Navajo Transitional Energy Company

 

10,111,833

(10)

18.0%

Roseland Enterprises, Ltd.

 

3,950,000

(11)

7.0%

 

* Less than 1%.

 

(1)Consists of (i) 5,738,020 shares of Common Stock, and (ii) 2,081,380 shares of Common Stock underlying currently exercisable options and warrants with exercise prices between $0.10 and $0.50 per share and expiring the later of October 2028. 

 

(2)Consists of (i) 2,764,049 shares of Common Stock, and (ii) 2,831,450 shares of Common Stock underlying currently exercisable options and warrants with exercise prices between $0.10 and $0.50 per share and expiring the later of October 2028. 

 

(3)Consists of (i) 616,154 shares of Common Stock, and (ii) 340,000 shares of Common Stock underlying currently exercisable options and warrants with exercise prices between $0.10 and $0.50 per share and expiring the later of October 2028. 

 

(4)Consists of (i) 443,295 shares of Common Stock, and (ii) 596,944 shares of Common Stock underlying currently exercisable options and warrants with exercise prices between $0.10 and $0.50 per share and expiring the later of October 2028.  

 

(5)Consists of (i) 310,351 shares of Common Stock,  and (ii) 316,000 shares of Common Stock underlying currently exercisable options and warrants with exercise prices between $0.10 and $0.50 per share and expiring the later of October 2028.  

 

(6)Includes a ten-year option to purchase up to 500,000 shares of Common Stock at an exercise price of $0.19 and a ten year warrant to purchase up to 40,000 shares of Common Stock at an exercise price of $0.10 expiring between 5 and 9 years.  


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(7)Mr. Denetclaw is deemed to be a beneficial owners of the shares of common stock owned by Navajo Transitional Energy Company. 

 

(8)Mr. Moseley is deemed to be a beneficial owners of the shares of common stock owned by Navajo Transitional Energy Company.  

 

(9)Represents shares held by related persons and entities SC Fundamental Value Fund, L.P., SC Fundamental LLC, Peter M. Collery, Neil H. Koffler, John T. Bird, David Hurwitz and SC Fundamental LLC Employee Savings & Profit Sharing Plan. Represents (i) 100,000 shares of Common Stock and, (ii) 3,500,000 Common Stock purchase warrants exercisable at $0.35 per share for a period of five years. 

 

(10)Represents shares held by the Navajo Transitional Energy Corp. Messrs. Denetclaw and Moseley have voting and investment power with respect to these shares. 

 

(11)Represents shares held by Roseland Enterprises, LTD. Judith Wolters has voting and investment power with respect to these shares. 

 

It is believed by the Company that all persons named have full voting and investment power with respect to the shares indicated, unless otherwise noted in the table and the footnotes thereto. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.

 

The Company is not, to the best of our knowledge, directly or indirectly owned or controlled by another corporation or foreign government.

 

Change in Control

 

The Company is not aware of any arrangement that might result in a change in control in the future. The Company has no knowledge of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in the Company’s control.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires the Company’s officers, directors, and persons who beneficially own more than 10% of the Company’s common stock, to file reports of ownership and changes in ownership with the SEC.

 

Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, the Company believes that during fiscal year ended August 31, 2017 the filing requirements applicable to its officers, directors and greater than 10% percent beneficial owners were complied with, except as follows: (i) Mr. Denetclaw has failed to file a Form 3 in connection with his election as a director, (ii) Mr. Moseley has failed to file a Form 3 in connection with his election as a director, (iii) Mr. Marchese has failed to file a Form 4 in connection with the receipt of shares of common stock upon conversion of certain indebtedness and upon payment of director fees; (iv) Mr. Gorski has failed to file a Form 4 in connection with the receipt of shares of common stock upon conversion of certain indebtedness and upon payment of director fees; (v) Mr. Wall has failed to file a Form 4 in connection with the receipt of shares of common stock upon conversion of certain indebtedness and upon payment of director fees; (vi) Mr. Pingitore has failed to file a Form 4 in connection with the receipt of shares of common stock upon conversion of certain indebtedness and upon payment of director fees; and (vii) Mr. Wolfe has failed to file a Form 4 in connection with the receipt of shares of common stock upon conversion of certain indebtedness and upon payment of director fees.


44


 

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

During the fiscal year ended August 31, 2019 we converted advances from certain officers and directors totaling $465,780 into 1,249,325 shares of Common Stock. As of August 31, 2019, there were no advances by officers and directors to the Company.

 

 In August 2019, the Navajo Transitional Energy Corp. purchased 5,11,625 shares of our common stock for $1,840,185. In connection with this investment, Messrs. Denetclaw and Moseley were elected and appointed directors of the Company.

 

The Company has a policy for the review of transactions with related persons as set forth in the Company’s Audit Committee Charter and internal practices. The policy requires review, approval or ratification of all transactions in which the Company is a participant and in which any of the Company’s directors, executive officers, significant stockholders or an immediate family member of any of the foregoing persons has a direct or indirect material interest, subject to certain categories of transactions that are deemed to be pre-approved under the policy - including employment of executive officers, director compensation (in general, where such transactions are required to be reported in the Company’s proxy statement pursuant to SEC compensation disclosure requirements), as well as certain transactions where the amounts involved do not exceed specified thresholds.

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

LBB & Associates Ltd., LLP was the Independent Registered Public Accounting Firm for the Company in the fiscal year ended August 31, 2019.

 

The Company’s financial statements have been audited by LBB & Associates Ltd., LLP, independent registered public accounting firm, for the years ended August 31, 2019 and 2018. The following table sets forth information regarding the amount billed to us by our independent auditor, LBB & Associates Ltd., LLP for our two fiscal years ended August 31, 2019 and 2018, respectively:

 

 

 

Years Ended August 31,

 

 

2019

 

2018

Audit Fees

$

40,500

$

40,500

Audit Related Fees

$

-

$

-

Tax Fees

$

-

$

-

All Other Fees

$

-

$

-

 

 

 

 

 

Total

$

40,500

$

40,500

 

Audit Fees

 

Consist of fees billed for professional services rendered for the audit of our financial statements and review of interim consolidated financial statements included in quarterly reports and services that are normally provided by the principal accountants in connection with statutory and regulatory filings or engagements.

 

Audit Related Fees

 

Consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees”.

 

Tax Fees

 

Consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include preparation of federal and state income tax returns.

 

All Other Fees

 

Consist of fees for product and services other than the services reported above.


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Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors

 

The Audit Committee has adopted procedures requiring the Audit Committee to review and approve in advance, all particular engagements for services provided by the Company’s independent auditor. Consistent with applicable laws, the procedures permit limited amounts of services, other than audit, review or attest services, to be approved by one or more members of the Audit Committee pursuant to authority delegated by the Audit Committee, provided the Audit Committee is informed of each particular service. All of the engagements and fees for 2019 were pre-approved by the Audit Committee. The Audit Committee reviews with LBB & Associates Ltd., LLP whether the non-audit services to be provided are compatible with maintaining the auditor’s independence.


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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES

 

Documents filed as part of this Annual Report on Form 10-K or incorporated by reference:

 

(1)The financial statements are listed on the “Index to Financial Statements” in Item 8. 

 

(2)Financial Statement Schedules (omitted because the Company is a smaller reporting issuer). 

 

The following exhibits are attached hereto or are incorporated by reference:

 

Exhibit No.

 

Description

 

 

 

2.1

 

Plan of Conversion, dated August 24, 2012, incorporated by reference to Exhibit 2.1 of our Form 8-K filed with the SEC on August 29, 2012.

3.1

 

Delaware Certificate of Conversion, incorporated by reference to Exhibit 3.1 of our Form 8-K filed with the SEC on August 29, 2012.

3.2

 

Delaware Certificate of Incorporation, incorporated by reference to Exhibit 3.2 of our Form 8-K filed with the SEC on August 29, 2012.

3.3

 

Delaware Certificate of Amendment, incorporated by reference to Exhibit 3.1 of our Form 8-K filed with the SEC on March 18, 2016

3.4

 

Delaware Bylaws, incorporated by reference to Exhibit 3.3 of our Form 8-K filed with the SEC on August 29, 2012.

4.1

 

Form of Common Stock Certificate, incorporated by reference to Exhibit 4.1 of our Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011.

4.2

 

Form of Warrant Indenture, incorporated by reference to Exhibit 4.2 of our Form S-1/A filed with the SEC on December 10, 2014.

4.3

 

Form of Class A Warrant, included as Schedule A in Exhibit 4.2.

4.4

 

Form of Class B Warrant, included as Schedule B in Exhibit 4.2.

10.1

 

Amended and Restated 2008 Stock Option Plan, incorporated by reference to Exhibit 10.1 of our Form 10-Q for the period ended May 31, 2011 filed with the SEC on July 15, 2011.

10.2

 

Mining Lease, incorporated by reference to Exhibit 10.2 of our Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011.

10.3

 

Mining Lease dated November 2011 with the State of Texas, incorporated by reference to Exhibit 10.3 of our Form 10-K filed with the SEC on November 27, 2019.

10.4

 

Purchase option agreement dated September 2014 with the State of Texas incorporated by reference to Exhibit 10.4 of our Form 10-K filed with the SEC on November 27, 2019.

10.5

 

Groundwater lease dated September 2014 with the State of Texas incorporated by reference to Exhibit 10.5 of our Form 10-K filed with the SEC on November 27, 2019.

10.6

 

ReeTech Operating Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K as filed with the Commission on July 21, 2015

10.7

 

Amendment Number One to the Reetech Operating Agreement, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K as filed with the Commission on November 30, 2015

10.8

 

Amendment Number One to the TRER License, incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K as filed with the Commission on November 30, 2015

10.9*

 

Director’s Agreement by and between the Company and Anthony Marchese, incorporated by reference to Exhibit 10.6 of our Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011.

10.10*

 

Summary of Dan Gorski Employment Arrangement, incorporated by reference to Exhibit 10.10 of our Form 10-K filed with the SEC on November 27, 2019.

10.11*

 

Summary of Wm. Chris Mathers Employment Arrangement, incorporated by reference to Exhibit 10.11 of our Form 10-K filed with the SEC on November 27, 2019.

10.12*

 

Option Agreement for Wm. Chris Mathers incorporated by reference to Exhibit 10.21 of our Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 2011.

10.13*

 

Form of Directors Option Agreement incorporated by reference to Exhibit 10.22 of our Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 2011.

10.14

 

Consulting Agreement between the Company and Chemetals, Inc., dated January 22, 2013, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 28, 2013.


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10.15

 

Lease Agreement between the Company and Southwest Range & Wildlife Foundation, Inc., dated March 6, 2013, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 12, 2013.

10.16

 

Variation agreement with Morzev PTY LTD. (USA Rare Earth) dated October 2018, incorporated by reference to Exhibit 10.16 of our Form 10-K filed with the SEC on November 27, 2019.

10.17

 

Amended and Restated Option Agreement with Morzev (USA Rare Earth) dated August 2019, incorporated by reference to Exhibit 10.17 of our Form 10-K filed with the SEC on November 27, 2019.

31.1(1)

 

Certification by Chief Executive Officer

31.2(1)

 

Certification by Chief Financial Officer

32.1(1)

 

Section 1350 Certification by Chief Executive Officer

32.2(1)

 

Section 1350 Certification by Chief Financial Officer

101.INS(2)

 

XBRL Instance Document

101.SCH(2)

 

XBRL Taxonomy Extension — Schema

101.CAL(2)

 

XBRL Taxonomy Extension — Calculations

101.DEF(2)

 

XBRL Taxonomy Extension — Definitions

101.LAB(2)

 

XBRL Taxonomy Extension — Labels

101.PRE(2)

 

XBRL Taxonomy Extension — Presentations

 

* Management contract or compensatory plan or arrangement. 

 

(1)Filed herewith. 

 

(2)Submitted Electronically Herewith. Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Balance Sheets at August 31, 2019 and 2018; (ii) Statements of Operations for the years ended August 31, 2019 and 2018; (iii) Statements of Cash Flows for the years ended August 31, 2019 and 2018; (iv) Statements of Shareholders’ Equity for the years ended August 31, 2019 and 2018; and (v) Notes to Financial Statements.  


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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TEXAS MINERAL RESOURCES CORP.

 

/s/ Daniel E Gorski

Daniel E Gorski, Chief Executive Officer

 

DATED: June 3, 2020

 

/s/ Wm Chris Mathers

Wm Chris Mathers, Chief Financial Officer

 

DATED: June 3, 2020

 

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature

 

Capacity

 

Date

 

 

 

 

 

/s/ Daniel E Gorski

 

Chief Executive Officer, Principal Executive Officer and Director

 

June 3, 2020

Daniel E Gorski

 

 

 

 

 

 

 

 

 

/s/ Wm Chris Mathers

 

Chief Financial Officer

 

June 3, 2020

Wm Chris Mathers

 

 

 

 

 

 

 

 

 

/s/ Anthony Marchese

 

Director

 

June 3, 2020

 

 

 

 

 

 

 

 

 

 

/s/ Cecil C Wall

 

Director

 

June 3, 2020

Cecil C Wall

 

 

 

 

 

 

 

 

 

/s/ Nicholas Pingitore

 

Director

 

June 3, 2020

Nicholas Pingitore

 

 

 

 

 

 

 

 

 

/s/ James R Wolfe

 

Director

 

June 3, 2020

James R Wolfe

 

 

 

 

 

 

 

 

 

/s/ Peter Denetclaw, Jr

 

Director

 

June 3, 2020

Peter Denetclaw, Jr

 

 

 

 

 

 

 

 

 

/s/ Clark A Moseley

 

Director

 

June 3, 2020

Clark A Moseley

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


49