UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


________________





FORM 10-K/A


(Amendment No. 1)


(Mark One)





þANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)





For the fiscal year ended December 31, 2014





oTRANSACTION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)





For the transition period from ________ to ________





Commission File No. 000-31199





U.S. RARE EARTHS, INC.


(Exact Name of Issuer as specified in its charter)





Nevada

87-0638338(State or Other Jurisdiction  of Incorporation)

(I.R.S. Employer File No.)
  5600 Tennyson Parkway, Suite 240, Plano, Texas

75024(Address of Principal Executive Offices)

(Zip Code)





(972)-294-7116


(Registrant's telephone number, including area code)





Securities registered pursuant to Section 12 (b) of the Exchange Act:





None

None(Title of each class)

(Name of each exchange on which registered)





Securities registered pursuant to Section 12 (g) of the Exchange Act:


Common Stock


(Title of Class)





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





Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. oYes    þ No





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.   þYes    oNo





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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). þYes   oNo





Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K  (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o





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





Large Accelerated Filero
Accelerated Filero
Non-Accelerated Filero
Smaller Reporting Companyþ





(Do not check if a smaller reporting company)





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     oYes    þNo





As of June 30, 2014 (the last business day of our most recently completed second fiscal quarter), based upon the last reported trade on that date, the aggregate market value of the voting and non-voting common equity held by non-affiliates (for this purpose, all outstanding and issued common stock minus stock held by the officers, directors and known holders of 10% or more of our common stock) was $37,215,369.





As of February 27, 2015, we had 11,327,050 shares of common stock outstanding.





DOCUMENTS INCORPORATED BY REFERENCE:  None










EXPLANATORY NOTE
 
 This Amendment No. 1 to Form 10-K (this “Amendment”) amends the Annual Report for the period ended December 31, 2014 filed on March 2, 2015 (the “Original 10-K”) of U.S. Rare Earths, Inc. (the “Company”). The Company is filing this Amendment for the sole purpose of correcting a typographical error in one of the dates set forth in the Report of Independent Registered Public Accounting Firm included in the Company’s consolidated financial statements for the year ended December 31, 2014.  For convenience, this amended Annual Report on Form 10-K/A sets forth the original filing in its entirety as amended where necessary to reflect the Amendment.
 
 This Amendment should be read in conjunction with the Original 10-K, and the Company’s other filings made with the U.S. Securities and Exchange Commission subsequent to the filing of the Original 10-K on March 2, 2015. The Original 10-K has not been amended or updated to reflect events occurring after March 2, 2015, except as specifically set forth in this Amendment.












TABLE OF CONTENTS





PagePART 1ITEMS  1 and 2.
Business and Properties

6ITEM 1A.
Risk Factors

63ITEM 1B.
Unresolved Staff Comments

74ITEM 3.
Legal Proceedings

74ITEM 4.
Mine Safety Disclosure

74PART IIITEM 5.
Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

75ITEM 6.
Selected Financial Data

76ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

76ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk

85ITEM 8.
Financial Statements and Supplementary Data

85ITEM 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

85ITEM 9A.
Controls and Procedures

85ITEM 9B.
Other Information

87PART IIIITEM 10.
Directors, Executive Officers and Corporate Governance

88ITEM 11.
Executive Compensation

95ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

100ITEM 13.
Certain Relationships and Related Transactions, and Director Independence

103ITEM 14.
Principal Accounting Fees and Services

105PART IVITEM 15.
Exhibits, Financial Statement Schedules

106










CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS


AND


OTHER INFORMATION





The statements contained in this Annual Report of U.S. Rare Earths, Inc. and its consolidated subsidiaries that are not historical facts are forward-looking statements. These forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “may,” “could,” “should,” “expect,” “plan,” “project,” “strategy,” “forecast,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “pursue,” “target,” “continue,” or similar expressions help identify forward-looking statements. Additionally, statements concerning future matters such as revenue projections, projected profitability, growth strategies, development of new products, enhancements or technologies, possible changes in legislation and other statements regarding matters that are not historical are forward-looking statements.





The forward-looking statements contained in this Annual Report are largely based on the expectations of management, which reflect estimates and assumptions made by management. These estimates and assumptions reflect management’s best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond our control. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Annual Report are not guarantees of future performance, and management cannot assure any reader that such statements will be realized or the forward-looking events and circumstances will in fact occur. Our actual results may differ materially from those anticipated, estimated, projected or expected by management. We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this report. When considering forward-looking statements, please read “Item 1A - Risk Factors” and “Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report.





Information regarding the demand, pricing, uses and reserves of rare earth elements set forth in “Items 1 and 2 - Business and Properties” include statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third party research, surveys and studies are reliable, we have not independently verified such information.




On December 16, 2014, we amended our articles of incorporation to effect the reverse split at a ratio of 1-for-3. Unless otherwise indicated, all share and per share numbers included in this Annual Report on Form 10-K/A give effect to the reverse split.




GLOSSARY OF SELECTED MINING TERMS





U.S. Rare Earths, Inc. and its consolidated subsidiaries are referenced in this Annual Report by phrases such as “we,” “our,” or “us,” depending on the context in which the statements are made. For convenience, this glossary includes selected mining terms used in this annual report on Form  10-K/A that may be technical in nature:





“AEC” means the United States Atomic Energy Commission.





“Adit” means an opening driven horizontally into the side of a mountain or hill for providing access to a mineral deposit.





“Assay” means a measure of the valuable mineral content.





“Azimuth” means the angle of horizontal deviation, measured clockwise, of a bearing from a standard direction, as from north or south.







4





“BLM” means the United States Bureau of Land Management and any successor entity having authority with respect to our claims.





“Claims” means approximately 1,250 unpatented mining claims on approximately 22,000 acres of land in Colorado, Idaho and Montana held by us.





“Core” means the long cylindrical piece of a rock, approximately one inch in diameter, brought to the surface by diamond drilling.





“Deposit” means an informal term for an accumulation of mineral ores.





“Development stage” means the U.S. Securities and Exchange Commission’s descriptive category applicable to public mining companies which are engaged in the preparation of established commercially minable deposits and ore reserves but which are not in the production stage.





“Diamond drilling” means 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.





“Exploration stage” means the U.S. Securities and Exchange Commission’s descriptive category applicable to public mining companies which are engaged in the search for mineral deposits and ore reserves and which are neither in the development or production stage.





“Feasibility Study” means an engineering study designed to define the technical, economic, and legal viability of a mining project with a high degree of reliability.





“General Mining Law” means the General Mining Law of 1872, as amended.





“Grade” means the metal content of ore, usually expressed in troy ounces per ton (2,000 pounds) or in grams per ton or metric tonnes that contain 2,204.6 pounds or 1,000 kilograms.





“Lanthanide elements” mean the 15 chemical (metallic) elements known as rare earth elements.





“Lode” means a mineral deposit in a solid rock.





“Mineral reserve” means 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 mineral.





“Ore” means 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” means continuous, well-defined mass of material of sufficient ore content to make extraction economically feasible.





“Probable reserves” means 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.





“Production stage” means the U.S. Securities and Exchange Commission’s descriptive category applicable to public mining companies which are engaged in the exploitation of mineral deposits and ore reserves.




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“Project” means an identified group of claims consolidated for exploration activities, the value of which has not been determined by exploration.




“Prospect” means a geological area which is believed to have the potential for rare earth production.





“Proven reserves” means reserves for which (a) quantity is computed from dimensions revealed in outcrops, trenches, workings or drill holes; grade and/or quality are computed from the results of detailed sampling and (b) 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.





“Rare Earth Elements” or “REEs” include 15 naturally occurring chemical (metallic) elements consisting of the 14 "lanthanide elements" (cerium, lanthanum, neodymium, praseodymium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium and lutetium) and yttrium.





“Reserve” means that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination.





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





PART I





ITEMS 1 and 2.    BUSINESS AND PROPERTIES





General Information




We are a rare earth elements exploration company seeking to identify and ultimately mine commercially-viable sources of domestic rare earth elements.




Currently, our operations are exploratory in nature. We hold approximately 1,250 unpatented lode mining claims that cover approximately 22,000 acres of land in Idaho, Montana and Colorado. In Idaho and Montana, our claims are located in the Lemhi Pass mineral trend in Lemhi County, Idaho, and Beaverhead and Ravalli Counties, Montana. These claims are grouped into projects that include the Last Chance and Sheep Creek Projects in Montana and the North Fork, Lemhi Pass and Diamond Creek Projects in Idaho. In Colorado, the claims include the Powderhorn Project in Gunnison County, and Wet Mountain Project in Fremont County. We are not producing rare earth elements from any of our claims and further exploration will be required in order to evaluate and identify the commercial viability of producing rare earth elements from any of our claims. As a result, we have no probable or proved reserves of rare earth elements.




We historically had two business segments: (i) co-op advertising services, which encompassed radio, television, cable, print or outdoor advertising, print ads and production of electronic commercials conducted through Media Depot, Inc., a wholly-owned subsidiary of the Company, or Media Depot, and a subsidiary of Media Depot, Media Max, Inc., as well as certain other assets held by us; and (ii) a rare earth elements exploration and claims business acquired through mergers with several companies. Our management has determined to exit the advertising business, and to focus solely on the creation of a completely independent American-based rare earth exploration company with claims located in the continental United States.




6




Our principal executive offices are located at 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024. The telephone number is 972-294-7116. Our principal website address is www.usrareearths.com. The information contained on, or that can be accessed through, our website is not incorporated into and is not a part of this this Annual Report on Form 10-K/A. We have included our website address in this Annual Report on Form 10-K/A solely as an inactive textual reference.




Company History and Structure




We were incorporated in the State of Delaware on July 27, 1999 and changed our domicile to the State of Nevada in December 2007. We were originally organized for general investment purposes under the name "Calypso Financial Services, Inc." We entered the advertising business through the merger of Calypso Acquisitions, Inc., a wholly-owned subsidiary of ours, with and into Media Depot, Inc., a Nevada corporation, on December 31, 2007. Following the acquisition, we changed our name to Calypso Media Services Group, Inc. and re-domiciled as a Nevada corporation.




In December 2010, Calypso Media Services Group entered the mining exploration business through the merger of its wholly-owned subsidiary, Calypso Merger, Inc., into Seaglass Holding Corp., or Seaglass, which held rights to more than 600 unpatented lode mining claims covering more than 12,000 acres of land located in Fremont, Gunnison and Saguache Counties of Colorado. Based on geological studies published by various government agencies, as well as our own exploration efforts to date on our claims, we believe these mineral claims are on, near, or adjacent to anomalous features believed to contain rare earth elements. Pursuant to the terms of the merger agreement, the stockholders of Seaglass exchanged 100% of the outstanding common stock of Seaglass for 1,966,667 unregistered shares of our common stock valued at $1.50 per share or $2,950,000. An independent evaluation was performed by a licensed professional engineer to estimate the fair market value of the claims on the date of acquisition. Based on this report, we assigned a fair value to the claims of $326,000 and recorded an impairment expense of $2,624,000 for the year ended December 31, 2010. At the time of the Seaglass merger, Calypso Media Services Group changed its name to Colorado Rare Earths, Inc.




Colorado Rare Earths further expanded its exploration business in August 2011 when U.S. Rare Earths, Inc., a Delaware corporation, or Old USRE, was merged into Seaglass. With this merger, Colorado Rare Earths acquired rights to 583 unpatented lode mineral claims located in Lemhi County, Idaho, and 56 unpatented lode mining claims located in Beaverhead and Ravalli Counties, Montana. The mineral claims cover over 9,600 acres of land. Based on geological studies published by various government agencies, as well as our own exploration efforts to date on our claims, we believe these mineral claims are on, near, or adjacent to anomalous features believed to contain rare earth elements. Pursuant to the terms of the merger agreement, Old USRE stockholders exchanged 100% of their outstanding common stock for 1,666,667 unregistered shares of our common stock valued at $8.55 per share. As part of the acquisition price, we also assumed several notes payable in the aggregate amount of $1,450,000. At the closing, we paid $500,000 related to the booked notes payable. We did not obtain a valuation of the mineral properties at the time of the merger. As a result, we assigned a fair value to the claims of $0 and recorded an impairment expense of $15,678,000 for the year ended December 31, 2011. Following the merger, we changed our name to "U.S. Rare Earths, Inc."




We have maintained most of the claims acquired through the above-described mergers and have acquired new claims. Today, we hold approximately 1,250 unpatented lode mining claims for rare earth elements covering approximately 22,000 acres of land in Idaho, Montana, and Colorado. Exploration on these projects is discussed under "Properties—Mining Claims" below.




7




Current Operations





Our current operations are exploratory in nature. We are considered an exploration stage company under SEC criteria because we have not demonstrated the existence of proven or probable reserves at our claims and have not conducted any actual mining operations. Accordingly, as required under SEC guidelines and U.S. GAAP for companies in the exploration stage, all of our investments in mineral properties to date have been expensed as incurred and therefore do not appear as assets on our balance sheet. We expect exploration expenditures will continue during 2015 and subsequent years. We expect to remain an exploration stage company for the foreseeable future. We will be deemed an exploration stage company until such time as we demonstrate the existence of proven or probable mineral reserves that meet SEC guidelines. Likewise, unless mineralized material is classified as proven or probable reserves, substantially all expenditures for mine exploration and construction will continue to be expensed as incurred.




Our principal source of liquidity for the next several years will be capital raises through the sale and issuance of equity and debt securities. However, since our ability to raise additional capital will be affected by many factors, most of which are not within our control, there can be no assurance that we will be able to raise the additional capital, as and when needed, to fund our ongoing operations. Please see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional information regarding the challenges we face in raising capital and with respect to our current liquidity.




Our Market Opportunity




Global demand for REEs has experienced an upward trend. This is projected to continue to grow as a result of the developing rare earth elements supply chain as more high-tech and green industry applications come to market. During this time, China has been the primary producer and refiner of rare earth elements. With China's dominance of the production and refinement of REEs, the rest of the world is currently dependent on Chinese exports to meet its own growing needs specifically related to heavy rare earth elements and critical rare earth elements.




According to Roskill Information Services Ltd., Roskill's estimated percentage of China's global demand and the USGS (Mineral Commodities Reports and Open–File Report 2011–1042) provide for an estimate of global demand for rare earth oxides, or REOs, in 2014 to be at an estimated 130,000 metric tons, growing to between 140,000 and 150,000 metric tons in 2015. At the same time, estimates are that, with increasing global demand and continued current 2014 estimated global production (without additional production), an undersupply of certain rare earth will occur. We believe greater rare earth supply sources outside of China will be needed to make up the shortfall to meet global demand.




While production from new operations such as Mountain Pass in California and Mt. Weld in Western Australia may be able to make up some of the shortfall between demand and supply, according to the CRS Report, several forecasts show that there may be shortfalls of some rare earth elements.




As we hold unpatented lode mining claims to nearly all of the historically known rare earth element mineralization occurrences in the Lemhi Pass District of East-Central Idaho and South-Western Montana, we believe we can play an important role in addressing this increasing supply/demand disparity.




Rare Earth Elements Market Overview




The discussion concerning the rare earths industry included in this this Annual Report on Form 10-K/A includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. While we believe these industry publications and third-party research, surveys and studies are reliable, we have not independently verified such information.





What are Rare Earth Elements?




The rare earth elements are a group of 15 naturally occurring chemical (metallic) elements consisting of the 14 lanthanide elements and yttrium. They share many similar properties, and all tend to occur together in geological deposits, although in varying concentrations. Rare earth elements are relatively common; however, they are referred to as "rare" because they are not often found in commercially exploitable concentrations. The principal mineral sources for rare earth elements are bastnasite, monazite, ion-absorption clays and loparite. Despite their relative abundance, rare earth elements are more difficult to mine and extract than equivalent sources of transition metals, making rare earth elements relatively expensive.







8




Rare earth elements generally fall into one of two categories—the light rare earth elements, which include lanthanum, cerium, praseodymium, neodymium, samarium and europium, and the heavy rare earth elements, which include gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium and yttrium. Rare earth element mineral deposits are usually rich in light rare earth elements. Heavy rare earth element deposits have a lower concentration of light rare earth elements with a significantly higher percentage of heavy rare earth elements. While light rare earth elements tend to be more abundant, one light rare earth element—neodymium—and four heavy rare earth elements—europium, terbium, dysprosium and yttrium—are in sufficiently short supply that they are referred to as "critical rare earth elements".




The oxides produced from processing rare earth elements are commonly referred to as REOs.




Rare Earth Element Uses





Rare earth elements are necessary components in many high technology and green energy related products in both civilian and national security applications. Currently, the dominant end uses for rare earth elements in the United States are for automobile catalysts and petroleum refining catalysts, use as phosphors in color television and flat panel displays (cell phones, portable DVDs, and laptops), permanent magnets and rechargeable batteries for hybrid and electric vehicles, and numerous medical devices. There are important defense applications such as jet fighter engines, missile guidance systems, anti-missile defense systems, and satellite and communication systems. Permanent magnets containing neodymium, gadolinium, dysprosium, and terbium are used in numerous electrical and electronic components and new-generation generators for wind turbines. The following table derived from the CRS Report identifies the major end use for the following rare earth elements:




Rare Earth Elements

Major End UseCerium

Auto catalyst, petroleum refining and metal alloysDysprosium

Permanent magnets and hybrid enginesErbium

PhosphorsEuropium

Red color for television and computer screensGadolinium

MagnetsHolmium

Medical lasers, glass coloring, and defense infrared counter measure systems and range finding.Lanthanum

Hybrid engines and metal alloysLutetium

Catalyst in petroleum refiningNeodymium

Auto catalyst, petroleum refining, hard drives in laptops, headphones and hybrid enginesPraseodymium

MagnetsSamarium

MagnetsTerbium

Phosphors and permanent magnetsThulium

Medical x-ray unitsYtterbium

Lasers and steel alloysYttrium

Red color, fluorescent lamps, ceramics and metal alloy agent









9





Rare Earth Element Demand




According to Roskill Information Services Ltd., Roskill's estimated percentage of China's global demand and the USGS (Mineral Commodities Reports and Open–File Report 2011–1042) provide for an estimate of global demand for rare earth oxides, or REOs, in 2014 to be at an estimated 130,000 metric tons, growing to between 140,000 and 150,000 metric tons in 2015 and to 158,000 metric tons in 2017.




The Roskill 2012 Report, estimated rare earth demand by application for 2012 to be as follows:






Rare Earth neodymium, praseodymium, dysprosium demand by Application—World, 2012

















Rare Earth yttrium, europium, terbium demand by Application—World, 2012

















10




Rare Earth Element Production and Reserves




Historically, the United States was the leading producer of rare earths from 1965 to the mid-1980s. During this period, the United States provided the majority of rare earth minerals to the rest of the world from the Mountain Pass mine in California. However, by 1986, China surpassed the United States to be the world's top producer and major supplier of rare earths. As illustrated by the following table from the CRS Report showing production and reserves of rare earth elements by country in 2011, China has dwarfed all other producers, supplying some 95% of the world's rare earth elements. During 2012, Molycorp's Mountain Pass mine in California came back into production and, according to Molycorp's 2013 annual report, the Mountain Pass mine produced approximately 2,000 metric tons of REOs in the third and fourth quarters of 2013 with a design capacity of 19,050 metric tons per year. In addition, Lynas Corporation's Mt. Weld mine in Australia has come on line, but, according to the CRS Report, has yet to reach its projected production capacity of 11,000 metric tons per year. Given the timeline for current exploration projects to come into production, if at all, we believe that China will continue to dominate the market for rare earth elements for the foreseeable future.












Rare Earth Element Prices




According to the Metal Pages Reports, prices of rare earth oxides rose rapidly in 2010 and 2011, while rare earth oxide prices have declined in general from the first half of 2012 through the last quarter in 2014. The CRS Report attributes the price increases to restrictions on Chinese rare earth exports and lack of capacity elsewhere in the world and attributes the price declines to softer demand (e.g., some substitution, high stocks, and a slow economic recovery). We believe that China's dominance of the global rare earth elements market gives it the ability to exercise substantial control over the current pricing of rare earth elements. We also believe that, until a domestic, readily available, transparent, and free market source of rare earths production becomes available, China will maintain substantial control over market prices for the foreseeable future.




11




The following table shows prices for selected rare earth oxides from 2012 to mid-3rd quarter 2014.



















Source:Metal Pages.




We believe that the anticipated shortages of rare earth elements worldwide, coupled with the desirability from the standpoint of national security for developing sources of rare earth elements within the United States, creates an opportunity to develop a successful rare earth elements mining and processing business. We are at the early stages of exploration on our Montana, Idaho, and Colorado prospects and have neither proven nor probable reserves; nor have we completed preliminary feasibility studies for any of these prospects. However, based on geological studies published by various government agencies, as well as our own exploration efforts to date on our claims, we believe that these opportunities are worth pursuing.




12





Properties





We do not own real property and have no plans to acquire any real estate. Our mining claims and other real property interests specifically related to mining are discussed below.





Summary of Our Mining Claims





Currently, our operations are exploratory in nature. We hold approximately 1,250 unpatented lode mining claims covering approximately 22,000 acres of land in Idaho, Montana and Colorado. In Idaho and Montana, our claims are located in the Lemhi Pass mineral trend in Lemhi County, Idaho, and Beaverhead and Ravalli Counties, Montana. These claims are grouped into projects that include the Last Chance and Sheep Creek Projects in Montana and North Fork, Lemhi Pass and the Diamond Creek Projects in Idaho. In Colorado, the claims include the Powderhorn Project in Gunnison County, and the Wet Mountain Project in Fremont County. These claims have been filed with the Bureau of Land Management, or BLM, pursuant to the General Mining Law on federal lands where both the surface and mineral interests are owned by the United States government.





All of our mining claims are wholly owned without any royalties or shared interest. As part of the Settlement Agreement described in the section entitled "Transactions with Related Persons", we granted a ten-year right of first refusal—consistent with the terms and conditions proposed by a bona fide third-party commercial bidder determined by the parties—with respect to a contract for the disposition of thorium in connection with any future mining of rare earths on our Lemhi Pass properties.




13




Our number of mining claims by state, project and covered acres are summarized in the table below.




U.S. Rare Earths Inc.'s Mining Claim Summary.




Claims





Count

Covered AcresState

Project

ProspectMontana





56

937Last Chance



44

693Sheep Creek



12

244Idaho





582

8,677North Fork



456

6,475Silver King

10

203Cardinal

59

461Jackpot

28

333Radiant

59

62Bus

27

558Non-Prospect NF

273

4,858Lemhi Pass



98

1,650Diamond Creek



28

552Colorado





611

12,173PowderhornSatellite

175

3,483Rudolph Hill

302

5,962Wet Mountains



134

2,728​

​

​

​

​Total





1,249

21,786




Our claims and our activities to date with respect to our claims are discussed below.




14





Montana and Idaho





Summary




We have more than 630 unpatented lode mining claims in Beaverhead and Ravalli Counties, Montana, and in Lemhi County, Idaho, that cover more than 9,600 acres of land. All of these claims are located on properties that are part of a mineralized trend that we refer to as the Lemhi Pass mineral trend as illustrated in the map in Figure 1 below. This trend extends for approximately 60 miles through Montana and Idaho and contains known anomalous rare earth mineralization, based on certain reports described below. For purposes of exploration and assessment, we have broken our claims in the Lemhi Pass mineral trend into five exploration projects, two in Montana (Last Chance and Sheep Creek) and three in Idaho (North Fork, Lemhi Pass and Diamond Creek). The relative positions of these projects within the Lemhi Pass mineral trend may be seen on the map in Figure 1 below.






Figure 1











15





History of Exploration in the Lemhi Pass Mineral Trend




The Lemhi Pass mineral trend has had two general periods of historical exploration and prospecting, the first of which started in 1883 and was principally for copper. The second period began in 1950 following the discovery of thorium in the area and extended through the 1980's. This exploration was conducted by various entities, sometimes with federal government funding, and was focused upon the potential use of thorium. This exploration included core-hole drilling and surface sampling, as well as some surface excavation to expose a mineral vein in many areas, including several longitudinal cuts that expose the Last Chance vein with a known length of 4,350 feet. In addition, some underground exploration was undertaken on the Last Chance vein. Several mine tunnels were excavated extending some 1,300 feet, in addition to a vertical shaft of 80 feet.





While much of the analysis of our 2013 exploration is not yet published, the U.S. Geological Survey, or USGS, and Idaho Bureau of Mines and Geology issued a number of reports evaluating the Lemhi Pass rare earth-thorium mineralization trend. This work indicates the presence of monazite and xenotime—mineral sources for rare earth elements. Associated minerals include principally thorite, specular hematite, magnetite, feldspars, quartz, barite, rutile, and, particularly, goethite along mineralized fracture/shear zones.





From 1965 through 1968, the AEC evaluated the Lemhi Pass mineral trend and issued several reports detailing grab-sample assay chemistry, geology, mineralogy, and sample locations encompassing the entire trend. In the course of its geological investigations, the AEC collected 200 samples from over 50 properties in the Lemhi Pass area. Metallurgical investigations at the time by the U.S. Bureau of Mines cited by the AEC indicated that recovery of REEs, with an acid cure, could be between 50%-70% of the rare earth elements present in the deposit.





Expanding on original exploration works by others, the USGS completed a survey of the area encompassing Lemhi Pass in 1979. They reported that thorium mineralization occurs in 219 known veins in the Lemhi Pass area (there is a high correlation in deposits of rare earth minerals where thorium is found), the largest vein being located on our Last Chance Project, which is up to 40 feet thick, with a stated known length of 4,350 feet. The area veins typically have strikes (orientation of length) from N 40° W to N 80° E, with a dip that varies between 40° and 70° SE, and follow irregular fractures in the host rock.







16




These published works, together with some privately held available data concerning this early exploration, were of great use to us and our predecessors in locating our claims in the Lemhi Pass mineral trend.




Environmental Concerns Related to Historical Workings




The rare earth mineralization found on all of our projects has some associated thorium. Historical investigations used the radioactive nature of thorium minerals to locate occurrence of thorium, which also led to the discovery of the associated rare earth minerals. These radioactive minerals are generally in concentrations of less than 0.05% and are considered Naturally Occurring Radioactive Material (NORM) and, to date, none of our approved and permitted or submitted Plans of Operation or Notices of Intent require us to remediate any historical workings.




In a majority of cases, these historical investigations used bulldozers to excavate the surface material to better expose the surface expression of these minerals. Because of this, all of our projects have some historical surface disturbance. In some cases, surface disturbances have been covered back up by the BLM. In other cases, such as the Last Chance Project and claims holding the Last Chance main vein and generally our projects in Montana, no covering of these workings has occurred; however, the adits that exist in the Last Chance Project have been closed-in by backfilling at the opening. All of our exploration work is restricted to less than five acres of disturbance and requires permitting according to our submitted Plans of Operation or Notices of Intent to the applicable regulatory authority. To date none of our approved and permitted or submitted Plans of Operation or Notices of Intent require us to remediate our historical workings.




The Montana Projects




Last Chance




Location




The Last Chance Project is located approximately 25 miles SSE of Salmon, Idaho on Forest Service Land in the Beaverhead National Forest District in Lemhi County, Idaho and Beaverhead County, Montana. This project is accessed by traveling south on Idaho Highway 28 to Tendoy, Idaho. Then east (left) on the Lewis & Clark Highway/Agency Creek Road 13.9 miles into Montana turning south (right) onto Frying Pan Road to the project area. All other access is by foot or helicopter. Access to the Last Chance property and the locations of contiguous claim blocks are shown in the map in Figure 2 below.




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Figure 2











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Mineral Rights Ownership, Maintenance and Description




The Last Chance Project consists of 44 unpatented lode mining claims covering approximately 690 acres. These claims are listed in the table below. The claims were staked on federal land on the "Location Date" shown in the table below and are maintained in accordance with the General Mining Law.




Last Chance Project Claims




Claim Name(1)

LocationDate(2)

AcresATOMIC BLAST

7/26/2007

14.3BROWN BEAR 2-MT

9/22/2007

11DAN PATCH

7/26/2007

20.66FINAL LAST CHANCE NEW

3/4/2014

13FRYING PAN

7/24/2007

8.7FRYING PAN 2

7/24/2007

20.66G & G 2

7/25/2007

20.66G & G 3

7/25/2007

20.66G & G 5

7/25/2007

20.66G & G 6

7/25/2007

20.66GROUSE 1

7/24/2007

11.2KATIE LYNN 1

7/26/2007

20.66KATIE LYNN 2

7/26/2007

20.66







19




Claim Name(1)

LocationDate(2)

AcresKATIE LYNN 3

7/26/2007

20.66KATIE LYNN 4

7/26/2007

20.66KATIE LYNN 5

7/26/2007

20.66KATIE LYNN 6

7/26/2007

20.66LAST CHANCE 3

7/24/2007

13.8LAST CHANCE 30 NEW

3/4/2014

20.66LAST CHANCE 31

7/24/2007

20.66LAST CHANCE 32

7/24/2007

20.66LAST CHANCE 39

7/24/2007

20.66LAST CHANCE 5

7/24/2007

10LAST CHANCE A

7/24/2007

20.66LAST CHANCE EXT 6

7/24/2007

11LAST CHANCE EXT 7

7/24/2007

15.4LAST CHANCE H

7/24/2007

13.7LAST CHANCE I

7/24/2007

7.3LAST CHANCE J

7/24/2007

13.4LAST CHANCE NEW

3/4/2014

20.66MONTANA BEAVERHEAD

7/24/2007

16.5RAGAND

7/24/2007

14.4RAGAND 10

7/24/2007

5.9RAGAND 11

7/24/2007

13.3RAGAND 12

7/24/2007

12.3RAGAND 6

7/24/2007

11.1RAGAND 8

7/24/2007

6.6RAGAND 9

7/24/2007

18.1SHADY TREE OVERSIGHT 4

7/25/2007

20.66SHADY TREE OVERSIGHT 5

7/25/2007

20.66SHADY TREE NEW

3/4/2014

20.66TRAPPER 1

7/24/2007

10.8TRAPPER 4

7/24/2007

13.6




(1)All claims are recorded in the name of Seaglass Holding Corp., a wholly-owned subsidiary of ours.





(2)All claims are located in the State of Montana.




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The principal explored claims include the following nine claims: the Last Chance New, Last Chance 30 New, Shady Tree New, Montana Beaverhead, Trapper 1, Final Chance New, Last Chance 39, Last Chance 32, and Last Chance 31. The remaining claims have not been explored in detail by us and are being held for future exploration work.




These claims and their associated mineral rights are held by currently active unpatented lode mining claims filed with the Montana office of the BLM, located in Billings, Montana and at the County Recorder's Office of Beaverhead County, in Montana. Maintenance of the mineral rights associated with the unpatented lode mining claims require annual filing and payment of $140 per claim fee to the BLM and filing with county jurisdiction with an associated recording fee of approximately $150 for all Montana located unpatented lode mining claims. During the normal course of exploration, we plan to continually perfect, expand, reduce, or otherwise modify and adjust our claims in coordination with our exploration efforts to maintain effective mineral rights that cover material properties.




History of the Project




The most noteworthy early historical work on and related to the Last Chance prospect thorium-rare earth mineralization trend began in the early 1950's by U.S. government agencies that issued multiple reports detailing, geology, and mineralogy covering the entire Lemhi Pass thorium-rare earth mineralized trend. This northwest mineralized trend extends over 60-70 miles from Lemhi Pass, Idaho to the North Fork "Mineral Hill" area northeast of Shoup, Idaho, and contains the Last Chance prospect. The principal rare earth minerals of the trend are monazite and xenotime.




These government investigations were supplemented by private entity exploration starting in 1950 with Elkhorn Mining Co, followed by Sawyer Petroleum Co. in partnership with Union Pacific Railroad Co., then later by Tenneco Oil Co., followed by Idaho Energy and Resources Co.




These reports investigate and describe mineralization (rare earths) occurrences in 219 known veins in the Lemhi Pass area of Idaho and Montana, the largest vein being located on the Last Chance Project, which is up to 39 feet thick, with a known length of 4,350 feet. The Lemhi Pass area veins are reported to typically have strike (orientation of length) azimuths of 320 to 80 degrees, with southeasterly dips varying between 40 to 70 degrees that followed irregular fractures in the host rock. Specific efforts of these early investigations focused on the Last Chance vein. The historical investigations and work efforts on the Last Chance vein developed 10 drill-holes reaching depths of 290 feet, multiple trenches along and cross-cutting the Last Chance main vein where it is exposed at the surface, an 80 foot vertical shaft, and two adits totaling more than 1,300 feet of underground work that drift to and along the vein. The underground adits and shaft are currently closed-in.




Our predecessor companies also completed grab sampling between 2007 and 2010 indicating several localities of anomalous rare earth mineralization.




Geological Setting




The Last Chance Project regional geology consists primarily of the Proterozoic metamorphosed Belt Supergroup of sediments that are well known in the region. These "metasediments" consist of very thick units of metamorphosed micaceous sandstones, siltstones, and mudstones of lake-basin origin and were deposited approximately 1.4 billion years ago. These sediments have since been metamorphosed and subsequently thrust and block faulted. There are numerous block faults with normal movement surrounding and within the Project. Three named faults exist in the area; the Lemhi Pass Fault lies to the north of the Last Chance Project, and the Bull Moose Fault and Dan Patch Fault are located east of the Last Chance Project. There are unnamed normal faults crossing the Project.




The Project's rare earth mineralization is considered to be related and deposited in the early Cenozoic (Tertiary) time period and is structurally controlled along the northeast and northwest trending fractures and shear zones hosted in the Project Belt Supergroup units.




Exploration work




The Last Chance Project is an exploration stage project and does not have any reportable reserves.




Phase I and II Exploration Work




The majority of our Phase I and II exploration work was conducted during 2013 on the Last Chance Project's main vein, which is one of the longest known veins in the Lemhi Pass mineral trend and extends up to approximately 4,350 feet along its length. Our work at this project in 2013 consisted of a compliant diamond core drilling and channel sampling program, which defined a deposit with moderate to high critical rare earth elements mineralization. We drilled eight core holes with depths reaching up to 520 feet. All eight of the drill holes intersected the vein. In addition, we took 12 channel samples along the known length of the vein.




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The drill hole and channel sample locations were recorded by waypoint averaging GPS handheld units and cross-correlated with satellite imagery. The drill core data, along with the surface channeling sampling and field mapping, provided us with over 165 data points for evaluation purposes and conceptualization of a deposit model. In addition to the assay work, we submitted for density determination 54 pseudo-random host and vein rock samples in accordance with the sampling and analysis procedures discussed in the "Sampling and Analysis" section below.




During 2013, we also completed channel sampling on the Montana Beaverhead claim located directly north of the Last Chance Project's main vein. This sample data indicates a similar mineralization and tenor of the Last Chance vein. At this time, we believe that this vein is oriented such that it strikes in a west-northwest direction with an as yet undetermined dip assumed to be southwesterly (in accordance with historical reports). Future exploration work is needed to identify the tenor and extent of the Beaverhead vein as it has potential to increase existing Project mineralization tonnage.




Assay tests of core samples and channel samples indicated the presence of rare earth elements at levels that lead us to believe that further exploration in this area is warranted. Mineralization associated with the vein appears to be structurally controlled. The dominant rare earth source rock in the vein is believed to be monazite. Other minerals that are associated with the vein include thorite, hematite, quartz, and limonite.




The cost of exploration work (including filing fees) from 2011 through December 31, 2014 was approximately $790,000.




Future Exploration Work




Based on the following factors, we believe continued exploration is warranted:




●
intersection of at-depth mineralization during our drilling program;





●
the length of the defined surface extent of the Last Chance Project's main vein;




●
our exploration work indicating the potential to find additional veins with length and mineralization; and




●
the historical investigations indicating a potential to find additional related mineralization within the project.




Accordingly, we plan to conduct exploration on this project in 2015 (subject to available funds) and we plan to include on our exploration team persons competent to supervise the work as staff or subcontractors.




In addition, we received approval from the U.S. Forest Service to re-open the Last Chance northern adit to allow for the retrieval of not more than 2,500 short tons of metallurgical sample material from the adit and a historic surface stockpile. We recently commenced material handling to remove the material from the stockpile.




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Our future exploration work plan for the Last Chance Project with estimated costs is summarized in the table below. Administration and company staff support costs are excluded.




Phase

Task

Estimated Cost

($1000's)III

Opening north adit for exploration and sampling purposes

350 - 500III

Underground metallurgical sample collection

50 - 300III

Continued evaluation of thorium and silver occurrence and association impact to the project as mineralogical, metallurgical, and market data are developed and determined

20 - 50III

Preliminary mineralogical studies

20III

Advanced metallurgical investigations with benefactions (Continuing in Phase IV and V)

100 - 3,500III

Field mapping and sample collections focused on the Beaverhead Montana claim

50 - 75III

Refinement of QA/QC standards and procedures

20IV

Completion of four to six diamond core holes

250 - 350IV

Additional modeling with new drill-hole data

20 - 60Total

880 - 4,875





We plan to use the proceeds of this offering and from future financings to fund our future exploration work. We continually prioritize our exploration efforts based on the most current exploration results and funding availability; therefore none, some, or all of the permitted exploration work for this project may be completed upon approved permitting.




Project Mineralogy




We have yet to conduct a full mineralogy study of the Lemhi Pass deposits; however, field observations made by our geologists are consistent with the mineralogy reported by historical investigations. The primary rare earth minerals are believed by us to include monazite and xenotime. Associated minerals include principally specular hematite, magnetite, feldspars, quartz, barite, rutile, thorite, and particularly goethite along mineralized fracture/shear zones. The rare earth minerals are generally only identifiable by microscopic analysis.




Sampling and Analysis




We conducted both channel and drill core sampling.




Channel samples were taken across the vein perpendicular to the vein strike with channels 4 inches wide, 4 inches deep and up to 29 feet in length. Individual samples consisted of 3.28 foot intervals collected along the individual channels.




Drill core containing visual mineralization was photographed, after which the mineralized core was split along the vertical core axis. Samples consisting of half of the split core were bagged in even 3.28 foot intervals.




Sample identification numbers were recorded on sample tags with matching tag numbers that were marked and sent with the samples to the assay lab.




Samples collected during our Phase I and II exploration program were analyzed by a third party laboratory that is accredited by the Standards Council of Canada. Samples were shipped via FedEx directly from our facilities to the laboratory under chain of custody. Prior to shipment from the field or sample preparation facility, blanks, duplicates, and rare earth standards were inserted into the sample batch with a frequency of one every 10 samples. Cross-check assays were performed by an additional third party laboratory to identify the presence of any significant laboratory bias in the analytical results.




Sampling quality assurance and quality control included an external Canadian certified rare earth standard and our own internal standard. Our field blanks consisted of locally sourced gravel and a non-local sourced quartzite.




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Our quality assurance and quality control program is under continuous review, evaluation, and development to maintain and improve quality assurance and quality control.




Power, Water and Infrastructure




The only power available to the Last Chance Project is by battery or petroleum fueled generators brought onto the site by us. Water is purchased from a source located 16 miles from the Last Chance Project and trucked to the Last Chance Project for drilling and other purposes. No permanent infrastructure or equipment is located within the Last Chance Project.




Sheep Creek





Location


The Sheep Creek Project is located approximately 30 miles NW of Salmon, Idaho on Forest Service Land in the Bitterroot National Forest District in Ravalli County, Montana. This project is accessed by traveling north on US-93N to the Conner Cutoff Road then to the West Fork Road. All other access is by foot or helicopter. The Sheep Creek claim block is illustrated in the North Fork Project section map in Figure 3 below.
 
 Mineral Rights Ownership, Maintenance and Description
  The Sheep Creek Project consists of 12 unpatented lode mining claims covering approximately 244 acres and these claims are listed in the table below. The claims were staked on federal land on the "Location Date" shown in the table below and are maintained in accordance with the General Mining Law.


Sheep Creek Project Claims




Claim Name(1)

Location

Date(2)

AcresSC 10A

11/20/2013


20.66SC 11A

11/20/2013


20.66SC 12A

11/20/2013


20.66SHEEP CREEK 1

9/1/2009


20.66SHEEP CREEK 2

9/1/2009


20.66SHEEP CREEK 3

9/1/2009


20.66SHEEP CREEK 4

9/1/2009


20.66SHEEP CREEK 5

9/1/2009


20.66SHEEP CREEK 6

9/24/2009


20.66SHEEP CREEK 7

7/10/2010


20.66SHEEP CREEK 8

7/10/2010


20.66SHEEP CREEK 9

7/10/2010


20.66




(1) SC10A, 11A and 12A claims are recorded in our name while the remaining claims are recorded in the name of Seaglass Holding Corp., a wholly-owned subsidiary of ours.




(2)All claims are located in the State of Montana.





These claims and their associated mineral rights are held by currently active unpatented lode mining claims filed with the Montana office for the BLM located in Billings, Montana and at the County Recorder's Office of Ravalli County, Montana. Maintenance of the mineral rights associated with the unpatented lode mining claims require annual filing and payment of a $140 per claim fee to the BLM and filing with county jurisdiction with an associated recording fee of approximately $150 for all Montana located lode unpatented mining claims. During the normal course of exploration, we plan to continually perfect, expand, reduce, or otherwise modify and adjust our claim mineral rights holdings in coordination with these exploration efforts to maintain effective mineral rights that cover material properties.




24




History of the Project




The first discovery of important mineralization occurred in 1954 when columbite was located on Sheep Creek. Following this discovery, the Montana Bureau of Mines completed investigations in 1957 on the Sheep Creek Project area that was being explored by Continental Rare Metals Corporation. It was during these earlier investigations that rare earth mineralization was also identified as occurring in the carbonatite veins located along the Sheep Creek Drainage. We hold a majority of these rare earth localities historically located by coverage of our Sheep Creek Project claims.




Our predecessor also completed grab sampling between 2007 and 2010 indicating several localities of anomalous rare earth mineralization in the area.




Geological Setting




The geological setting of Sheep Creek is part of the North Fork geological setting described in the North Fork-Geological Setting section below.




Exploration




The Sheep Creek Project is without known reportable reserves and is exploratory in nature.




Our predecessor completed grab sampling between 2007 and 2010 indicating several localities of anomalous rare earth mineralization; however, to date, we have not performed any advanced exploration work on this project and we do not have plans to conduct exploration work in 2015.




Based on the results of our 2013 North Fork field work located approximately three to five miles south of the Sheep Creek Project, our predecessor's grab sample results, and from historical investigations we believe continued exploration is warranted.




Project Mineralogy




The main rare earth minerals in this area are believed to be ancylite, bastnasite, and monazite, with some association of rutile with highly anomalous concentrations of niobium.




Sampling and Analysis




We have not conducted any material sampling and analysis of minerals on the Sheep Creek Project.




Power, Water and Infrastructure




The only power available to the Sheep Creek Project is by battery or petroleum fueled generators brought on to the site by us. We have not yet permitted for water use on the Sheep Creek Project, but have two options to secure water including purchase from a source located nearby or permitted use of nearby surface water. No permanent infrastructure or equipment is located within Sheep Creek Project.




The Idaho Projects




Summary.    We have identified three principal projects in Idaho with several associated prospects contained within each project area. These include the North Fork, Lemhi Pass, and Diamond Creek Projects, all located in Lemhi County, Idaho. These projects are shown in the map under "Business and Properties—Properties—Montana and Idaho—Summary". Each of these projects has undergone exploration work. During 2012 and 2013, two diamond core drill holes were completed on the Diamond Creek Project, and channel samples were taken on the North Fork, Lemhi Pass and Diamond Creek Projects.




25




North Fork




Location




The North Fork Project is located on Forest Service Land in the Salmon Challis National Forest. This project can be accessed from Salmon, Idaho by traveling north on US-93 to the NF-30 Salmon River Road Turnoff, the final access into the project is along various unpaved, unimproved Forest Service Roads. All other access is by helicopter or foot. Access to the North Fork Project and the location of prospect contiguous claim blocks are shown in the map in Figure 3 below.







Figure 3










Mineral Rights Ownership, Maintenance and Description




Within the North Fork Project, we have identified five separate prospects: Cardinal, Jackpot, Silver King, Radiant, and BUS, all shown on the map above.




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The North Fork Project principal claims we have prioritized for future exploration include 97 unpatented lode claims covering approximately 1,000 acres. These claims are listed in the table below by prospect title. The claims were staked on federal land on the "Location Date" shown in the table below and are maintained in accordance with the General Mining Law.




Claim Name(1)

Prospect

Location Date(2)

AcresCARDINAL #2

Cardinal

7/12/2010


20.66CARDINAL 1

Cardinal

8/29/2009


20.66CARDINAL 10

Cardinal

6/14/2011


20.66CARDINAL 11

Cardinal

6/14/2011


20.66CARDINAL 12

Cardinal

6/16/2011


17.4CARDINAL 13

Cardinal

6/14/2011


18.3CARDINAL 14

Cardinal

6/14/2011


19.24CARDINAL 15

Cardinal

6/14/2011


18.16CARDINAL 16

Cardinal

6/16/2011


18.84CARDINAL 17

Cardinal

6/16/2011


20.66CARDINAL 18

Cardinal

6/16/2011


20.66




27




Claim Name(1)

Prospect

Location Date(2)

AcresCARDINAL 19

Cardinal

6/16/2011


18.92CARDINAL 20

Cardinal

6/16/2011


18.07CARDINAL 21

Cardinal

6/16/2011


19.15CARDINAL 22

Cardinal

6/16/2011


20.66CARDINAL 23

Cardinal

6/16/2011


20.66CARDINAL 24

Cardinal

6/16/2011


20.66CARDINAL 25

Cardinal

6/16/2011


20.66CARDINAL 26

Cardinal

6/16/2011


20.66CARDINAL 27

Cardinal

6/17/2011


18.9CARDINAL 28

Cardinal

6/17/2011


20.66CARDINAL 29

Cardinal

6/17/2011


20.66CARDINAL 3

Cardinal

9/16/2010


20.66CARDINAL 30

Cardinal

6/14/2011


20.66CARDINAL 31

Cardinal

6/16/2011


17.91CARDINAL 32

Cardinal

6/17/2011


20.66CARDINAL 33

Cardinal

6/17/2011


18.99CARDINAL 34

Cardinal

6/24/2011


20.66CARDINAL 35

Cardinal

6/24/2011


20.66CARDINAL 36

Cardinal

7/12/2011


20.66CARDINAL 4

Cardinal

9/16/2010


20.66CARDINAL 5

Cardinal

9/16/2010


20.66CARDINAL 6

Cardinal

9/16/2010


20.66CARDINAL 7

Cardinal

6/17/2011


20.66CARDINAL 8

Cardinal

6/16/2011


20.66CARDINAL 9

Cardinal

6/17/2011


20.66NF 178

Cardinal

6/30/2011


20.66NF 180

Cardinal

6/30/2011


20.66NF 182

Cardinal

6/30/2011


20.66NF 184

Cardinal

6/30/2011


20.66NF 186

Jackpot

6/30/2011


20.66NF 188

Jackpot

6/30/2011


20.66NF 267

Jackpot

6/30/2011


20.66NF 269

Jackpot

6/30/2011


20.66NF 271

Jackpot

6/30/2011


20.66NF 275

Jackpot

6/30/2011


20.66NF 277

Jackpot

6/30/2011


20.66NF 365

Jackpot

6/30/2011


20.66NF 366

Jackpot

6/30/2011


20.66NF 367

Jackpot

6/30/2011


20.66NF 368

Jackpot

6/30/2011


20.66NF 369

Jackpot

6/30/2011


20.66NF 370

Jackpot

6/30/2011


20.66NF 371

Jackpot

6/30/2011


20.66NF 444

Jackpot

6/30/2011


20.66NF 446

Jackpot

6/30/2011


20.66NF 447

Jackpot

6/30/2011


20.66NF 448

Jackpot

6/30/2011


20.66NF 449

Jackpot

6/30/2011


20.66NF 189

Jackpot

6/30/2011


20.66JACK POT 10

Jackpot

6/20/2011


20.66







28




Claim Name(1)

Prospect

Location Date(2)

AcresJACK POT 11

Jackpot

6/20/2011


20.66JACK POT 12

Jackpot

6/20/2011


20.66JACK POT 13

Jackpot

6/20/2011


20.66JACK POT 14

Jackpot

6/22/2011


20.66JACK POT 16

Jackpot

6/21/2011


20.66JACK POT 18

Jackpot

6/21/2011


20.66JACK POT 2

Jackpot

9/18/2009


20.66JACK POT 20

Silver King

6/21/2011


20.66JACK POT 22

Silver King

6/21/2011


20.66JACK POT 23

Silver King

6/21/2011


20.66JACK POT 3

Silver King

9/18/2009


20.66JACK POT 4

Silver King

6/19/2011


20.66JACK POT 5

Silver King

6/19/2011


20.66JACK POT 6

Silver King

6/20/2011


20.66JACK POT 7

Silver King

6/20/2011


20.66JACK POT 8

Silver King

6/20/2011


20.66JACK POT 9

Silver King

6/20/2011


20.66JACKPOT 1

Cardinal

9/2/2009


20.66NF 190

Cardinal

6/30/2011


20.66NF 191

Cardinal

6/30/2011


20.66NF 192

Cardinal

6/30/2011


20.66NF 193

Cardinal

6/30/2011


20.66NF 195

Cardinal

6/30/2011


20.66NF 197

Cardinal

6/30/2011


20.66NF 92

Cardinal

6/30/2011


20.66NF 94

Cardinal

6/30/2011


20.66SILVER KING 1

Cardinal

8/26/2009


20.66SILVER KING 10

Cardinal

9/18/2010


20.66SILVER KING 2

Cardinal

8/26/2009


20.66SILVER KING 3

Cardinal

9/21/2009


20.66SILVER KING 4

Cardinal

9/22/2009


20.66SILVER KING 5

Cardinal

9/22/2009


20.66SILVER KING 6

Cardinal

9/22/2009


20.66SILVER KING 7

Cardinal

9/23/2009


20.66SILVER KING 8

Cardinal

9/18/2010


20.66SILVER KING 9

Cardinal

9/18/2010


20.66




(1)All claims are recorded in the name of Seaglass Holding Corp., a wholly-owned subsidiary of ours.





(2)All claims are located in the State of Idaho.




These claims and their associated mineral rights are held by currently active unpatented lode mining claims filed with the Idaho office of the BLM located in Boise, Idaho and the Recorder's Office of Lemhi County, Idaho. Maintenance of the mineral rights associated with the unpatented lode mining claims requires annual filing and payment of $140 per claim fee to the BLM and filing with county jurisdiction with an associated recording fee of approximately $150 for all Idaho located lode unpatented mining claims. During the normal course of exploration, we plan to continually perfect, expand, reduce, or otherwise modify and adjust our claim mineral rights holdings in coordination with these exploration efforts to maintain effective mineral rights that cover material properties.




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We also have an additional 359 unpatented lode claims covering approximately 5,478 acres that are secondary in nature to the principal claims. These secondary claims include acreage in the Radiant and BUS prospects in addition to 273 non-prospect affiliated claims.




History of the Project




Initially the North Fork Project area was mainly explored during the early 1950's to the early 1960's. Uranium and thorium were discovered in the Salmon River area in 1949; however, the carbonatites of the North Fork Project area were not discovered until 1952, while building access roads for logging. Carbonatite is a rock type known to be highly associated with rare earth element deposits worldwide. Exploration during this time mainly consisted of making bulldozer cuts where Geiger counters showed elevated radiation. By 1953 several areas in the North Fork "Mineral Hill District" had been claimed, including Cardinal, Lee Buck, Monazite Queen, Radiant, Roberts (Jackpot), and Silver King, all with signs of mineralized veins, and underwent further prospecting by several government agencies and Molybdenum Corporation of America. These earlier works established known localities of anomalous rare earth mineralization. We hold a major portion of these localities that are covered by our North Fork Project claims.




Our predecessor also completed grab sampling between 2007 and 2010 indicating several localities of anomalous rare earth mineralization and an aero radiometric and magnetic survey were completed for the area.




Geological Setting




The North Fork Project area regional geology consists primarily of the Proterozoic metamorphosed Belt Supergroup of sediments that are well known in the region. These "metasediments" consist of very thick units of metamorphosed sandstones, siltstones, and mudstones of lake-basin origin and were deposited approximately 1.4 billion years ago.




These sediments have since been metamorphosed and subsequently thrust and block faulted. Field identification of the various Belt Supergroup formations, combined with formation repositioning from complex faulting, make geological formation and vein field location difficult and will require additional exploration mapping to adequately determine the area's carbonatite veins, geologic formation contacts, structures, and faulting relationships.




The mineralized carbonatite veins are inferred to be structurally controlled. The structural relationship between the veins, faulting, and the metamorphic rock foliations and deformations will help determine the effect on prospect mineralization and drive exploration efforts to locate and relate the rare earth mineralized veins. The mineralized carbonatite tends to form a sill at the contact of the greenschist-amphibolite grade metamorphosed Belt Supergroup progeny units that yielded augen gneiss and amphibolite, and is also associated with biotite schist that is often observed in folded and faulted areas.




Due to the complex folding and faulting in the area, the general age relationships between faults within the area will need to be understood with the priority being accurate mapping and structural orientation of the mineralized carbonatite sills and associated veins. Tertiary age rhyolite is also observed in dikes ranging from 2-20m in width in the North Fork Project area, particularly in the Jackpot, Cardinal, and Radiant prospects.




There are numerous block faults with normal movement surrounding and within the property. The Brushy Gulch Fault, a major reverse thrust fault lies directly east of the property and the Poison Gulch Fault, another major reverse fault, lies directly to the west of the property. There are several unnamed normal faults, of various sizes, crossing the prospects.




Exploration




The North Fork Project is without known reportable reserves and is exploratory in nature.




30




Phase I and II Exploration Work




During our Phase I and II North Fork exploration activities conducted during 2011 and 2013, we identified several related, but spatially separated, mineralized rare earth element vein systems from compliant geological mapping and channel sampling. We traced a vein with a length of approximately 4,300 feet in the Cardinal prospect with channel samples returning levels of rare earth element mineralization that we intend to explore further by drilling and surface sampling and mapping. We also traced a vein in the Jackpot prospect along the surface with a length of approximately 1,300 feet, but no channel sampling has been conducted.




On the Silver King prospect, we traced two veins, the north vein and south vein, with approximate lengths of 680 feet and 560 feet, respectively, and both of these veins were channel sampled. The rare earth assay results from the Silver King prospect have made this prospect a top priority for continued exploration that may include detailed surface mapping and sampling, and drilling. Based on these findings, we believe that further exploration is warranted to determine whether commercial quantities of rare earth elements exist in these prospects.




We have undertaken preliminary exploration work in the Radiant prospect, including geological mapping and channel sampling, indicating low rare earth element mineralization.




We have not commenced advanced exploration work on the BUS prospect to date.




The cost of exploration work (including filing fees) from 2011 through December 31, 2014 was approximately $800,000.




Future Exploration Work




Based on the following factors, we believe continued exploration is warranted:




●
sample assays returned results that contain rare earth mineralization;





●
length of the defined surface extent of the Cardinal prospect vein;




●
identification of similar, but as yet undetermined mineralization, of a Jackpot Prospect vein;




●
our predecessor's grab sample results; and




●
historical investigations indicating the potential to find additional related mineralization within the project




Accordingly, we plan to conduct exploration on this project in 2015 (subject to available funds) and we plan to include on our exploration team persons competent to supervise the work as staff or subcontractors.




Our future exploration work plan for the North Fork Project with estimated costs is summarized in the table below. Administration and company staff support costs are excluded.




Phase

Task

Estimated Cost

($1000's)III

Preliminary evaluation of mineralogical and metallurgical extraction interactions

20 - 50III

Baseline preliminary mineralogical studies

20III

Advanced metallurgical investigations with benefactions (Continuing in Phase IV and V)

100 - 3,500III

Field mapping and sampling at the Silver King North and South vein ends, the Cardinal vein, and initial sampling of the Jackpot vein.

20III

Refinement of QA/QC standards and procedures

20III

Investigation/resolution of negative bias reporting of yttrium

5 - 10IV

Completion of two to six diamond core holes

150 - 350IV

Additional modeling with new drill-hole data

80 - 120Total

415 - 4,090




31





We plan to use the proceeds of this offering and from future financings to fund our future exploration work. We continually prioritize our exploration efforts based on the most current exploration results and funding availability; therefore none, some, or all of the permitted exploration work for this project may be completed upon approved permitting.




Project Mineralogy




We have yet to conduct a full mineralogy study of the North Fork deposits; however, field observations made by our geologists are consistent with the mineralogy reported by historical investigations and we believe the primary mineral associated with the rare earth mineralization in this project is monazite. The main minerals of the carbonatite veins are observed to be mainly calcite with some fine grained magnetite, niobium bearing rutile, thorite, felted actinolite, barite, and ilmenite that is locally abundant throughout the veins. The mineralized carbonatite veins are also believed to feature minor amounts of the rare earth minerals allanite and bastnasite.




Sampling and Analysis




We conducted channel sampling in the project area.




Channel samples were taken across the vein perpendicular to the vein strike with channels 4 inches wide, 4 inches deep and up to 14 feet in length. Individual samples consisted of 1.64 to 3.28 foot intervals collected along the individual channels.




Sample identification numbers were recorded on sample tags with matching tag numbers that were marked and sent with the samples to the assay lab.




Samples collected during our Phase I and II exploration program were analyzed by a third-party laboratory that is accredited by the Standards Council of Canada. Samples were shipped via FedEx directly from our facilities to the laboratory under chain of custody. Prior to shipment from the field or sample preparation facility, blanks, duplicates, and rare earth standards were inserted into the sample batch with a frequency of one every 10 samples. Cross-check assays were performed by an additional third-party laboratory to identify the presence of any significant laboratory bias in the analytical results.




Sampling quality assurance and quality control included an external Canadian certified rare earth standard and our own internal standard. Our field blanks consisted of locally sourced gravel and a non-local sourced quartzite.




Our quality assurance and quality control program is under continuous review, evaluation, and development to maintain and improve quality assurance and quality control.




Power, Water and Infrastructure




The only power available to the North Fork Project is by battery or petroleum fueled generators brought on to the site by us. Water sourcing during the exploration program will be by temporary permitted access to surface water within one to three miles of the drilling site. No permanent infrastructure or equipment is located within the North Fork Project.






32




Lemhi Pass




Location





The Lemhi Pass Project is located on Forest Service land in the Salmon-Challis National Forest. This project is located approximately 25 miles SE of Salmon, Idaho, and can be accessed by traveling south from Salmon on ID-28 until the turn off for the Agency Creek Road (Lewis and Clark Highway). The last few miles approaching the project is on unpaved, unimproved forest service roads. All other access is by foot or helicopter. Access to the Lemhi Pass Project and the location of contiguous claim blocks are shown in the map in Figure 2 above.




Mineral Rights Ownership, Maintenance and Description




The Lemhi Pass Project includes 98 unpatented lode claims covering approximately 1,600 acres of land. These claims are listed in the table below. The claims were staked on federal land on the "Location Date" shown in the table below and are maintained in accordance with the General Mining Law.






33




Lemhi Pass Project Claims




Claim Name(1)

Location Date(2)

AcresAGENCY

9/19/2007


18.84APEX 3

9/26/2006


18.75APEX 4

9/25/2006


18.47BALD EAGLE

9/20/2007


13.9BALDY

9/19/2007


16.86BENNY

9/23/2006


13.17BIG LOST 1

9/23/2006


18.05BIG LOST 4

9/23/2006


19.18BIG LOST 5

9/28/2006


18.21BIG LOST 6

9/28/2006


17.38BLACK BEAR 2

10/9/2007


17.01BLACK BULL 3

9/26/2006


18.68BLACK BULL 4

9/26/2006


20.66BLACK ROCK IDAHO

7/30/2007


20.66BLUE LUPINE

9/20/2007


8.26BROWN BEAR 2-ID

9/22/2007


6.15CAGA 10

9/23/2006


18.12CAGA 11

9/23/2006


18.01CAGA 12

9/23/2006


18.21CAGA 15

9/23/2006


12.83CHIEF TENDOY 18

9/29/2006


18.68CHIEF TENDOY 3

9/29/2006


20.66CHIEF TENDOY 9

9/29/2006


20.66DEER 1

9/26/2006


14.77DEER 2

9/26/2006


14.51DEER 3

9/26/2006


14.24ELK HORN

7/29/2007


20.66ELK HORN #1

7/28/2007


20.66ELK HORN #2

7/28/2007


20.66EUREKA

9/23/2006


12.27IDAHO BEAVERHEAD

9/5/2006


19.02IOLA 11

7/30/2007


20.66IOLA 12

7/30/2007


19.3IOLA 21

7/30/2007


20.66IOLA 5

7/30/2007


20.66IOLA 6

7/30/2007


20.46KIMBERLY

9/19/2007


19.17LITTLE DANDY 5

9/19/2007


20.35LITTLE DANDY 6

10/21/2011


ND





34




Claim Name(1)

Location Date(2)

AcresLONESTAR 11A

9/24/2006


20.66LONESTAR 2

9/24/2006


20.66LONESTAR 2A

9/24/2006


20.5LUCKY HORSESHOE 1

9/26/2006


18.69LUCKY HORSESHOE 10

9/27/2006


16.85LUCKY HORSESHOE 4

9/26/2006


18.34LUCKY HORSESHOE 9

9/27/2006


17.57MORNELL

10/9/2007


12.22ROADSIDE

9/26/2006


20.66S&D 1

9/20/2007


14.95S&D 2

9/20/2007


20.66S&D 3

9/20/2007


20.66S&D 4

9/20/2007


11.21S&D 5

9/20/2007


19.14S&D 6

9/20/2007


15.13S&D 7

9/20/2007


12.91SCOTT

7/30/2007


18.19SILVER QUEEN 37A

9/25/2006


12.66SILVER QUEEN 38A

9/25/2006


10.29SILVER QUEEN 52

9/24/2006


20.66SILVER QUEEN 52A

9/24/2006


20.66SILVER QUEEN 52B

9/24/2006


20.66SILVER QUEEN 53B

9/24/2006


20.66SILVER QUEEN 54

9/24/2006


20.66SNOW DRIFT

9/20/2007


18.4SUNFLOWER

9/20/2007


20.66SURPRISE

9/20/2007


17.81THO2 - 2

7/27/2007


18.63THO2 - 3

7/27/2007


18.76THO2 - 4

7/27/2007


17.57THO2 - 7

7/27/2007


12.19THO2 - 8

7/27/2007


12.5THOR 1

7/27/2007


16.01THOR 2

7/27/2007


13.21THOR 5

7/27/2007


15.98THOR 6

7/27/2007


14.34THORITE

9/22/2007


11.91VIOLA

7/28/2007


20.66WONDER 1

9/24/2006


14.57WONDER 10

9/24/2006


20.66WONDER 11

9/4/2006


20.66WONDER 12

9/4/2006


20.66WONDER 13

10/21/2011


NDWONDER 14

9/6/2006


20.66WONDER 15

9/6/2006


20.66WONDER 16

9/6/2006


20.66WONDER 17

9/6/2006


20.66WONDER 18

9/6/2006


20.66WONDER 19

9/6/2006


20.66WONDER 2

9/4/2006


20.66




35




Claim Name(1)

Location Date(2)

AcresWONDER 20

9/6/2006


15.44WONDER 21

9/6/2006


9.54WONDER 22

9/6/2006


4.39WONDER 23

9/6/2006


17.7WONDER 24

9/6/2006


17.77WONDER 25

9/6/2006


1.35WONDER 3

9/4/2006


20.66WONDER 4

9/20/2007


14.03WONDER 7

10/21/2011


ND




(1) Wonder 13 and 7 claims are recorded in our name while the remaining claims are recorded in the name of Seaglass Holding Corp., a wholly-owned subsidiary of ours.




(2) All claims are located in the State of Idaho.
  (3)ND means not determined.


These claims and their associated mineral rights are held by currently active unpatented lode mining claims filed with the Idaho office of the BLM located in Boise, Idaho and at the Recorder's Office of Lemhi County, Idaho. Maintenance of the mineral rights associated with the unpatented lode mining claims require annual filing and payment of $140 per claim fee to the BLM and filing with county jurisdiction with an associated recording fee of approximately $150 for all Idaho located lode mining claims. During the normal course of exploration we plan to continually perfect, expand, reduce, or otherwise modify and adjust our claim mineral rights holdings in coordination with these exploration efforts to maintain effective mineral rights that cover material properties.




History of the Project




From 1965 through 1968, the U.S. Atomic Energy Commission, or AEC, evaluated the Lemhi Pass Project area and issued several reports detailing grab-sample assay chemistry, geology, mineralogy, and sample locations encompassing the entire trend. In the course of its geological investigations, the AEC collected multiple samples from properties in the Lemhi Pass area of Idaho and Montana. Metallurgical investigations at the time by the U.S. Bureau of Mines cited by the AEC indicated that recovery of REEs, with an acid cure, could be between 50%-70% of the rare earth elements present in the deposit.




Expanding on original exploration works by others, the USGS completed a survey of the area encompassing the Lemhi Pass and Last Chance Project in 1979. These historical works reported that thorium mineralization occurs in 219 known veins in the Lemhi Pass area. The historical investigation in many cases analyzed samples for select rare earths and identified multiple veins within the Lemhi Pass Project area that have rare earth mineralization.




In the 1980's, Idaho Energy and Resources Co. investigated the Silver Queen veins and Lucky Horseshoe veins now held by us in the Lemhi Pass Project.




Our predecessor also completed grab sampling between 2007 and 2010 indicating several localities of anomalous rare earth mineralization.




36




Geological Setting




The Lemhi Pass Project is adjacent to our Montana Last Chance Project and consists of geology and mineralization similar to that, which we encountered in the Last Chance Project. We believe this is encouraging from exploration perspective as it means that the Lemhi Pass-Last Chance Projects could be part of a localized and similar mineralization trend.




The Lemhi Pass Project regional geology consists primarily of the Proterozoic metamorphosed Belt Supergroup of sediments that are well known in the region. These "metasediments" consist of very thick units of metamorphosed micaceous sandstones, siltstones, and mudstones of lake-basin origin and were deposited 1.4 billion years ago. These sediments have since been metamorphosed and subsequently thrust and block faulted. There are numerous block faults with normal movement surrounding and within the Project. Three named faults exist in the area; the Lemhi Pass Fault lies in the northern part of the project intersecting the Lucky Horseshoe Claims and the Bull Moose Fault and Dan Patch Faults are located in the north-central part of the project. There are unnamed normal faults crossing the prospect.




The Project's rare earth mineralization is considered to be related and deposited in the early Cenozoic (Tertiary) time period and is structurally controlled along the northeast and northwest trending fractures and shear zones hosted in the prospect Belt Supergroup units.




Exploration




The Lemhi Pass Project is without known reportable reserves and is exploratory in nature.




Phase I Exploration Work




We conducted Phase I exploration activities in 2013 on the Lemhi Pass Project in the Silver Queen and Luck Horseshoe veins that included compliant geological mapping and channel sampling on these veins. The channel samples taken across the Silver Queen vein indicated rare earth mineralization that we believe warrants further exploration. We believe that the Lucky Horseshoe claim has limited potential for advanced exploration reserve discovery, but that other claims within the Lemhi Pass area are part of a trend that warrants further exploration.




The cost of exploration work (including filing fees) from 2011 through December 31, 2014 was approximately $110,000.




Future Exploration Work




Based on the following factors, we believe continued exploration is warranted:




●
sample assays returned results that contain rare earth mineralization;





●
our predecessor's grab sample results; and




●
historical investigations indicating the potential to find additional related mineralization within the project.




However, we do not plan to conduct exploration on this project in 2015 since we plan on prioritizing our exploration in the Last Chance and North Fork Projects. Accordingly, we plan to conduct future exploration when resources become available and at the conclusion of our prioritized exploration efforts.




We expect that Phase II exploration work will consist of geological and structure mapping in coordination with ground based gamma-ray surveying, before drilling is planned and permitted at a cost between $80,000 - $120,000.




37




Project Mineralogy




We have yet to conduct a full mineralogy study of the North Fork deposits; however, field observations made by our geologists in the field are consistent with the mineralogy reported by historical investigation. We believe the primary rare earth minerals include monazite and xenotime. Associated minerals include principally specular hematite, magnetite, feldspars, quartz, barite, rutile, thorite, and particularly goethite along mineralized fracture/shear zones. The rare earth minerals are generally only identifiable by microscopic analysis.




The main minerals of the carbonatite veins are observed to be mainly calcite with some fine grained magnetite, felted actinolite, barite, and ilmenite that is locally abundant throughout the veins. The mineralized carbonatite veins also feature the rare earth minerals monazite, niobium bearing rutile, allanite, and thorite.




Sampling and Analysis




We conducted channel sampling in the project area.




Channel samples were taken across the vein perpendicular to the vein strike with channels 4 inches wide, 4 inches deep and up to 10 feet in length. Individual samples consisted of 3.28 foot intervals collected along the individual channels.




Sample identification numbers were recorded on sample tags with matching tag numbers that were marked and sent with the samples to the assay lab.




Samples collected during our Phase I exploration program were analyzed by a third party laboratory that is accredited by the Standards Council of Canada. Samples were shipped via FedEx directly from our facilities to the laboratory under chain of custody. Prior to shipment from the field or sample preparation facility, blanks, duplicates, and rare earth standards were inserted into the sample batch with a frequency of one every 10 samples. Cross-check assays were performed by an additional third party laboratory to identify presence of any significant laboratory bias in the analytical results.




Sampling quality assurance and quality control included an external Canadian certified rare earth standard and our own internal standard. Our field blanks consisted of locally sourced gravel and a non-local sourced quartzite.




Our quality assurance and quality control program is under continuous review, evaluation, and development to maintain and improve quality assurance and quality control.




Power, Water and Infrastructure




The only power available to the Lemhi Pass Project is by battery or petroleum fueled generators brought on to the site by us. We have not yet permitted for water use on the Lemhi Pass Project, but have two options to secure water including purchase from a source located nearby or permitted use of nearby surface water. No material permanent infrastructure or equipment is located within the Lemhi Pass Project.




Diamond Creek




The Diamond Creek Project is located in the Salmon Challis National Forest district on Forest Service land. Access to the location is from Salmon, Idaho by taking highway 93 to the Forest Service Diamond Creek Road (NF 129) turn off. The Diamond Creek FS road is an unimproved, four wheel drive, weather limited road. Several forest service roads branch from the NF 129 road and give additional four wheel drive property access. All other access is by foot or helicopter. Access to the Diamond Creek Project and the location of prospect contiguous claim blocks are shown in the map in Figure 4 below.




38




Figure 4










Mineral Rights Ownership, Maintenance and Description




39




The Diamond Creek Project includes 28 unpatented lode mining claims covering more than 550 acres of land. These claims are listed in the table below. The claims were staked on federal land on the "Location Date" shown in the table below and are maintained in accordance with the General Mining Law.  Diamond Creek Project Claims
 
 Claim Name(1)

Location Date(2)



AcresCASTLE ROCK 1



7/13/2009

20.66CASTLE ROCK 2



7/13/2009

20.66DC #1

9/23/2007



20.66DC #10

6/26/2008



20.66DC #11

6/26/2008



20.66DC #12

6/26/2008



20.66DC #13

6/26/2008



20.66DC #14

6/27/2008



20.66DC #15

6/27/2008



20.66DC #16

6/27/2008



20.66DC #17

6/27/2008



20.66DC #18

6/30/2008



20.66
 
 
 40
 
 Claim Name(1)

Location Date(2)

AcresDC #19

6/28/2008

20.66DC #2

9/24/2007

20.66DC #20

6/28/2008

20.66DC #21

6/30/2008

20.66DC #6

6/30/2008

20.66DC #7

6/26/2008

20.66DC #8

6/26/2008

20.66DC #9

6/26/2008

20.66DC 22

7/14/2009

20.66DC 23

7/14/2009

20.66DC 24

8/13/2009

20.66DC 25

8/13/2009

20.66DC 3

10/10/2007

20.66DC 4

10/10/2007

20.66DC 5

10/10/2007

20.66LUCKY

7/13/2009

20.66CASTLE ROCK 1

7/13/2009

20.66CASTLE ROCK 2

7/13/2009

20.66DC #1

9/23/2007

20.66DC #10

6/26/2008

20.66DC #11

6/26/2008

20.66DC #12

6/26/2008

20.66DC #13

6/26/2008

20.66DC #14

6/27/2008

20.66DC #15

6/27/2008

20.66DC #16

6/27/2008

20.66DC #17

6/27/2008

20.66DC #18

6/30/2008

20.66DC #19

6/28/2008

20.66DC #2

9/24/2007

20.66DC #20

6/28/2008

20.66DC #21

6/30/2008

20.66DC #6

6/30/2008

20.66DC #7

6/26/2008

20.66DC #8

6/26/2008

20.66DC #9

6/26/2008

20.66DC 22

7/14/2009

20.66DC 23

7/14/2009

20.66DC 24

8/13/2009

20.66DC 25

8/13/2009

20.66DC 3

10/10/2007

20.66DC 4

10/10/2007

20.66DC 5

10/10/2007

20.66LUCKY

7/13/2009

20.66
 
 (1)All claims are recorded in the name of Seaglass Holding Corp., a wholly-owned subsidiary of ours.
 
 (2)All claims are located in the State of Idaho.




41




These claims and their associated mineral rights are held by currently active unpatented lode mining claim filed with the Idaho office of the BLM located in Boise, Idaho and at the Recorder's Office of Lemhi County, Idaho. Maintenance of the mineral rights associated with the unpatented lode mining claims require annual filing and payment of $140 per claim fee to the BLM and filing with county jurisdiction with an associated recording fee of approximately $150 for all Idaho located lode mining claims. During the normal course of exploration we plan to continually perfect, expand, reduce, or otherwise modify and adjust our claim mineral rights holdings in coordination with these exploration efforts to maintain effective mineral rights that cover material properties.




History of the Project




The most prominent early historical work on the Diamond Creek Project rare earth-thorium mineralization trend began in the late 1950's by various government agencies evaluating the Lemhi Pass thorium trend from 1956-1968. This work included detailed geology, sampling and analysis, and mineralogy covering the Diamond Creek rare earth mineralized localities. The sample data was collected without a location survey and assayed by spectrography, and wet chemistry rare earth elements analysis. The mineralized veins in the area are believed to be related and deposited in the early Cenozoic (Tertiary) time period and structurally controlled along the northeast and northwest trending fractures in the ancient Belt Supergroup (composed of quartzites, argillites, siltites,) and a granitic igneous intrusive.




Overlapping and expanding on the earlier government investigation additional investigations included USGS investigative work and a 1985 Thesis. These reports found the Diamond Creek property to have mineralization (rare earths) that occurs in veins up to 25 feet thick but which rarely exceed two feet in thickness. These historical investigations located eight steeply dipping veins from 100-2,500 feet in length that are typically oriented from 10° to 60° and follow irregular fractures in the host rock. The host rock is composed of both the granitic igneous intrusion and the Belt Supergroup quartzites and siltites.




Our predecessor also completed grab sampling between 2007 and 2010 indicating several localities of anomalous rare earth mineralization.




Geological Setting




The Diamond Creek Project geology consists primarily of the Yearian age Proterozoic metamorphosed Belt Supergroup of sediments well known in the region. These "metasediments" consist of very thick units of metamorphosed sandstones, siltstones, and mudstones of lake-basin origin and were deposited 1.4 billion years ago. These sediments have since been metamorphosed and subsequently thrust and block faulted. The difficulty in field identification of the various Belt Supergroup formations, combined with formation repositioning from complex faulting, make field location difficult and will require additional exploration mapping to adequately determine the area geologic formation contacts, structures, and faulting relationships that may affect property mineralization. The Diamond Creek Project has a large body of mega-crystalline granite—gneiss that intrudes the area Belt Supergroup metasediments approximately 1.37 billion years ago.




Similar in nature to the geology of the Lemhi Pass Project, the Diamond Creek's Project's rare earth mineralization is considered to be related and deposited in the early Cenozoic (Tertiary) time period and is structurally controlled along the northeast and northwest trending fractures and shear zones hosted in the prospect Belt Supergroup units. The general age relationships between faults within the area will need to be better understood with the priority being accurate mapping and identifying mineralized faults and associated veins structural orientation. Until the local and regional geology can be better interpreted the area geology has been simplified and includes only three general host rock units of the Belt Supergroup, the Gunsight formation, and the older Apple Creek formation (both formations may consist of other Belt Supergroup metasediments or combinations of associated indistinct units), and that mega-crystalline granite.




Exploration




The Diamond Creek Project is without known reportable reserves and is exploratory in nature.




Phase I Exploration Work




We undertook Phase I exploration activities on the Diamond Creek Project in 2012, which consisted of compliant core drilling and vein channel sampling. We identified two main mineralized vein sets in the Diamond Creek Project that consisted of four veins traced for 820 feet along a general north south strike, with a 500 foot broad east west, multi vein, zone width and a set of moderately rare earth element mineralized veins with a strike length of 502 feet with a width of four feet, that we intersected during drilling at a depth of 80 feet. Both vein sets have a general north/south trend and appear to be structurally controlled. We believe rare earth element minerals in this area consist primarily of monazite and some xenotime with associated thorite, limonite, specular hematite, and quartz.




42





The cost of exploration work (including filing fees) from 2011 through December 31, 2014 was approximately $250,000.




Future Exploration Work





Based on the following factors, we believe continued exploration is warranted:




●
sample assays returned results that contain rare earth mineralization;





●
our predecessor's grab sample results; and




●
historical investigations indicating the potential to find additional related mineralization within the project.




However, we do not plan to conduct exploration on this project in 2015 since we plan on prioritizing our exploration in the Last Chance and North Fork Projects. Accordingly, we plan to conduct future exploration when resources become available and at the conclusion of our prioritized exploration efforts.




We expect that the Phase II exploration work will consist of geological and structure mapping in coordination with ground based gamma-ray surveying, before drilling is continued at an estimated cost between $160,000 and $180,000.




Sampling and Analysis




We conducted both channel sampling and drill core sampling.




Channel samples were taken across the vein perpendicular to the vein strike with channels two inches wide, two inches deep and up to five feet in length. Individual samples consisted of 1.64 to 3.28 foot intervals collected along the individual channels.




Drill core containing visual mineralization was photographed, after which the mineralized core was split along the vertical core axis. Samples consisting of half of the split core were generally bagged in even 3.28 foot intervals.




Sample identification numbers were recorded on sample tags with matching tag numbers that were marked and sent with the samples to the assay lab.




Samples collected during our Phase I exploration program were analyzed by a third party laboratory that is accredited by the Standards Council of Canada. Samples were shipped via FedEx directly from our facilities to the laboratory. Re-checks of the original assayed core intervals with quality control was completed by assay of the remaining core split samples. Prior to shipment from the sample preparation facility, blanks, duplicates, and rare earth standards were inserted into the sample batch with a frequency of one every 10 samples. Some cross-check assays were performed by an additional third party laboratory to identify presence of any significant laboratory bias in the analytical results.




Sampling quality assurance and quality control included an external Canadian certified rare earth standard. Our field blanks consisted of a Nevada Bureau of Mines Standard blank.




43




Our quality assurance and quality control program is under continuous review, evaluation, and development to maintain and improve quality assurance and quality control.




Project Mineralogy




We have yet to conduct a full mineralogy study of the Diamond Creek deposits; however, field observations made by our geologists in the field are consistent with the mineralogy reported by historical investigation. We believe the primary rare earth minerals include monazite, xenotime, and some allanite. Associated minerals include principally specular hematite, feldspars, quartz, barite, thorite, auerlite, fluorite, and particularly goethite along mineralized fracture/shear zones. The rare earth minerals are generally only identifiable by microscopic analysis. It is also noted that applicable, but sub-economic, amounts of lead-zinc, silver, copper and gold are widespread and locally encountered on the Diamond Creek property.




Power, Water and Infrastructure




The only power available to the Diamond Creek Project is by battery or petroleum fueled generators brought on to the site by us. Water sourcing during the Phase I program was from permitted access to surface water within one mile of the drilling site. No permanent infrastructure or equipment is located within the Diamond Creek Project.




The Colorado Projects




Our mining claims in Colorado are located in Fremont, Gunnison, and Saguache counties, and include over 600 unpatented lode claims that cover more than 12,000 acres of land, which we have identified as the Powderhorn and Wet Mountain Projects. Location and general access to the Powderhorn and Wet Mountain Projects are illustrated in the map in Figure 5 below.




We consider the Wet Mountain Project to have the lowest opportunity for exploration discovery and at this time no exploration is planned for the Wet Mountain Project.




Environmental Concerns Related to Historical Workings




The rare earth mineralization found on all of our projects has some associated thorium. Historical investigations used the radioactive nature of thorium minerals to locate occurrence of thorium, which also led to the discovery of the associated rare earth minerals. These radioactive minerals are generally in concentrations of less than 0.05% and are considered Naturally Occurring Radioactive Material (NORM) and, to date, none of our approved and permitted or submitted Plans of Operation or Notices of Intent require us to remediate any historical workings.




In a majority of cases, these historical investigations used bulldozers to excavate the surface material to better expose the surface expression of the minerals. Because of this, all of our projects have some historical surface disturbance. In some cases, surface disturbances have been covered back up by the BLM. In other cases, such as the Last Chance Project and claims holding the Last Chance Project's main vein and generally our projects in Montana, no covering of these workings has occurred; however, the adits that exist in the Last Chance Project have been closed-in by backfilling at the opening. All of our exploration work is restricted to less than five acres of disturbance and requires permitting according to our submitted Plans of Operation or Notices of Intent to the applicable regulatory authority. To date none of our approved and permitted or submitted Plans of Operation or Notices of Intent require us to remediate our historical workings.




44




Powderhorn Project




Location




The Powderhorn Project is located on BLM lands in southwestern Colorado and is accessed from Gunnison, Colorado by traveling on paved road west on US-50 for 9.4 miles, then traveling south on CO-149 for 16.9 miles, then left onto CO Road 27. Accesses to the prospect properties are along BLM and county developed and undeveloped four-wheel drive roads. All other access is by foot or helicopter. Access to the Powderhorn Project and the location of prospect contiguous claim blocks are shown in the map in Figure 5 below.




Figure 5













45




Mineral Rights Ownership, Maintenance and Description




The Powderhorn Project consists of 477 unpatented lode mining claims covering more than 9,400 acres. These claims are listed in the table below. The claims were staked on federal land on the "Location Date" shown in the table below and are maintained in accordance with the General Mining Law.





Powderhorn Project Claims
 
 Claim Name(1)

Prospect

Location Date(2)

AcresBC 100

Rudolph Hill


4/16/2011

20.66BC 101

Rudolph Hill


4/16/2011

20.66BC 102

Rudolph Hill


4/16/2011

20.66BC 103

Rudolph Hill


4/16/2011

20.66BC 104

Rudolph Hill


4/16/2011

20.66BC 105

Rudolph Hill


4/16/2011

20.66BC 106

Rudolph Hill


4/16/2011

20.66






46




Claim Name(1)

Prospect

Location Date(2)

AcresBC 107

Rudolph Hill


4/16/2011

20.66BC 108

Rudolph Hill


4/16/2011

20.66BC 109

Rudolph Hill


4/16/2011

20.66BC 110

Rudolph Hill


4/16/2011

20.66BC 111

Rudolph Hill


4/16/2011

20.66BC 112

Rudolph Hill


4/16/2011

20.66BC 113

Rudolph Hill


4/16/2011

20.66BC 114

Rudolph Hill


4/16/2011

20.66BC 115

Rudolph Hill


4/16/2011

20.66BC 116

Rudolph Hill


4/16/2011

20.66BC 117

Rudolph Hill


4/16/2011

20.66BC 118

Rudolph Hill


4/16/2011

20.66BC 119

Rudolph Hill


4/16/2011

20.66BC 120

Rudolph Hill


4/16/2011

20.66BC 121

Rudolph Hill


4/16/2011

20.66BC 122

Rudolph Hill


4/16/2011

20.66BC 123

Rudolph Hill


4/16/2011

20.66BC 124

Rudolph Hill


4/16/2011

20.66BC 125

Rudolph Hill


4/16/2011

20.66BC 126

Rudolph Hill


4/16/2011

20.66BC 127

Rudolph Hill


4/16/2011

20.66BC 128

Rudolph Hill


4/16/2011

20.66BC 129

Rudolph Hill


4/16/2011

20.66BC 130

Rudolph Hill


4/16/2011

20.66BC 131

Rudolph Hill


4/16/2011

20.66BC 132

Rudolph Hill


4/16/2011

20.66BC 133

Rudolph Hill


4/16/2011

20.66BC 134

Rudolph Hill


4/16/2011

20.66BC 135

Rudolph Hill


4/16/2011

20.66BC 136

Rudolph Hill


4/16/2011

20.66BC 137

Rudolph Hill


7/12/2011

20.66BC 138

Rudolph Hill


7/3/2011

20.66BC 139

Rudolph Hill


6/9/2011

20.66BC 140

Rudolph Hill


4/16/2011

20.66BC 141

Rudolph Hill


4/16/2011

20.66BC 142

Rudolph Hill


4/16/2011

20.66BC 143

Rudolph Hill


4/16/2011

20.66BC 144

Rudolph Hill


4/16/2011

20.66BC 145

Rudolph Hill


4/16/2011

20.66BC 146

Rudolph Hill


4/16/2011

20.66BC 147

Rudolph Hill


4/16/2011

20.66BC 148

Rudolph Hill


4/16/2011

20.66BC 149

Rudolph Hill


4/16/2011

20.66BC 150

Rudolph Hill


4/16/2011

20.66BC 151

Rudolph Hill


4/16/2011

20.66BC 152

Rudolph Hill


4/16/2011

20.66BC 153

Rudolph Hill


4/16/2011

20.66BC 154

Rudolph Hill


4/16/2011

20.66BC 155

Rudolph Hill


4/16/2011

20.66BC 156

Rudolph Hill


4/16/2011

20.66




47




Claim Name(1)

Prospect

Location Date(2)

AcresBC 157

Rudolph Hill


4/16/2011

20.66BC 158

Rudolph Hill


4/16/2011

20.66BC 159

Rudolph Hill


4/16/2011

20.66BC 160

Rudolph Hill


4/16/2011

20.66BC 161

Rudolph Hill


4/16/2011

20.66BC 162

Rudolph Hill


4/16/2011

20.66BC 163

Rudolph Hill


4/16/2011

20.66BC 164

Rudolph Hill


4/16/2011

20.66BC 165

Rudolph Hill


6/4/2011

20.66BC 166

Rudolph Hill


6/4/2011

20.66BC 167

Rudolph Hill


6/4/2011

20.66BC 168

Rudolph Hill


6/4/2011

20.66BC 169

Rudolph Hill


6/5/2011

20.66BC 170

Rudolph Hill


6/5/2011

20.66BC 171

Rudolph Hill


6/4/2011

20.66BC 172

Rudolph Hill


6/4/2011

20.66BC 173

Rudolph Hill


6/4/2011

20.66BC 174

Rudolph Hill


6/4/2011

20.66BC 175

Rudolph Hill


6/4/2011

20.66BC 176

Rudolph Hill


6/4/2011

20.66BC 177

Rudolph Hill


6/4/2011

20.66BC 178

Rudolph Hill


6/4/2011

20.66BC 179

Rudolph Hill


6/4/2011

20.66BC 180

Rudolph Hill


6/4/2011

20.66BC 20

Rudolph Hill


7/3/2011

20.66BC 21

Rudolph Hill


7/3/2011

20.66BC 219

Rudolph Hill


6/9/2011

20.66BC 22

Rudolph Hill


10/5/2011

20.66BC 220

Rudolph Hill


6/9/2011

20.66BC 221

Rudolph Hill


6/9/2011

20.66BC 222

Rudolph Hill


6/9/2011

20.66BC 223

Rudolph Hill


6/9/2011

20.66BC 224

Rudolph Hill


6/9/2011

20.66BC 225

Rudolph Hill


6/9/2011

20.66BC 226

Rudolph Hill


6/9/2011

20.66BC 227

Rudolph Hill


6/9/2011

20.66BC 228

Rudolph Hill


6/9/2011

20.66BC 229

Rudolph Hill


6/9/2011

20.66BC 23

Rudolph Hill


4/16/2011

20.66BC 230

Rudolph Hill


6/9/2011

20.66BC 231

Rudolph Hill


6/9/2011

20.66BC 232

Rudolph Hill


6/9/2011

20.66BC 233

Rudolph Hill


6/9/2011

20.66BC 234

Rudolph Hill


6/9/2011

20.66BC 235

Rudolph Hill


6/6/2011

20.66BC 236

Rudolph Hill


6/6/2011

20.66BC 237

Rudolph Hill


6/6/2011

20.66BC 238

Rudolph Hill


6/6/2011

20.66BC 239

Rudolph Hill


6/6/2011

20.66BC 240

Rudolph Hill


6/6/2011

20.66




48




Claim Name(1)

Prospect

Location Date(2)

AcresBC 241

Rudolph Hill


6/6/2011

20.66BC 242

Rudolph Hill


6/6/2011

20.66BC 243

Rudolph Hill


6/6/2011

20.66BC 244

Rudolph Hill


6/6/2011

20.66BC 245

Rudolph Hill


6/8/2011

20.66BC 246

Rudolph Hill


6/8/2011

20.66BC 247

Rudolph Hill


6/8/2011

20.66BC 248

Rudolph Hill


6/8/2011

20.66BC 249

Rudolph Hill


6/9/2011

20.66BC 250

Rudolph Hill


6/9/2011

20.66BC 251

Rudolph Hill


6/9/2011

20.66BC 252

Rudolph Hill


6/9/2011

20.66BC 253

Rudolph Hill


6/9/2011

20.66BC 254

Rudolph Hill


6/9/2011

20.66BC 255

Rudolph Hill


6/9/2011

20.66BC 256

Rudolph Hill


6/9/2011

20.66BC 257

Rudolph Hill


6/9/2011

20.66BC 258

Rudolph Hill


6/9/2011

20.66BC 259

Rudolph Hill


6/9/2011

20.66BC 260

Rudolph Hill


6/9/2011

20.66BC 261

Rudolph Hill


6/9/2011

20.66BC 262

Rudolph Hill


6/9/2011

20.66BC 263

Rudolph Hill


6/9/2011

20.66BC 264

Rudolph Hill


6/9/2011

20.66BC 265

Rudolph Hill


6/9/2011

20.66BC 266

Rudolph Hill


6/9/2011

20.66BC 267

Rudolph Hill


6/9/2011

20.66BC 268

Rudolph Hill


6/9/2011

20.66BC 269

Rudolph Hill


6/9/2011

20.66BC 27

Rudolph Hill


4/16/2011

20.66BC 270

Rudolph Hill


6/9/2011

20.66
  49
  Claim Name(1)

Prospect


Location Date(2)

AcresBC 271

Rudolph Hill


6/9/2011

20.66BC 272

Rudolph Hill


6/9/2011

20.66BC 273

Rudolph Hill


6/9/2011

20.66BC 274

Rudolph Hill


6/9/2011

20.66BC 275

Rudolph Hill


6/9/2011

20.66BC 276

Rudolph Hill


6/9/2011

20.66BC 277

Rudolph Hill


6/9/2011

20.66BC 278

Rudolph Hill


6/9/2011

20.66BC 279

Rudolph Hill


6/4/2011

20.66BC 28

Rudolph Hill


4/16/2011

20.66BC 280

Rudolph Hill


6/4/2011

20.66BC 281

Rudolph Hill


6/4/2011

20.66BC 282

Rudolph Hill


6/4/2011

20.66BC 283

Rudolph Hill


6/4/2011

20.66BC 284

Rudolph Hill


6/4/2011

20.66BC 29

Rudolph Hill


4/16/2011

20.66BC 30

Rudolph Hill


4/16/2011

20.66BC 31

Rudolph Hill


4/16/2011

20.66BC 32

Rudolph Hill


4/16/2011

20.66




50




Claim Name(1)

Prospect

Location Date(2)

AcresBC 33

Rudolph Hill


4/16/2011

20.66BC 34

Rudolph Hill


4/16/2011

20.66BC 35

Rudolph Hill


7/11/2011

20.66BC 36

Rudolph Hill


4/16/2011

20.66BC 37

Rudolph Hill


4/16/2011

20.66BC 38

Rudolph Hill


4/16/2011

20.66BC 39

Rudolph Hill


4/16/2011

20.66BC 40

Rudolph Hill


4/16/2011

20.66BC 41

Rudolph Hill


4/16/2011

20.66BC 42

Rudolph Hill


4/16/2011

20.66BC 43

Rudolph Hill


4/16/2011

20.66BC 44

Rudolph Hill


4/16/2011

20.66BC 45

Rudolph Hill


4/16/2011

20.66BC 46

Rudolph Hill


4/16/2011

20.66BC 47

Rudolph Hill


4/16/2011

20.66BC 48

Rudolph Hill


4/16/2011

20.66BC 49

Rudolph Hill


4/16/2011

20.66BC 50

Rudolph Hill


4/16/2011

20.66BC 51

Rudolph Hill


4/16/2011

20.66BC 52

Rudolph Hill


4/16/2011

20.66BC 53

Rudolph Hill


4/16/2011

20.66BC 54

Rudolph Hill


10/5/2011

20.66BC 55

Rudolph Hill


10/5/2011

20.66BC 56

Rudolph Hill


4/16/2011

20.66BC 57

Rudolph Hill


7/4/2011

20.66BC 58

Rudolph Hill


7/4/2011

20.66BC 59

Rudolph Hill


7/4/2011

20.66BC 60

Rudolph Hill


4/16/2011

20.66BC 61

Rudolph Hill


4/16/2011

20.66BC 62

Rudolph Hill


4/16/2011

20.66BC 63

Rudolph Hill


4/16/2011

20.66BC 64

Rudolph Hill


4/16/2011

20.66BC 65

Rudolph Hill


4/16/2011

20.66BC 66

Rudolph Hill


4/16/2011

20.66BC 67

Rudolph Hill


4/16/2011

20.66BC 68

Rudolph Hill


4/16/2011

20.66BC 69

Rudolph Hill


4/16/2011

20.66BC 70

Rudolph Hill


4/16/2011

20.66BC 71

Rudolph Hill


4/16/2011

20.66BC 72

Rudolph Hill


4/16/2011

20.66BC 73

Rudolph Hill


4/16/2011

20.66BC 74

Rudolph Hill


4/16/2011

20.66BC 75

Rudolph Hill


4/16/2011

20.66BC 76

Rudolph Hill


4/16/2011

20.66BC 77

Rudolph Hill


4/16/2011

20.66BC 78

Rudolph Hill


4/16/2011

20.66BC 79

Rudolph Hill


4/16/2011

20.66BC 80

Rudolph Hill


4/16/2011

20.66BC 81

Rudolph Hill


4/16/2011

20.66BC 82

Rudolph Hill


4/16/2011

20.66




51




Claim Name(1)

Prospect

Location Date(2)

AcresBC 83

Rudolph Hill


4/16/2011

20.66BC 84

Rudolph Hill


4/16/2011

20.66BC 85

Rudolph Hill


4/16/2011

20.66BC 86

Rudolph Hill


4/16/2011

20.66BC 87

Rudolph Hill


4/16/2011

20.66BC 88

Rudolph Hill


4/16/2011

20.66BC 89

Rudolph Hill


4/16/2011

20.66BC 90

Rudolph Hill


4/16/2011

20.66BC 91

Rudolph Hill


4/16/2011

20.66BC 92

Rudolph Hill


4/16/2011

20.66BC 93

Rudolph Hill


4/16/2011

20.66BC 94

Rudolph Hill


4/16/2011

20.66BC 95

Rudolph Hill


4/16/2011

20.66BC 96

Rudolph Hill


4/16/2011

20.66BC 97

Rudolph Hill


4/16/2011

20.66BC 98

Rudolph Hill


4/16/2011

20.66BC 99

Rudolph Hill


4/16/2011

20.66PH #16

Rudolph Hill


8/11/2008

20.66PH #17

Rudolph Hill


8/11/2008

20.66PH #18

Rudolph Hill


8/11/2008

20.66PH #19

Rudolph Hill


8/11/2008

20.66PH #20

Rudolph Hill


8/11/2008

20.66PH #21

Rudolph Hill


8/12/2008

20.66PH #22

Rudolph Hill


8/12/2008

20.66PH #23

Rudolph Hill


8/12/2008

20.66PH #24

Rudolph Hill


8/13/2008

18.10PH #25

Rudolph Hill


8/13/2008

18.10PH #26

Rudolph Hill


8/13/2008

18.10PH #27

Rudolph Hill


8/13/2008

18.10PH #28

Rudolph Hill


8/13/2008

18.10PH #29

Rudolph Hill


8/13/2008

20.66PH #30

Rudolph Hill


8/14/2008

20.66PH #31

Rudolph Hill


8/14/2008

20.66SG 10

Rudolph Hill


10/5/2011

20.66SG 11

Rudolph Hill


10/5/2011

20.66SG 12

Rudolph Hill


10/5/2011

20.66SG 13

Rudolph Hill


10/4/2011

20.66SG 14

Rudolph Hill


10/4/2011

20.66SG 15

Rudolph Hill


10/4/2011

20.66SG 16

Rudolph Hill


10/4/2011

20.66SG 17

Rudolph Hill


10/4/2011

20.66SG 18

Rudolph Hill


10/4/2011

20.66SG 19

Rudolph Hill


10/5/2011

20.66SG 20

Rudolph Hill


10/5/2011

20.66SG 21

Rudolph Hill


10/5/2011

20.66SG 22

Rudolph Hill


10/5/2011

20.66SG 23

Rudolph Hill


10/5/2011

20.66SG 24

Rudolph Hill


10/5/2011

20.66SG 25

Rudolph Hill


10/4/2011

20.66SG 26

Rudolph Hill


10/4/2011

20.66




52




Claim Name(1)

Prospect

Location Date(2)

AcresSG 28

Rudolph Hill


10/4/2011

20.66SG 30

Rudolph Hill


10/4/2011

20.66SG 31

Rudolph Hill


10/5/2011

20.66SG 32

Rudolph Hill


10/5/2011

20.66SG 33

Rudolph Hill


10/5/2011

20.66SG 34

Rudolph Hill


10/5/2011

20.66SG 35

Rudolph Hill


10/5/2011

20.66SG 36

Rudolph Hill


10/5/2011

20.66SG 37

Rudolph Hill


10/4/2011

20.66SG 38

Rudolph Hill


10/4/2011

20.66SG 39

Rudolph Hill


10/4/2011

20.66SG 40

Rudolph Hill


10/4/2011

20.66SG 41

Rudolph Hill


10/4/2011

20.66SG 42

Rudolph Hill


10/4/2011

20.66SG 43

Rudolph Hill


10/19/2011

20.66SG 44

Rudolph Hill


10/19/2011

20.66SG 45

Rudolph Hill


10/5/2011

20.66SG 46

Rudolph Hill


10/5/2011

20.66SG 47

Rudolph Hill


10/5/2011

20.66SG 48

Rudolph Hill


10/5/2011

20.66SG 49

Rudolph Hill


10/4/2011

20.66SG 5

Rudolph Hill


10/4/2011

20.66SG 50

Rudolph Hill


10/4/2011

20.66SG 51

Rudolph Hill


10/4/2011

20.66SG 52

Rudolph Hill


10/4/2011

20.66SG 53

Rudolph Hill


10/4/2011

20.66SG 54

Rudolph Hill


10/4/2011

20.66SG 55

Rudolph Hill


10/5/2011

20.66SG 56

Rudolph Hill


10/5/2011

20.66SG 57

Rudolph Hill


10/5/2011

20.66SG 58

Rudolph Hill


10/5/2011

20.66SG 59

Rudolph Hill


10/5/2011

20.66SG 6

Rudolph Hill


10/4/2011

20.66SG 60

Rudolph Hill


10/5/2011

20.66SG 61

Rudolph Hill


10/4/2011

20.66SG 62

Rudolph Hill


10/4/2011

20.66SG 63

Rudolph Hill


10/4/2011

20.66SG 64

Rudolph Hill


10/4/2011

20.66SG 65

Rudolph Hill


10/4/2011

20.66SG 66

Rudolph Hill


10/4/2011

20.66SG 67

Rudolph Hill


10/5/2011

20.66SG 68

Rudolph Hill


10/5/2011

20.66SG 69

Rudolph Hill


10/5/2011

20.66SG 7

Rudolph Hill


10/5/2011

20.66SG 8

Rudolph Hill


10/5/2011

20.66GC 1

Satellite


4/16/2011

20.66GC 10

Satellite


4/16/2011

20.66GC 100

Satellite


6/18/2011

20.66GC 101

Satellite


6/18/2011

20.66GC 102

Satellite


6/18/2011

20.66




53




Claim Name(1)

Prospect

Location Date(2)

AcresGC 103

Satellite


6/18/2011

20.66GC 104

Satellite


6/18/2011

20.66GC 105

Satellite


6/18/2011

20.66GC 106

Satellite


6/18/2011

20.66GC 107

Satellite


6/18/2011

20.66GC 108

Satellite


6/18/2011

20.66GC 109

Satellite


6/18/2011

20.66GC 11

Satellite


4/16/2011

20.66GC 110

Satellite


6/18/2011

20.66GC 115

Satellite


6/18/2011

20.66GC 117

Satellite


6/18/2011

20.66GC 119

Satellite


6/18/2011

20.66GC 12

Satellite


4/16/2011

20.66GC 121

Satellite


6/18/2011

20.66GC 122

Satellite


6/18/2011

20.66GC 123

Satellite


6/18/2011

20.66GC 124

Satellite


6/18/2011

20.66GC 125

Satellite


6/18/2011

20.66GC 126

Satellite


6/19/2011

20.66GC 127

Satellite


6/18/2011

20.66GC 128

Satellite


6/19/2011

20.66GC 129

Satellite


6/18/2011

20.66GC 13

Satellite


4/16/2011

20.66GC 130

Satellite


6/19/2011

20.66GC 131

Satellite


6/18/2011

20.66GC 132

Satellite


6/19/2011

20.66GC 133

Satellite


6/18/2011

20.66GC 134

Satellite


6/19/2011

20.66GC 135

Satellite


6/18/2011

20.66GC 136

Satellite


6/19/2011

20.66GC 137

Satellite


6/18/2011

20.66GC 138

Satellite


6/19/2011

20.66GC 14

Satellite


4/16/2011

20.66GC 140

Satellite


6/18/2011

20.66GC 149

Satellite


6/18/2011

20.66GC 15

Satellite


4/16/2011

20.66GC 151

Satellite


6/18/2011

20.66GC 152

Satellite


6/19/2011

20.66GC 153

Satellite


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(1)All claims are recorded in the name of Seaglass Holding Corp., a wholly-owned subsidiary of ours.





(2)All claims are located in the State of Colorado.




These claims and their associated mineral rights are held by currently active unpatented lode mining claims filed with the Denver office of the BLM located in Denver, Colorado and at the County Recorder's Offices of Fremont County, Gunnison County and Saguache County according to the county in which the claim is located. Maintenance of the mineral rights associated with the unpatented lode mining claims require annual filing and payment of $140 per claim fee to the BLM and filing with county jurisdiction with an associated recording fee of approximately $150 for all Colorado located lode mining claims. During the normal course of exploration we plan to continually perfect, expand, reduce, or otherwise modify and adjust our claim mineral rights holdings in coordination with these exploration efforts to maintain effective mineral rights that cover material properties.




History of the Project




As most of the prominent historical work on the Powderhorn Project has focused on the Iron Hill carbonatite complex, little information is known regarding the related rare earth mineralization that occurs in veins circumferential to the Iron Hill carbonatite complex. USGS investigators have gathered information indicating multiple localities of thorium veins adjacent to the Iron Hill carbonatite.




Our predecessor also completed grab sampling between and 2007 and 2010 indicating several localities of anomalous rare earth mineralization within the Powderhorn Project claims.




Geological Setting




The Powderhorn Project claims are distally located from the Iron Hill carbonatite complex and principally cover the granites, felsite porphyry, meta-gabbro, and San Juan volcanics in the Powderhorn Project area.







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The Powderhorn Project is in an area surrounding, but excluding, Iron Hill. Iron Hill is recognized as the largest exposed carbonatite mass in the United States. The Iron Hill complex (suite of intrusive rocks) intruded into Proterozoic granites and metamorphic rocks approximately 570 million years ago.




Iron Hill carbonatite complex related intrusives consisting of pyroxenite, uncompahgrite, ijolite, and pyroxenite-nepheline syenite, and nepheline syenite were emplaced into the Proterozoic granite and metamorphic hosts rocks. The pyroxenite and host rocks are cross-cut by veins mineralized by carbonatite and rare earth-thorium veins circumferential to the Iron Hill carbonatite. The source of rare earth mineralization is inferred to be related to the carbonatite complex. The north-west trending Cimarron fault dominates in the area.




Exploration work




The Powderhorn Project is an exploration stage project and does not have any reportable reserves.




Phase I Exploration Work




To date, we have focused our initial exploration activities on the Powderhorn. The Powderhorn Project is divided into two prospects—the Satellite prospect and the Rudolph Hill prospect. We completed Phase I diamond core drilling on the Satellite and Rudolph Hill prospects in 2011. Our exploration also included several grab sampling traverses. Results indicate low to moderate rare earth element mineralization that requires further work to identify the exact location and dimensions (length, width and depth) of the mineralization. Evaluation of the Powderhorn Project is still in an early phase of investigation as mapping and detailed work has yet to be completed.




The cost of exploration work (including filing fees) from 2011 through December 31, 2014 was approximately $1,650,000.




Future Exploration Work




No exploration work for the Powderhorn Project is planned in 2015. The Powderhorn Project is our lowest exploration priority.




Project Mineralogy




We have not yet completed a mineralogical study for the samples collected.




Sampling and Analysis




We conducted both grab sampling and drill core sampling.




Grab samples are a preliminary exploration tool where between 1/4 to 5 pound samples are collected in an area of interest to ascertain if follow-up exploration should be conducted. Because of their preliminary nature grab samples are only useful for preliminary evaluation and the results of such grab sampling may not give representative metal concentration values as determined by further exploration. A majority of the grab samples were located using handheld GPS units.




Drill core was split along the vertical axis. Samples of half of the split core were bagged in recorded intervals for shipment the analytical laboratory. Sample identification numbers were recorded on sample tags and sent with the samples to the assay lab. Drill-hole locations are known from maps submitted for permitting.




Samples collected during our Phase I exploration program were analyzed by a third-party laboratory that is accredited by the Standards Council of Canada.







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Our quality assurance and quality control program is under continuous review, evaluation, and development to maintain and improve quality assurance and quality control.




Power, Water and Infrastructure




The only power available to the Powderhorn Project is by battery or petroleum fueled generators brought on to the site by us. Water sourcing during the 2011 drilling program was for permitted access to surface water within several miles of the drilling site. No permanent infrastructure or equipment is located within the Powderhorn Project.




Offices




Since January 20, 2014, we have leased our principal executive offices at 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024-3818. The lease of this 1,588 square foot space is for a term expiring on November 30, 2016, and provides for monthly rental payments of $3,441.




Since January 1, 2013, we have also rented office space from Logic at 711 Fifth Avenue, 16th Floor, New York, NY 10022 which, since May 1, 2013, has been on a month-to-month basis. Between January 1, 2013 and May 30, 2013, we paid rent of $3,750 per month, and, as of June 1, 2013, our rent is $9,250 per month. The increase in rent has been commensurate with an increase in personnel that work for us at Logic's offices.




We also lease 5,000 square feet of office and storage space at 120 Vandervoort Street, Salmon, Idaho. The Salmon facility is used by our contractors when they are involved in exploration or other activities relating to our Idaho or Montana claims and is also used to store tools and materials used in our exploratory activities and samples collected from the claim sites. This lease provides for monthly rentals of $1,200 and expires June 4, 2015. The lease includes an option to renew for one additional term of two years at a rent to be negotiated.




In addition, pursuant to the Settlement Agreement and General Release dated March 15, 2013, and approved by the District Court of Clark County, Nevada, on June 5, 2013, we are obligated, under certain circumstances, to assume a lease of certain office space in Salt Lake City, Utah with a monthly rent of $6,000.




We believe that our existing facilities are adequate to meet our current needs, and that suitable additional alternative spaces will be available in the future on commercially reasonable terms.




Competition




There are a number of companies in North America that are also in the business of exploring for and mining rare earth elements. Each of these companies would be our competitor for additional mining claims in the United States and Canada and for skilled technical and mining personnel. These companies are primarily based in Canada and include Avalon Rare Metals Inc. (TSE: AVL; NYSE MKT: AVL), Frontier Rare Earths, Limited (TSE: FRO), Great Western Minerals Group Ltd. (CVE: GWG; OTCQX: GWMGF), Ucore Rare Metals Inc. (TSX-V: UCU; OTCQX: UURAF), and Matamec Explorations, Inc. (TSX-V: MAT), as well as Texas Rare Earth Resources Corp. (OTCQX: TRER), among others. Each of these companies may have greater resources than us and may develop a commercially-viable mining operation prior to us. Many of them have been in business longer than us and have established strategic partnerships and relationships that provide an advantage in the global rare earth elements market. There can be no assurance that we can explore and develop our mining prospects at a faster pace than any of our competitors or complete a "go-to-market" strategy in advance of these competitors. As a result of these factors, we may not be able to compete effectively against current and future competitors.




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Once we have commenced mining and processing activities, our competitors will include other actual producers of rare earth elements, including Lynas Corporation (Australia) (ASX: LYC), some or all of the companies mentioned above, a number of companies in China, such as Inner Mongolia Baotou Steel Rare Earth Group, and Molycorp, Inc. (United States) (NYSE: MCP). In order to commence mining and processing operations, it will first be necessary for us to complete our exploratory activities, prove the feasibility of a particular project, complete the permitting process, construct our facilities and enter the marketplace. To do so, it will require significant capital investments. The other mineral exploration companies noted above will also be seeking capital resources to fund their business plans. As a result, there will be significant competition for capital resources across North America.




Current and Planned Exploration Projects




We spent approximately $4.6 million on exploration (including filing fees) from 2011 through December 31, 2014 on the projects discussed above. These projects do not have any proven or probable reserves, and our proposed activities are exploratory in nature. All costs incurred since the acquisition of our claims have been recorded as exploration expenses.




Our exploration and capital expenditure program for the fiscal year 2015 is anticipated to cost approximately $9 million, assuming we are able to raise sufficient funds for exploration and capital expenditures. While management is actively involved in identifying sources of capital to fund our operations, there is no assurance that we will be successful in raising the needed funds.




Research and Development




Down-stream milling, concentration, and processing of rare earth metal-oxides is both complex and historically very capital intensive. Capital and technological barriers currently exist regarding the down-stream processing of rare earth run-of-mine material. We believe that proactively working to reduce the capital intensive nature associated with conventional outdated processing techniques is an important aspect of continued development of our claims and improvement of the ultimate economics of rare earth extraction. We plan to commence rare earth separation process piloting and technology testing beginning in 2015.




Compliance with Government Regulation




Unpatented Mining Claims




All of our mining claims are unpatented lode mining claims. The holder of an unpatented mining claim has a unique property interest. A citizen of the United States who complies with the statutory requirements for locating an unpatented mining claim—physically staking the claim on open public land, making a discovery of valuable minerals, and filing the required documents—automatically acquires the full interest in the claim, without any action by the government. For purposes of the federal mining law, a "citizen" includes a corporation organized under the laws of any state (or an unincorporated association such as a partnership, limited partnership, joint venture, or trust). No governmental authorization is required for the claim owner to merely hold (without exploring or developing) its interest in the claim.




Upon making a discovery of valuable minerals, the locator of a federal mining claim receives the "exclusive right of possession and enjoyment" of all "veins, lodes, and ledges throughout their entire depth", effectively providing the locator of a mining claim the right to pursue the extensions of any identified vein beyond the side-line limits of a lode location. The locator also receives the exclusive right to possess all surface areas within the claim for mining purposes, but the United States retains the right to manage the surface of the property for other purposes. A locator's possessory rights are considered vested property rights in real property with full attributes and benefits of ownership exercisable against third parties, and these rights may be sold, transferred and mortgaged. While the law provides that the locator may be eligible for a conveyance from the United States of the full fee simple estate in the lands (known as a "patent" of the land) upon compliance and proof of further requirements, there has been a moratorium on the issuance of such patents since 1991. Nevertheless, a locator's possessory rights to mine all of the minerals to exhaustion are complete in unpatented claims, and the locator is never required to apply for or obtain a patent in order to fully mine the minerals found on the claims.







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The United States remains the legal title holder to the lands on which an unpatented claim is located, as provided by federal law. While the locator has full possessory rights to the surface and the minerals under the surface, these rights are subject to certain statutory requirements and limitations, such as the payment of annual assessment fees and making annual filings with the government. Failure to comply with these ongoing requirements will result in loss of the right to maintain the claims.




A valid federal mining claim location must be made on land that is open to mineral entry. Land may be closed to mineral entry for a variety of reasons. For example, the land may have been transferred out of federal ownership by patent to private ownership or to another governmental entity, or it may have been withdrawn from mineral entry for the preservation of water resources, wildlife protection or other environmental reasons.




If a mining claim is located wholly or partially on land that is not open to mineral entry under the mining laws, the claim owner has acquired no mineral or related surface access rights in the lands within the area that is not open to mineral entry. While the portion of the claim located on ground open for location will be valid, if the location monument for the claim is located on land not open to mineral entry, the entire claim is void as a matter of law. Operations conducted on those portions of a claim that are located in the area not open to location will constitute a trespass and may subject the operator to legal action by the owner, if privately held, or the government agency, if in federal or state ownership. Moreover, claims located on surface that is owned by a third party will require accommodation of the surface owner's rights and may subject operations on any such lands to additional regulatory requirements.




Our claims may overlap with unpatented mining claims located by third parties. In some instances, we may own the senior (earlier located) overlapping claim and in other instances we may own the junior (more recently located) overlapping claim. Mining claim locations hold priority by the date of location. As a result, junior unpatented mining claims are invalid to the extent they overlie senior unpatented mining claims. If the location monument for any junior claim is located on a senior claim, the entire claim will be void as a matter of law. However, so long as the location monuments of the junior overlapping claims are located on land open for mineral entry, the claims will be valid outside the areas of overlap with the senior claims.




In addition certain of our claims may be located on National Forest lands, the surface of which is managed by the U.S. Forest Service. In such instances, we must comply with enhanced surface protections prior to engaging in any mining activities on these lands. Moreover, we may be likely to encounter environmentally sensitive areas and threatened, endangered or sensitive species, in and around the U.S. Forest System areas.




Permits and Approvals




The exploration, drilling and mining industries operate in a legal environment that requires permits to conduct virtually all operations. Permits are required by local, state and federal government agencies. 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. Local authorities, usually counties, also have control over mining activity. The various permits address such issues as drilling, trenching, 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. Prehistorical or Native American graves, threatened or endangered species, archeological sites or the possibility thereof, difficult access, excessive dust and important nearby water resources may all result in the need for additional permits before exploration activities can commence.




We currently hold approved plans of operation and permits needed for certain exploration and related reclamation activities. These include a Montana State exploration license, an approved plan of operations to conduct drilling for the North Fork Project, an approved plan of operations for continued reclamation and retrieval of material for metallurgical sampling for the Last Chance Project, and an approved notice of intent for continued reclamation for the Powderhorn Project. Collectively, these permits allow us to continue drilling on the North Fork Project in accordance with the plan of operations through the end of 2014, conduct reclamation on the Last Chance Project through November 2016 and Powderhorn Project through August 2016, conduct non-mechanized exploration on the Last Chance and Sheep Creek Projects through May 2015 and non-mechanized exploration on the North Fork, Lemhi Pass and Diamond Creek Projects which are not time-limited, and open an existing adit in the Last Chance Project and retrieve not more than 2,500 tons of underground and surface material for metallurgical sampling which is not time-limited. Our operations to expand exploration on the Last Chance Project for 2014 was approved by the U.S. Forest Service. As we prioritize exploration goals and obtain funding, we intend to submit further plans of operation to initiate drilling programs on our properties. To the extent that we do not presently hold an approved plan or operation or permit for future exploration, we intend to obtain such approvals on an as-needed basis.




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As with all permitting processes, there is substantial uncertainty about when and if the permits will be issued. There is the risk that unexpected delays and excessive costs may be experienced in obtaining required permits. The needed permits may not be granted, could be challenged by third parties that could result in protracted litigation that could cause substantial delays, or may be granted in an unacceptable timeframe or cost too much. Additionally, proposed mineral exploration and mining projects can become controversial and be opposed by nearby landowners and communities, which can substantially delay and interfere with the permitting process. Delays in or inability to obtain necessary permits would result in unanticipated costs, which may adversely affect our business.




Environmental, Health and Safety Matters




Like all other exploration companies doing business in the United States, we are or will be subject to a variety of federal, state and local statutes, rules and regulations relating to environmental, health and safety matters. 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.




If we commence mining operations, we will be subject to United States federal statutes such as the Mine Safety and Health Act, the 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 and also subject to regulations adopted and administered pursuant to those statutes by agencies of the U.S. federal government, including the Environmental Protection Agency, the Forest Service, the BLM, the Fish and Wildlife Service, the Army Corps of Engineers, the Montana State Health Agency, and other agencies. To the extent we locate any part of our operations on lands controlled by a state government, we will be subject to that state's corresponding laws and regulations. The cost of compliance with these statutes and regulations cannot be calculated with any accuracy at this time, but will be significant. In addition, any permitting process that we may be required to follow may take several years.




Employees




As of February 27, 2015, we had one employee and five consultants, including one full-time employee and one full-time consultant in Plano, Texas, three part-time consultants in New York City and one part-time consultant in Meridian, Idaho. None of our employees is subject to a collective bargaining agreement or represented by a trade or labor union. We believe that we have a good relationship with our employees and consultants.




Properties




Our principal executive offices were located at 5600 Tennyson Parkway, Suite 190, Plano, Texas 75024 during 2013. This office was shared with John Victor Lattimore, Jr., Chairman of our board of directors, and entities affiliated with Mr. Lattimore. Since January 20, 2014, we have leased office space at 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024 and no longer share offices with Mr. Lattimore.




Since January 1, 2013, we have also rented office space from Logic at 711 Fifth Avenue, 16th Floor, New York, NY 10022 which, since May 1, 2013, has been on a month-to-month basis. Between January 1, 2013 and May 30, 2013, we paid rent of $3,750 per month, and, as of June 1, 2013, our rent is $9,250 per month.




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ITEM 1A. RISK FACTORS





The following are certain risk factors that could affect our business, financial position, results of operations or cash flows. These risk factors should be considered along with the forward-looking statements contained in this Annual Report on Form 10-K/A because these factors could cause our actual results or financial condition to differ materially from expectations. The following discussion is not an all-inclusive listing of risks although we believe these are the more material risks that we face.  If any of the following occur, our business, financial position, results of operations or cash flows could be negatively affected.




Risks Related to Our Financial Position and Capital Requirements




We have incurred operating losses since our inception and anticipate that we will continue to incur substantial operating losses for the foreseeable future.




We are an exploration stage company. To date, we have primarily focused on obtaining mining claims that are believed to contain rare earth elements and exploring for such elements. We have financed our operations exclusively through private placements of common stock and convertible debt and have incurred losses in each year since inception. We have historically incurred substantial net losses, including net losses of $7,494,591 and $17,837,262 in 2014 and 2013, respectively. From our inception in 1999 through December 31, 2014, we had an accumulated deficit in excess of $74 million. We do not know whether or when we will become profitable. To date, we have not commenced mining operations or generated any revenues from mining and, accordingly, we do not have a revenue stream to support our cost structure. Our losses have resulted principally from costs incurred in exploration activities, impairment and acquisition charges, legal settlements, and the issuance of company stock for consulting and employment services. Total cash losses of $3,686,685 and $3,157,163 in 2014 and 2013, respectively, were largely reflective of exploration activities, legal fees and consulting expenses.




We anticipate that our operating losses will substantially increase over the next several years as we execute our plan to expand our exploration and mining activities. Because of the numerous risks and uncertainties associated with exploration and mining of rare earth elements, we are unable to predict the extent of any future losses or when we will become profitable, if at all. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our inability to achieve and then maintain profitability would negatively affect our business, financial condition, results of operations and cash flows.




Our history of net losses has raised substantial doubt regarding our ability to continue as a going concern. If we do not continue as a going concern, investors could lose their entire investment.




Our history of net losses has raised substantial doubt about our ability to continue as a going concern, and as a result, our independent registered public accounting firm included an explanatory paragraph in its report on our financial statements as of and for the year ended December 31, 2014 with respect to this uncertainty. We have no current source of revenue to sustain our exploration activities, and we do not expect to generate revenue until, and unless, we commence mining operations, which we do not expect to occur for several years. Accordingly, our ability to continue as a going concern will require us to seek alternative financing to fund our operations. This going concern opinion could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. Future reports on our financial statements may include an explanatory paragraph with respect to our ability to continue as a going concern.




The restatement of our financial statements may result in litigation or government enforcement actions. Any such action would likely harm our business, prospects, financial condition and results of operations.




In connection with the preliminary preparation of our audited financial statements for the fiscal year ended December 31, 2013, management determined that previously issued unaudited financial statements issued for the quarterly periods ended June 30, 2013 and September 30, 2013 contained errors, which were non-cash in nature. Consequently, we restated our unaudited financial statements for the quarterly periods ended June 30, 2013 and September 30, 2013 and filed with the Securities and Exchange Commission, or SEC, restated financial statements on March 28, 2014. A description of the items restated can be found in each of the Forms 10-Q/A filed for the three months ended June 30, 2013 and September 30, 2013. The restatement of our financial statements may expose us to risks associated with litigation, regulatory proceedings and government enforcement actions. In addition, securities class action litigation has often been brought against companies, which have been unable to provide current public information or which have restated previously filed financial statements. Any of these actions could result in substantial costs, divert management's attention and resources, and harm our business, prospects, results of operation and financial condition.




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Our management has concluded that we have material weaknesses in our internal controls over financial reporting and that our disclosure controls and procedures are not effective.
 
 A material weakness in a company’s internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of its financial statements will not be prevented or detected. Specifically, our material weaknesses include the fact that during the fiscal year 2014, our accounting function was comprised of only a controller and the CFO, and generally cash disbursements did not originate from within the accounting system, but were generally entered into the accounting system the following business day.  We do have an audit committee, however, the auditor was not present at each meeting.  During 2013, our accounting function was comprised only of our part-time chief financial officer, we did not have an audit committee and the executive management was changed. In addition, generally cash disbursements did not originate from within the accounting system, but were generally entered into the accounting system the following business day.  The lack of sufficient personnel for proper segregation of duties and the initiation of payments outside of the accounting system has resulted in our failure to establish the desired internal control over financial reporting and accounting.In addition, our Chief Executive Officer and Chief Financial Officers determined as of December 31, 2013, that our disclosure controls and procedures were not effective due to the material weaknesses in our internal controls over financial reporting. If these weaknesses continue, investors could lose confidence in the accuracy and completeness of our financial reports and other disclosures.
 
 In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated the following series of measures: (1) we made a series of hires to bolster our accounting functions including the hiring of a Chief Administrative Officer in June 2013 to coordinate the segregation of duties and implement the command and control structure consistent with control objectives, the hiring of a controller in November 2013 with technical public accounting expertise and the hiring of a dedicated full-time CFO in April 2014 to oversee the accounting function, (2) in September 2013, we established an audit committee comprised of three independent directors, all of whom were newly elected to the board during 2013, with responsibility for overseeing, among other things, our internal controls, and in 2014 the audit committee began convening regular meetings and (3) during 2013, we migrated our accounting functions to a new computer system which became operational during 2014, (4) during 2014 we implemented daily cash reporting procedures and set up a legal review process for all contracts and corporate documents, and (5) during 2014 we implemented a monthly financial close process which includes a full review of all balances and financial statements by executive management. We intend to continue bolstering our accounting function and internal controls over financial reporting as financial resources permit. However, given limitations in financial and manpower resources, we may not have the resources to address fully the weaknesses in controls. No assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.




The mining industry is capital intensive, and we will require substantial additional financing to achieve our goals. A failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our exploration activities.




Our current operating funds are less than necessary to complete all intended exploration of our prospects. As of December 31, 2014, we had cash of $142,540 and a working capital deficit of $3,045,999. We have spent approximately $4.6 million on exploration and support of our mining claims since acquiring them. We believe that we will continue to expend substantial resources for the foreseeable future in the exploration of our mining claims. These expenditures will include costs associated with exploration, permitting, landholding, and general and administrative costs. Because the outcome of our exploration activities is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the exploration of our properties. In addition, other unanticipated costs may arise. As a result of these and other factors currently unknown to us, we will need to seek additional funds, through public or private equity or debt financings or other sources, such as strategic partnerships and alliances and licensing arrangements. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate our exploration activities or other activities that may be necessary to commercialize our rare earth mineral deposits.




Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our mining claims.




We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect stockholder rights. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our mining claims, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our exploration activities or grant rights to commercialize our rare earth element deposits that we would otherwise prefer to commercialize ourselves.




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Risks Related to Our Business




We recently settled litigation regarding the composition of our board of directors. Litigation or the actions of regulatory authorities may harm our business or otherwise distract our management.




In March 2013, we entered into a Settlement Agreement settling a series of claims and counter-claims raised in September 2012 regarding the composition of our board of directors. Please see "Transactions with Related Persons—Stockholder Litigation Settlement" for a detailed explanation of this litigation. Even though the litigation has terminated, the litigation caused us to incur significant expenditures and was a distraction to our management. In addition, subsequent to the termination of the litigation, certain of our former directors have made claims involving, among other things, up to 416,667 shares of our common stock that were previously authorized for issuance by our board of directors but not issued. We are currently negotiating a settlement with respect to these claims; however, there is no assurance that these claims will be settled without recourse to litigation or upon terms favorable to us. Any substantial, complex or extended litigation could cause us to incur major expenditures and would distract our management. Lawsuits or actions could from time to time be filed against us and/or our executive officers and directors. For example, lawsuits by directors, employees, former employees, stockholders, partners, customers, or others, or actions taken by regulatory authorities, could be very costly and substantially disrupt our business. Such lawsuits and actions are not uncommon, and we may not be able to resolve such disputes or actions on terms favorable to us. In addition, there may not be sufficient capital resources available to defend such actions effectively, or at all.




We may become subject to tax assessments, penalties and interest for historically processing compensation as independent contractors rather than as payroll.




During the years ended December 31, 2011 and 2012, we did not report stock based compensation on Form 1099 or W-2, which amounted to $8,654,149 and $713,594 respectively. During the year ended December 31, 2013, we processed compensation to our chief executive officer as an independent contractor under Form 1099 instead of processing it as payroll under Form W-2. We recorded $271,602 as accounts payable as of December 31, 2014 for FICA costs for the years ended December 31, 2011, 2012 and 2013. We have accrued interest and penalties of $49,917 related to the taxes due to the Internal Revenue Service. If we become subject to additional tax assessment, penalties and interest by federal and state tax authorities in the future, our results of operations, financial performance and cash flows could be materially adversely affected.




All of our mining claims are in the exploration stage. There is no assurance that we can establish the existence of any mineral reserve on any of our mining claims in commercially exploitable quantities. As a result, we do not know if our claims contain rare earth elements that can be mined at a profit and face a high risk of business failure.




We started exploring our mining claims in the summer of 2011 and have not yet established that such claims contain any proved or probable reserves of rare earth elements or whether commercially viable quantities of rare earth elements exist. The lack of identified reserves of rare earth elements on our mining claims could prohibit us from development of, a sale of, or joint venture arrangement with respect to, our mining claims. If we are unable to develop, sell or enter into a joint venture arrangement with respect to our mining claims, we will not be able to realize any profit from our mining claims which would materially adversely affect our financial position and results of operations.




If rare earth elements are identified in commercially viable quantities on our mining claims, there is still the risk that identified deposits cannot be mined at a profit. This depends on many factors, including: the particular attributes of the deposit, such as size, grade and proximity to infrastructure; operating costs and capital expenditures required to start mining a deposit; the availability and cost of financing; the price of the rare earth elements (which is highly volatile); and government regulations, including regulations relating to prices, taxes, royalties, land use, importing and exporting of minerals and environmental protection. Accordingly, we have no way to evaluate the likelihood that our business will be successful. There is no history upon which to base any assumption as to the likelihood that we will prove successful in locating and mining commercially viable quantities of rare earth elements from our mining claims. Therefore, we cannot provide any assurance that we will generate any operating revenues or ever achieve profitable operations. Exploring for rare earth elements is an inherently speculative activity. There can be no assurance that our existing or future mining claims will be successfully placed into production, produce rare earth elements in commercial quantities or otherwise generate operating earnings. If we are unsuccessful in addressing these risks, our business will most likely fail.




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We are a junior exploration company with no operating mining activities, and we may never have any mining activities in the future.





Our primary business is exploring for rare earth elements. Should we identify commercially viable quantities of rare earth elements, we will need to commence mining operations which are capital intensive. Accordingly, we will need to seek additional capital through debt or equity financing to conduct mining operations or venture with another entity to mine our prospects or operate mining facilities on our behalf, or sell or lease our mining claims to third parties. Mine development projects typically require a number of years and significant expenditures during the development phase before production is possible. Such projects could experience unexpected problems and delays during development, construction and the start-up of mining operations. Mining operations in the United States are subject to many different federal, state and local laws and regulations, including stringent environmental, health and safety laws. If and when we assume operational responsibility for mining on our properties, it is possible that we will be unable to comply with current or future laws and regulations, which can change at any time. It is possible that changes to these laws will be adverse to any potential mining operations. Moreover, compliance with such laws may cause substantial delays and require capital outlays in excess of those anticipated, adversely affecting any potential mining operations. Our future mining operations, if any, may also be subject to liability for pollution or other environmental damage. It is possible that we will choose to not be insured against this risk because of high insurance costs or other reasons.




Because of the unique difficulties and uncertainties inherent in mineral exploration ventures, we face a high risk of business failure.




Potential investors should be aware of the difficulties normally encountered by mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of the mineral properties that we plan to undertake. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The expenditures to be made by us in the exploration of REEs may not result in the discovery of REE deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts. If the results of our exploration do not reveal viable commercial mining, we may decide to abandon our claim and acquire new claims for new exploration. The acquisition of additional claims will be dependent upon us possessing capital resources at the time in order to purchase such claims. If no funding is available, we may be forced to abandon our operations.




The legal title to our mining claims may be challenged. We are not insured against any such challenges, impairments or defects to our mining claims.




Our mining claims are primarily unpatented lode mining claims located on federal lands owned by the United States government and maintained in accordance with the federal General Mining Law. Unpatented lode mining claims are unique property interests and are generally considered to be subject to greater title risk than other real property interests because the validity of unpatented mining claims is often uncertain. This uncertainty arises, in part, out of the complex federal and state laws and regulations with which the owner of an unpatented mining claim must comply in order to locate and maintain a valid claim. If we discover real earth elements mineralization that is close to the claim boundaries, it is possible that some or all of the mineralization may occur outside the boundaries of our claims. In such a case, we would not have the right to extract those elements and the associated minerals. The uncertainty resulting from not having title opinions for all of our mining claims or having detailed claim surveys with respect to all of our mining claims leaves us exposed to potential title defects. Defending challenges to our mining claims would be costly, and may divert funds that could otherwise be used for exploration activities and other business purposes.




In addition, unpatented lode mining claims are always subject to possible challenges by third parties or contests by the federal government, which, if successful, may prevent us from exploiting any discovery of commercially extractable rare earths. Challenges to our title may increase our costs of operation or limit our ability to explore on certain portions of our property. We are not insured against challenges, impairments or defects to our property title.




The success of our business will depend, in part, on the establishment of new uses and markets for rare earth elements.




The success of our business will depend, in part, on the establishment of new markets for certain rare earth elements that may be in low demand. The success of our business depends on creating new markets and successfully commercializing rare earth elements in existing and emerging markets. Any unexpected costs or delays in the exploration and development of our mining claims could have a material adverse effect on our financial condition or results of operations.




We have limited insurance coverage and may incur losses in excess of any claims which we are obligated to pay.




We have limited director and officer insurance and commercial insurance policies. Any significant claims against us from operations, stockholder litigation or other disputes in excess of our insurance coverage would have a material adverse effect on our business, financial condition and results of operations.




Our officers and directors have had limited personal visits to our projects.




In November 2011, Kevin Cassidy, our Chief Executive Officer and director made a three-day site visit, together with certain other former officers and directors, to the Diamond Creek Project. In addition, in July 2013, Mr. Cassidy and Mr. Lattimore, our Chairman and significant shareholder, made a three-day site visit to the Last Chance, North Fork and Lemhi Pass Projects. Accordingly, not all of our projects have been the subject of a site visit by our officers and directors. Only a small number of our officers and directors have made site visits and due to the number of our claims, even if a particular project was visited in the past, it was not possible to cover every single claim within the project. Accordingly, there is a risk that we have not properly evaluated the potential benefit of our claims and our ability to properly assess all factors which may impact our exploration plans.




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If we are unable to hire qualified personnel, our business and financial condition may suffer.




Although we do not know that any key employee has plans to retire or leave our company, our success and achievement of our growth plans depend on our ability to recruit, hire, train and retain other highly qualified technical and managerial personnel. In this regard, we have limited resources and as such we may not be able to provide an employee with the same amount of compensation that he or she would likely receive at a larger company and, as a result, we may face difficulty in finding qualified employees. The inability to attract, retain and motivate any additional highly skilled employees required for the expansion of our activities, could have a materially adverse effect on our ability to conduct our business and as such can impair our operations.




We may encounter difficulties in managing our growth and expanding our operations successfully.




As we seek to advance our exploration activities, we will need to expand our internal capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners and other third parties. Future growth will impose significant added responsibilities on members of management. Our future financial performance and our ability to commercialize our rare earth elements claims and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our exploration and commercialization efforts effectively and hire, train and integrate additional management, administrative and technical personnel. The hiring, training and integration of new employees may be more difficult, costly and/or time-consuming for us because we have less resources than a larger organization. We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from successfully growing.




Risks Related to Our Industry




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




Because our primary source of revenue is the sale of rare earth minerals and products, changes in demand for, and the market price of, rare earth minerals and products could significantly affect our profitability. The value and price of our stock and our financial results may be adversely affected by declines in the prices of rare earth minerals and products. Rare earth minerals and product prices 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. According to the Congressional Research Report on Rare Earth Elements dated December 16, 2013, prices of rare earth elements rose rapidly in 2010 and 2011 but declined in the first half of 2012 and declined further by the second quarter in 2013.




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, as well as real or perceived disruptions in the supply of rare earth minerals, 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. We believe this occurred recently, when rising prices in 2011 and the first half of 2012 prompted such industrial substitution. For example, automobile manufacturers have recently announced plans to develop motors for electric and hybrid cars that do not require rare earth metals due to concerns about the available supply of rare earths. If the automobile industry or other industries reduce their reliance on rare earth products, the resulting change in demand could have a material adverse effect on our business.




Conditions in the rare earth industry have been, and may continue to be, extremely volatile, which could have a material impact on our company.




Conditions in the rare earth elements industry have been extremely volatile, and prices, as well as supply and demand, have been significantly impacted by a number of factors, principally changes in economic conditions and demand for rare earth materials and changes, or perceived changes, in Chinese quotas for export of rare earth elements. If conditions in our industry remain volatile, our stock price may continue to exhibit volatility as well. In particular, if prices or demand for rare earths were to decline, our stock price would likely decline and our ability to find purchasers for our products at prices acceptable to us could be impaired.




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The potential for profitability of our operations, the value of our mining claims and our ability to raise funding to conduct continued exploration and development, if warranted, are directly related to the market price of rare earth elements. Any future decision to put a mine into production and to commit the funds necessary for that purpose must be made long before the first revenue from production would be received. A decrease in the price of rare earth elements may prevent our mining claims from being economically mined or result in the write-off of assets whose value is impaired as a result of lower rare earth element prices. The volatility of mineral prices represents a substantial risk, which no amount of planning or technical expertise can fully eliminate. In the event that rare earth element prices decline or remain low for prolonged periods of time, we might be unable to develop our properties, which may adversely affect our results of operations, financial performance and cash flows.




Because of the inherent dangers involved in mineral exploration, there is a risk that we may incur liability or damages as we conduct our business.




The search for economically viable amounts of rare earth elements and other minerals involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. Certain risks remains regarding any undisclosed or unknown liabilities associated with the assets may remain with respect to the assets acquired by us in connection with the merger transactions with Seaglass Holding Corp. and U.S. Rare Earths, Inc., a Delaware corporation. The payment of any claims with respect to such assets may have a material adverse effect on our financial position.




Weather and location challenges may restrict and delay our work on our properties.




Snow or rain or other inclement weather could restrict and delay work on the properties to a significant degree. Our properties are located in relatively remote locations, which create additional transportation and energy costs and challenges.




Market forces or unforeseen developments may prevent us from obtaining the supplies and equipment necessary to explore for rare earth elements.




Mineral exploration, in general, is a very competitive business. Competitive demands for contractors and unforeseen shortages of supplies and/or equipment could result in the disruption of our planned exploration activities. Current demand for exploration drilling services, equipment and supplies is robust and could result in suitable equipment and skilled manpower being unavailable at scheduled times for our exploration program. Fuel prices are extremely volatile as well. We will attempt to locate suitable equipment, materials, manpower and fuel if sufficient funds are available. If we cannot find the equipment and supplies needed for our various exploration programs, we may have to suspend some or all of them until equipment, supplies, funds and/or skilled manpower become available. Any such disruption in our activities may adversely affect our exploration activities and financial condition.




As we face intense competition in the rare earth elements industry, we will have to compete with our competitors for financing and for qualified managerial and technical employees.




We compete with other exploration and mining companies for the exploration and commercialization of a limited number of exploration rights. Our competitors may have greater financial resources, as well as other strategic advantages to maintain, improve and possibly expand their facilities. Additionally, the Chinese producers have historically been able to produce at relatively low costs due to domestic economic factors. As a result of this competition, we may be unable to acquire additional attractive mining claims or financing on terms we consider acceptable. We also compete with other mining companies in the recruitment and retention of qualified managerial and technical employees. If we are unable to successfully compete for financing or for qualified employees, our exploration and development programs may be slowed down or suspended.




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Risks Related to Regulation




Our business is subject to extensive environmental regulations that may make exploring, mining or related activities prohibitively expensive, and which may change at any time.




All of our operations are subject to extensive environmental regulations that can substantially delay exploration and make exploration expensive or prohibit it altogether. We may be subject to potential liabilities associated with the pollution of the environment and the disposal of waste products that may occur as the result of exploring and other related activities on our properties. We may have to pay to remedy environmental pollution, which may reduce the amount of money that we have available to use for exploration or other activities, and adversely affect our financial position. If we are unable to fully remedy an environmental problem, we might be required to suspend operations or to enter into interim compliance measures pending the completion of the required remedy. If a decision is made to mine on properties on which we have mining claims and we retain any operational responsibility for doing so, our potential exposure for remediation may be significant, and this may have a material adverse effect upon our business and financial position. We have not purchased insurance for potential environmental risks (including potential liability for pollution or other hazards associated with the disposal of waste products from our exploration activities) and such insurance may not be available to us on reasonable terms or at a reasonable price.




All of our exploration activities may be subject to regulation under one or more local, state and federal environmental impact analyses and public review processes. It is possible that future changes in applicable laws, regulations and permits or changes in their enforcement or regulatory interpretation could have significant impact on some portion of our business, which may require our business to be economically re-evaluated from time to time. These risks include, but are not limited to, the risk that regulatory authorities may increase bonding requirements beyond our financial capability. Inasmuch as posting of bonding in accordance with regulatory determinations is a condition to the right to operate under all material operating permits, increases in bonding requirements could prevent operations even if we are in full compliance with all substantive environmental laws. We may be required to post a substantial bond under various laws relating to mining and the environment and may in the future be required to post a larger bond to pursue additional activities. For example, we must provide BLM additional financial assurance (reclamation bonds) to guarantee reclamation of any new surface disturbance required for drill roads, drill sites, or mine expansion. We have a total of approximately $25,000 deposited with government agencies to insure work against reclamation of our 2013 and 2014 exploration activities.




The government licenses and permits which we need to explore our mining claims may take too long to acquire or cost too much to enable us to proceed with exploration. In the event that we conclude that rare earth element deposits located on our claims can be profitably mined, or discover other commercially exploitable deposits, we may face substantial delays and costs associated with securing the additional government licenses and permits that could preclude our ability to develop the mine.




Exploration activities usually require the granting of permits from various governmental agencies. We currently hold approved plans of operation and permits needed for certain exploration and related reclamation activities. These include a Montana State exploration license, an approved plan of operations to conduct drilling for the North Fork Project, an approved plan of operations for continued reclamation for the Last Chance Project, and an approved notice of intent for continued reclamation for the Powderhorn Project. Collectively, these permits allow us to continue drilling on the North Fork Project in accordance with the plan of operations through the end of 2014, conduct reclamation on the Last Chance Project through November 2016 and Powderhorn Project through August 2016, conduct non-mechanized exploration on the Last Chance and Sheep Creek Projects through May 2015 and non-mechanized exploration on the North Fork, Lemhi Pass and Diamond Creek Projects which are not time-limited. We have submitted for approval a new plan of operations to expand exploration on the Last Chance Project for 2014 and 2015. As we prioritize exploration goals and obtain funding, we intend to submit further plans of operation to initiate drilling programs on our properties. To the extent that we do not presently hold an approved plan or operation or permit for future exploration, we intend to obtain such approvals on an as-needed basis.




Depending on the size, location and scope of the exploration program, additional permits may also be required before exploration activities can be undertaken. Prehistoric or Native American graves, threatened or endangered species, archeological sites or the possibility thereof, difficult access, excessive dust and important nearby water resources may all result in the need for additional permits before exploration activities can commence. As with all permitting processes, there is substantial uncertainty about when and if the permits will be issued. There is the risk that unexpected delays and excessive costs may be experienced in obtaining required permits. The needed permits may not be granted, could be challenged by third parties that could result in protracted litigation that could cause substantial delays, or may be granted in an unacceptable timeframe or cost too much. Additionally, proposed mineral exploration and mining projects can become controversial and be opposed by nearby landowners and communities, which can substantially delay and interfere with the permitting process. Delays in or inability to obtain necessary permits would result in unanticipated costs, which may result in serious adverse effects upon our business.




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Land reclamation requirements with respect to the properties on which our mining claims are located may be burdensome and expensive.




We are currently subject to land reclamation requirements with respect to our exploration activities and will be subject to far more extensive and burdensome reclamation requirements if we are successful with proceeding with our planned mining activities. Typically, mine reclamation plans require permanent controls of potentially deleterious effluents, treatment of ground and surface water to drinking water standards and reestablishment of pre-disturbance land forms and vegetation. It is conceivable that reclamation requirements imposed in mine permits could be sufficiently burdensome to preclude profitable operation.




Future changes in existing laws or the creation of new laws could significantly add to the cost of conducting our business or prevent us from doing so altogether.




Members of the U.S. Congress have in the past introduced bills which would supplant or alter the provisions of the Mining Law of 1872. If enacted, such legislation could change the cost of holding unpatented mining claims and could significantly impact our ability to develop mineralized material on our claims. Such bills have proposed, among other things, to either eliminate or greatly limit the right to a mineral patent and to impose a federal royalty on production from unpatented mining claims. Passage of such a bill could have a dramatic negative effect on our ability to operate or could prevent it altogether.




Similarly, there have been several efforts in the federal legislature to introduce and pass enhanced regulation focused upon climate changes and other environmentally focused issues. While we are unable to predict the course of future environmental regulation, it seems certain to become more stringent and this will affect our ability to operate profitably.




Risks Related to Our Common Stock




Our executive officers and directors maintain significant influence over matters submitted to stockholders for approval.




As of February 27, 2015, our executive officers and directors, in the aggregate, beneficially own shares representing approximately 42% of our common stock. Beneficial ownership includes shares over which an individual or entity has investment or voting power and includes shares that could be issued upon the exercise of options and warrants within 60 days after the date of determination. As a result, if these persons were to choose to act together, they would be able to significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these persons, if they choose to act together, could significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of us on terms that other stockholders may desire.




There is currently a very limited trading market for our common stock, and we cannot ensure that one will ever develop or be sustained.




Our shares of common stock are very thinly traded. Only a small percentage of our common stock is available to be traded and is held by a small number of holders. As a result, the price, if traded, may not reflect our actual or perceived value. There can be no assurance that there will be an active market for our common stock either now or in the future. The market liquidity of our common stock will be dependent on the perception of our operating business, among other things. We may, in the future, take certain steps, including utilizing investor awareness campaigns, press releases, road shows and conferences to increase awareness of our business, and any steps that we might take to bring us to the awareness of investors may require that we compensate consultants with cash and/or stock. There can be no assurance that there will be any awareness generated or that the results of any efforts will result in any impact on our trading volume. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business, and trading may be at an inflated price relative to the performance of our company due to, among other things, availability of sellers of our shares. If a market should develop, the price may be highly volatile. Because there may be a low price for our common stock, many brokerage firms or clearing firms may not be willing to effect transactions in the securities or accept our shares for deposit in an account. Even if an investor finds a broker willing to effect a transaction in the shares of our common stock, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of low priced shares of common stock as collateral for any loans.




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We may be unable to list on The NASDAQ Capital Market or on any other securities exchange.




Trading in our common stock continues to be conducted on the OTCQB in the over-the-counter market, and our common stock currently does not meet all of the requirements for initial listing on a registered stock exchange. In addition, none of our warrants are currently listed or trading on any market or trading venue. Although we have been approved for listing on The NASDAQ Capital Market, we cannot assure you that we will be able to meet the initial listing standards, including the minimum bid price per share and minimum capitalization requirements, or that we will be able to maintain a listing of our common stock or our warrants on either of those markets or any other trading venue. Until such time as we are listed on The NASDAQ Capital Market or another trading venue, our common stock will continue to be quoted on the OTCQB and our warrants will not be listed or traded on any market or trading venue.




The price of our common stock is volatile, which may cause investment losses for our stockholders.




The market for our common stock is highly volatile, having ranged from a low of $2.16 to a high of $8.55 on the OTCQB during the 12-month period ended February 27, 2015. The trading price of our common stock on the OTCQB is subject to wide fluctuations in response to, among other things, quarterly variations in operating and financial results, and general economic and market conditions. In addition, statements or changes in opinions, ratings, or earnings estimates made by brokerage firms or industry analysts relating to our market or relating to us could result in an immediate and adverse effect on the market price of our common stock. The highly volatile nature of our common stock price may cause investment losses for our stockholders. In the past, securities class action litigation has often been brought against companies following periods of volatility in the market price of their securities. If securities class action litigation is brought against us, such litigation could result in substantial costs while diverting management's attention and resources.




Shares eligible for future sale may adversely affect the market.




From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended, or the Securities Act, subject to certain limitations. In general, pursuant to amended Rule 144, non-affiliate stockholders may sell freely after six months subject only to the current public information requirement. Affiliates may sell after six months subject to the Rule 144 volume, manner of sale (for equity securities), current public information, and notice requirements. Any substantial sales of our common stock pursuant to Rule 144 may have a material adverse effect on the market price of our common stock.




If our common stock remains subject to the SEC's penny stock rules, broker-dealers may experience difficulty in completing customer transactions and trading activity in our securities may be adversely affected.




Unless our securities are listed on a national securities exchange, or we have net tangible assets of $5,000,000 or more and our common stock has a market price per share of $5.00 or more, transactions in our common stock will be subject to the SEC's "penny stock" rules. If our common stock remains subject to the "penny stock" rules promulgated under the Securities Exchange Act of 1934, or the Exchange Act, broker-dealers may find it difficult to effectuate customer transactions and trading activity in our securities may be adversely affected.




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Under these rules, broker-dealers who recommend such securities to persons other than institutional accredited investors must:




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make a special written suitability determination for the purchaser;





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receive the purchaser's written agreement to the transaction prior to sale;




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provide the purchaser with risk disclosure documents, which identify certain risks associated with investing in "penny stocks" and which describe the market for these "penny stocks", as well as a purchaser's legal remedies; and




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obtain a signed and dated acknowledgment from the purchaser demonstrating that the purchaser has actually received the required risk disclosure document before a transaction in a "penny stock" can be completed.




As a result, if our common stock becomes or remains subject to the penny stock rules, the market price of our securities may be depressed, and you may find it more difficult to sell our securities.




Financial Industry Regulatory Authority, Inc., or FINRA, sales practice requirements may limit a shareholder's ability to buy and sell our common stock.




In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.




Our common stock could be further diluted as the result of the issuance of additional shares of common stock, convertible securities, warrants or options.




In the past, we have issued common stock, convertible securities (such as convertible debentures) and warrants in order to raise money. We have also issued stock and warrants as compensation for services and incentive compensation for our employees and directors. We have shares of our common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future. Our issuance of additional shares of our common stock, convertible securities, options and warrants could affect the rights of our stockholders, could reduce the market price of our common stock or could result in adjustments to exercise prices of outstanding warrants (resulting in these securities becoming exercisable for, as the case may be, a greater number of shares of our common stock), or could obligate us to issue additional shares of common stock to certain of our stockholders.




Our articles of incorporation allow for our board to create new series of preferred stock without further approval by our stockholders, which could adversely affect the rights of the holders of our common stock.




Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock. In addition, our board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to our existing stockholders.




72





We do not anticipate paying any cash dividends on our capital stock in the foreseeable future.




We have never declared or paid cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business, and we do not anticipate paying any cash dividends on our capital stock in the foreseeable future. In addition, the terms of any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.




Risks Related to the Reverse Split




On December 16, 2014, we effected a l-for-3 reverse stock split of our outstanding common stock in order to meet the minimum bid price requirement of The NASDAQ Capital Market. There can be no assurance that we will be able to comply with the minimum bid price requirement of The NASDAQ Capital Market, in which case this offering may not be completed.




The reverse stock split of our outstanding common stock is intended to increase the market price of our common stock to exceed the minimum bid price requirement of The NASDAQ Capital Market. However, the effect of a reverse stock split upon the market price of our common stock cannot be predicted with certainty, and the results of reverse stock splits by companies in similar circumstances have been varied. There can be no assurance that the market price of our common stock following the reverse stock split will remain at the level required for listing. It is not uncommon for the market price of a company's common stock to decline in the period following a reverse stock split. If the market price of our common stock declines following the reverse stock split, the percentage decline may be greater than would occur in the absence of a reverse stock split. In any event, other factors unrelated to the number of shares of our common stock outstanding, such as negative financial or operational results, could adversely affect the market price of our common stock and jeopardize our ability to meet or maintain The NASDAQ Capital Market's minimum bid price requirement. In addition to specific listing and maintenance standards, The NASDAQ Capital Market has broad discretionary authority over the initial and continued listing of securities, which it could exercise with respect to the listing of our common stock.




Even if we are listed on The NASDAQ Capital Market, there can be no assurance that we will be able to comply with continued listing standards of The NASDAQ Capital Market.




Even if we sustain a market price of our common stock sufficient to obtain an initial listing on the NASDAQ Capital Market, we cannot assure you that we will be able to continue to comply with the minimum bid price and the other standards that we are required to meet in order to maintain a listing of our common stock on The NASDAQ Capital Market. Our failure to continue to meet these requirements may result in our common stock being delisted from The NASDAQ Capital Market.




The reverse stock split may decrease the liquidity of the shares of our common stock.




The liquidity of the shares of our common stock may be affected adversely by the reverse stock split given the reduced number of shares that are outstanding following the reverse stock split, especially if the market price of our common stock does not increase as a result of the reverse stock split. In addition, the reverse stock split increased the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their shares and greater difficulty effecting such sales.




Following the reverse stock split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.




Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a share price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors. As a result, the trading liquidity of our common stock may not necessarily improve.




73




ITEM 1B. UNRESOLVED STAFF COMMENTS





Not applicable.





ITEM 3. LEGAL PROCEEDINGS




Except as described below, we are currently not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding, that is not ordinary routine litigation incidental to our business or otherwise material to the financial condition of our business.




On September 15, 2014, we entered into an agreement with Daniel McGroarty, our former President, to, among other things, repurchase 16,667 shares of our common stock by September 22, 2014 at $3.30 per share and 50,000 shares of our common stock by October 15, 2014 at $3.30 per share and were granted an option to repurchase 133,334 shares of our common stock at $3.30 per share on or before January 1, 2015. As of February 27, 2015, we had not repurchased these shares and the balance of $220,000 is currently due and payable. On December 29, 2014, we were served with a AAA demand for arbitration by Mr. McGroarty, which alleged breach of contract. Mr. McGroarty is seeking specific performance, compensatory damages of $930,000 and reasonable attorneys' fees and costs. On January 14, 2015, we submitted our answering statement denying the allegation of Mr. McGroarty and on January 15, 2015, we submitted a counterclaim for breach of contract and seek rescission and damages in an amount over $500,000. We intend to defend ourselves vigorously in this action.




ITEM 4. MINE SAFETY DISCLOSURE





Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection, 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 from the Federal Mine Safety and Health Administration, or MSHA, under the Federal Mine Safety and Health Act of 1977, or the Mine Act. During the year ended December 31, 2013, we did not have any projects that were in production and as such, were not subject to regulation by MSHA under the Mine Act.




74








PART II





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




Common Stock




Our common stock is currently quoted on the OTCQB under the symbol "UREE". On December 16, 2014, we effected a 1-for-3 reverse stock split of our common stock. Our common stock and our warrants being sold in this offering have been approved for listing on The NASDAQ Capital Market under the symbols "UREE" and "UREEW", respectively. The following table sets forth the range of the high and low sale prices of the common stock for the periods indicated. The quotations reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.




Consequently, the information provided below may not be indicative of our common stock price under different conditions.




High


LowYear Ending December 31, 2014Fourth Quarter

$
5.25


$
2.16Third Quarter

$
5.70


$
3.75Second Quarter

$
7.95


$
4.86First Quarter

$
9.00


$
6.63Year Ended December 31, 2013Fourth Quarter

$
9.60


$
5.25Third Quarter

$
13.05


$
5.28Second Quarter

$
6.78


$
4.50First Quarter

$
9.00


$
3.45Year Ended December 31, 2012Fourth Quarter

$
11.22


$
1.62Third Quarter

$
8.10


$
0.33Second Quarter

$
10.50


$
3.45First Quarter

$
15.00


$
7.50




The above share prices have been adjusted to give effect to the 1-for-3 reverse stock split effected on December 16, 2014.




Holders





As of February 27, 2015 there were 11,327,050 shares of common stock outstanding held by approximately 113 stockholders of record. This number does not include beneficial owners whose shares are held in the names of various security brokers, dealers, and registered clearing agencies.





Dividend Policy





We have never paid any cash dividends and intend, for the foreseeable future, to retain any future earnings for the development of our business. Our future dividend policy will be determined by the board of directors on the basis of various factors, including our results of operations, financial condition, capital requirements and investment opportunities.





Recent Sales of Unregistered Securities





Except as set forth in our Quarterly Report for the period ended September 30, 2014 filed with the SEC on November 4, 2014, during the three months ended December 31, 2014, we made the following sales of unregistered equity securities:




During December 2014, we issued 103,334 shares of our common for $310,000 to accredited investors. The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof. The investors represented that they were accredited investors, were acquiring the securities for their own account for investment purposes only and not with a view to resale or distribution to others and that they could bear the risks of the investment. The sale of the foregoing securities was made without any form of general solicitation or advertising and all of the foregoing securities are deemed restricted securities for purposes of the Securities Act.




75




During December 2014, we also re-issued 301,334 shares of our common stock to shareholders from whom we previously repurchased such shares but had not paid the repurchase price for such shares. In exchange for the re-issuance, an aggregate of $904,000 that was current and due for such repurchase was extinguished. The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act since, among other things, the transactions did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof. The investors represented that they were acquiring the securities for their own account for investment purposes only and not with a view to resale or distribution to others. The sale of the foregoing securities was made without any form of general solicitation or advertising and all of the foregoing securities are deemed restricted securities for purposes of the Securities Act.




ITEM 6. SELECTED FINANCIAL DATA





Not applicable.





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





The following discussion and analysis should be read together with our financial statements and the related notes appearing elsewhere in this Annual Report on Form 10-K/A. This discussion contains forward-looking statements reflecting our current expectations that involve risks and uncertainties. See “Cautionary Note Regarding Forward-Looking Statements and Other Information” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under “Risk Factors” and elsewhere in this Annual Report on Form 10-K/A. The share and per share numbers in the following discussion reflect a 1-for-3 reverse stock split that we effected on December 16, 2014.




Overview




We are a rare earth elements exploration company seeking to identify and ultimately mine commercially-viable sources of domestic rare earth elements.




Currently, our operations are exploratory in nature. We hold approximately 1,250 unpatented lode mining claims that cover approximately 22,000 acres of land in Idaho, Montana and Colorado. In Idaho and Montana, our claims are located in the Lemhi Pass mineral trend in Lemhi County, Idaho, and Beaverhead and Ravalli Counties, Montana. These claims are grouped into projects that include the Last Chance and Sheep Creek Projects in Montana and the North Fork, Lemhi Pass and Diamond Creek Projects in Idaho. In Colorado, the claims include the Powderhorn Project in Gunnison County, and Wet Mountain Project in Fremont County. We are not producing rare earth elements from any of our claims and further exploration will be required in order to evaluate and identify the commercial viability of producing rare earth elements from any of our claims. As a result, we have no probable or proved reserves of rare earth elements.




We currently do not have any producing properties and further exploration will be required before a final evaluation as to the economic and practical feasibility of any of our mining claims is determined. As a result, we are considered an exploration stage company under SEC criteria because it has not demonstrated the existence of proven or probable reserves at our properties. Accordingly, as required under SEC guidelines and U.S. GAAP for companies in the exploration stage, all of our investment in mining properties to date has been expensed as incurred and therefore does not appear as assets on our balance sheet. We expect exploration expenditures will continue during 2014 and subsequent years provided that sufficient working capital is available from financing sources. We expect to remain an exploration stage company for the foreseeable future. We will not exit the exploration stage until such time as we demonstrate the existence of proven or probable reserves that meet SEC guidelines. In addition, unless rare earth elements mineralized material is classified as proven or probable reserves, all expenditures for exploration and development will continue to be expensed as incurred.




76




Our principal source of liquidity for the next several years will be the continued raising of capital through the issuance of equity or debt securities. We plan to raise funds for each step of our projects and as each step is successfully completed, raise the capital for the next phase. We believe this approach will reduce the cost of capital as compared to trying to raise all the capital for our anticipated funding needs at once. However, since our ability to raise additional capital will be affected by many factors, most of which are not within our control (see "Risk Factors"), no assurance can be given that we will in fact be able to raise the additional capital as is needed.




Discontinuation of Media Business Operations




On January 11, 2014, we entered into a binding letter of intent to sell the common stock of Media Depot, Inc., our now former media business subsidiary, and certain of our related media assets to Michael D. Parnell, our former chief executive officer and director. On May 12, 2014, we completed the sale of the media business to an affiliate of Mr. Parnell effective January 1, 2014. As a result, the media business has been treated for accounting purposes as "discontinued operations". We do not believe there is any effect on income taxes from the classification of the media business as a discontinued operation as a result of ongoing operating losses, the uncertainty of future profitability and limitations on the utilization of net operating loss carry-forwards.




77




Year Ended December 31, 2014 Compared to the Year Ended December 31, 2013





The following table presents certain consolidated statement of operations information and presentation of that data as a percentage of change from year-to-year.




Years Ended December 31,2014


2013


$ Variance


% VarianceRevenues

$
-


$
-


$
-



0
%Cost of revenues


-



-



-



0
%Gross margin


-



-



-



0
%Operating expenses:Selling, general and administrative expenses


6,158,253



2,947,311



3,210,942



-109
%Exploration expense


936,161



1,811,569



(875,408
)


48
%Impairment Expense


-



326,000



(326,000
)


100
%Total operating expenses


7,094,414



5,084,880



2,009,534



-40
%(Loss) from operations


(7,094,414
)


(5,084,880
)


(2,009,534
)


-40
%Other income (expense):Interest expense


(34,407
)


(19,190
)


(15,217
)


-79
%Loss on debt settlement


-



(1,282,650
)


1,282,650



100
%Loss on derivative liability option


-



(429,000
)


429,000



100
%Loss on legal settlement


(367,000
)


(10,923,600
)


10,556,600



97
%Other expense


-



(40,000
)


40,000



100
%Total other (expense)


(401,407
)


(12,694,440
)


12,293,033



97
%(Loss) before income taxes


(7,495,821
)


(17,779,320
)


10,283,499



58
%Income tax expense


-



-



-



0
%(Loss) from continuing operations


(7,495,821
)


(17,779,320
)


10,283,499



58
%Income (loss) from discontinued operations


1,230



(57,942
)


59,172



102
%Net loss

$
(7,494,591
)

$
(17,837,262
)

$
10,342,671



58
%






78




Operating Expenses




Selling, general and administrative expenses




Selling, general and administrative expenses for the year ended December 31, 2014 and 2013 consisted primarily of expenses related to employees and independent contractors, equity awards, rent, audit, overhead, amortization and depreciation, professional and consulting fees, sales and marketing costs, investor relations, legal, and other general and administrative costs. Selling, general and administrative expenses for the year ended December 31, 2014 increased $3,210,942 to $6,158,253 as compared to $2,947,311 for the year ended December 31, 2013. The change related primarily to increased stock-based compensation expense of $3,650,022 offset by decreased consulting expense of $343,280. Other changes in selling, general and administrative expenses netted to a decrease of $95,800. While we expect stock-based compensation to decrease during 2015, we expect other selling, general and administrative expenses to increase in a manner commensurate with our expansion of exploration activities. However, due to the variable nature of many of the selling, general and administrative expenses, we cannot accurately predict selling, general and administrative expenses on a quarter-to-quarter basis.




Exploration expenses




For the year ended December 31, 2014, exploration expenses consisted primarily of payments to our independent geologist and an allocation of indirect exploration costs incurred for certain management consulting. Exploration expenses for the year ended December 31, 2013 consisted primarily of payments to our independent geologist, geoanalysis, claim permit expenses, staking of claims in the North Fork Project in Idaho and the Last Chance Project in Montana, and an allocation of indirect exploration costs incurred for certain management consulting, legal and other expenses. Exploration expenses for the year ended December 31, 2014 decreased $875,408 to $936,161 as compared to $1,811,569 for the year ended December 31, 2013. The decrease is primarily attributable to decreases in drilling and exploration activities.




Impairment expenses




We did not record any impairment expense during the year ended December 31, 2014. During the year ended December 31, 2013, we recorded an impairment expense of $326,000 related to the Colorado mining claims acquired in the 2010 merger with Seaglass Holdings Corp.




Other Expenses




Interest expense for the year ended December 31, 2014 is related primarily to interest incurred for payroll taxes owed to the IRS, the financing of our directors' and officers' insurance and third party consulting services. Interest expense for the year ended December 31, 2013 consisted primarily of interest on note payable-related party and convertible debentures-related party. Interest expense for the year ended December 31, 2014 increased $15,217 to $34,407 as compared to $19,190 for the year ended December 31, 2013. The increase is primarily attributable to the interest incurred for payroll taxes owed to the IRS for 2011 and 2012.




In addition, during the year ended December 31, 2014, we incurred other expense of $367,000 related to loss on legal settlement, offset by gain on disposition of the media subsidiaries of $1,230. During the year ended December 31, 2013, we incurred losses on debt settlement, legal settlement, derivative liability, and stock option purchases of $1,282,650, $10,923,600, $429,000, and $40,000 respectively. During the year ended December 31, 2013, we also had loss from discontinued operations of $57,942.




On March 8, 2013, we entered into an Option Purchase Agreement with Lattimore Properties, pursuant to which we granted Lattimore Properties a three-year option to purchase up to 1,000,000 shares of our common stock for a purchase price of $75,000. The effectiveness of the option was conditioned on settlement of litigation pending in the District Court of Clark County, Nevada and the U.S. District Court for Utah. On June 5, 2013, the District Court of Clark County, Nevada approved the Settlement Agreement and General Release by and among the Company, on the one hand, and H. Deworth Williams, Edward F. Cowle, Geoff Williams, and Blue Cap Development Corp., on the other hand. We valued the option at $5.18 per share using Black Scholes methodology and expensed $5,103,600, net of the $75,000 paid by Lattimore Properties as loss on legal settlement during the year ended December 31, 2014.




Pursuant to the terms of the Settlement Agreement, we agreed to issue 1,000,000 shares of our common stock at a price of $3.00 per share to Kevin Cassidy, and certain affiliates as compensation for the consulting services. On October 7, 2013, we issued 1,000,000 shares of common stock to Kevin Cassidy, as payment in full for the accrued liability associated with the consulting services. We valued the 1,000,000 shares at the June 5, 2013 closing price of our common stock of $5.82 per share and expensed $5,820,000 as loss on legal settlement during the year ended December 31, 2013.




79




Net Loss




As a result of the decreases in exploration expense, impairment expense, loss on debt settlement, loss on legal settlement, loss on derivative liability options, loss on stock option purchases, and loss from discontinued operations, offset by increases in selling, general and administrative expense and interest expense, the net loss for the year ended December 31, 2014, was $7,494,591 as compared to a net loss of $17,837,262 for the year ended December 31, 2013.




Liquidity and Capital Resources




Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.




To date, we had no revenues from our rare earth elements properties. At December 31, 2014, we had cash of $142,540 and a working capital deficit of $3,045,999. At December 31, 2013, we had cash of $2,216,102 and a working capital deficit of $2,033,090. This decrease in cash was due primarily to repurchases of shares and operating losses during the year ended December 31, 2014. During the year ended December 31, 2014, we raised $1,902,500 through the sale of our common stock and warrants. During the year ended December 31, 2013, we raised $6,280,000 through the sale of our common stock, options and the issuance of notes. We expect the discontinuation of the media business to provide an immaterial improvement to our cash flow since our operating expenses exceeded revenues for each of the last two fiscal years.




The opinion of our independent registered public accounting firm on our audited financial statements as of and for the year ended December 31, 2014 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon raising capital from financing transactions. We expect to fund our planned operations for the next twelve months with the proceeds from this offering.




Operating Activities.




Net cash used in operating activities for year ended December 31, 2014 was $2,668,537. This amount was primarily related to a net loss of $7,494,591 and cash used by discontinued operations of $69,181 offset by $3,807,906 in non-cash expenses related to: (i) stock-based compensation and shares issued to directors and consultants for services of $3,779,522; and (ii) other non-cash expenses of $28,384, changes in operating assets and liabilities of $720,329, and increases in legal settlement liabilities of $367,000. Net cash used in operating activities for the year ended December 31, 2013, was $3,132,973. This amount was primarily related to a net loss of $17,837,262, offset by $14,680,099 in non-cash expenses related to (i) loss on legal settlement of $10,923,600; (ii) loss on debt settlement of $1,282,650; (iii) stock-based compensation of $1,698,128; (iv) impairment expense of $326,000; (v) loss on derivative of $429,000; and (vi) other non-cash expenses of $20,721.




Investing Activities.




Net cash used in investing activities for the year ended December 31, 2014 was $22,294, related to the purchase of fixed assets. Net cash used in investing activities for the year ended December 31, 2013 was $45,863, related to the purchase of fixed assets.




80




Financing Activities.




Net cash provided by financing activities for the year ended December 31, 2014 was $617,269. This amount was primarily related to: (i) proceeds from our sale of common stock and warrants of $1,902,500; and (ii) proceeds from short-term notes payable of $190,251. This was offset by: (i) cash paid for common stock repurchases of $1,354,999, primarily pursuant to shares of common stock acquired during December 31, 2013; (ii) cash paid for repayment of short-term notes payable of $83,761; and (iii) cash paid for deferred financing costs of $36,722. Net cash provided by financing activities for the year ended December 31, 2013 was $5,227,999. This amount was related to (i) the sale of our common stock for $5,905,000, (ii) the proceeds from a note payable to a related party of $250,000, and (iii) proceeds from the sale of options of $125,000, which sum was offset by the repurchase of common stock for $1,052,001.




Our business plan calls for significant expenses in connection with the exploration of our prospects. To date, we have principally financed our operations through the sale of shares of our common stock and the issuance of debt. We do not currently have sufficient funds to conduct continued exploration on our claims and require additional financing in order to determine whether the claims contain economic rare earth elements mineralization. We will need additional financing if the costs of the exploration of the claims are greater than anticipated. We will also require additional financing to sustain our business operations if we are not successful in earning revenues once exploration is complete. Our recent efforts to generate additional liquidity, including through sales of our common stock and the issuance of secured convertible debentures, are described in more detail in the financial statement notes. Obtaining additional financing would be subject to a number of factors, including the market prices for rare earth elements, investor acceptance of our properties and general market conditions. These factors may make the timing, amount, terms or conditions of additional financing unavailable to us.




Financing transactions may include the issuance of equity or debt securities, obtaining credit facilities, or other financing mechanisms. However, we cannot assure you that additional financing will be available when needed on favorable terms, or at all. Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing, we may have to curtail our plans and possibly cease our operations.




If commercially viable rare earth element reserves are proven, additional capital will be needed to actually develop and mine those reserves. Even if such reserves are found, we will not be able to develop our mining operations should we be unable to obtain the necessary financing.




Our contractual cash obligations as of December 31, 2014 are summarized in the table below:




Less Than








Greater ThanContractual Cash Obligations

Total


1 Year


1-3 Years


3-5 Years


5 YearsOperating leases

$
81,442


$
43,595


$
37,847


$
-


$
-Capital lease obligations


-



-



-



-



-Payments under Stock Repurchase Option Agreements (1)


240,000



240,000



-



-



-$
321,442


$
283,595


$
37,847


$
-


$
-




(1) We entered into repurchase option agreements with existing stockholders, including Harvey Kaye, Edward Cowle, H. Deworth Williams, Daniel McGroarty, and an affiliate of Michael Parnell, under which we (i) acquired 33,334 shares of our common stock at $3.00 per share during September 2013, (ii) acquired 317,334 shares of our common stock at $3.00 per share during October 2013, and (iii) acquired 756,333 shares of our common stock at $3.00 per share during December 2013 with a portion of the payment in the amount of $1,344,999 made during the quarter ended March 31, 2014 and the balance of $924,000 then due and payable. On December 31, 2014, we re-issued 301,334 shares of common stock in exchange for the extinguishment of $904,000 of the $924,000 that was due and payable. In addition, we have agreed with Mr. McGroarty to repurchase 16,667 shares of our common stock by September 22, 2014 at $3.30 per share and 50,000 shares of our common stock by October 15, 2014 at $3.30 per share. As of February 27, 2015, we had not repurchased these shares and the balance of $220,000 is currently due and payable. See "Item 3 - Legal Proceedings". We intend to satisfy the remaining repurchase obligations of $240,000 from proceeds of future financings from time to time.




81




Off-Balance Sheet Arrangements




We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.




Critical Accounting Policies and Estimates




The application of GAAP involves the exercise of varying degrees of judgment. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies (see summary of significant accounting policies more fully described in Note 2 to the financial statements set forth in this report), the following policies involve a higher degree of judgment and/or complexity:




Cash and Cash Equivalents




We classify highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. We maintain cash balances at various financial institutions. Balances at U.S. banks are insured by the Federal Deposit Insurance Corporation up to $250,000. We have not experienced any losses in such accounts and believe we are exposed to any significant risk for cash on deposit. As of December 31, 2014, we had $0 deposited in uninsured cash accounts.




Deferred Financing Costs




Deferred financing costs consist of specific, incremental capitalized costs directly attributable to a proposed offering of securities.  In the event of a successful public offering, these deferred costs will be charged against the gross proceeds of the offering in additional paid-in capital.  In the event the offering is abandoned, any capitalized costs will be charged to expense in the period in which the offering is abandoned.




Property and Equipment




Equipment consists of machinery, furniture and fixtures and software, which are stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives or lease period of the relevant asset, generally five to seven years.




Mineral Properties




Costs of acquiring mineral properties are capitalized by project area upon purchase of the associated claims. Costs to maintain the mineral rights and leases are expensed as incurred. When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves.




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Long-Lived Assets




We review our long-lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets to be disposed of and assets not expected to provide any future service potential to us are recorded at the lower of carrying amount or fair value (less the projected cost associated with selling the asset). To the extent carrying values exceed fair values, an impairment loss is recognized in operating results.




Mineral Exploration and Development Costs




All exploration expenditures are expensed as incurred. Significant property acquisition payments for active exploration properties are capitalized. If no minable ore body is discovered, previously capitalized costs are expensed in the period the property is abandoned.




Should a property be abandoned, its capitalized costs are charged to operations. We charge to operations the allocable portion of capitalized costs attributable to properties sold. Capitalized costs are allocated to properties sold based on the proportion of claims sold to the claims remaining within the project area.




Value Measurements and Financial Instruments




ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity's own assumptions (unobservable inputs).




Recently Issued Accounting Pronouncements




A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to its consolidated financial statements.




In February 2013, the Financial Accounting Standards Board, or the FASB, issued Accounting Standards Update, or the ASU, 2013-04, Liabilities (Topic 405), which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation, as well as other information about those obligations. ASU 2013-04 is effective for fiscal years beginning after December 15, 2013, which is effective for our first quarter of fiscal year 2015. We do not believe the adoption of ASU 2013-04 will have a material effect on our consolidated financial statements.




In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. Under ASU 2014-08, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization's operations and financial results. Additionally, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. ASU 2014-08 is effective for fiscal and interim periods beginning on or after December 15, 2014. The impact of the adoption of this ASU on our results of operation, financial position, cash flows and disclosures will be based on our future disposal activity.




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In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, which is effective for our first quarter of fiscal year 2017. Currently, we are an Exploration Stage Company and do not have revenue or contracts with customers. Therefore, we do not believe the adoption of ASU 2013-09 will have a material effect on our consolidated financial statements. We will continue to assess any potential impact on our financial statements from the adoption of ASU 2014-09.




In June 2014, the FASB issued ASU No. 2014-10, which amended Accounting Standards Codification ("ASC") Topic 915 Development Stage Entities. The amendment eliminates certain financial reporting requirements surrounding development stage entities, including an amendment to the variable interest entities guidance in ASC Topic 810, Consolidation. The amendment removes the definition of a development stage entity from the ASC, thereby removing the financial reporting distinction between development stage entities and other entities from U.S. GAAP. Consequently, the amendment eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.




This amendment is effective for fiscal years beginning after December 15, 2014, and interim periods therein. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued. We have made the election to early adopt this amendment effective June 30, 2014 and, as a result, we are no longer presenting or disclosing the information previously required under Topic 915. The early adoption was made to reduce data maintenance by removing all incremental financial reporting requirements for development stage entities. The adoption of this amendment alters the disclosure requirements of the Company, but it does not have any material impact on our financial position or results of operations for the current or any prior reporting periods.




In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern (Topic 205), which provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. Specifically, in connection with the preparation of annual and interim financial statements, an entity's management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date the financial statements are issued, or within one year after the date that the financial statements are available to be issued, when applicable. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016, which is effective for our first quarter of fiscal year 2016. The opinion of our independent registered public accounting firm on our audited financial statements as of and for the year ended December 31, 2013 contains an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. We will continue to assess any potential impact on our financial statements from the adoption of ASU 2014-15.




In November 2014, the FASB issued ASU 2014-16, Determining whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity (Topic 815), which clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share.  Specifically, the amendments clarify that an entity should consider all relevant terms and features – including the embedded derivative feature being evaluated for bifurcation – in evaluating the host contract.  The amendments also clarify that the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument.  Finally, the amendments clarify that in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features when considering how to weight the terms and features.  ASU 2014-16 is effective for annual and interim reporting periods beginning after December 15, 2015, which is effective for our first quarter of fiscal year 2016.  Early adoption in interim and annual periods is permitted.  Currently we do not have such contracts or financial instruments. Therefore, we do not believe the adoption of ASU 2014-16 will have a material effect on our consolidated financial statements. We will continue to assess any potential impact on our financial statements from the adoption of ASU 2014-16.




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK





We have no investments in any market risk sensitive instruments either held for trading purposes or entered into for other than trading purposes.





ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Reference is made to our consolidated financial statements beginning on page F-1 of this Annual Report.





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





Not applicable.





ITEM 9A. CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.





As of December 31, 2014, our management conducted an evaluation under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Based on this evaluation, management concluded that our disclosure controls and procedures were not effective at December 31, 2014.




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Management’s Report on Internal Control Over Financial Reporting
 
 Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting is intended to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. Our internal control over financial reporting includes those policies and procedures that:
 
 ●
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
 
 ●
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts are being made only in accordance with authorizations of our management and directors; and
 
 ●
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
 As required by Section 404 of the Sarbanes-Oxley Act of 2002, management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.
 
 Based on our assessment and those criteria, management concluded that our internal controls over financial reporting were not effective as of December 31, 2014 and that we had material weaknesses in our internal control over financial reporting related to the lack of coordination of duties between executive officers and the need for stronger financial reporting oversight. A material weakness in a company’s internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of its financial statements will not be prevented or detected. Specifically, our material weaknesses include the fact that during the fiscal year 2014, our accounting function was comprised of only a controller and the CFO, and generally cash disbursements did not originate from within the accounting system, but were generally entered into the accounting system the following business day.  We do have an audit committee, however, the auditor was not present at each meeting.  During 2013, our accounting function was comprised only of our part-time chief financial officer, we did not have an audit committee and the executive management was changed. In addition, generally cash disbursements did not originate from within the accounting system, but were generally entered into the accounting system the following business day.  The lack of sufficient personnel for proper segregation of duties and the initiation of payments outside of the accounting system has resulted in our failure to establish the desired internal control over financial reporting and accounting.
 
 As a result of our material weaknesses, and in connection with the preliminary preparation of our audited financial statements for the fiscal year ended December 31, 2013, management determined that previously issued unaudited financial statements issued for the quarterly periods ended June 30, 2013 and September 30, 2013 contained errors which were non-cash in nature. Consequently we restated our unaudited financial statements for the quarterly periods ended June 30, 2013 and September 30, 2013 and filed with the SEC restated financial statements on March 28, 2014. A description of the items restated can be found in each of the Amended Form 10-Q for the three months ended June 30, 2013 and September 30, 2013.
 
 In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated the following series of measures: (1) we made a series of hires to bolster our accounting functions including the hiring of a Chief Administrative Officer in June 2013 to coordinate the segregation of duties and implement the command and control structure consistent with control objectives, the hiring of a controller in November 2013 with technical public accounting expertise and the hiring of a dedicated full-time CFO in April 2014 to oversee the accounting function, (2) in September 2013, we established an audit committee comprised of three independent directors, all of whom were newly elected to the board during 2013, with responsibility for overseeing, among other things, our internal controls, and in 2014 the audit committee began convening regular meetings and (3) during 2013, we migrated our accounting functions to a new computer system which became operational during 2014, (4) during 2014 we implemented daily cash reporting procedures and set up a legal review process for all contracts and corporate documents, and (5) during 2014 we implemented a monthly financial close process which includes a full review of all balances and financial statements by executive management. We intend to continue bolstering our accounting function and internal controls over financial reporting as financial resources permit. However, given limitations in financial and manpower resources, we may not have the resources to address fully the weaknesses in controls. No assurance can be made at this point that the implementation of such controls and procedures will be completed in a timely manner or that they will be adequate once implemented.
 
 This Annual Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm under rules of the SEC since we are classified as a “small reporting company” under such rules.


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Changes in Internal Controls
 
 Except as set forth below, there were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the three months ended December 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting:
 
 In the fourth quarter of 2014, we implemented a formal managerial review of all balances and financial statements by our officers.


ITEM 9B. OTHER INFORMATION





The following disclosure would have otherwise been filed on Form 8-K under the heading “Item 3.02 Unregistered Sales of Equity Securities”:
 
 During February 2015, we issued 25,000 shares of our common stock and a warrant to purchase 25,000 shares of our common stock exercisable at $5.00 per share expiring February 24, 2018, for $100,000 to an accredited investor. The securities above were offered and sold pursuant to an exemption from the registration requirements under Section 4(a)(2) of the Securities Act, as amended, or the Securities Act, since, among other things, the transaction did not involve a public offering and the securities were acquired for investment purposes only and not with a view to or for sale in connection with any distribution thereof. The investor represented that it was an accredited investor, was acquiring the securities for its own account for investment purposes only and not with a view to resale or distribution to others and that it could bear the risks of the investment. The sale of the foregoing securities was made without any form of general solicitation or advertising and all of the foregoing securities are deemed restricted securities for purposes of the Securities Act.




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PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE





Directors and Executive Officers





The following table sets forth certain information about our current directors and executive officers:





Name

Age

PositionKevin M. Cassidy

58

Director and Chief Executive OfficerJohn Victor Lattimore, Jr.

64

Chairman of the BoardMark Crandall*

56

Director and Chairman of Audit Committee (1)General (ret) Tommy Franks*

69

Director, and Chairman of Nominations and Governance Committee (2) (3)Reagan Horton*

39

Director (2) (3)Senator J. Robert Kerrey*

71

Director (1) (3)Carol Kondos*

64

Director and Chairman of the Compensation Committee (1) (2)Nancy Ah Chong

46

DirectorF. Scott Chrimes

60

Chief Financial Officer and Secretary


______________________


*           Independent director





(1) Member of the Audit Committee





(2) Member of the Compensation Committee





(3) Member of the Nominations and Governance Committee




Set forth below is certain biographical information regarding each of our current directors and executive officers.




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Kevin M. Cassidy was appointed Chief Executive Officer on March 8, 2013 and served as Acting Interim Chief Executive Officer from December 10, 2012 to March 7, 2013. In addition, since January 28, 2011, Mr. Cassidy has served as a member of our board of directors. Since 1995, Mr. Cassidy has served as Managing Member of Logic International Consulting Group, LLC, or Logic, a consulting firm founded by Mr. Cassidy that specializes in the development of global trading businesses and the creation of the requisite infrastructure, management and support paradigms of said platforms. Previously, Mr. Cassidy was a Founding Partner and Chief Operating Officer of Archeus Capital Management, LLC, a multi-strategy hedge fund that managed in excess of $3.0 billion in assets. Mr. Cassidy was responsible for optimizing the use of the firm's capital balance, which regularly exceeded $1 billion by deploying an effective treasury and cash management strategy at the firm. Mr. Cassidy previously served as the Chief Operating Officer for Bank Julius Baer (BJB), based in Zurich. BJB at that time was the largest privately held bank in Switzerland where he was a member of the BJB Management Committee and responsible for organizing and directing the re-branding of the BJB global trading platform, including both new product and business development. In addition, Mr. Cassidy developed the global FX Option Trading Business and Operating Support Paradigm for the bank. Prior to BJB, Mr. Cassidy was Managing Director of UBS, where he was the Global Head of Fixed Income Derivatives Support. He also served as the Global Head of the bank's Derivatives Infrastructure, including operations, finance, IT systems and legal. While at UBS, Mr. Cassidy was also President of UBS Securities Swaps Inc., the bank's U.S.-based derivatives platform and business center. Earlier in his career, Mr. Cassidy was Managing Director of Bear Sterns, where he was credited with the development of multiple new products, including Currency Exchange Warrants and Remarketed Preferred, and was also responsible for the new product planning and development group. Mr. Cassidy began his career at Merrill Lynch, where he rose to the position of Senior Section Manager in charge of New Product Planning and Development. In this position, he was credited with the development of the Remarketed Preferred Product and Trading Platform, and the development of the Short Term Put Securities Product and Global Trading Platform. Mr. Cassidy was appointed a member of our board of directors based on his significant experience and contacts in the banking industry.




John Victor Lattimore, Jr. was appointed Chairman of our board of directors on June 25, 2011 and has served on our compensation committee and nominations and governance committee from September 5, 2013 to April 8, 2014. Since 1996, Mr. Lattimore has served as President and Chairman of the Board of Lattimore Properties, Inc. or Lattimore Properties. Lattimore Properties is a privately owned Texas-based company with real estate holdings in Texas and Mexico and private investments in mining, pharmaceuticals and software development. From 1986 to 2011, he was President of Lattimore Materials Company, LP, or Lattimore Materials, one of the largest privately-owned concrete production and aggregate mining companies in the Southwest United States prior to its sale in March 2011 to Holcim (USA) Inc. Mr Lattimore is an advisory board member for General (ret) Tommy Franks Leadership Institute and Museum, a historical foundation dedicated to the United States military and education. He was a member of the Board of the Congressional Medal of Honor Foundation. He was also on the board of the National Center for Policy Analysis, a Dallas, Texas and Washington, D.C.-based public policy think tank. Mr. Lattimore was appointed a director based on his significant experience and contacts in the rare earth element industry.




Mark Crandall was appointed a member of our board of directors on June 26, 2013 and since September 5, 2013 serves as Chairman of our audit committee. Mr. Crandall co-founded Morgan Stanley's energy business in the early 1980s. In 1993, he became a founding partner in Trafigura, an energy trading company, which grew to $30 billion in sales and 1,000 employees in 58 offices worldwide. During his tenure with Trafigura, Mr. Crandall was responsible for electricity trading across Europe, which spurred his interest in renewable generation technologies and deepened his understanding of the fundamentals of the power markets in advanced economies. Later, Mr. Crandall started Continental Wind Power (CWP), an alternative energy power company, in 2005 by investing his own personal funds in broader emerging markets, including Polish and Romanian wind development, before eventually bringing in outside capital when CWP was officially formed in 2007. From 2008 to 2013, Mr. Crandall acted primarily as Chairman of CWP, while also pursuing some other private investment interests in energy and mining. Mr. Crandall attended Swarthmore College, where he was a candidate for a B.A. in the fall of 1980, Majoring in Comparative Religion with a Minor in Economics. Mr. Crandall was appointed our board of directors based on his experience in the energy field, particularly in Europe.




General (ret) Tommy Franks was appointed to our board of directors on August 26, 2013 and since September 5, 2013 serves as Chairman of our nominations and governance committee and member of our compensation committee. General (ret) Franks has operated Franks & Associates, LLC, a private consulting firm, since 2003. General (ret) Franks was promoted to 4 Star General and appointed as Commander-in-Chief, United States Central Command in July 2000. The world knows General (ret) Franks best following the culmination of an almost four-decade military career that saw him lead American and Coalition troops in two strategically unprecedented campaigns in two years as Commander of Operation Enduring Freedom in Afghanistan and Operation Iraqi Freedom in Iraq. The General's awards include five Distinguished Service Medals, four Legions of Merit, four Bronze Stars and three Purple Hearts in addition to numerous foreign awards. He was appointed Knight Commander of the Order of the British Empire (KBE) by order of Her Majesty Queen Elizabeth II on May 25, 2004. President George W. Bush awarded General (ret) Franks the Nation's highest civilian award, the Presidential Medal of Freedom, on December 14, 2004. General (ret) Franks attended the University of Texas, Arlington, where he graduated with a Bachelor's Degree in Business Administration, and Shippensburg University where he graduated with a Master's Degree in Public Administration. General (ret) Franks is also a graduate of the Armed Forces Staff College and the Army War College. General (ret) Franks has received honorary degrees from a number of universities including his alma mater, Shippensburg University, and his wife's alma mater, Oklahoma State University. General (ret) Franks serves on the boards of the University of Texas, Arlington and William Penn University. General (ret) Franks served on the board of CEC Entertainment, Inc. (NYSE: CEC) and previously served on the board of Bank of America (NYSE: BAC) and OSI Restaurant Partners, Inc. He is Co-Chair of the Flight 93 memorial foundation and serves as an Advisor to the Military Child Education Coalition, Operation Home Front Oklahoma, and the Southeastern Guide Dog Organization. General (ret) Franks was appointed to our board of directors based on his leadership experience and interest in making America self-sufficient in mining and processing rare earth elements.




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Reagan Horton was appointed to our board of directors on November 14, 2013 and has served as a member of our compensation committee and our nominations and governance committee since April 8, 2014. Since 2011, Mr. Horton has been President of R&R Riverview LLC, a commercial real estate company that owns properties in the Phoenix metropolitan area, and, since 2010, he has served as President of Double R Land Co. LLC, a company that purchases farm and ranch land in North Texas. Since 2004, Mr. Horton has served as President of RMDM Management, LLC, a private investment company. Since 1998, he has served as Vice President of Operations of Strawn Valley Ranch, a 15,000 acre farm and ranch operation, and as Vice President of Don and Marty Management Group, Inc., a private investment company. Since 1997, he has served as Vice President of Titan Investments, a private investment company. Mr. Horton received a Bachelor's of Business Administration from Southern Methodist University in 1997. Mr. Horton was appointed to our board of directors because of his investment experience.




Senator J. Robert Kerrey was appointed as a member of our board of directors on June 26, 2013 and has served as a member of our audit committee since September 5, 2013 and our nominations and governance committee since April 8, 2014. Senator Kerrey was President of The New School in New York City from January 2001 until January 2011 and President Emeritus until January 2013. From 1988 to 2000, Senator Kerrey served as United States Senator from Nebraska. During that period, he was a member of numerous congressionally-chartered commissions and Senate committees, including the Senate Finance and Appropriations Committees and the Senate Select Committee on Intelligence. Prior to that time, he served as Governor of Nebraska from 1982 to 1987. A former member of the elite Navy SEAL Team, Senator Kerrey is a highly decorated Vietnam veteran who was awarded the Congressional Medal of Honor—America's highest military honor. Prior to his public service in Nebraska, the U.S. Senate and in academia, Senator Kerrey was a self-made businessman who—upon returning from the Vietnam War and starting from scratch in 1972—built a chain of highly successful restaurants and health clubs. Senator Kerrey is a director of Chart Acquisition Corp. (NASDAQCM: CACG) and Tenet Healthcare Corporation (NYSE: THC), and was previously a director of Scientific Games Corporation (NASDAQGS: SGMS), Jones Group (NYSE: JNY) and Genworth Financial, Inc. (NYSE: GNW). Senator Kerrey was appointed to our board of directors because of his extensive experience in strategic planning and government contracts.




Carol Kondos was appointed as a member of our board of directors on August 26, 2013 and has served as a member of our audit committee since September 5, 2013 and as Chairman of the compensation committee since February 3, 2014. Ms. Kondos is a practicing attorney in Dallas, Texas and has been President of Kondos & Kondos Law Offices since 1984, as well as President of COMTEK Group, a staffing company, since it was founded in 2001. Kondos & Kondos provides corporate legal services focused on transactional work and personal injury. Ms. Kondos has been involved in the creation, management and/or sale of several businesses, which have all required an involvement in navigating and understanding various Federal departments and their regulations. As the corporate attorney for two telecommunications companies, Qwest Microwave and ComLink Telecom, Ms. Kondos was tasked with ensuring each company was aware of all relevant FCC regulations, guidelines and practices and that their business practices were in compliance. Ms. Kondos has been intricately involved with two "Women Owned" businesses. As President of NeoGenex, a biotech company, Ms. Kondos was responsible for, among other duties, obtaining FDA licensing and approval of its products for sale. As the President of COMTEK Group (certified WBE by the Women's Business Council—Southwest), Ms. Kondos is familiar with all aspects of COMTEK's IT Consulting and Staffing services and currently holds a U.S. Department of Defense security clearance at the secret level. COMTEK is able to provide the U.S. Government a variety of products and services. In her capacity as President of COMTEK, Ms. Kondos has gained the knowledge and understanding necessary to properly manage and maintain the corporate standards necessary in order to hold that clearance. In 1971, Ms. Kondos graduated with a Bachelor of Science from the University of Wisconsin. She earned a Doctor of Jurisprudence degree in 1978 from the University of Loyola School of Law in Chicago, Illinois. Ms. Kondos was appointed to our board of directors because of her regulatory background and experience.




F. Scott Chrimes was appointed as our Chief Financial Officer and Secretary on April 30, 2014. Mr. Chrimes has served as Vice President, Chief Financial Officer and Secretary/Treasurer of Lattimore Properties since 1996. Lattimore Properties is a privately owned Texas-based company with real estate holdings in Texas and Mexico and private investments in mining, pharmaceuticals and software development. In addition, from February 2014 until June 2014, Mr. Chrimes served as a director and Chief Financial Officer and Secretary of BioChemics, Inc., a privately-held pharmaceutical development company. From 1991 to 2011, Mr. Chrimes also served as Chief Financial Officer of Lattimore Materials, one of the largest privately-owned concrete production and aggregate mining companies in the Southwest United States prior to its sale in March 2011 to Holcim (USA) Inc. Prior to joining Lattimore Materials, Mr. Chrimes was the Controller for the privately-owned holdings of Edwin L. Cox, Jr. Mr. Chrimes has over 35 years of financial and administrative experience during his business career, including responsibility for financial reporting, general accounting, tax, treasury and cash management, management information systems, human resources and labor negotiations, financing and legal affairs. Mr. Chrimes received his BBA, with an emphasis in accounting, from North Texas State University in 1975. He became a Certified Public Accountant, licensed in Texas, in 1981.




Nancy Ah Chong was appointed as a member of our board of directors on May 23, 2013. From August 2004 to the present, she has been an office manager for Williams Investment Company, in Salt Lake City, Utah with a focus on mergers, acquisitions, business consolidations and financings. Between 2004 and 2011, Ms. Ah Chong served as landman for U.S. Rare Earths, Inc.- Delaware and Thorium Energy, Inc. where her duties included preparing notices of location, recording and filings with the BLM, and researching title to the minerals in fee lands, patented mining claims, and unpatented mining claims. Previously, Ms. Ah Chong was exploration drafter for Barrick Goldstrike Mines, Inc. from 1991 to 1999. From May 1989 to 1991, Ms. Ah Chong was a geological drafter for Echo Bay Minerals Company. From 1986 to 1989, Ms. Ah Chong was a geological drafter and field assistant for Westmont Mining Company. Since September 2006, Ms. Ah Chong has served as director and officer of Westgate Acquisitions Corp. and Eastgate Acquisitions Corp. and since February 2012 she has served as director and officer of Protect Pharmaceutical Corporation (OTCBB: PRTT). She was previously a director and officer of Greyhound Commissary, Inc., now known as Tanke Biosciences Corp. Ms. Ah Chong attended Omaha Institute of Art and Design in Omaha, Nebraska. Ms. Chong's experience in the rare earth elements industry qualifies her to serve as a director.




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Significant Consultant




Diane Cassidyhas served as our Chief Administrative Officer since June 2013. In addition, Ms. Cassidy has served as Chief Operating Officer of Logic since 2010 where she is responsible for treasury and cash management, investor relations, business planning, media outreach, major sales and marketing efforts, quality control, employee/HR matters and managing internal systems and business processes. Prior to joining Logic, from 2008 to 2010, Ms. Cassidy was Head of North American Business Development for the Bank of New York Mellon Corporation. While there, Ms. Cassidy was responsible for business strategy, business development, existing client relationships and new product development. Ms. Cassidy offers more than 30 years of accomplish laden experience in the financial services industry. She began her career at Citibank in the Custody and Securities Lending Division and spent 20 years with the bank. She earned a BS in Education from Brooklyn College.




Board Composition and Appointment of Directors




Our business is managed under the direction of our board of directors. Our board of directors currently consists of eight members. Each director is elected to the board for a one-year term until the following annual meeting of stockholders and until his successor has been elected and qualified or until the director's earlier resignation or removal. Our board of directors conducts its business through meetings of our board of directors and our committees. During 2014, our board of directors held nine meetings. All members of our board of directors attended 75% of the meetings of our board except for Mr. Mark Crandall.




As a condition to a Settlement Agreement entered into in March 2013 settling a series of claims and counter-claims raised in September 2012 regarding the composition of our board of directors, each of the parties to such agreement entered into a Voting Shareholder Agreement dated March 14, 2013 and effective upon approval of the settlement on June 5, 2013, or the Voting Agreement. The Voting Agreement provides that the "Lattimore Shareholders" (including John Victor Lattimore, Jr., Unique Materials, LLC, an affiliate of John Victor Lattimore, Jr., Michael Parnell, Matthew Hoff and Kevin M. Cassidy) have the right to appoint five directors to our board of directors, two of which must be "independent" as defined in the agreement. The "Blue Cap Shareholders" (Edwin I. Cowle, H. Deworth Williams, Geoff Williams, Blue Cap Development Corp. and Children's International Obesity Fund, Inc.) have the right to appoint two directors to our board of directors.




The Voting Agreement also provides: (i) that the number of members of our board of directors is to remain at seven unless increased pursuant to the provisions of our bylaws and applicable Nevada law; (ii) each slate of directors shall be approved by both the Lattimore Shareholders and the Blue Cap Shareholders; (iii) that no individual who is 75 years or older may serve on our board of directors nor may any descendant of an individual who is less than 75 year of age may serve on our board of directors; and (iv) that our board of directors shall meet at least quarterly in accordance with an agreed schedule. The Voting Agreement also restricts the transfer and sale of restricted shares of our common stock. The Voting Agreement is effective until March 14, 2015, and is automatically null and void and of no further effect upon expiration without any action required of any party to the agreement.




By written agreement, the parties to the Voting Agreement have agreed that the current directors of the Company shall be the joint slate of nominees for re-election at our 2014 Annual Meeting held on November 20, 2014 subject to their qualification to serve as members of our board of directors under applicable law, our bylaws and our corporate governance policies. Accordingly, our board, based on the recommendation of our nominations and governance committee, has nominated our current members of our board, John Victor Lattimore, Jr., Kevin Cassidy, Mark Crandall, General (ret) Tommy Franks, Reagan Horton, Senator J. Robert Kerrey, Carol Kondos, and Nancy Ah Chong, for re-election as our directors at our 2014 Annual Meeting.




Our board of directors, based on the recommendation of our nominations and governance committee, has determined that, of our directors, Mark Crandall, General (ret) Tommy Franks, Reagan Horton, Senator J. Robert Kerrey, and Carol Kondos, satisfy the independence requirements of the SEC and NASDAQ listing standards and are considered independent directors. In making such determinations, our board of directors considered the relationships that each such non-employee director has with us and all other facts and circumstances that our board of directors deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director.




There are no family relationships among any of our directors or executive officers. Kevin Cassidy and Diane Cassidy, who serves as a significant consultant, are brother and sister.




Communication with our Board of Directors




Our stockholders and other interested parties may communicate with our board of directors by sending written communication in an envelope addressed to "Board of Directors" in care of the Chairman of the board, 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024.




91




Board Committees




Our board of directors has established an audit committee, a compensation committee, and a nominating and corporate governance committee and each of which operates under a charter that has been approved by our board.




Audit Committee




Our board of directors established an audit committee on September 5, 2013. Our audit committee is to provide assistance to the board in fulfilling our responsibilities and our stockholders relating to: (1) maintaining the integrity of our financial reports, including our compliance with legal and regulatory requirements, (2) the independent auditor's qualifications and independence, (3) the performance of our internal audit function in cooperation with the independent auditors, and (4) the preparation of the report required by the rules of the SEC to be included in our annual proxy statement. Our audit committee is directly responsible for the appointment, compensation and oversight of the independent auditors (including the resolution of any disagreements between management and the independent auditors regarding financial reporting), approving in advance all auditing services, and approving in advance all non-audit services provided by the independent auditors. The independent auditors report directly to the committee. In addition, our audit committee is to review our annual and quarterly financial reports in conjunction with the independent auditors and financial management.




Our audit committee is to be composed of at least three directors. The current members of the audit committee are Messrs. Crandall and Kerrey and Ms. Kondos, each of whom has been determined to be independent under applicable SEC rules and NASDAQ listing standards. Mr. Crandall was appointed to serve as the Chairman of the audit committee. Our board has also determined that Mr. Crandall meets the definition of an "audit committee financial expert" as defined in the rules and regulations of the SEC.




Our board of directors has adopted a written charter for the audit committee, a copy of which is available on our website at www.usrareearths.com.




Compensation Committee




Our board of directors established a compensation committee on September 5, 2013. Our compensation committee is responsible for: (1) reviewing and approving goals and objectives underlying the compensation of our Chief Executive Officer, or CEO, evaluating the CEO's performance in accordance with those goals and objectives, and determining and approving the CEO's compensation; (2) recommending to the board the compensation of executive officers other than the CEO, subject to board approval; (3) administering any incentive compensation and equity-based plans, subject to board approval; (4) preparing the compensation report required by the rules and regulations of the SEC for inclusion in our annual proxy statement; and (5) periodically reviewing the results of our executive compensation and perquisite programs and making recommendations to the board with respect to annual compensation (salaries, fees and equity) for our executive officers and non-employee directors.




The compensation committee is to be composed of at least two directors. The current members of the compensation committee are Ms. Kondos, General (ret.) Franks and Mr. Horton, each of whom has been determined to be independent under applicable SEC rules and NASDAQ listing standards. Ms. Kondos was appointed to serve as the Chairman of the compensation committee.




Our board of directors has adopted a written charter for the compensation committee, a copy of which is available on our website at www.usrareearths.com.




Nominations and Governance Committee




Our board of directors established the nominations and governance committee on September 5, 2013 for the purpose of: (1) assisting the board in identifying individuals qualified to become board members and recommending to the board the nominees for election as directors at the next annual meeting of stockholders; (2) assist the board in determining the size and composition of the board committees; (3) develop and recommend to the board the corporate governance principles applicable to us; and (4) serve in an advisory capacity to the board and the Chairman of the board on matters of organization, management succession planning, major changes in our organizational and the conduct of board activities.




Potential nominees for election as directors are identified by the board of directors based on the criteria, skills and qualifications that have been recognized by the nominations and governance committee. While our nomination and corporate governance policy does not prescribe specific diversity standards, the nominations and governance committee and its independent members seek to identify nominees that have a variety of perspectives, professional experience, education, differences in viewpoints and skills, and personal qualities that will result in a well-rounded board of directors.




The nominations and governance committee is to be composed of at least three directors. The current members of the nominations and governance committee are General (ret.) Franks and Messrs. Horton and Kerrey, each of whom has been determined to be independent under NASDAQ listing standards. General (ret.) Franks was appointed to serve as the Chairman of the nominations and governance committee.




Our board of directors has adopted a written charter for the nominations and governance committee, a copy of which is available on our website at www.usrareearths.com.




92




Compensation Committee Interlocks and Insider Participation




None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or our compensation committee.




Edward Cowle, a former director, and John Victor Lattimore, Jr., our Chairman, previously served as members of our compensation committee, both of whom have entered into related party transactions with us. See "Transactions with Related Persons" below.




Board Leadership Structure and Role in Risk Oversight




We have separated the positions of Chairman of the board of directors and Chief Executive Officer. Given the demanding nature of these positions, we believe it is appropriate to separate the positions of Chairman and Chief Executive Officer. Our Chairman presides over all meetings of the board of directors. He communicates frequently with the Chief Executive Officer on matters of importance. He has responsibility for shaping the board's agendas and consults with all directors to ensure that the board agendas and board materials provide the board with the information needed to fulfill its responsibilities. From time to time he may also represent the Company in interactions with external stakeholders, at the discretion of the board.




Involvement in Certain Legal Proceedings




None of our current directors or executive officers has, to the best of our knowledge, during the past ten years:




●
Had any petition under the federal bankruptcy laws or any state insolvency law filed by or against, or had a receiver, fiscal agent, or similar officer appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time hereof, or any corporation or business association of which he was an executive officer at or within two years before the time hereof;





●
Been convicted in a criminal proceeding or a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);




●
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 him from, or otherwise limiting, the following activities:





(i)
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;





(ii)
Engaging in any type of business practice; or




(iii)
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;





●
Been the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in (i) above, or to be associated with persons engaged in any such activity;





●
Been found by a court of competent jurisdiction in a civil action or by the SEC to have violated any federal or state securities law, where the judgment in such civil action or finding by the SEC has not been subsequently reversed, suspended, or vacated;





●
Been found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, where the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated;





●
Been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:




93





(i)
Any Federal or State securities or commodities law or regulation;





(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





●
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 Securities and Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.




Code of Ethics




We have adopted conduct and ethics standards titled the code of ethics, which is available at www.usrareearths.com. These standards were adopted by our board of directors to promote transparency and integrity. The standards apply to our board of directors, executives and employees. Waivers of the requirements of our code of ethics or associated polices with respect to members of our board of directors or executive officers are subject to approval of the full board.




Compliance under Section 16(a) of the Securities Exchange Act of 1934





Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file initial reports of ownership and reports of changes in ownership with the SEC. Such persons are required by the SEC to furnish us with copies of all Section 16(a) forms they file. Based solely on a review of copies of reports furnished to us, or written representations that no reports were required, we believe that during the year ended December 31, 2014, our executive officers, directors and 10% holders complied with all filing requirements, with the following possible exceptions: Forms 3 and 4 were filed late by F. Scott Chrimes and John Victor Lattimore, respectively, and a Form 4 was not filed by H. Deworth Williams.




94





ITEM 11. EXECUTIVE COMPENSATION







The following table sets forth information concerning the compensation of our named executive officers and a former named executive officer during the years ended December 31, 2014 and 2013.




Name And Position
Year

Salary

($)


Bonus

($)


Stock

Awards

($)(1)


Option

Awards

($)


All Other

Compensation

($)


Total

($)Kevin Cassidy(2)
2014


—



—



—



—



600,000
(3)


600,000Chief Executive Officer and Director
2013


—



—



7,800,000
(4)


—



600,000
(5)


8,400,000F. Scott Chrimes(6)
2014


—



—



—



—



—



—Chief Financial Officer and Secretary
2013


—



—



—



—



—



—Mark Scott(7)
2014


52,500
(8)


—



—



—



—



52,500Former Chief Financial Officer
2013


60,000
(9)


—



—



—



—



60,000Michael D. Parnell(10)
2014


—



—



—



—



—



—Former National Accounts Director,
2013


151,000
(11)


—



—



—



—



151,000Former Chief Operating Officer,Former Chief Executive Officer and Former DirectorDaniel McGroarty(12)
2014


—



—



—



—



—



—Former President and Director
2013


120,000
(13)


—



—



—



40,000
(14)


160,000




(1)
Reflects the aggregate grant date fair value of stock awards granted during the relevant fiscal year calculated in accordance with FASB ASC Topic 718.





(2)
Mr. Cassidy was appointed Chief Executive Officer on March 8, 2013 and served as Acting Interim Chief Executive Officer from December 10, 2012 to March 7, 2013. He was a director but not an executive officer or employee prior to such time, and he was not paid a salary for his role as Acting Interim Chief Executive Officer or Chief Executive Officer for the years 2012 through 2014. Mr. Cassidy also is the managing member of Logic. See "Employment and Consulting Agreements" below.





(3)
Represents $400,000 paid to Logic for consulting services and $200,000 of accrued and unpaid fees for consulting services due to Logic. These fees are unrelated to Mr. Cassidy's employment or board service.





(4)
On June 28, 2013, we converted $800,000 in consulting fees owed to Logic into 266,667 shares of our common stock at a value of $3.00 per share. Of this amount, 166,667 shares of common stock were issued for services provided in 2012 and 100,000 shares of common stock were issued for services provided during the first six months of 2013. The amount related to this transaction included in the stock award amount above for 2013 is $520,000, which is the difference between the fair market value of $4.95 on the conversion date and the conversion price of $3.00 per share. On October 7, 2013, we issued 1,000,000 shares of common stock at a price of $3.00 per share to Mr. Cassidy for consulting services rendered to us in connection with the settlement of the stockholder litigation described in "Certain Relationships and Related Transactions" below. We valued the 1,000,000 shares at the June 5, 2013 fair market value of $5.82 and expensed $5,820,000 during the year ended December 31, 2013. In addition, on December 30, 2013, Mr. Cassidy was granted a restricted stock award for board service of 166,667 shares that vest annually in four equal installments. The grant was issued at the grant date market value of $8.76 per share on December 30, 2013.





(5)
Represents consulting fees of $300,000 paid to Logic in the form of 100,000 shares of our common stock at a value of $3.00 per share and a cash payment of $300,000 for consulting fees due to Logic. These fees are unrelated to Mr. Cassidy's employment or board service.





(6)
On April 30, 2014, our board of directors appointed Mr. Chrimes to serve as our Chief Financial Officer and Secretary. Mr. Chrimes did not receive any compensation for his services during 2014.




95




(7)
Mr. Scott served as Chief Financial Officer from December 19, 2011 until April 30, 2014.





(8)
Includes $40,000 for compensation earned as Chief Financial Officer, and $12,500 earned as other consulting compensation. Represents paid consulting fees of $35,000 and unpaid consulting fees of $17,500.





(9)
Represents paid consulting fees of $55,000 and accrued and unpaid consulting fees of $5,000.





(10)
Mr. Parnell served as Chief Executive Officer from December 31, 2007 to December 10, 2012 and director from December 31, 2007 to June 28, 2013. Mr. Parnell was also Chief Operating Officer from March 8, 2013 to June 26, 2013 and served as Acting Interim Chief Operating Officer from December 10, 2012 to March 7, 2013. Mr. Parnell served as our National Accounts Director from June 26, 2013 to May 12, 2014.





(11)
Represents accrued but unpaid salary of $151,000. On May 12, 2014, Mr. Parnell agreed to the extinguishment of such accrued but unpaid salary.





(12)
Mr. McGroarty served as a director from December 15, 2010 to June 28, 2013 and as President from November 29, 2011 to July 31, 2013.





(13)
Represents paid salary.





(14)
Represents the amount paid by us to Mr. McGroarty for an option to purchase up to 266,667 shares of our common stock at a price of $3.00 per share on or before April 30, 2014.




Outstanding Equity Awards in Fiscal Year Ended December 31, 2014






The following table sets forth information concerning the outstanding equity awards for our named executive officers at December 31, 2014.




Option Awards


Stock AwardsName

Number ofSecuritiesUnderlyingUnexercisedOptions (#)Exercisable


Number ofSecuritiesUnderlyingUnexercisedOptions (#)Unexercisable


EquityIncentivePlan Awards:Number ofSecuritiesUnderlyingUnexercisedUnearnedOptions (#)


OptionExercisePrice ($)


OptionExpirationDate


Number ofShares orUnits of Stockthat HaveNot Vested(#)


Market Valueof Shares orUnits of Stockthat HaveNot Vested($)(1)


EquityIncentivePlan Awards:Number ofUnearnedShares,Units orOther Rightsthat HaveNot Vested(#)


EquityIncentivePlan Awards:Market orPayout Valueof UnearnedShares,Units orOther Rightsthat HaveNot Vested($)Kevin Cassidy(2)


—



—



—



—



—



125,000



547,500



—



—




(1) The market value of stock awards is based upon the closing price of our common stock of $4.38 at December 31, 2014, the last trading day of fiscal 2014.





(2) On December 30, 2013, Mr. Cassidy was granted a restricted stock award for 166,667 shares of common stock at the fair value of $8.76 per share for his board service. The shares are subject to an irrevocable, exclusive option in our favor to repurchase any shares not released from our repurchase option subject to the grant for a period of 60 days exercisable only in the event Mr. Cassidy ceases to be a service provider to us for any reason (other than termination of such person by us or termination for no reason). On each of the first, second, third and fourth anniversaries of the grant, 25% of the issued shares of common stock will be released from our repurchase option. In the event of a "change in control" all shares subject to the grant will be released from our repurchase option subject to certain exceptions.




96




Employment and Consulting Agreements




Logic International Consulting Group, LLC




On March 11, 2011, we signed an exclusive Services Agreement with Logic International Consulting Group, LLC, or Logic. Our Chief Executive Officer and director, Kevin Cassidy is the founder and managing member of Logic. Under the Services Agreement, Logic agreed to provide certain advisory services to us. On December 31, 2011, the Services Agreement was automatically extended to December 11, 2013 and can be renewed for additional terms of 12 month periods unless either party gives the other 45 days written notice of termination. The Services Agreement can be cancelled with ninety days written notice. The Services Agreement provides for a monthly payment of $50,000 to Logic. In addition, since June 2013, we have reimbursed Logic for a portion of the compensation due to Mr. Cassidy's administrative assistant in the amount of $2,500 per month.




On March 10, 2011, we issued a warrant to Logic for the purchase of 433,334 shares of our common stock. The warrant is exercisable at $1.50 per share for a period of five years expiring on March 10, 2016. The warrant contains certain dilutive provisions related to subsequent equity sales and the issuance of additional common stock. The warrant contains certain piggyback registration rights.




On November 29, 2011, we issued a warrant to Logic for the purchase of 233,334 shares of our common stock. The warrant is exercisable at $1.50 per share on a cash or cashless basis for a period of five years expiring on November 29, 2016. The warrant contains certain dilutive provisions related to subsequent equity sales and the issuance of additional common stock. The warrant contains certain piggyback registration rights.




On December 31, 2011, Logic cancelled the warrant granted on March 10, 2011 for 433,334 shares and the warrant granted on November 29, 2011 warrant for 233,334 shares.




On December 31, 2011, we issued a warrant to Logic for the purchase of 433,334 shares of our common stock. The warrant is exercisable at $1.50 per share for a period of five years expiring on March 9, 2016. In addition, on December 31, 2011, we issued a warrant to Logic for the purchase of 233,334 shares of our common stock. The warrant is exercisable at $1.50 per share for a period of five years expiring on November 28, 2016. The warrants may be called by us if we have registered the sale of the underlying shares with the SEC and a closing price of $21.00 or more for our common stock has been sustained for five trading days. The warrants contain certain piggyback registration rights.




On June 28, 2013, we converted unpaid consulting fees of $800,000 owed to Logic into 266,667 shares of our common stock at $3.00 per share. The fair value of the common stock on the date of issuance was $4.95 per share, and we recorded the difference between the conversion price and the market value of $520,000 as loss on settlement of debt.




Lattimore Properties




As of July 1, 2012 Lattimore Properties, an affiliate of John Victor Lattimore, Jr., the Chairman of our board of directors, entered into a Consulting Agreement with Logic pursuant to which Lattimore Properties provides executive management, strategic planning and general office administration to Logic for a fee of $25,000 per month. The agreement has a term of one year commencing on July 1, 2013, unless sooner terminated on 30 days' prior written notice. The term of the agreement may be extended upon the mutual written agreement of the parties.




F. Scott Chrimes




On April 30, 2014, our board of directors appointed F. Scott Chrimes to serve as our Chief Financial Officer and Secretary, effective immediately, replacing Mark Scott. Mr. Chrimes also serves as Chief Financial Officer and Secretary/Treasurer of Lattimore Properties and, as such, is employed and paid a salary by Lattimore Properties.




97




Mark Scott




On December 19, 2011, we entered into a Consulting Agreement with Mark Scott in connection with his service as Chief Financial Officer of our company. Under the agreement, Mr. Scott was entitled to $4,000 per month plus $3,000 of restricted shares of our common stock per month based on a $8.55 share price. On August 31, 2012, our board of directors approved the issuance of 24,000 shares of common stock to Mr. Scott pursuant to the Consulting Agreement. The term of the Consulting Agreement expired on December 31, 2012, and we paid Mr. Scott $5,000 per month on a month-to-month basis during 2013 and $10,000 per month during 2014. On April 30, 2014, Mr. Scott was removed as Chief Financial Officer and between June 1, 2014 and August 13, 2014, we retained Mr. Scott as a consultant at a rate of $5,000 per month.




Diane Cassidy




Since June 2013, we retained Diane Cassidy, the sister of Kevin Cassidy, our Chief Executive Officer and director, as a consultant to perform certain management services. From June 2013 to October 2013, Ms. Cassidy was paid at the rate of $5,000 per month, increasing to $10,000 per month in November 2013 and December 2013. From February 2014 through May 2014, she was paid at the rate of $16,667 per month. Effective June 1, 2014, we entered into a Consulting Agreement with Ms. Cassidy whereby Ms. Cassidy will provide certain management services. Under the agreement, Ms. Cassidy is entitled to $17,000 per month. The agreement has an initial term of one year, with automatic renewal for one year periods unless terminated by either party on 90 days' prior written notice. After the initial term, and during any additional term, either party can terminate the agreement as of the end of a calendar month on 60 days' prior written notice.




Michael Parnell




On December 10, 2010, we entered into a Revised Employment Agreement with Michael Parnell, our former Chief Executive Officer, Chief Operating Officer and director. On June 26, 2013, Mr. Parnell accepted the position of National Accounts Director.




Under the terms of the employment agreement, Mr. Parnell's annual salary was $125,000 in year one, $137,500 in year two and $151,000 in year three. Mr. Parnell was awarded 100,000 shares of restricted common stock. In the event that we are sold or merged or there is a change in control, Mr. Parnell is entitled to receive, at his discretion, severance of $500,000 in cash or restricted common stock at $1.50 per share. Mr. Parnell is eligible for vacation of six weeks, benefit programs and incentive bonuses as approved by our board of directors. The employment agreement had a three year term and was automatically renewable for additional one year periods unless ninety days' notice is provided by either party.




On July 26, 2011, we entered into an Addendum to a Revised Employment Agreement with Mr. Parnell. The addendum extended the term of employment by two years until December 10, 2015 subject to additional one year renewal periods unless ninety days' notice is provided by either party. The addendum provides that Mr. Parnell's annual salary for year four is $166,100 and $182,710 for year five. We also agreed to issue to Mr. Parnell 41,667 restricted shares of our common stock in years four and five. In the event of a change in control by merger, acquisition, takeover or otherwise, the share amounts due in years four and five would become immediately due and payable.




On May 12, 2014, we entered into a Termination and Release Agreement with Mr. Parnell pursuant to which Mr. Parnell resigned as National Accounts Director of the Company effective immediately, his employment agreement was terminated, and all compensation due to Mr. Parnell was extinguished. The agreement also provides for a mutual release of claims by the parties and indemnification by us of Mr. Parnell in certain circumstances.




Daniel McGroarty




On November 29, 2011, Daniel McGroarty was appointed our President. On January 1, 2012, we entered into an Executive Employment Agreement with Mr. McGroarty employing Mr. McGroarty as our President. Under the terms of the employment agreement, Mr. McGroarty's salary was $120,000 in year one and was to be negotiated in years two and three. The employment agreement also provided for the grant to Mr. McGroarty of 216,667 shares of restricted common stock and further provided that 33,334 shares of common stock that were previously granted to Mr. McGroarty were fully vested as of November 30, 2011. The employment agreement had a three year term and was automatically renewable for additional one year periods unless ninety days' notice is provided by either party.




98




On August 14, 2013, we accepted the resignation of Daniel McGroarty effective July 31, 2013 as President of UREE and its subsidiaries. The parties entered into a Stock Repurchase Option and Severance Agreement whereby (i) the parties agreed to settle all back pay and compensation claims with a payment of $60,000; (ii) we agreed to repurchase 33,334 of shares of our common stock from Mr. McGroarty on or before September 30, 2013 for $100,000 or $3.00 per share, which was subsequently paid; and (iii) we paid $40,000 for an option to acquire up to 266,667 shares of our common stock from Mr. McGroarty for $3.00 per share on or before April 30, 2014.




The foregoing option was not exercised and on September 15, 2014, we entered into a further agreement with Mr. McGroarty pursuant to which we agreed, among other things, to repurchase 16,667 shares of our common stock by September 22, 2014 at $3.30 per share and 50,000 shares of our common stock by October 15, 2014 at $3.30 per share and were granted an option to repurchase 133,334 shares of our common stock at $3.30 per share on or before January 1, 2015. As of February 27, 2015, we had not repurchased these shares and the balance of $220,000 is currently due and payable. See "Item 3 - Legal Proceedings".




Compensation of Directors




Our directors were not paid any compensation during 2014. On December 30, 2013, restricted stock awards were made to the following persons for their board service: Mr. Lattimore (166,667 shares), Senator Kerrey (166,667 shares), General Franks (ret) (166,667 shares), Ms. Kondos (50,000 shares) and Mr. Horton (83,334 shares) at the fair value of $8.76 per share. The grants were in the form of restricted common stock grants. Each of the grants is subject to an irrevocable, exclusive option in our favor to repurchase any shares not released from our repurchase option subject to the grant for a period of 60 days exercisable only in the event a director ceases to be a service provider to us for any reason (other than termination of such director by us or termination for no reason). On each of the first, second, third and fourth anniversaries of the grant, 25% of the issued shares of common stock will be released from our repurchase option. In the event of a "change in control" all shares subject to the grant will be released from our repurchase option subject to certain exceptions.




We use stock grants as incentive compensation to attract and retain qualified candidates to serve on the board. In setting director compensation, we consider the significant amount of time that directors expend in fulfilling their duties to us as well as the skill-level required by our members of the board.




99




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




The following table sets forth information with respect to the beneficial ownership of our common stock, as of February 27, 2015 by (i) each person known by us to beneficially own more than 5% of our common stock, (ii) each of our directors, (iii) each of our named executive officers, and (iv) all of our executive officers and directors as a group.




The amounts and percentages of common stock beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a "beneficial owner" of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or "investment power", which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has the right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities, and a person may be deemed to be a beneficial owner of securities as to which such person has no economic interest.




Unless otherwise indicated below, each beneficial owner named in the table has sole voting and sole investment power with respect to all shares beneficially owned, subject to community property laws where applicable.




Name and Address of Beneficial Owner

No. of

Shares

Beneficially

Owned


Percentage

Shares

Beneficially

Owned(1)5% ShareholdersEdward F. Cowle


1,083,334



9.6
%1 Renaissance Square Apt 17 FWhite Plains, New York 10601H. Deworth Williams


931,670
(2)


8.2
%2681 East Parleys Way, Suite 204Salt Lake City, Utah 84109Blue Cap Shareholders


2,590,619
(3)


22.9
%Lattimore Shareholders


5,964,167
(4)


46.2
%Directors and Named Executive OfficersKevin M. Cassidy


1,957,041
(5)


16.6
%F. Scott Chrimes


5,000



*Mark Scott


24,000
(6)


*John Victor Lattimore, Jr.


3,003,725
(7)


24.2
%Nancy Ah Chong


—



*Mark Crandall


—



*Senator J. Robert Kerrey


166,667
(8)


1.5
%General (ret) Tommy Franks


166,667
(8)


1.5
%Carol Kondos


83,334
(9)


*Reagan Horton


83,334
(10)


*All directors and executive officers as a group (9 persons)


5,465,768
(11)


42.4
%




*Indicates less than 1%




100





(1)
Based on 11,327,050 shares of common stock outstanding as of February 27, 2015. This amount does not include 416,667 shares of our common stock that were previously authorized for issuance by our board of directors but are unissued and subject to claim by certain of our former directors.





(2)
Based in part upon a Schedule 13D filed by H. Deworth Williams on May 9, 2012.







(3)
Edward Cowle, H. Deworth Williams, Geoff Williams, Blue Cap Development Corp., and Children's International Obesity Fund, Inc. as "Blue Cap Shareholders" under the Voting Agreement, may be deemed to have formed a "group" under Rule 13d-5(b) of the Exchange Act. As a result the Blue Cap Shareholders may be deemed to beneficially own 2,590,619 shares of our common stock (or 22.9% of our common stock outstanding) on a combined basis.





(4)
Kevin Cassidy, John Victor Lattimore, Jr., Unique Materials, LLC ("Unique Materials"), Michael Parnell, Matthew Hoff, Daniel McGroarty and Winston Marshall as "Lattimore Shareholders" under the Voting Agreement, may be deemed to have formed a "group" under Rule 13d-5(b) of the Exchange Act. As a result, the Lattimore Shareholders may be deemed to beneficially own 5,964,167 shares of our common stock (or 46.2% of our common stock outstanding) on a combined basis.




(5)
Represents (i) 1,483,333 shares of common stock directly owned by Mr. Cassidy, of which 166,667 vest in four equal annual installments commencing on December 31, 2014, and (ii) warrants to purchase 473,704 shares of common stock owned by Logic.





(6)
Represents shares of common stock owned by an entity jointly owned by Mr. Scott and his spouse.





(7)
Represents (i) 233,334 shares of common stock directly owned by Mr. Lattimore, of which 166,667 vests in four equal annual installments commencing on December 31, 2014, (ii) 120,001 shares of common stock owned by Mr. Lattimore's wife, (iii) 798,778 shares of common stock owned by Lattimore Properties, Inc. ("Lattimore Properties") of which Mr. Lattimore is the President and Chairman, (iv) 712,429 shares of common stock owned by Unique Materials, which is wholly owned by Lattimore Properties; (v) 22,223 shares of common stock owned by the John & Mark Family Limited Partnership, of which Lattimore Properties is the sole general partner; (vi) warrants to purchase 116,960 shares of common stock owned by Lattimore Properties; and (vii) an option to purchase 1,000,000 shares of common stock owned by Lattimore Properties.





(8)
Represents 166,667 shares of common stock that vest in four equal annual installments commencing on December 31, 2014.





(9)
Represents (i) 50,000 shares of common stock that vest in four equal annual installments commencing on December 31, 2014, and (ii) 33,334 shares of common stock owned by Ms. Kondos' husband.





(10)
Represents 83,334 shares of common stock that vest in four equal annual installments commencing on December 31, 2014.





(11)
Represents (i) an aggregate of 3,875,104 shares of common stock, of which 800,000 vest in four equal annual installments commencing on December 31, 2014, and (ii) warrants and options to purchase an aggregate of 1,590,664 shares of common stock.




101





Securities Authorized for Issuance under Equity Compensation Plans





During 2013, we adopted the U.S. Rare Earths, Inc. 2013 Stock Incentive Plan, or the 2013 Plan. The purpose of the 2013 Plan is to assist us in attracting, retaining and providing incentives to employees, directors, consultants and independent contractors who serve us by offering them the opportunity to acquire or increase their proprietary interest in us and our affiliates and to promote the identification of their interests with those of our stockholders.





The 2013 Plan permits the grant of stock options, restricted stock, restricted stock units, performance awards and other stock-based awards. The maximum number of shares of common stock that may be issued under the 2013 Plan is 5,000,000, provided that no more than 1,000,000 shares may be issued pursuant to awards that are not options, and the maximum number of shares with respect to which an employee may be granted awards under the plan during a fiscal year is 1,000,000 shares.





The 2013 Plan is administered by the compensation committee of our board of directors. The compensation committee has broad discretion in issuing awards under the 2013 Plan, subject to the limits set forth in the plan, and amending or terminating the plan. The 2013 Plan was approved by a vote of our stockholders on November 14, 2013.





The following table sets forth the number of shares of common stock available for issuance by us pursuant to 2013 Plan, as well as warrants and other rights granted as of that date. As of December 31, 2014, we had not issued any options under the 2013 Plan. We have issued a number of warrants and stock grants to our directors and executive officers. The following table sets forth certain information regarding the number of securities to be issued upon the exercise of outstanding warrants and stock grants.





(a)


(b)


(c)Plan Category

Number of securities

to be issued upon

exercise of outstanding

options, warrants and rights


Weighted-average

exercise price of

outstanding options,

warrants and rights


Number of securities

remaining available

for future issuance

under equity compensation

plan (excluding securities

reflected in column (a))Equity compensation planapproved by shareholders


1,666,667



-



1,666,667Equity compensation plansnot approved by shareholders


-



-



-Total


1,666,667



-



1,666,667








102




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





Since January 1, 2014, we have engaged in the following transactions with our directors, executive officers, holders of more than 5% of our voting securities, and affiliates or immediate family members of our directors, executive officers and holders of more than 5% of our voting securities in which the amount involved exceeded $120,000.





Executive Officers and Directors





We have entered into employment and consulting agreements and granted stock awards to our executive officers and certain of our directors as more fully described in “Item 11 - Executive Compensation – Employment and Consulting Agreements.”




Properties




Our principal executive offices were located at 5600 Tennyson Parkway, Suite 190, Plano, Texas 75024 during 2013. This office was shared with John Victor Lattimore, Jr., Chairman of our board of directors, and entities affiliated with Mr. Lattimore. Since January 20, 2014, we have leased office space at 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024 and no longer share offices with Mr. Lattimore.




Repurchase Option Agreements




We entered into repurchase option agreements with existing stockholders, including Harvey Kaye, Edward Cowle, H. Deworth Williams, Daniel McGroarty, and an affiliate of Michael Parnell, under which we (i) acquired 33,334 shares of our common stock at $3.00 per share during September 2013, (ii) acquired 317,334 shares of our common stock at $3.00 per share during October 2013, and (iii) acquired 756,333 shares of our common stock at $3.00 per share during December 31, 2013 with a portion of the payment in the amount of $1,344,999 made during the quarter ended March 31, 2014 and the balance of $924,000 which was then due and payable. On December 31, 2014, we re-issued 301,334 shares of common stock in exchange for the extinguishment of $904,000 of the $924,000 that was due and payable. We also obtained the right from Mr. McGroarty, to acquire up to 266,667 shares of our common stock at $3.00 per share until April 30, 2014. The foregoing option was not exercised and on September 15, 2014, we agreed with Mr. McGroarty to repurchase 16,667 shares of our common stock by September 22, 2014 at $3.30 per share and 50,000 shares of our common stock by October 15, 2014 at $3.30 per share and were granted an option to repurchase 133,334 shares of our common stock at $3.30 per share on or before January 1, 2015. As of February 27, 2015, we had not repurchased these shares and the balance of $220,000 is currently due and payable. See "Item 3—Legal Proceedings". In addition, we obtained the right from Matthew Hoff and his affiliate to acquire up to 266,667 shares of our common stock at $3.30 per share until December 31, 2014 and we further obtained the right from an affiliate of Michael Parnell to acquire up to 266,667 shares of our common stock at $3.00 per share until December 31, 2014, both of which have expired. We intend to satisfy the remaining repurchase obligations of $240,000 from proceeds of future financings from time to time.




103




Sale of Media Business




On January 28, 2014, we entered into a binding letter of intent to sell the common stock of Media Depot, Inc., or Media Depot, our media business subsidiary, and certain related media assets of ours to Michael D. Parnell, our former Chief Executive Officer, National Accounts Director and Director, or an affiliate of Mr. Parnell.




On May 12, 2014, we and Mach One Media Group, Inc., or Mach One, entered into a Master Sale Agreement and related Share Purchase Agreement and Asset Purchase Agreement pursuant to which Mach One acquired all of the outstanding stock of Media Depot and acquired the assets and assumed the liabilities of ours related to the media business, effective January 1, 2014. Mach One is an affiliate of Michael Parnell, our former Chief Executive Officer, and Director and National Accounts Director.




In addition, we and the Michael D. Parnell Living Trust, or the Parnell Trust, entered into an amendment to the Repurchase Option Agreement dated January 28, 2014, whereby we were granted the option to repurchase up to 266,667 shares of our common stock from the Parnell Trust at $3.00 per share (of which the option to repurchase 200,000 shares has since expired). The amendment extends the date on which we may exercise the right to repurchase the first 66,667 shares from March 15, 2014 to June 15, 2014 such that we may, at our option, repurchase 133,334 shares on or before June 15, 2014 and a further 66,667 shares on each of September 15, 2014 and December 15, 2014.




Indemnification





Our articles of incorporation provide that we will indemnify our directors and officers to the fullest extent permitted by Nevada law.




Policies and Procedures for Related Person Transactions




We have operated under a Code of Conduct since 2012, which we amended in September 2013. Our Code of Conduct requires all employees, officers and directors, without exception, to avoid the engagement in activities or relationships that conflict, or would be perceived to conflict, with our interests.




In July 2014, we adopted a related person transaction policy pursuant to which our executive officers, directors and principal stockholders, including their immediate family members, will not be permitted, subject to certain exceptions, to enter into a related person transaction with us in which the amount involved exceeds $120,000 without the consent of our audit committee or by a majority of our disinterested directors. All of our directors and executive officers will be required to report to our Audit Committee any such related person transaction. In approving or rejecting the proposed transaction, our Audit Committee will satisfy itself that it has been fully informed as to the related person relationship and interest and as to the material factors of the proposed related person transaction and that the related person transaction is fair to us. A copy of our related person transactions policy will be available on our website.




Prior to the adoption of our related person transaction policy, there was a legitimate business reason for all the related person transactions described above and we believe that, where applicable, the terms of the transactions are no less favorable to us than could be obtained from an unrelated person.




Our board of directors reviews all relationships and transactions in which we and our directors and executive officers or their immediate family members are participants to determine whether such persons have a direct or indirect material interest.




As required under SEC rules, transactions that are determined to be directly or indirectly material to us or a related person are disclosed.




104




ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES





Audit Committee Pre-Approval Policy





We formed an Audit Committee on September 5, 2013 and established a pre-approval policy and procedures for audit, audit-related and tax services that can be performed by the independent auditors without specific authorization from the Audit Committee subject to certain restrictions. The policy sets out the specific services pre-approved by the Audit Committee and the applicable limitations, while ensuring the independence of the independent auditors to audit our financial statements is not impaired. The pre-approval policy does not include a delegation to management of the Audit Committee responsibilities under the Exchange Act.





Service Fees Paid to the Independent Registered Public Accounting Firm





Our board of directors engaged PMB Helin Donovan, LLC to perform an annual audit of our financial statements for the years ended December 31, 2014 and 2013. The following is the breakdown of aggregate fees paid the last two fiscal years:




Years EndedDecember 31,


December 31,2014


2013Audit fees (1)

$
28,550


$
14,081Audit-related fees (2) (3)


14,500



10,000Tax fees (4)


-



-All other fees (5)


5,539



-Total fees paid

$
48,589


$
24,081


(1)
"Audit fees" are fees paid for professional services for the audit of our financial statements.





(2)
“Audit-Related fees” are fees to us for services not included in the first two categories, specifically, SAS 100 reviews, SEC filings and consents, and accounting consultations on matters addressed during the audit or interim reviews, and review work related to quarterly filings.


(3)
Includes $7,500 of payments made by Lattimore Properties, Inc. on behalf of UREE.


(4)
“Tax Fees” are fees primarily for tax compliance in connection with filing US income tax returns.





(5)
“All Other Fees” are fees for services related to our registration statement filings.







105




PART IV





ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES





(a) FINANCIAL STATEMENTS:





Our financial statements, as indicated by the Index to Consolidated Financial Statements set forth below, begin on page F-1 of this Form 10-K/A, and are hereby incorporated by reference. Financial statement schedules have been omitted because they are not applicable or the required information is included in the financial statements or notes thereto.





(b) EXHIBITS:





The following exhibits are incorporated by reference to previous filed reports as noted:




Exhibit No.

Description3.1

Amended and Restated Articles of Incorporation of U.S. Rare Earths, Inc. approved November 14, 2013 (incorporated by reference as an exhibit to our Form 8-K filed with the SEC on November 20, 2013).3.2

Certificate of Amendment to Articles of Incorporation, filed December 15, 2014 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on December 17, 2014).3.3

Amended and Restated Bylaws of U.S. Rare Earths, Inc. (incorporated by reference as an exhibit to our Form 8-K filed with the SEC on September 10, 2013).21.1

Subsidiaries of the Registrant. (incorporated by reference as an exhibit to our Form 10-K filed with the SEC on April 15, 2014).31.1

Certification by Chief Executive Officer pursuant to Rule 13a-14(a).31.2

Certification by Chief Financial Officer pursuant to Rule 13a-14(a).32.1

Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.32.2

Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.Ex 101

The following materials from U.S. Rare Earth’s Annual Report on Form 10-K for the year ended December 31, 2014 are formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) Consolidated Statement of Stockholders' Deficit, (iv) the Consolidated Statements of Cash Flow, and (iv) Notes to Consolidated Financial Statements. (incorporated by reference as an exhibit to our Form 10-K filed with the SEC on March 2, 2015).





106




INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




Title of Document

PageReport of Independent Registered Public Accounting Firm

F-1Consolidated Balance Sheets as of December 31, 2014 and 2013

F-2Consolidated Statements of Operations for the years ended December 31, 2014 and 2013

F-3Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2014 and 2013

F-4Consolidated Statements of Cash Flows for the for the years ended December 31, 2014 and 2013

F-5Notes to the Financial Statements

F-6













Report of Independent Registered Public Accounting Firm




The Board of Directors and Shareholders




US Rare Earths, Inc.:




We have audited the accompanying consolidated balance sheets of US Rare Earths, Inc. (the “Company”) as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years ended December 31, 2014 and 2013.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.




We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.




In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of US Rare Earths, Inc. as of December 31, 2014 and 2013, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year ended December 31, 2014 and 2013, in conformity with accounting principles generally accepted in the United States of America.




The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the financial statements, the Company has sustained a net loss from operations and has an accumulated deficit.  These factors raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are also described in Note 1.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.




PMB Helin Donovan, LLP /s/ PMB Helin Donovan, LLP
 March 2, 2015
 Seattle, Washington


F-1


U.S. RARE EARTHS, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


AN EXPLORATION STAGE COMPANY





December 31,


December 31,2014


2013ASSETSCURRENT ASSETS:Cash

$
142,540


$
2,216,102Deposits


23,671



38,500Deferred financing costs


276,811



-Prepaid expenses


149,086



6,000Other receivables


-



5,600Total current assets


592,108



2,266,202EQUIPMENT, NET


109,290



113,532ASSETS FROM DISCONTINUED OPERATIONS


-



111,519TOTAL ASSETS

$
701,398


$
2,491,253LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIES:Accounts payable and accrued expenses

$
2,497,401


$
1,682,226Accounts payable and accrued expenses-related party


286,982



80,470Accrued compensation-officers


82,000



267,597Accrued interest


30,716



-Accrued interest-related party


358



-Share repurchase obligation


240,000



2,268,999Short-term note payable


106,490



-Legal settlement liabilities


367,000



-Other current liabilities


27,160



-Total current liabilities


3,638,107



4,299,292LIABILITIES FROM DISCONTINUED OPERATIONS


-



180,699Total liabilities


3,638,107



4,479,991COMMITMENTS AND CONTINGENCIES


-



-STOCKHOLDERS' DEFICIT:Preferred stock; 10,000,000 shares authorized,outstanding, respectively


-



-Common stock; 100,000,000 shares authorized,at $0.00001 par value, 11,118,390 and 10,282,640shares issued and outstanding, respectively


111



103Additional paid-in capital


71,192,503



64,645,891Accumulated deficit


(74,129,323
)


(66,634,732
)Total stockholders' deficit


(2,936,709
)


(1,988,738
)TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

$
701,398


$
2,491,253


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




F-2




U.S. RARE EARTHS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


AN EXPLORATION STAGE COMPANY





Years EndedDecember 31,

2014


December 31,

2013REVENUESRevenues

$
-


$
-Cost of revenues


-



-Gross margin


-



-OPERATING EXPENSESSelling, general and administrative expenses


6,158,253



2,947,311Exploration expense


936,161



1,811,569Impairment expense


-



326,000Total operating expenses


7,094,414



5,084,880(Loss) from operations


(7,094,414
)


(5,084,880
)OTHER INCOME (EXPENSE)Interest expense


(34,407
)


(19,190
)Loss on debt settlement


-



(1,282,650
)Loss on derivative liability option


-



(429,000
)Loss on legal settlement


(367,000
)


(10,923,600
)Other income (expense)


-



(40,000
)Total other income (expense)


(401,407
)


(12,694,440
)(LOSS) BEFORE INCOME TAXES


(7,495,821
)


(17,779,320
)INCOME TAX EXPENSE


-



-(LOSS) FROM CONTINUING OPERATIONS


(7,495,821
)


(17,779,320
)INCOME (LOSS) FROM DISCONTINUED OPERATIONS


1,230



(57,942
)Net loss

$
(7,494,591
)

$
(17,837,262
)PER SHARE DATA:NET LOSS PER SHARE BEFORE DISCONTINUED OPERATIONSATTRIBUTABLE TO UREE COMMON SHAREHOLDERS

$
(0.72
)

$
(1.83
)DISCONTINUED OPERATIONS ATTRIBUTABLE TO UREECOMMON SHAREHOLDERS

$
0.00


$
(0.01
)NET LOSS PER SHARE ATTRIBUTABLE TO UREE COMMONSHAREHOLDERS

$
(0.72
)

$
(1.84
)WEIGHTED AVERAGE NUMBER OF SHARESOUTSTANDING - BASIC AND DILUTED


10,430,898



9,718,271




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


F-3





U.S. RARE EARTHS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT


AN EXPLORATION STAGE COMPANY





TotalAdditional





Stockholders'Common Stock


Paid-in


Accumulated


EquityShares


Amount


Capital


Deficit


(Deficit)Balance, December 31, 2012


9,210,039


$
92


$
46,453,526


$
(48,797,470
)

$
(2,343,852
)Common stock issued for services


100,000



1



861,999



-



862,000Common stock issued for cash


929,166



9



5,904,991



-



5,905,000Common stock issued upon exercise of warrants


78,149



1



(1
)


-



-Common stock issued for debt conversion and interest


650,932



7



3,268,770



-



3,268,777Common stock issued for legal settlement


1,000,000



10



5,819,990



-



5,820,000Cancellation of common stock


(578,646
)


(6
)


6



-



-Repurchase of common stock


(1,107,000
)


(11
)


(3,320,990
)


-



(3,321,001
)Stock option purchases


-



-



125,000



-



125,000Loss on derivative liability option


-



-



429,000



-



429,000Loss on option agreement


-



-



5,103,600



-



5,103,600Net loss for the year ended December 31, 2013


-



-



-



(17,837,262
)


(17,837,262
)Balance, December 31, 2013


10,282,640


$
103


$
64,645,891


$
(66,634,732
)

$
(1,988,738
)Common stock issued for services


16,667



-



129,500



-



129,500Common stock issued for cash


315,671



3



1,902,497



-



1,902,500Common stock issued upon exercise of warrants


5,339



-



-



-



-Common stock issued in satisfaction of liabilities


301,334



3



903,999



-



904,002Repurchase of common stock


(3,334
)


-



(10,000
)


-



(10,000
)Stock repurchase obligation


-



-



(220,000
)


-



(220,000
)Vesting of stock awards


200,002



2



(2
)


-



-Fractional share adjustment for reverse stock split


71



-



-



-



-Forgiveness of amounts owed to officers


-



-



190,596



-



190,596Stock-based compensation amortization


-



-



3,650,022



-



3,650,022Net loss for the year ended December 31, 2014


-



-



-



(7,494,591
)


(7,494,591
)Balance, December 31, 2014


11,118,390


$
111


$
71,192,503


$
(74,129,323
)

$
(2,936,709
)





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


F-4




U.S. RARE EARTHS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOW


AN EXPLORATION STAGE COMPANY





Years Ended,December 31,


December 31,2014


2013OPERATING ACTIVITIES:Net loss

$
(7,494,591
)

$
(17,837,262
)Adjustments to Reconcile Net Loss toNet Cash Used in Operating Activities:Depreciation and amortization


28,384



20,721Impairment of assets


-



326,000Common stock and warrants issued for services


129,500



862,000Common stock and warrants issued for liabilities


-



836,128Stock-based compensation amortization


3,650,022



-Loss on debt settlement


-



1,282,650Loss on derivative liability option


-



429,000Loss on legal settlement


367,000



10,923,600Changes in Operating Assets and Liabilities:Prepaid expenses


(143,086
)


(6,000
)Other current assets and receivables


18,256



(44,100
)Accounts payable and accrued expenses


781,925



177,400Accrued compensation-officers


5,000



(99,869
)Other current liabilities


27,160



-Accrued interest


31,074



(11,109
)Net cash provided by (used in) discontinued operations


(69,181
)


7,868Net cash used in operating activities


(2,668,537
)


(3,132,973
)INVESTING ACTIVITIES:Purchase of fixed assets


(22,294
)


(45,863
)Net cash used in investing activities


(22,294
)


(45,863
)FINANCING ACTIVITIES:Proceeds from the sale of common stock and warrants


1,902,500



5,905,000Proceeds from the sale of options


-



125,000Proceeds from note payable


190,251



-Proceeds from note payable-related party


-



250,000Repurchase of common stock


(1,354,999
)


(1,052,001
)Payment of deferred financing costs


(36,722
)


-Repayment of note payable


(83,761
)


-Net cash provided by financing activities


617,269



5,227,999INCREASE/(DECREASE) IN CASH


(2,073,562
)


2,049,163CASH AT BEGINNING OF PERIOD


2,216,102



166,939CASH AT END OF PERIOD

$
142,540


$
2,216,102Supplemental Cash Flow Disclosures:Cash paid for:Interest expense

$
3,333


$
-Income taxes

$
-


$
-Non-cash investing and financing activities:Debt settlements

$
-


$
1,150,000Forgiveness of accrued compensation due to officers

$
190,596


$
-Share repurchase liability

$
240,000


$
2,268,999





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


F-5




U.S. RARE EARTHS, INC. AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


AN EXPLORATION STAGE COMPANY


DECEMBER 31, 2014





NOTE 1. ORGANIZATION





The Company and Our Business





U.S. Rare Earths, Inc. (“UREE”, “U.S. Rare Earths” or the “Company”) is a rare earth elements exploration and claims acquisition company based in Plano, Texas that seeks to create a completely independent American based rare earth supply chain solution within the continental United States.




Formerly Colorado Rare Earths, Inc., the Company holds approximately 1,250 mining claims for rare earth elements that cover approximately 22,000 acres of land in Colorado, Idaho and Montana. In Idaho and Montana, the Company's claims are located in the Lemhi Pass mineral trend in Lemhi County, Idaho, and Beaverhead and Ravalli Counties, Montana. These claims are grouped into projects that include the Last Chance and Sheep Creek Projects in Montana and the North Fork, Lemhi Pass and Diamond Creek Projects in Idaho. In Colorado, the claims include the Powderhorn Project in Gunnison County and the Wet Mountain Project in Fremont County.




The Company’s operations are exploratory in nature. The Company currently does not have any producing properties and further exploration will be required before a final evaluation as to the economic and practical feasibility of any of the Company’s claims is determined.




The Company is considered an exploration stage company under criteria of the Securities and Exchange Commission (the "SEC") because it has not demonstrated the existence of proven or probable reserves at its claims. Accordingly, as required under SEC guidelines and United States generally accepted accounting principles ("U.S. GAAP") for companies in the exploration stage, all of the Company's investments in mining properties to date have been expensed as incurred and therefore do not appear as assets on its balance sheet. The Company expects exploration expenditures will continue during 2015 and subsequent years. The Company expects to remain an exploration stage company for the foreseeable future. The Company will not exit the exploration stage until such time as the Company demonstrates the existence of proven or probable reserves that meet SEC guidelines. Likewise, unless mineralized material is classified as proven or probable reserves, all expenditures for mine exploration and construction will continue to be expensed as incurred.




The Company's principal source of liquidity for the next several years will be the continued raising of capital through the issuance of equity or debt securities and the exercise of warrants. The Company plans to raise funds for each step of a project and, as each step is successfully completed, raise the capital for the next phase of the project. The Company believes this will reduce the cost of capital as compared to trying to raise all of the anticipated capital at once up front. However, since the Company's ability to raise additional capital will be affected by many factors, most of which are not within the Company's control, no assurance can be given that the Company will in fact be able to raise the additional capital as needed.




On January 28, 2014, the Company entered into a binding letter of intent to sell the common stock of Media Depot, Inc., the Company’s media business subsidiary, and certain related media assets of the Company to Michael D. Parnell, the Company’s former Chief Executive Officer, National Accounts Director and a Director, or an affiliate of Mr. Parnell.  On May 12, 2014, the Company completed the sale of the media business to an affiliate of Mr. Parnell effective January 1, 2014.  See Note 4 and Note 13 for additional information regarding the sale of the media business.




On July 18, 2011, the Company entered into an agreement to acquire U.S. Rare Earths, Inc., a Delaware corporation, and the acquisition closed on August 22, 2011.In connection with the acquisition, the Company changed its corporate name to U.S. Rare Earths, Inc.




On December 15, 2010, the Company entered into an agreement to acquire certain mining claims located in Gunnison, Freemont and Saguache Counties, Colorado.




The Company was incorporated in the State of Delaware on July 27, 1999 and changed its domicile to the State of Nevada in December 2007.  The Company’s principal executive offices are located at 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024. The telephone number is 972-294-7116.  The Company’s principal website address is located atwww.usrareearths.com. The information contained on, or that can be accessed through, its website is not incorporated into and is not a part of this Annual Report on Form 10-K. The Company has included its website address in this Annual Report on Form 10-K solely as an inactive textual reference.




F-6




Liquidity and Going Concern




To date, the Company had no revenues from its rare-earth elements claims.




At December 31, 2014, the Company had cash of $142,540 and a working capital deficit of $3,045,999. At December 31, 2013, the Company had cash of $2,216,102 and a working capital deficit of $2,033,090. This decrease in cash was due primarily to repurchases of shares and operating losses during the year ended December 31, 2014. During the year ended December 31, 2014, the Company raised $1,902,500 through the sale of its common stock and warrants. During the year ended December 31, 2013, the Company raised $6,280,000 through the sale of its common stock, options and the issuance of notes. The Company expects the discontinuation of the media business to provide an immaterial improvement to its cash flow since its operating expenses exceeded revenues for each of the last two fiscal years.




The Company’s business plan calls for significant expenses in connection with the exploration and development of the claims and the Company has budgeted expenditures for the next twelve months of approximately $9 million. To date, the Company has principally financed its operations through the sale of its common stock and the issuance of debt. The Company does not currently have sufficient funds to conduct continued exploration on its claims and requires additional financing in order to determine whether the claims contain economically viable quantities of reserves of rare-earth elements. The Company will also require additional financing if the costs of the exploration of the claims are greater than anticipated. The Company will also require additional financing to sustain its business operations if it is not successful in earning revenues once exploration is complete.  Obtaining additional financing would be subject to a number of factors, including the market prices for rare-earth elements, investor acceptance of its properties and general market conditions.  These factors may make the timing, amount, terms or conditions of additional financing unavailable to the Company.




Financing transactions may include the issuance of equity or debt securities of the Company, obtaining credit facilities, or other financing mechanisms.  However, the Company cannot assure that additional financing will be available when needed on favorable terms, or at all. Even if the Company is able to raise the funds required, it is possible that the Company could incur unexpected costs and expenses or experience unexpected cash requirements that would force the Company to seek alternative financing. Furthermore, if the Company issues additional equity or debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or privileges senior to those of existing holders of its common stock. The inability to obtain additional capital will restrict the Company's ability to grow and will impact its ability to continue to conduct business operations. If the Company is unable to obtain additional financing, it will have to curtail its plans and possibly cease operations.




If reserves of rare-earth elements are identified in economically-viable quantities, additional capital will be needed to actually develop and mine those reserves. Even if economic reserves are found, the Company will not be able to develop its mining operations should it be unable to obtain the necessary financing.




Going Concern




The Company's accountants have expressed doubt about its ability to continue as a going concern as a result of the Company's history of net losses. The Company's ability to achieve and maintain profitability and positive cash flow is dependent upon its ability to successfully execute the above plans. The outcome of these matters cannot be predicted at this time. These consolidated financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue its business.







F-7




NOTE 2. SIGNIFICANT ACCOUNTING POLICIES




This summary of significant accounting policies of the Company is presented to assist in understanding the Company's consolidated financial statements. The consolidated financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States, and have been consistently applied in the preparation of the consolidated financial statements.




Accounting Method




The Company’s consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States.




Principles of Consolidation




These consolidated financial statements include the Company’s consolidated financial position, results of operations, and cash flows. All material intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. The Consolidated Subsidiaries of U.S. Rare Earths, Inc. during 2014 and 2013 include Seaglass Holding Corp., Media Depot, Inc. and Media Max, Inc.  The operations and financial positions of Media Depot, Inc. and Media Max, Inc. are included in discontinued operations for 2013.


Cash and Cash Equivalents




The Company classifies highly liquid temporary investments with an original maturity of three months or less when purchased as cash equivalents. The Company maintains cash balances at various financial institutions. Balances at U.S. banks are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk for cash on deposit. As of December 31, 2014, the Company had $0 in uninsured cash amounts.




Deferred Financing Costs




Deferred financing costs consist of specific, incremental capitalized costs directly attributable to a proposed offering of securities.  In the event of a successful public offering, these deferred costs will be charged against the gross proceeds of the offering in additional paid-in capital.  In the event the offering is abandoned, any capitalized costs will be charged to expense in the period in which the offering is abandoned.




Property and Equipment




Equipment consists of machinery, furniture, fixtures and software, which are stated at cost less accumulated depreciation and amortization. Depreciation is computed by the straight-line method over the estimated useful lives or lease period of the relevant asset, generally five to seven years.




Mineral Rights




Costs of acquiring mineral rights are capitalized by project area upon purchase of the associated claims. Costs to maintain the mineral rights and leases are expensed as incurred.  When a property reaches the production stage, the related capitalized costs will be amortized, using the units of production method on the basis of periodic estimates of ore reserves.




Long-Lived Assets




The Company reviews its long-lived assets for impairment annually or when changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Long-lived assets under certain circumstances are reported at the lower of carrying amount or fair value. Assets held for disposal and assets not expected to provide any future service potential to the Company are recorded at the lower of carrying amount or fair value (less the projected costs associated with selling the asset).  To the extent carrying values exceed fair values, an impairment loss is recognized in operating results.




F-8




Value Measurements and Financial Instruments




ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value.  The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs).  The hierarchy consists of three levels:




Level 1 – Quoted prices in active markets for identical assets and liabilities;Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; andLevel 3 – Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.





The risk-free rate of return reflects the interest rate for the United States Treasury Note with similar time-to-maturity to that of the warrants.




The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses, approximate the fair value of the respective assets and liabilities at December 31, 2014 and 2013 based upon the short-term nature of the assets and liabilities.




Mineral Exploration and Development Costs




All exploration expenditures are expensed as incurred. Exploration expenditures include direct exploration costs, as well as certain indirect costs allocated to exploration expense. Significant acquisition payments for active exploration rights are capitalized. If no minable ore body is discovered, previously capitalized costs are expensed in the period the exploration right is abandoned.




Should a property be abandoned, its capitalized costs are charged to operations.  The Company charges to operations the allocable portion of capitalized costs attributable to exploration rights abandoned.  Capitalized costs are allocated to rights sold based on the proportion of claims sold to the claims remaining within the project area.




Stock-Based Compensation




The Company has share-based compensation plans under which non-employees, consultants and suppliers may be granted restricted stock, as well as options to purchase shares of Company common stock at the fair market value at the time of grant. Stock-based compensation cost is measured by the Company at the grant date, based on the fair value of the award over the requisite service period. For options issued to employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit. Grants of stock options and stock to non-employees and other parties are accounted for in accordance with ASC 505. The Company recorded equity-based costs for non-employees, consultants and suppliers of $129,500 during the year ended December 31, 2014. The Company recorded equity-based costs for non-employees, consultants and suppliers of $0 during the year ended December 31, 2013.




The Company applies ASC 718 for options, common stock and other equity-based grants to its employees and directors. ASC 718 requires measurement of all employee equity-based payment awards using a fair-value method and recording of such expense in the consolidated financial statements over the requisite service period.  The fair value concepts have not changed significantly in ASC 718; however, in adopting this standard, companies must choose among alternative valuation models and amortization assumptions.  After assessing alternative valuation models and amortization assumptions, the Company will continue using both the Black-Scholes valuation model and straight-line amortization of compensation expense over the requisite service period for each separately vesting portion of the grant.  The Company recorded equity-based costs for employees and directors of $3,650,022 for the year ended December 31, 2014.  The Company recorded equity-based costs for employees and directors of $0 during the year ended December 31, 2013.




F-9




Provision for Income Taxes




The Company accounts for income taxes under the liability method, whereby deferred income tax liabilities or assets at the end of each period are determined using the tax rate expected to be in effect when the taxes are actually paid or recovered. A valuation allowance is recognized on deferred tax assets when it is more likely than not that some or all of these deferred tax assets will not be realized. The policy is to prescribe a recognition threshold and measurement attribute for the recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company has analyzed its filing positions in all jurisdictions where it is required to file returns, and found no positions that would require a liability for unrecognized income tax positions to be recognized. The Company is subject to tax examinations. In the event that it is assessed penalties and or interest, penalties will be charged to other financing expense and interest will be charged to interest expense.


Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes.




Net Loss Per Share




Basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding for the periods presented. Diluted net loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that would then share in the income of the Company, subject to anti-dilution limitations. As of December 31, 2014, the Company had issued warrants for the purchase of 1,154,234 common shares and an option to purchase 1,000,000 shares that were not included in the computation of loss per share at December 31, 2014 because they would have been anti-dilutive. As of December 31, 2013, the Company had issued warrants for the purchase of 982,363 and an option to purchase 1,000,000 shares that were not included in the computation of loss per share at December 31, 2013 because they would have been anti-dilutive.




Use of Estimates




The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent 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.




Reclassification




Management has determined certain costs should be reclassified between selling, general and administrative and exploration expense in 2014.  Certain amounts from prior periods have been reclassified to make the prior periods comparable to the current periods.  For the year ended December 31, 2013, $481,407 was reclassified to exploration expense from selling, general and administrative expense. These reclassifications have no impact on net income, earnings per share, retained earnings, or results of continuing operations.




Reverse Stock Split




The Company's board of directors and majority shareholders approved an amendment to the Company's articles of incorporation to effect a reverse stock split of the Company's common stock at a ratio between 1-for-2 and 1-for-3. The Company's shareholders further authorized the board of directors to determine the ratio at which the reverse stock split would be effected. On October 2, 2014, the Company's board of directors authorized that the ratio of the reverse split be set at 1-for-3. On December 16, 2014, the Company amended its articles of incorporation to effect the reverse stock split at a ratio of 1-for-3. All the relevant information relating to numbers of shares and per share information contained in these consolidated financial statements has been retrospectively adjusted to reflect the reverse stock split for all periods presented.




F-10




Recent Accounting Pronouncements




A variety of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, management has not determined whether implementation of such proposed standards would be material to its consolidated financial statements.




In February 2013, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2013-04, Liabilities (Topic 405), which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations.  ASU 2013-04 is effective for fiscal years beginning after December 15, 2013, which is effective for the Company’s first quarter of fiscal year 2015.  The adoption of ASU 2013-04 did not have a material effect on the Company’s consolidated financial statements.




In April 2014, the FASB issued ASU 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.  Under ASU 2014-08, only disposals representing a strategic shift in operations should be presented as discontinued operations.  Those strategic shifts should have a major effect on the organization’s operations and financial results.  Additionally, ASU 2014-08 requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.  ASU 2014-08 is effective for fiscal and interim periods beginning on or after December 15, 2014.  The impact of the adoption of this ASU on the Company’s results of operation, financial position, cash flows and disclosures will be based on the Company’s future disposal activity.




In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides that an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, which is effective for the Company’s first quarter of fiscal year 2017. Currently, the Company is an Exploration Stage Company and does not have revenue or contracts with customers. Therefore, the Company does not believe the adoption of ASU 2013-09 will have a material effect on the Company’s consolidated financial statements. The Company will continue to assess any potential impact on its financial statements from the adoption of ASU 2014-09.




In June 2014, the FASB issued ASU No. 2014-10, which amended Accounting Standards Codification (“ASC”) Topic 915 Development Stage Entities. The amendment eliminates certain financial reporting requirements surrounding development stage entities, including an amendment to the variable interest entities guidance in ASC Topic 810, Consolidation. The amendment removes the definition of a development stage entity from the ASC, thereby removing the financial reporting distinction between development stage entities and other entities from U.S. GAAP. Consequently, the amendment eliminates the requirements for development stage entities to (1) present inception-to-date information in the statements of income, cash flows and shareholder equity, (2) label the financial statements as those of a development stage entity, (3) disclose a description of the development stage activities in which the entity is engaged, and (4) disclose the first year in which the entity is no longer a development stage entity that in prior years it had been in the development stage.




This amendment is effective for fiscal years beginning after December 15, 2014, and interim periods therein. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued. The Company has made the election to early adopt this amendment effective June 30, 2014 and, as a result, the Company is no longer presenting or disclosing the information previously required under Topic 915. The early adoption was made to reduce data maintenance by removing all incremental financial reporting requirements for development stage entities. The adoption of this amendment alters the disclosure requirements of the Company, but it does not have any material impact on the Company’s financial position or results of operations for the current or any prior reporting periods.




In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Topic 205), which provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Specifically, in connection with the preparation of annual and interim financial statements, an entity’s management should evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the date the financial statements are issued, or within one year after the date that the financial statements are available to be issued, when applicable. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016, which is effective for the Company’s first quarter of fiscal year 2016. The opinion of the Company’s independent registered public accounting firm on the Company’s audited financial statements as of and for the year ended December 31, 2014 contains an explanatory paragraph regarding substantial doubt about the Company’s ability to continue as a going concern. The Company will continue to assess any potential impact on its financial statements from the adoption of ASU 2014-15.




In November 2014, the FASB issued ASU 2014-16, Determining whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is More Akin to Debt or to Equity (Topic 815), which clarifies how current GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share.  Specifically, the amendments clarify that an entity should consider all relevant terms and features – including the embedded derivative feature being evaluated for bifurcation – in evaluating the host contract.  The amendments also clarify that the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument.  Finally, the amendments clarify that in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features when considering how to weight the terms and features.  ASU 2014-16 is effective for annual and interim reporting periods beginning after December 15, 2015, which is effective for the Company’s first quarter of fiscal year 2016.  Early adoption in interim and annual periods is permitted.  Currently the Company does not have such contracts or financial instruments. Therefore, the Company does not believe the adoption of ASU 2014-16 will have a material effect on the Company’s consolidated financial statements. The Company will continue to assess any potential impact on its financial statements from the adoption of ASU 2014-16.




F-11




NOTE 3. ACQUISITIONS




Idaho and Montana Assets – Part of the UREE (Delaware Merger)




On July 18, 2011, the Company entered into an Agreement of Plan and Merger (the “Merger Agreement”) to acquire U.S. Rare Earths, Inc., a Delaware corporation, and the acquisition closed on August 22, 2011. As part of the acquisition, the Company acquired rights to 583 unpatented lode mining claims located in Lemhi County, Idaho and 56 unpatented lode mining claims located in Beaverhead and Ravalli Counties, Montana. The mineral claims cover approximately 9,600 acres that are believed to be on, near or adjacent to anomalous values of rare earth elements.




Pursuant to the terms of the Merger Agreement, stockholders of the Delaware entity exchanged 100% of their outstanding common stock for 1,666,667 unregistered shares of the Company’s common stock valued at $8.55 per share. As part of the acquisition price, the Company also assumed a note payable in the amount of $1,418,719 and certain other accounts payable totaling $16,817. At closing, the Company paid $500,000 related to the notes payable.




The Company was not able to obtain a valuation of the properties, assigned a fair value to the claims of $0, and recorded an impairment expense of $15,678,000 for the year ended December 31, 2011.




Colorado Assets - Part of the Seaglass Holding Corp Merger




On December 15, 2010, the Company entered into an Agreement of Plan and Merger with Seaglass Holding Corp (the “Seaglass Merger Agreement”). As part of the acquisition of Seaglass, the Company acquired rights to 611 unpatented lode mining claims that cover approximately 12,200 acres of land in Fremont, Gunnison and Saguache Counties, Colorado. The Company believes the mineral claims are on, near or adjacent to anomalous values of rare-earth elements.  Pursuant to the terms of the Seaglass Merger Agreement, the stockholders of Seaglass exchanged 100% of the outstanding common stock of Seaglass for 1,966,667 unregistered shares of the Company’s common stock valued at $1.50 per share, or $2,950,000. An independent evaluation was performed by a licensed professional engineer to estimate the fair market value of the claims on the date of acquisition. Based on this report, the Company assigned a fair value to the claims of $326,000 and recorded an impairment expense of $2,624,000 for the year ended December 31, 2010. An impairment expense of $326,000 was recorded for the year ended December 31, 2013.




The Company has no reported mineral reserves and all activities are exploratory in nature. Any mineral reserves will only come from extensive additional exploration, engineering, and evaluation of existing or future mineral claims. All costs have been recorded as exploration expenses.




F-12




NOTE 4. DISCONTINUED OEPRATIONS




On January 28, 2014, the Company entered into a binding letter of intent to sell the common stock of Media Depot, Inc., the Company’s media business subsidiary, and certain related media assets of the Company to Michael D. Parnell, the Company’s former Chief Executive Officer, National Accounts Director and a Director of the Company.  On May 12, 2014, the Company completed the sale of the media business to an affiliate of Mr. Parnell effective January 1, 2014.  See Note 13 for additional information regarding the sale of the media business. As a result of the completed sale, the financials of the media business have been excluded from the financial statements for the year ended December 31, 2014.




The Company has identified the assets and liabilities attributed to the media business.  Assets and liabilities as of December 31, 2013 attributed to the business are as follows:




Assets from discontinued operations




December 31,2013Accounts receivable, net

$
98,374Equipment, net


13,145Total assets from discontinued operations

$
111,519
 
 Liabilities from discontinued operations
  December 31,2013Accounts payable and accrued expenses

$
180,178Deferred revenue


521Total liabilities from discontinued operations

$
180,699





Income (loss) attributed to the media business for the years ended December 31, 2014 and 2013 were as follows:




Income from discontinued operations




Years Ended,December 31,


December 31,2014


2013Revenues from discontinued operations

$
-


$
1,907,903Cost of revenues


-



(1,727,534
)Selling, general and administrative expenses


-



(237,298
)Interest expense


-



(727
)Other expense


-



(286
)Gain on disposal of discontinued operations


1,230



-Income from discontinued operations before taxes


1,230



(57,942
)Income tax expense


-



-Income from discontinued operations

$
1,230


$
(57,942
)






F-13




The Company does not believe there is an effect of income taxes on discontinued operations. Due to ongoing operating losses, the uncertainty of future profitability and limitations on the utilization of net operating loss carry-forwards under Internal Revenue Code Section 382, a valuation allowance has been recorded to fully offset the Company’s deferred tax asset.




NOTE 5. EQUIPMENT, NET




Equipment, net consists of the following:




Estimated

December 31,


December 31,Useful Lives

2014


2013Office equipment
5 years

$
50,496


$
26,354Mining and other equipment
5-7 years


131,218



131,218Less: accumulated depreciation



(72,424
)


(44,040
)$
109,290


$
113,532





Depreciation expense for the years ended December 31, 2014 and 2013 was $28,384 and $20,721, respectively.




NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES




Accounts Payable




Accounts payable were $2,497,401 and $1,682,226 as of December 31, 2014 and December 31, 2013, respectively. Such liabilities consisted of amounts due to vendors for legal expenses, mining expenditures, external audit and other expenses incurred by the Company.




Related Party Payable and Accrued Expenses




Related party payable and accrued expenses as of December 31, 2014 and December 31, 2013 reflected the following:




December 31,


December 31,2014


2013Related party payables due to Kevin Cassidyfor amounts paid on behalf of UREE

$
903


$
-Related party payables due to CRE Cloud Solutionsfor services


3,248



-Related party payables due to Lattimore Properties, Inc.for amounts paid on behalf of UREE


74,230



80,470Related party payables due to Logic International Consulting Groupfor services


208,959



-$
287,340


$
80,470





F-14




Accrued Employee Taxes




During the years ended December 31, 2011 and 2012, the Company did not report stock-based compensation on Form 1099 or W-2, which amounted to $8,654,149 and $713,594 respectively. During the year ended December 31, 2013, the Company processed compensation to its chief executive officer as an independent contractor under Form 1099 instead of processing it as payroll under Form W-2. The Company recorded $271,602 as accounts payable as of December 31, 2014 for FICA costs for the years ended December 31, 2011, 2012 and 2013. The Company has accrued interest and penalties of $49,917 related to the taxes due to the Internal Revenue Service. Of this amount, interest of $22,757 is included in accrued interest, and penalties of $27,160 are included in other current liabilities.All stock-based compensation to officers, employees and independent contractors was recorded at their grant date fair market value in the financial statements for the years ended December 31, 2013, 2012 and 2011.




NOTE 7. SHARE REPURCHASE OBLIGATIONS




The Company had share repurchase obligations of $240,000 and $2,268,999 as of December 31, 2014 and December 31, 2013, respectively. The Company acquired 756,333 shares of its common stock at $3.00 per share during the year ended December 31, 2013with a portion of the payment in the amount of $1,344,999 made during the quarter ended March 31, 2014 and the balance of $924,000 then currently due and payable.  On December 31, 2014, the Company issued 301,334 shares of common stock in exchange for a the extinguishment of $904,000 of the $924,000 in share repurchase obligations. In addition, during the year ended December 31, 2014, the Company agreed to purchase from an existing stockholder an aggregate of 66,667 shares of the Company's common stock for the amount of $220,000, which is currently due and payable. The remaining amount of $240,000 is due and payable. The Company intends to satisfy this balance from proceeds of future financings of the Company from time to time.




NOTE 8. SHORT-TERM NOTES PAYABLE




Short-term notes payable were $106,490 and $0 as of December 31, 2014 and December 31, 2013, respectively. Such notes payable for December 31, 2014 consisted of a note payable related to the Company’s financing of D&O insurance coverage.  The original loan amount was $190,251, and is to be repaid in monthly installments starting in September 2014 through May 2015 at an annual interest rate of 4.49%. For the year ended December 31, 2014, the Company has repaid $83,761 of the loan amount.




NOTE 9. LEGAL SETTLEMENT LIABILITIES




Legal settlement liabilities were $367,000 and $0 as of December 31, 2014 and December 31, 2013, respectively. Such liabilities for December 31, 2014 consisted of $295,000 in business and legal expense reimbursements and $72,000 in office expenses payable pursuant to the 2013 legal settlement.




NOTE 10. OTHER CURRENT LIABILITIES




Other current liabilities were $27,160 and $0 as of December 31, 2014 and December 31, 2013, respectively.  In December 2014, the Company was notified by the IRS that penalties would apply to past due payroll tax liabilities related to the stock-based compensation awarded during the years ended December 31, 2011 and 2012, for which the Company did not report or withhold payroll taxes.  Based on the notice received from the IRS, the Company accrued $27,160 in penalties.




NOTE 11. RELATED PARTY TRANSACTIONS




Properties




The Company’s principal executive offices were located at 5600 Tennyson Parkway, Suite 190, Plano, Texas 75024 during 2013. This office was shared with John Victor Lattimore, Jr., Chairman of the Company’s board of directors, and entities affiliated with Mr. Lattimore on a rent-free basis. On January 20, 2014, the Company leased 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024 and no longer shares offices with Mr. Lattimore or his affiliates.




The Company maintained an office at 12 Gunnebo Drive, Lonoke, Arkansas 72086 for the Company’s former media business, which consisted of 4,000 sq. ft. of office space. The office was leased for $916 per month, and the Company leased the office on a month-to-month basis. The facilities were owned by the J.S. Parnell Trust, of which Mr. Parnell, the former Chief Executive Officer, National Account Director and a Director of the Company, was trustee. The Company also maintained an office at 12 North Washington Street, Montoursville, Pennsylvania 17754 for the former media business which consisted of 4,000 sq. ft. of office space. The office was leased from the Hoff Family Limited Partnership, which was controlled by the wife of Matthew Hoff, a stockholder and former employee of the Company. Lease payments were $2,000 per month, and the Company leased the office on a month-to-month basis. Both of these leases were assumed by an affiliate of Mr. Parnell in connection with the sale of the media business. See Note 4.




Since January 1, 2013, the Company has rented office space from Logic at 711 Fifth Avenue, 16th Floor, New York, New York 10022, which since May 1, 2013 has been on a month-to-month basis. Between January 1, 2013 and May 30, 2013, the Company paid rent of $3,750 per month, and as of June 1, 2013 the Company’s rent is $9,250 per month.




F-15




Notes with Affiliates of John Victor Lattimore, Jr.




Unique Materials September 13, 2012 Note




On September 13, 2012, the Company entered into a Secured Convertible Promissory Note (the “September Note”) with Unique Materials LLC (“Unique Materials”), a Texas LLC affiliated with John Victor Lattimore, Jr., Chairman of the Company’s board of directors, pursuant to which the Company borrowed $650,000 at 5% per annum interest from Unique Materials.




Under the terms of the September Note, the principal and unpaid accrued interest was due the earlier of September 15, 2015 or conversion into Company common stock at the demand of the holder at $8.55 per share. The September Note included a demand payment if the Chairman, President or Vice President or 20% or more of the Company’s board of directors was changed after September 13, 2012. The September Note was secured by all mineral claims, real properties, fixed assets, inventory and accounts receivable.




On June 28, 2013, Unique Materials converted the outstanding principal due under the September Note, together with interest of $25,644, into 225,215 shares of the Company’s common stock at $3.00 per share. The fair value of the stock on the date of conversion was $4.95, and the Company recorded the difference between the conversion price and the fair value of $439,169 as loss on settlement of debt.




Unique Materials November 20, 2012 Note




On November 20, 2012, the Company entered into an unsecured Promissory Note (the “November Note”) with Unique Materials maturing on November 20, 2015, pursuant to which the Company borrowed $250,000 at 5% per annum interest from Unique Materials.




On June 28, 2013, Unique Materials converted the outstanding principal due under the November Note, together with interest of $7,534, into 85,845 shares of the Company’s common stock at $3.00 per share. The fair value of the stock on the date of conversion was $4.95, and the Company recorded the difference between the conversion price and the fair value of $167,397 as loss on settlement of debt.




Unique Materials February 4, 2013 Note




On February 4, 2013, the Company entered into an unsecured Promissory Note (the “February Note”) with Unique Materials maturing on February 4, 2016, pursuant to which the Company borrowed $150,000 at 5% per annum interest from Unique Materials.




On June 28, 2013, Unique Materials converted the outstanding principal due under the February Note, together with interest of $2,950, into 50,984 shares of its common stock at $3.00 per share. The fair value of the stock on the date of conversion was $4.95, and the Company recorded the difference between the conversion price and the fair value of $99,418 as loss on settlement of debt.




F-16




John and Mark Family Limited Partnership Note




On May 21, 2013, the Company entered into an unsecured Promissory Note (the “May Note”) with the John and Mark Family Limited Partnership (the “Partnership”), a Texas limited partnership affiliated with John Victor Lattimore, Jr., Chairman of the Company’s board of directors, pursuant to which the Company borrowed $100,000 at 5% per annum interest from the Partnership. The May Note originally matured on June 30, 2013, and on June 30, 2013 the maturity date was extended to December 31, 2013.




In substitution of the May Note, on June 30, 2013, the Partnership entered into a secured Promissory Note in the principal amount of $100,000 bearing interest at 5% per annum and a maturity date of December 31, 2013 (the “June Note”). The June Note was secured by all mineral claims, real properties, fixed assets, inventory and accounts receivable, and the proceeds.




On August 22, 2013, the Partnership converted the June Note into 22,223 shares of the Company’s common stock at $4.50 per share and waived the interest due on the May Note. The fair market value of the Company common stock on August 22, 2013 was $7.05 per share, and the Company recorded a loss on debt settlement of $56,667, which equals the difference between the fair market value of the shares on the date of conversion and the conversion price. In connection with the conversion, the Partnership executed a Release of Mortgage and cancelled all security related to the Company’s real property and other assets.




Settlement Agreement




In August 2012 a dispute arose out of an attempt by a group of shareholders—H. Deworth Williams, Edward Cowle and an affiliated entity—to take control of the Company by a written consent by purportedly removing Daniel McGroarty, Greg Schifrin and Kevin Cassidy from the board of directors and purportedly re-electing John Victor Lattimore, Jr., H. Deworth Williams, Edward Cowle, Michael Parnell, and Harvey Kaye. At the time, Messrs. Williams and Cowle were members of the Company’s board and were affiliates of the Company prior to the time that the Company began acquiring its rare earth mining claims in 2010.




On September 12, 2012, the Company filed an action in the Eighth Judicial District Court, Clark County, Nevada (the “Nevada Action”) entitled U.S. Rare Earths, Inc. v. Williams et al., Case No. A668230-B, challenging the validity and effectiveness of the written consent. On September 17, 2012, the Court in the Nevada Action issued a Temporary Restraining Order, or TRO, prohibiting any meetings of the Company’s board of directors from taking place and prohibiting any persons from holding themselves out as members of its board of directors. On October 22, 2012, the Court in the Nevada Action issued a Preliminary Injunction mirroring the prohibitions of the TRO and appointing a Special Master to assist in (a) identifying those persons who are entitled to be considered stockholders, and (b) bringing about a stockholders meeting to address the composition of its board of directors. The Court further decreed that no person was entitled to take any action on the Company’s behalf other than in the ordinary course of business pending a meeting of stockholders to be effectuated by the Special Master to be appointed by the Court for purposes of establishing a board of directors and the composition thereof.




On February 6, 2013, all of the parties in the Nevada Action entered into a Stipulation and Order to Modify the Preliminary Injunction, (the “Stipulation”) to facilitate the interim operations of the Company. The Stipulation modified the Preliminary Injunction with respect to the Company’s board of directors as follows: (a) the parties agreed that Kevin Cassidy, Daniel McGroarty, John Victor Lattimore, Jr., Winston Marshall, and Michael Parnell would comprise the members of its board of directors (the “Provisional Board”), pending the election of directors by the stockholders at a duly called and held stockholders’ meeting; (b) Edward Cowle would be immediately reinstated as a member of the Provisional Board; (c) the Provisional Board would not ratify or approve any action of the purported board undertaken between August 23, 2012 and October 11, 2012; and (d) the Provisional Board would not issue any additional shares of its stock to any person without reasonable cash consideration unless all parties to the Nevada Action consented to such issuance.




In addition to the Nevada Action, a parallel action was filed by H. Deworth Williams and Edward F. Cowle against the Company (the “Utah Action”), entitled Williams et al. v. U.S. Rare Earths, Inc. (Case No. 2:12-cv-00905). The Utah Action sought a writ of mandamus directing the Company to immediately recognize the written consent.




F-17




On March 27, 2013, the parties in the Nevada Action and the Utah Action entered into a Settlement Agreement and General Release (the “Settlement Agreement”), which was approved on June 5, 2013 by the Eighth Judicial District Court, Clark County, Nevada, pursuant to which the parties agreed: (a) to dismiss the pending Nevada Action and Utah Action and to release all claims against one another in those actions; (b) to release any claims pertaining to its sale of 681,817 shares of Company common stock sold to Lattimore Properties, Inc. (“Lattimore Properties”) on September 12, 2012 at a price of $0.81 per share for a total of $550,000; (c) to release any claims pertaining to the issuance of a convertible secured promissory note to Unique Materials, LLC on September 13, 2012 for $650,000 at 5% interest, convertible into Company common stock at not less than $3.00 per share; (d) to enter into a Stock Purchase Agreement pursuant to which H. Deworth Williams, Edward Cowle and Geoff Williams, or the Sellers, will sell 333,334 shares of Company common stock owned by the Sellers to John Victor Lattimore, Jr. or his affiliates for a total purchase price of $1,000,000; (e) to compensate Kevin Cassidy and his affiliated companies, including Logic International Consulting Group, LLC, known as Logic, with which the Company has an ongoing relationship, for their consulting services in connection with the settlement by issuing to them 1,000,000 shares of Company common stock plus a convertible unsecured promissory note for $650,000, convertible into common stock at a conversion price of $3.00 per share; (f) to grant to defendants H. Deworth Williams, Edward Cowle, Geoff Williams, Blue Cap Development Corp. and their affiliated entity, Thorium Energy, Inc., a right of first refusal—consistent with the terms and conditions put forth by a bona fide third-party commercial bidder to be determined by the parties—for a period of 10 years with respect to a contract for the disposition of thorium in connection with the Company’s mining of rare earth elements on its Lemhi Pass claims; and (g) to issue to John Victor Lattimore, Jr. or one of his affiliated companies an option to purchase up to 1,000,000 shares of Company common stock at a price of $3.00 per share and upon such other terms as are determined by the Company’s board of directors.




The Settlement Agreement also contained certain contingent agreements, which were conditioned upon the Company’s completion of a stock offering and/or PIPE transaction of more than $6,000,000 in the aggregate by the end of 2015. If the Company successfully completes such a stock offering and/or PIPE transaction, it has agreed to: (a) assume and maintain the lease of certain offices of the Company located in Salt Lake City, Utah; (b) reimburse H. Deworth Williams for certain business costs and expenses incurred for the benefit of the Company in an amount not to exceed $145,000; (c) reimburse defendants H. Deworth Williams, Edward Cowle, Geoff Williams and Blue Cap Development Corp. for their costs and fees incurred in the Nevada Action and the Utah Action in an amount not to exceed $150,000; (d) to retrieve or “claw back” not less than 700,000  shares of Company common stock that were authorized for issuance to Michael Parnell, Matthew Hoff, H. Deworth Williams, Winston Marshall, Greg Schifrin, Geoff Williams and Edward Cowle for non-cash consideration and future services; and (e) to employ Edward Cowle as a senior level executive with the company.




As part of the Settlement Agreement, the parties also agreed to enter into a Voting Shareholder Agreement pursuant to which the parties will vote their respective shares to ensure that the size of its board of directors will remain at seven members (unless increased pursuant to the Company’s bylaws or by applicable Nevada law), with (a) five members to be nominated by the Lattimore Shareholder Group (consisting of John Victor Lattimore Jr., Unique Materials LLC, Michael Parnell, Matthew Hoff, Kevin Cassidy, Daniel McGroarty and Winston Marshall), two of whom shall be independent directors; and (b) two members to be nominated by the Blue Cap Shareholder Group (consisting of Edward Cowle, H. Deworth Williams, Geoff Williams, Blue Cap Development Corp., and Children’s International Obesity Fund, Inc.).




Pursuant to the terms of the Settlement Agreement, the Company agreed to issue 1,000,000 shares of its common stock at a price of $3.00 per share to Kevin Cassidy, Logic, and James J. Cahill, the managing director and registered principal of Agincourt Capital, LLC, an affiliate of Logic, as compensation for the consulting services rendered during the term of the litigation. On October 7, 2013, the Company issued 1,000,000 shares of common stock to Kevin Cassidy, controlling owner of Logic, as payment in full for the accrued liability associated with the consulting services. As a part of the audit of the Company’s financial statements for the year ended December 31, 2013, management determined that the issuance of shares for payment of services should have been recorded June 5, 2013. As a result, the Company valued the 1,000,000 shares at the June 5, 2013 closing price of Company common stock of $5.82 per share and expensed an additional $2,820,000 for a total liability of $5,820,000 during the three months ended June 30, 2013. The Company also reclassified the original accrual of $3,000,000 related to the transaction by reducing the amount of loss on debt settlement (where the value of the transaction had been booked) by $3,000,000 (from $4,225,983 to $1,225,983) and recorded $5,820,000 to loss on legal settlement.




F-18




Conversion of Liability with Logic International Consulting Group, LLC and Kevin Cassidy




On June 28, 2013, Logic converted liabilities of $800,000 into 266,667 shares of common stock at $3.00 per share. The fair value of the stock on the date of conversion was $4.95, and the Company recorded the difference between the conversion price and the fair value of $520,000 as loss on settlement of debt.




Lattimore Option




On March 8, 2013, the Company entered into an Option Purchase Agreement with Lattimore Properties, pursuant to which it granted Lattimore Properties a three-year option to purchase up to 1,000,000 shares of its common stock, at $3.00 per share, for a purchase price of $75,000. The effectiveness of the option was conditioned on approval of the Settlement Agreement. Subsequent to the approval of the Settlement Agreement, the option had not been exercised as of December 31, 2014.




Repurchase Options




The Company entered into repurchase option agreements with existing stockholders, including Harvey Kaye, Edward Cowle, H. Deworth Williams, Daniel McGroarty, and an affiliate of Michael Parnell, under which it (i) acquired 33,334 shares of the Company’s common stock at $3.00 per share during September 2013, (ii) acquired 317,334 shares of the Company’s common stock at $3.00 per share during October 2013, and (iii) acquired 756,333 shares of the Company’s common stock at $3.00 per share during December 31, 2013 with a portion of the payment in the amount of $1,344,999 made during the quarter ended March 31, 2014 and the balance of $924,000 which was then due and payable. On December 31, 2014, the Company re-issued 301,334 shares of common stock in exchange for the extinguishment of $904,000 of the $924,000 that was due and payable. The Company also obtained the right from Mr. McGroarty, to acquire up to 266,667 shares of the Company’s common stock at $3.00 per share until April 30, 2014. The foregoing option was not exercised and on September 15, 2014, the Company agreed with Mr. McGroarty to repurchase 16,667 shares of its common stock by September 22, 2014 at $3.30 per share and 50,000 shares of the Company’s common stock by October 15, 2014 at $3.30 per share and were granted an option to repurchase 133,334 shares of the Company’s common stock at $3.30 per share on or before January 1, 2015. As of February 27, 2015, the Company had not repurchased these shares and the balance of $220,000 is currently due and payable. See Note 13. In addition, the Company obtained the right from Matthew Hoff and his affiliate to acquire up to 266,667 shares of the Company’s common stock at $3.30 per share until December 31, 2014 and the Company further obtained the right from an affiliate of Michael Parnell to acquire up to 266,667 shares  of its common stock at $3.00 per share until December 31, 2014, both of which have expired. The Company intends to satisfy the remaining repurchase obligations of $240,000 from proceeds of future financings from time to time. The Company intends to satisfy this balance from proceeds of future financings of the Company from time to time.




Warrants or Other Rights Issued to Affiliates




On March 21, 2013, Diane Cassidy, sister of Kevin Cassidy, the Company’s Chief Executive Officer, exercised a warrant on a cashless basis resulting in the issuance of 64,815 shares of the Company’s common stock. The warrant was originally issued to Logic as compensation for services.




Forfeiture of Shares




On June 28, 2013, Mr. Parnell and Mr. Hoff each forfeited 250,000 shares of common stock. This 500,000 forfeiture is part of the retrieval or “claw back” of not less than 700,000 shares of common stock that was authorized for issuance to certain individuals on August 27, 2012 for non-cash consideration and future services in connection with the Settlement Agreement.




On September 26, 2013, McKim and Company LLC and James J. Cahill, an affiliate of Logic, forfeited 70,313 shares of the Company’s common stock.




F-19




Lattimore Share Purchase




On December 15, 2014, we issued 36,667 shares of common stock to the wife of John Victor Lattimore, Jr. for $110,000.




NOTE 12. COMMON STOCK




The Company had the following equity transactions during the year ended December 31, 2013:
 
 On March 8, 2013 and effective with the court approval of the Settlement Agreement on June 5, 2013, the Company entered into an option purchase agreement with Lattimore Properties pursuant to which the Company granted Lattimore Properties a three-year option to purchase up to 1,000,000 shares of our commons stock at $3.00 per share in consideration for $75,000. The Company valued the option at $5.18 per share using Black Scholes Merton Model and expensed $5,103,600, less the $75,000 paid, during the year ended December 31, 2013.
 
 On March 21, 2013, Diane Cassidy, sister of Kevin Cassidy, Chief Executive Officer, exercised a warrant on a cashless basis resulting in the issuance of 64,815 shares of the Company’s common stock.  The warrant price was $1.50 per share.  The warrant was valued at $0.81 per share.
 
 On June 28, 2013, Unique Materials converted the $650,000 of outstanding principal due under the September Note together with interest of $25,644 into 225,215 shares of the Company’s common stock at $3.00 per share.  The fair value of the stock on the date of conversion was $4.95 and the Company recorded the difference between the conversion price and the fair value of $439,169 as loss on settlement of debt.
 
 On June 28, 2013, Unique Materials converted the $250,000 of outstanding principal due under the November Note together with interest of $7,534 into 85,845 shares of the Company’s common stock at $3.00 per share.  The fair value of the stock on the date of conversion was $4.95 and the Company recorded the difference between the conversion price and the fair value of $167,397 as loss on settlement of debt.
 
 On June 28, 2013, Unique Materials converted the $150,000 of outstanding principal due under the February Note together with interest of $2,950 into 50,984 shares of the Company’s common stock at $3.00 per share.  The fair value of the stock on the date of conversion was $4.95 and the Company recorded the difference between the conversion price and the fair value of $99,418 as loss on settlement of debt.
 
 On June 28, 2013, Logic converted liabilities of $800,000 into 266,667 of the Company’s restricted common shares at $3.00 per share. The fair value of the stock on the date of conversion was $4.95 and the Company recorded the difference between the conversion price and the fair value of $520,000 as loss on settlement of debt.
 
 On June 28, 2013, Michael Parnell and Matt Hoff each forfeited 250,000 shares of common stock. This 500,000 forfeiture is part of the retrieval or “claw back” not less than 700,000 shares of the Company’s common Stock that were authorized for issuance to certain individuals on August 27, 2012 for non-cash consideration and future services that was included in the Settlement Agreement and General Release approved on June 5, 2013.
 
 On August 22, 2013, the John and Mark Family Limited May Note with an outstanding principal of $100,000 due, was converted into 22,223 shares of the Company’s common stock at $4.50 per share.  The fair market value of the common stock on August 22, 2013 was $7.05 per share and the Company recorded a loss on debt settlement of $56,667, which equals the difference between the fair market value of the shares on the date of conversion and the conversion price as loss on debt settlement.
 
 On September 5, 2013, former employees forfeited 8,334 shares of the Company’s common stock.
 
 On September 26, 2013, Company consultants forfeited 70,313 shares of the Company’s common stock.
 
 During the year ended December 31, 2013, the Company issued 929,167 shares of common stock to investors for $5,905,000.
 
 On October 7, 2013, Mr. Cassidy converted $3,000,000 of accrued compensation-officers into 1,000,000 shares of its common stock at $3.00 per share. The Company valued the 1,000,000 shares at the June 5, 2013 fair market value of $5.82 and expensed $5,820,000 during the year ended December 31, 2013.
 
 On November 19, 2013, a holder of a warrant exercised a warrant on a cashless basis resulting in the issuance of 13,334 shares of the Company's common stock. The warrant was valued at $1.50 per share.
 On November 26, 2013, the Company issued 16,667 shares of common stock to a consultant for investor relations services. The shares were valued at the fair market price of $9.42 per share and the Company expensed $157,000 during the three months ended December 31, 2013.
  On December 5, 2013, the Company issued 83,334 shares of common stock to a consultant for investor marketing services. The shares were valued at the fair market price of $8.46 per share. The Company recorded consulting expense in the amount of $705,000 during the three months ended December 31, 2013.
 
 On December 30, 2013, the Company granted an aggregate of 800,000 shares of common stock to certain directors for their service as directors. The shares of common stock vest annually over four years. The fair value of the Company's stock on the date of grant was $8.76.
  F-20
 
 The Company entered into repurchase option agreements with existing stockholders, including Harvey Kaye, Edward Cowle, H. Deworth Williams, Daniel McGroarty, and an affiliate of Michael Parnell, under which it (i) acquired 33,334 shares of the Company’s common stock at $3.00 per share during September 2013, (ii) acquired 317,334 shares of the Company’s common stock at $3.00 per share during October 2013, and (iii) acquired 756,333 shares of the Company’s common stock at $3.00 per share during December 31, 2013 with a portion of the payment in the amount of $1,344,999 made during the quarter ended March 31, 2014 and the balance of $924,000 which was then due and payable. On December 31, 2014, the Company re-issued 301,334 shares of common stock in exchange for the extinguishment of $904,000 of the $924,000 that was due and payable. The Company also obtained the right from Mr. McGroarty, to acquire up to 266,667 shares of the Company’s common stock at $3.00 per share until April 30, 2014. The foregoing option was not exercised and on September 15, 2014, the Company agreed with Mr. McGroarty to repurchase 16,667 shares of its common stock by September 22, 2014 at $3.30 per share and 50,000 shares of the Company’s common stock by October 15, 2014 at $3.30 per share and were granted an option to repurchase 133,334 shares of the Company’s common stock at $3.30 per share on or before January 1, 2015. As of February 27, 2015, the Company had not repurchased these shares and the balance of $220,000 is currently due and payable. See Note 13. In addition, the Company obtained the right from Matthew Hoff and his affiliate to acquire up to 266,667 shares of the Company’s common stock at $3.30 per share until December 31, 2014 and the Company further obtained the right from an affiliate of Michael Parnell to acquire up to 266,667 shares of its common stock at $3.00 per share until December 31, 2014, both of which have expired. The Company intends to satisfy the remaining repurchase obligations of $240,000 from proceeds of future financings from time to time. The Company intends to satisfy this balance from proceeds of future financings of the Company from time to time.
 
 Derivative Instruments—Option
 
 On May 20, 2013, the Company entered into an Option Agreement with Postscriptum Ventures where by Poststrictum paid $50,000 for the option to purchase 216,667 shares of common stock at the higher of 75% of the ten-day closing average or $6.00 per share through December 30, 2013. The Company valued the option at $3.72 using Black Scholes Merton Model. This option was not issued with the intent of effectively hedging any future cash flow, fair value of any asset, liability or any net investment in a foreign operation. Therefore, the fair value of these warrants were recorded as a liability in the consolidated balance sheet and are marked to market each reporting period until they are exercised or expire or otherwise extinguished. The Option was not exercised by December 30, 2013 and the Company reclassified the fair value of the derivative liability of $429,000 as additional paid in capital on December 30, 2013.




The Company had the following equity transactions during the year ended December 31, 2014:




During January 2014, the Company issued 41,667 shares of its common stock to investors for $312,500.




On March 10, 2014, a holder of a warrant exercised the warrant on a cashless basis resulting in the issuance of 5,339 shares of the Company’s common stock. The warrant price was $1.50 per share.




On March 17, 2014, the Company issued 16,667 shares of its common stock to a consultant in exchange for services. The shares were valued at $129,500 and were expensed as selling, general and administrative expenses during the three months ended March 31, 2014.




During April 2014, the Company issued 17,334 shares of its common stock to investors for $130,000.




On June 17, 2014, the Company issued 100,000 shares of its common stock and warrants to purchase 116,667 shares of common stock to an investor for $750,000. The warrant exercise price was $4.50 per share.  The warrants expire on December 31, 2015.




In June 2014, the Company exercised an option to repurchase 3,334 shares from a stockholder for $10,000.  The shares were repurchased in June 2014.




On August 29, 2014, the Company issued 13,334 shares of its common stock and warrants to purchase 15,467 shares of common stock to an investor for $100,000.  The warrant exercise prices was $4.50 per share.  The warrants expire on December 31, 2015.




On September 3, 2014, the Company issued 26,667 shares of its common stock and warrants to purchase 30,934 shares of common stock to an investor for $200,000.  The warrant exercise price was $4.50 per share.  The warrants expire on December 31, 2015.




On October 23, 2014, the Company issued 13,334 shares of its common stock and warrants to purchase 15,467 shares of common stock to an investor for $100,000.  The warrant exercise price was $4.50 per share.  The warrants expire on December 31, 2015.




During December 2014, the Company issued 103,334 shares of its common stock to investors for $310,000.




During December 2014, the Company also reissued 301,334 shares of its common stock to shareholders from whom the Company previously repurchased such shares but had not paid the repurchase price for such shares. In exchange for the re-issuance, an aggregate of $904,000 that was current and due for such repurchase was extinguished.




During December 2014, 200,002 common shares granted to certain members of the board of directors were released from their repurchase option, and became vested. The shares were granted in December 2013, and the shares are subject to an irrevocable, exclusive option in our favor to repurchase any shares not released from our repurchase option.  On each of the first, second, third and fourth anniversaries of the grant, 25% of the granted shares of stock will be released from our repurchase option subject to certain exceptions.


A summary of the warrants issued as of December 31, 2014 were as follows:




December 31, 2014WeightedAverageExerciseShares


PriceOutstanding at 12/31/13


982,363


$
7.41Issued


178,538


$
4.50Exercised


(6,667
)

$
1.50Forfeited


-


$
-Expired


-


$
-Outstanding at end of period


1,154,234


$
7.00Exerciseable at end of period


1,154,234




F-21




A summary of the warrants outstanding as of December 31, 2014 is presented below:




December 31, 2014Weighted


Weighted





WeightedAverage


Average





AverageNumber of


Remaining


Exercise


Shares


ExerciseWarrants


Life


Price


Exerciseable


Price530,373



1.53


$
1.50



530,373623,861



1.36


$
11.67



623,8611,154,234






$
7.00



1,154,234


$
7.00





Warrants convertible into 530,373 shares of Company common stock were “in the money” as the exercise price was less than the fair market value of common stock on December 31, 2014.  The intrinsic value of these warrants was $1,527,474.








Fair Market ValueCommon


per Share onShares


Grant DateBalance of unvested common shares at December 31, 2012


-


$
-Granted


800,002



8.76Vested


-



-Cancelled or expired


-



-Balance of unvested common shares at December 31, 2013


800,002



8.76Granted


-



-Vested


(200,002
)


8.76Cancelled or expired


-



-Balance of unvested common shares at December 31, 2014


600,000


$
8.76




Stock-based compensation expense related to the stock awards in the table above was $3,650,022 and $0 for the years ended December 31, 2014 and 2013, respectively.  The Company has estimated a forfeiture rate of 0% for these awards.  The total amount of expense remaining expected to be recognized for these awards is $3,357,996.  If all of the awards vest, this amount will be recognized over the remaining service period during 2015, 2016, and 2017.  To the extent the Company estimates certain of these awards will not vest, the associated expense will be reversed in the period in which the Company estimates the awards will not vest.


Authorization of Reverse Split




The Company’s board of directors and majority shareholders approved an amendment to the Company’s articles of incorporation to effect a reverse stock split of the Company’s common stock at a ratio between 1-for-2 and 1-for-3.  The Company’s shareholders further authorized the board of directors to determine the ratio at which the reverse stock split would be effected.  On October 2, 2014, the Company’s board of directors authorized that the ratio of the reverse split be set at 1-for-3. On December 16, 2014, the Company amended its articles of incorporation to effect the reverse stock split at a ratio of 1-for-3.  All the relevant information relating to numbers of shares and per share information contained in these consolidated financial statements has been retrospectively adjusted to reflect the reverse stock split for all periods presented.




NOTE 13. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS




Legal Proceedings




Except as set forth below, there are no pending legal proceedings against the Company that are expected to have a material adverse effect on cash flows, financial condition or results of operations.




On September 15, 2014, the Company entered into an agreement with Daniel McGroarty, the Company’s former President, to, among other things, repurchase 16,667 shares of the Company’s common stock by September 22, 2014 at $3.30 per share and 50,000 shares of the Company’s common stock by October 15, 2014 at $3.30 per share and were granted an option to repurchase 133,334 shares of the Company’s common stock at $3.30 per share on or before January 1, 2015.  As of February 27, 2015, the Company had not purchased these shares and the balance of $220,000 is currently due and payable.  On December 29, 2014, the Company was served with a AAA demand for arbitration by Mr. McGroarty, which alleged breach of contract.  Mr. McGroarty is seeking specific performance, compensatory damages of $930,000 and reasonable attorney’s fees and costs. On January 14, 2015, the Company submitted its answering statement denying the allegation of Mr. McGroarty and on January 15, 2015, the Company submitted a counterclaim for breach of contract and seeks rescission and damages in an amount over $500,000.  The Company intends to defend itself vigorously in this action.




F-22




Employment and Consulting Agreements




Logic International Consulting Group LLC




On March 11, 2011, the Company signed an exclusive Services Agreement with Logic. Under the Services Agreement, Logic agreed to provide certain advisory services to the Company. On December 31, 2011, the Services Agreement was automatically extended to December 11, 2013 and can be renewed for additional 12-month periods unless either party gives the other 45 days written notice of termination. The Services Agreement can be cancelled with 90 days written notice. The Services Agreement provides for a monthly payment of $50,000 to Logic. As of December 31, 2014, the Company owed Logic the amount of $200,000 for accrued but unpaid service fees.




On March 10, 2011, the Company issued a warrant to Logic for the purchase of 433,334 shares of the Company’s common stock. The warrant was exercisable at $1.50 per share for a period of five years expiring on March 10, 2016. The warrant contains certain dilutive provisions related to subsequent equity sales and the issuance of additional common stock. The warrant contains certain piggyback registration rights.




On November 29, 2011, the Company issued a warrant to Logic for the purchase of 233,334 shares of the Company’s common stock. The warrant was exercisable at $1.50 per share on a cash or cashless basis for a period of five years expiring on November 29, 2016. The warrant contained certain dilutive provisions related to subsequent equity sales and the issuance of additional common stock. The warrant contains certain piggyback registration rights.




On December 31, 2011, Logic cancelled the warrant granted on March 10, 2011 for 433,334 shares and the warrant granted on November 29, 2011 for 233,334 shares.




On December 31, 2011, the Company issued a warrant to Logic for the purchase of 433,334 shares of the Company’s common stock. The warrant is exercisable at $1.50 per share for a period of five years expiring on March 9, 2016. In addition, on December 31, 2011, the Company issued a warrant to Logic for the purchase of 233,334 shares of the Company’s common stock. The warrant is exercisable at $1.50 per share for a period of five years expiring on November 28, 2016. The warrants may be called by the Company if it has registered the sale of the underlying shares with the SEC and a closing price of $21.00 or more for the Company’s common stock has been sustained for five trading days. The warrants contain certain piggyback registration rights.




On June 28, 2013, Logic converted liabilities of $800,000 into 266,667 shares of the Company’s common stock at $3.00 per share. The fair value of the stock on the date of conversion was $4.95 per share, and the Company recorded the difference between the conversion price and the fair value of $520,000 as loss on settlement of debt.




Since June 2013, the Company has also agreed to reimburse Logic for a portion of the compensation due to Mr. Cassidy’s administrative assistant.  As of December 31, 2014, the Company owed Logic the amount of $8,959 for accrued but unpaid administrative fees.




Diane Cassidy




Since June 2013, the Company retained Diane Cassidy, the sister of the Company’s Chief Executive Officer and Director, Kevin Cassidy, as a consultant to perform certain management services.  From June 2013 to October 2013, Ms. Cassidy was paid at the rate of $5,000 per month, increasing to $10,000 per month in November 2013 and December 2013. From February 2014 through May 2014, she was paid at the rate of $16,667 per month. On May 19, 2014, the Company entered into a Consulting Agreement with Ms. Cassidy whereby Ms. Cassidy will provide certain management services. Under the agreement, Ms. Cassidy is entitled to $17,000 per month. The agreement has an initial term of one year, with automatic renewal for one year periods unless terminated by either party on 90 days’ prior written notice. After the initial term, and during any additional term, either party can terminate the agreement as of the end of a calendar month on 60 days’ prior written notice.




F-23




Lattimore Properties




As of July 1, 2012, Lattimore Properties, an affiliate of John Victor Lattimore, Jr., the Company’s Chairman of the Board, entered into a Consulting Agreement with Logic pursuant to which Lattimore Properties is to provide executive management, strategic planning and general office administration to Logic for a fee of $25,000 per month. The agreement has a term of one year commencing on July 1, 2013, unless sooner terminated on 30 days’ prior written notice. The term of the agreement may be extended upon the mutual written agreement of the parties. The agreement expired on June 30, 2014, and as of February 27, 2015, has not been extended.




Mark Scott




On December 19, 2011, the Company entered into a Consulting Agreement with Mark Scott in connection with his service as the Company’s Chief Financial Officer. Under the agreement Mr. Scott was entitled to $4,000 per month plus $3,000 of shares of the Company’s common stock per month based on a $8.55 per share price. On August 31, 2012, the Company’s board of directors approved the issuance of 24,000 shares of common stock to Mr. Scott. The term of the Consulting Agreement expired on December 31, 2012, and the Company paid Mr. Scott $5,000 per month on a month-to-month basis during 2013 and $10,000 per month during 2014. On April 30, 2014, Mr. Scott was removed as Chief Financial Officer and between June 1, 2014 and August 13, 2014, the Company retained Mr. Scott as a consultant at a rate of $5,000 per month.





Michael Parnell




On December 10, 2010, the Company entered into a Revised Employment Agreement with Michael Parnell, its former Chief Executive Officer, Chief Operating Officer and a Director. Under the terms of the employment agreement, Mr. Parnell’s annual salary was $125,000 in year one, $137,500 in year two and $151,000 in year three. Mr. Parnell was awarded 100,000 shares of restricted common stock. In the event that the Company is sold or merged or there is a change in control, Mr. Parnell was entitled to receive at his discretion, severance of $500,000 in cash or restricted common stock at $1.50 per share. Mr. Parnell was eligible for vacation of six weeks, benefit programs and incentive bonuses as approved by the Company’s board of directors. The employment agreement had a three-year term and was automatically renewable for additional one-year periods unless 90 days’ notice is provided by either party.




On July 26, 2011, the Company entered into an Addendum to the Revised Employment Agreement with Mr. Parnell. The addendum extended the term of employment until December 10, 2015, subject to additional one-year renewal periods unless 90 days’ notice is provided by either party. The addendum provided, that Mr. Parnell’s annual salary for year four was $166,100 and $182,710 for year five. The Company also agreed to issue to Mr. Parnell 41,667 restricted shares of its common stock in years four and five. In the event of a change in control by merger, acquisition, takeover or otherwise, the share amounts due in years four and five would become immediately due and payable.




On June 26, 2013, Mr. Parnell resigned as the Chief Operating Officer and a Director of the Company and accepted the position of National Accounts Director for the media business.




On January 28, 2014, the Company entered into a binding letter of intent to sell the common stock of Media Depot, Inc., the then media subsidiary of the Company, and certain related media assets held by the Company to Mr. Parnell or a designated affiliate of Mr. Parnell. On May 12, 2014, the Company and an affiliate of Mr. Parnell entered into a Master Sale Agreement, and related Share Purchase Agreement and Asset Purchase Agreement, and completed the sale of the media business to an affiliate of Mr. Parnell effective January 1, 2014. In connection with this transaction, Mr. Parnell resigned as National Accounts Director on May 12, 2014 and the Revised Employment Agreement and addendum thereto were terminated immediately.




On May 12, 2014, the Company and Mach One Media Group, Inc. (“Mach One”) entered into a Master Sale Agreement, and related Share Purchase Agreement and Asset Purchase Agreement, pursuant to which Mach One acquired all of the outstanding stock of Media Depot, Inc., a wholly-owned subsidiary of the Company, and acquired the assets and assumed the liabilities of the Company related to the media business effective January 1, 2014. Mach One is an affiliate of Michael D. Parnell, the Company's former Chief Executive Officer, National Accounts Director and Director. In addition, the Company and the Michael D. Parnell Living Trust (the "Parnell Trust") entered into an amendment to the Repurchase Option Agreement dated January 28, 2014, whereby the Company has the option to repurchase up to 266,667 shares of its common stock from the trust at $3.00 per share. The amendment extended the date on which the Company may exercise the right to repurchase the first 66,667 shares from March 15, 2014 to June 15, 2014 such that the Company may, at its option, repurchase 133,334 shares on or before June 15, 2014 and a further 66,667 shares on each of September 15, 2014 and December 15, 2014.  As of December 31, 2014, the Company’s option to repurchase the 266,667 shares on or before December 15, 2014 had expired. The Company and Mr. Parnell also entered into a Termination and Release Agreement whereby Mr. Parnell resigned as National Accounts Director of the Company effective immediately, his employment agreement was terminated, and all compensation due to Mr. Parnell was extinguished. The agreement also provides for a mutual release of claims by the parties, and an indemnification by the Company of Mr. Parnell in certain circumstances.




F-24




Daniel McGroarty




On November 29, 2011, Daniel McGroarty was appointed the Company’s President. On January 1, 2012, the Company entered into an Executive Employment Agreement with Mr. McGroarty employing Mr. McGroarty as its President. Under the terms of the employment agreement, Mr. McGroarty’s salary was $120,000 in year one and was to be negotiated in years two and three. The employment agreement also provided for the grant to Mr. McGroarty of 216,667 shares of restricted Company common stock and further provided that 33,334 shares of common stock that were previously granted to Mr. McGroarty were fully vested as of November 30, 2011. The employment agreement had a three-year term and was automatically renewable for additional one-year periods unless 90 days’ notice is provided by either party.




On August 14, 2013, the Company accepted the resignation of Daniel McGroarty effective July 31, 2013 as President of the Company and its subsidiaries. The parties entered into a Stock Repurchase Option and Severance Agreement whereby: (i) the parties agreed to settle all back pay and compensation claims with a payment of $60,000; (ii) the Company agreed to repurchase 33,334 of shares of its common stock from Mr. McGroarty on or before September 30, 2013 for $100,000 or $3.00 per share, which was subsequently paid; and (iii) the Company paid $40,000 for an option to acquire up to 266,667 shares of the Company’s common stock from Mr. McGroarty for $3.00 per share on or before April 30, 2014. The foregoing option was not exercised and on September 15, 2014, the Company entered into a further agreement with Mr. McGroarty pursuant to which the Company agreed, among other things, to repurchase 16,667 shares of its common stock by September 22, 2014 at $3.30 per share and 50,000 shares of its common stock by October 15, 2014 at $3.30 per share and were granted an option to repurchase 133,334 shares of its common stock at $3.30 per share on or before January 1, 2015. As of February 27, 2015, the Company had not repurchased these shares and the balance of $220,000 is currently due and payable.  See “Note 13 – Legal Proceedings”.




Leases




The Company is obligated under various non-cancelable operating leases for their various facilities.




The Company leases its principal executive offices at 5600 Tennyson Parkway, Suite 240, Plano, Texas 75024-3818. The lease of this 1,588 square foot space is for a term expiring on November 30, 2016, and provides for monthly rental payments of $3,441.




The Company leases a corporate apartment at 5721 Henry Cook Boulevard, Plano, Texas 75024.  The lease of this 1,024 square foot space provides for monthly rental payments of $1,730 and expired on February 10, 2015.  As of February 27, 2015, the lease had not been renewed, and the Company is leasing the apartment on a month-to-month basis.


The Company also leases 5,000 square feet of office and storage space at 120 Vandervoort Street, Salmon, Idaho. The Salmon facility is used by Company contractors when they are involved in exploration or other activities relating to our Idaho or Montana claims and is also used to store tools and materials used in our exploratory activities and samples collected from the claim sites. This lease provides for monthly rentals of $1,200 and expires June 4, 2015. The lease includes an option to renew for one additional term of two years at a rent to be negotiated. In addition, pursuant to the Settlement Agreement and General Release dated March 15, 2013, and approved by the District Court of Clark County, Nevada, on June 5, 2013, the Company is obligated, under certain circumstances, to assume a lease of certain office space in Salt Lake City, Utah with a monthly rent of $6,000.




The aggregate future minimum lease payments, to the extent the leases have early cancellation options and excluding escalation charges, are as follows:




Years Ended December 31,

Total2015

$
43,5952016


37,8472017


-2018


-2019


-Beyond


-Total

$
81,442





Rent expense for the years ended December 31, 2014 and 2013 was $108,505 and $186,963 respectively.




F-25




NOTE 14. INCOME TAXES




The Company provides for income taxes under ASC 740, Accounting for Income Taxes. ASC 740 requires the use of an asset and liability approach in accounting for income taxes. Deferred tax assets and liabilities are recorded based on the differences between the financial statement and tax bases of assets and liabilities and the tax rates in effect when these differences are expected to reverse.





ASC 740 requires the reduction of deferred tax assets by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.





The income tax provision differs from the amount of income tax benefit determined by applying the U.S. federal and state income tax rates to pretax income (loss) from continuing operations for the years ended December 31, 2014 and 2013. The components of income tax expense (benefit) from continuing operations are as follows:





2014



2013CurrentFederal

$
-


$
-State


-



-DeferredFederal


-



-State


-



-$
-


$
-Deferred tax assets:Net operating losses

$
9,464,388


$
9,309,598Net operating losses from discontinued operations


-



136,172Stock-based compensation


1,556,796



3,956,819Impairment expense


6,395,176



6,985,532Accrued liabilities


294,387



250,000Charitable contribution carryover


47,960



-Other deferred tax assets


(32,701
)


19,075Valuation allowance


(17,726,006
)


(20,657,196
)Net deferred tax assets

$
-


$
-


The Company has incurred losses since inception, which have generated net operating loss carryforwards.  The net operating loss carryforwards arise from United States sources.





Pretax losses from continuing operations were $7,494,591 for the year ended December 31, 2014.





The Company has net operating loss carryforwards of approximately $27,568,188 from continuing operations and $0 from discontinued operations, which expire in 2027-2034. Because it is not more likely than not that sufficient tax earnings will be generated to utilize the net operating loss carryforwards and other deferred tax assets, a corresponding valuation allowance of approximately $17,726,006 and $20,657,196 was established as of December 31, 2014 and 2013 respectively. Additionally, under the Tax Reform Act of 1986, the amounts of, and benefits from, net operating losses may be limited in certain circumstances, including a change in control.




F-26





Section 382 of the Internal Revenue Code generally imposes an annual limitation on the amount of net operating loss carryforwards that may be used to offset taxable income when a corporation has undergone significant changes in its stock ownership. There can be no assurance that the Company will be able to utilize any net operating loss carryforwards in the future.





For the year ended December 31, 2014, the Company’s effective tax rate differs from the federal statutory rate principally due to net operating losses, common stock and warrants issued for services and accrued compensation.




2014


2013Federal statutory rate


34.0
%


34.0
%State income taxes net of federal impact


0.2
%


3.5
%Increase in income taxes resulting from:Change in valuation allowance


-34.2
%


-37.5
%Effective tax rate


0.0
%


0.0
%




NOTE 15. SUBSEQUENT EVENTS






F-27




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.





U.S. RARE EARTHS, INC.Date: March 6, 2015
By:
/s/ Kevin CassidyKevin CassidyChief Executive Officer and Director

(Principal Executive Officer)By:
/s/ F. Scott ChrimesF. Scott ChrimesChief Financial Officer

(Principal Financial and Accounting Officer)





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:





SIGNATURES

TITLE

DATE/s/ Kevin Cassidy

Chief Executive Officer and Director

March 6, 2015Kevin Cassidy

(Principal Executive Officer)/s/ F. Scott Chrimes

Chief Financial Officer

March 6, 2015F. Scott Chrimes

(Principal Financial and Accounting Officer)/s/ Nancy Ah Chong

Director

March 6, 2015Nancy Ah Chong/s/ John Victor Lattimore, Jr.

Director

March 6, 2015John Victor Lattimore, Jr./s/

Director

March 6, 2015Mark Crandall/s/ J. Robert Kerrey

Director

March 6, 2015J. Robert Kerrey/s/ Tommy Franks

Director

March 6, 2015Tommy Franks/s/ Carol Kondos

Director

March 6, 2015Carol Kondos/s/ Reagan Horton

Director

March 6, 2015Reagan Horton