UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

 

For the Quarter ended June 30, 2014

 

Commission File Number: 333-154912

 

U.S. Rare Earth Minerals, Inc

(Formerly known as U.S. Natural Nutrients & Minerals, Inc.)

(Exact name of registrant as specified in its charter)

 

Nevada		26-2797630
(State or jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
6460 Medical Center St. Suite 230 Las Vegas, NV		89148
(Address of principal executive offices)		(Zip code)

 

(800) 920-7507

(Registrant’s telephone number, including area code)

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months and (2) has been subject to such filing requirements for the past 90 days.

Yes T   No £

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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); Yes T No £.

 

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.

 

Large Accelerated Filer	£		Accelerated Filer	£
Non-Accelerated Filer	£		Smaller Reporting Company	T

 

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

 

There were 185,821,884 shares of common stock outstanding as of August 12, 2014.

 

 

 

TABLE OF CONTENTS

_________________ 

  

		Page
PART I - FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS	3
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	9
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	12
ITEM 4A	(T).  CONTROLS AND PROCEDURES	12
PART II - OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	15
ITEM 1A.	RISK FACTORS	15
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	15
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	15
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	15
ITEM 5.	OTHER INFORMATION	15
ITEM 6.	EXHIBITS	16
SIGNATURES		17

 

  

PART I – FINANCIAL INFORMATION

ITEM 1. INTERIM FINANCIAL STATEMENTS

 

U.S. RARE EARTH MINERALS, INC.

(Formerly known as U.S. Natural Nutrients & Minerals, Inc.)

BALANCE SHEETS

(UNAUDITED)

 

		June 30,				December 31,
		2014				2013
ASSETS
CURRENT ASSETS
Cash		$	7,170			$	20,689
Accounts receivable, net of allowance for doubtful accounts of $34,000 and $0, respectively			91,098				58,328
Inventory			14,114				14,114
Total current assets			112,382				93,131
Property and Equipment, Net of Accumulated Depreciation of $154,863 and $125,767, respectively			136,211				165,306
Total assets			248,593				258,437
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued expenses		$	124,924			$	34,112
10% Series A Senior (non-subordinated) debentures			5,000				5,000
Accrued interest			19,276				15,376
Customer deposits			-				12,501
Loan payable, current			25,000				25,000
Notes Payable			85,000				91,000
Total current liabilities and total liabilities			259,200				182,989
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: $0.001 par value; 300,000,000 authorized 185,821,884 and 193,856,138 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively			185,822				193,856
Preferred stock: $1.00 par value; 50,000,000 authorized, 440,500 and 440,500 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively			441				441
Additional paid in capital			9,537,515				9,620,166
Accumulated deficit			(9,734,385	)			(9,739,015	)
Total stockholders' equity			(10,607	)			75,448
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	248,593			$	258,437

 

See accompanying notes to the financial statements.

 

 

U.S. RARE EARTH MINERALS, INC

(Formerly known as U.S. Natural Nutrients & Minerals, Inc.)

STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		For the Three Months Ended								For the Six Months Ended
		June 30,				June 30,				June 30,				June 30,
		2014				2013				2014				2013
REVENUES		$	37,844			$	98,897			$	246,200			$	213,194
Cost of goods sold			12,001				43,619				66,199				54,002
Gross Profit			25,843				55,278				180,001				159,192
General, selling and administrative expenses			82,002				686,884				170,403				1,763,758
Total operating expenses			82,002				686,884				170,403				1,763,758
Operating Income (Loss)			(56,159	)			(631,606	)			9,598				(1,604,566	)
Other income (expense):
Other income			-				-				348				-
Interest expense			(1,995	)			(7,389	)			(5,316	)			(8,475	)
Total other (expense)			(1,995	)			(7,389	)			(4,968	)			(8,475	)
Net Income (Loss)		$	(58,154	)		$	(638,995	)		$	4,630			$	(1,613,041	)
Net Income (loss) per common share - basic and diluted		$	(0.00	)		$	(0.00	)		$	0.00			$	(0.01	)
Weighted average of common shares outstanding			190,356,131				191,514,873				190,800,883				181,099,862

  

See accompanying notes to the financial statements.

 

 

U.S. RARE EARTH MINERALS, INC

(Formerly known as U.S. Natural Nutrients & Minerals, Inc.)

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		For the Six Months Ended
		June 30,				June 30,
		2014				2013
Cash Flows From Operating Activities:
Net Income (Loss)		$	4,630			$	(1,613,041	)
Adjustments to reconcile net income (loss) to net cash provided by operations:
Depreciation			29,095				12,764
Stock for services			(90,685	)			1,096,917
Net assets from discontinued operations			-				(15,633	)
Changes in assets and liabilities:
(Increase) accounts receivable			(32,770	)			(20,267	)
Decrease prepaid expenses			-				254,600
Decrease inventory			-				(3,979	)
Increase accounts payable and accrued expenses			90,812				277,999
(Decrease) customer deposits			(12,501	)			-
Net cash used in operating activities			(11,419	)			(10,640	)
Cash Flows From Investing Activities:
Capital expenditures			-				(77,117	)
Net cash used in investing activities			-				(77,117	)
Cash Flows From Financing Activities:
Accrued interest			3,900				455
Proceeds from loan			-				85,000
Repayment of debentures			-				(5,000	)
Repayment of loan			(6,000	)
Preferred stock issued for cash			-				3,001
Net cash provided by (used in) financing activities			(2,100	)			83,456
Net decrease in cash			(13,519	)			(4,301	)
Cash, beginning of period			20,689				5,523
Cash, end of period		$	7,170			$	1,222
Cash paid for:
Interest		$	-			$	1,085

  

See accompanying notes to the financial statements

 

 

US. RARE EARTH MINERALS, INC.

(Formerly known as U.S. Natural Nutrients & Minerals, Inc.)

NOTES TO FINANCIAL STATEMENTS

(UNAUDITED)

 

Note 1. Basis of Presentation and Summary of Significant Accounting Policies

 

Basis of Presentation

Basis of Presentation

 

The accompanying financial statements have been prepared on substantially the same basis as the audited financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2013. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the Securities and Exchange Commission (SEC) rules and regulations regarding interim financial statements. All amounts included herein related to the financial statements as of June 30, 2014 and the three and six months ended June 30, 2014 and 2013 are unaudited and should be read in conjunction with the audited financial statements and the notes there to included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

 

The Company completed the announced "spin-off" of its wholly owned subsidiary, Bio-Multimin, Inc. to the shareholders in January, 2013.  Shares were distributed to each shareholder based on one share of Bio-Multimin, Inc. for each 5 shares of the Company owned shares. Therefore these financial statements are no longer consolidated.

     

In the opinion of management, the accompanying financial statements include all necessary adjustments for the fair presentation of the Company’s financial position, results of operations and cash flows. The results of operations for the interim periods presented are not necessarily indicative of the operating results to be expected for any subsequent interim period or for the full fiscal year ending December 31, 2014.

 

U.S. Rare Earth Minerals, Inc. (Formerly U.S. Natural Nutrients and Minerals, Inc.) was incorporated in the state of Nevada on September 9, 2008.

 

As used in these Notes to the Financial Statements, the terms the "Company", "we", "us", "our" and similar terms refer to U. S. Rare Earth Minerals, Inc. (Formerly U.S. Natural Nutrients and Minerals, Inc.)

 

Going Concern

 

The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. To date, the Company has generated minimal revenue and has experienced recurring net operating losses of $9,734,385 as of June 30, 2014 and a working capital deficiency of $146,818 as of June 30, 2014. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. We will need to raise funds or implement our business plan to continue operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital sufficient to meet its minimal operating expenses by seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon among other things; its ability to successfully accomplish the plans described in the preceding paragraph and eventually begin operations in accordance with its business plan. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

  

Note 2. Capital Stock

 

The Company is authorized to issue 50,000,000 shares of its $0.001 par value preferred stock and 300,000,000 shares of its $0.001 par value common shares.

 

There were 185,821,884 shares of common stock outstanding as of June 30, 2014.

 

On January 23, 2014, 3,500,007 shares of the Company’s outstanding common stock were returned to the Company for non-performance of services that were recorded as expense during 2012.

 

On April 29, 2014, 4,534,247 shares of the Company’s outstanding common stock were returned to the Company for non-performance of services that were recorded as expense during 2013.

 

Note 3. Recent Accounting Pronouncements

 

From time to time new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting.  The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

 

Note 4. Notes and Debentures Payable

 

The Company issued two debentures in March 2010 for $4,750 each totaling $9,500 plus accrued interest for a total of $10,000.  The debentures matured six months from issue and are now payable upon demand.  At June 30, 2014 the principal balance is $5,000.

 

In 2013, the Company received multiple set of funds and the terms of each note payable are set forth: $5,000 Note payable upon demand, a $6,000 Note payable upon demand and an $80,000 Note bearing 6% per annum, simple interest, payable on or before August 23, 2013. The Company and note holders are in discussions with respect to the payoff of the notes. During the quarter ended March 31, 2014, the $6,000 note payable referred to above was paid in full.

 

 

Note 5. Subsequent Events

 

The Company has evaluated events occurring after the date of these financial statements through August 14, 2014, the date that these financial statements were issued.

 

On July 18, 2014, Dennis Cullison, the Chairman of the Board, President and Treasurer of U. S. Rare Earth Minerals, Inc. (the “Company”) resigned as President and Treasurer. Mr. Cullison retains the positions of Chairman, CEO and President of the Viet Nam Sales Division of the Company. The Board of Directors appointed Michael Herod, a director of Company, as President and Chief Operating Officer effective as of July 18, 2014. Larry Bonafide, a director, Secretary of the Company and currently the Company’s chief financial officer, was appointed Treasurer. Mr. Herod and Mr. Bonafide accepted their appointments. The Board of Directors determined these new appointments will add to the efficiency of the Company’s operations.

  

Also, on July 18, 2014, the Board of Directors adopted a Resolution to Amend the Articles of Incorporation to increase the total Authorized shares from 300,000,000 to 1,000,000,000 par value $0.001 common stock to become effective on July 22, 2014.

 

On August 7, 2014 the Board of Directors voted to rescind its prior resolution to amend the articles of incorporation of U. S. Rare Earth Minerals, Inc. to provide for the authorization to issue up to one billion shares of common stock.  Therefore, the authorized number of shares of common stock shall remain at three hundred million shares and the articles of incorporation will not be amended

 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

 

The following discussion should be read in conjunction with our unaudited financial statements and the notes thereto.

 

Forward-Looking Statements

 

This quarterly report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words "believe," "anticipate," "expect," "estimate," “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. These statements reflect management's current view of us concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: a general economic downturn; a downturn in the securities markets; federal or state laws or regulations having an adverse effect on proposed transactions that we desire to effect; Securities and Exchange Commission regulations which affect trading in the securities of "penny stocks," and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement.

 

Overview

 

U.S. Rare Earth Minerals, Inc. (Formerly U.S. Natural Nutrients and Minerals, Inc.) (the “Company”), primary focus is on sales and distribution of certain products derived from the Company’s mining activities relating to natural mineral deposits commonly known as Calcium Montmorillonite. These activities will be carried out through a web-based and distributor-based sales program directed at agricultural, animal and human uses of the products.

 

To the extent that the company requires additional capital for operations that it cannot derive from profits from sales, the Company plans to sell additional shares of unregistered preferred stock to raise money for additional operating capital. There is no guarantee the Company will be successful in selling additional shares to raise funds for additional operating capital, or if successful, it will raise the desired amount or be on terms and conditions which are beneficial to the Company.

 

 

Plan of Operation

 

The Company markets and sells the product extracted in the mining process under the name “EXCELERITE®”. The Company believes that EXCELERITE® has broad applications for plants, animals and humans. Specifically, the Company believes that by adding EXCELERITE® back into the soil, household and commercial farmers are replacing what has been lost by the use of man-made fertilizers over hundreds of years. Farmers using EXCELERITE® are seeing higher yields and larger and more nutritious crops. In addition, studies suggest that animals whose feed is supplemented with Exceleriteâ grow healthier and produce more. The naturally chelated nutrients and minerals in EXCELERITE® may enhance the production of enzymes. Without enzymes living things cannot build protein and other vital processes. “Micro-Excelerite ™”, a supplement form of EXCELERITE® is believed to rejuvenate the health of the human body in many ways. In addition to its natural supply of 78 essential nutrients and minerals, its ionic charge removes toxins as it works through the digestive tract.

 

The Company is marketing its products through various channels including but not limited to direct distribution, sales through third-party distributors and sales through the Company’s website. The Company has also undertaken to develop a network of distributors, both in the United States and internationally. The Company’s directors have been marketing the product to agricultural customers in Oregon, throughout the United States and internationally as well.

 

The Company has been engaged in various testing programs with several major agriculture firms for the past two years. Two of these firms are listed NYSE companies and do business worldwide. Results of these test on strawberries, carrots, peaches, soy beans, sweet potatoes and grapes have been very positive. EXCELERITE® has also been tested and proved to eliminate the odor from pig and cow manure which should lead to large orders from cattle and pig farmers worldwide. The product is also being tested by poultry farmers.

 

Management believes that by partnering with these certain firms, long-term business relationships will develop, deriving substantial future product sales. The Company is bound by certain “Non-Disclosure Agreements” and therefore cannot divulge the names of partnering companies. Announcements of the Company’s test results and identity of its partners will be forthcoming when certain test results are completed and the parties agree on the content of the disclosure.

  

RESULTS OF OPERATIONS

 

The following table shows the financial data of the statements of operations of the Company for the three-and six months ended June 30, 2014 and 2013.

 

THREE MONTHS ENDED JUNE 30, 2014 COMPARED TO THREE-MONTHS ENDED JUNE 30, 2013.

 

		June 30,				June 30,
		2014				2013				$ Change				% Change
Revenues		$	37,844			$	98,897			$	(61,053	)			-61.73	%
Cost of sales			12,001				43,619				(31,618	)			-72.49	%
Gross profit			25,843				55,278				(29,435	)			-53.25	%
General and administrative expenses			(82,002	)			(686,884	)			604,882				-88.06	%
Operating Income (Loss)		$	(56,159	)		$	(631,606	)		$	575,447				91.11	%

 

The variance in the operating loss was primarily a reduction of lease expense by $560,000 and compensation by $98,000, offset by an increase in professional fees of $28,000 and bad debts of $34,000 when comparing the three month period ended June 30, 2014 to the same period last year. Lease expense was $35,161 compared to $594,583; compensation was $(78,103) compared to $19,673 and professional fees was $46,642 compared to $19,136 for the three months ended June 30, 2014 and 2013, respectively.

 

 

SIX MONTHS ENDED JUNE 30, 2014 COMPARED TO SIX MONTHS ENDED JUNE 30, 2013.

 

		June 30,				June 30,
		2014				2013				$ Change				% Change
Revenues		$	246,200			$	213,194			$	33,006				15.48	%
Cost of sales			66,199				54,002				12,197				22.59	%
Gross profit			180,001				159,192				20,809				13.07	%
General and administrative expenses			170,403				1,763,758				(1,593,355	)			-90.34	%
Operating Income (Loss)		$	9,598			$	(1,604,566	)		$	1,614,164				100.60	%

 

The variance in the operating income (loss) was primarily a reduction of lease expense by $1,311,000 and compensation by $299,000, offset by an increase of bad debts in the amount of $34,000 when comparing the six month period ended June 30, 2014 to the same period last year. Lease expense was $71,990 compared to $1,383,719 and compensation was $(61,516) compared to $237,540 for the six months ended June 30, 2014 and 2013, respectively. 

 

LIQUIDITY AND CAPITAL RESOURCES

 

		June 30,				December 31,
		2014				2013				$  Change				% Change
Cash		$	7,170			$	20,689			$	(13,519	)			-65	%
Accounts payable and accrued expenses			124,924				34,112				90,812				266	%
Total current liabilities			259,200				182,989				76,211				42	%
Cash proceeds from the sale of preferred stock		$	-			$	3,000			$	(3,000	)			-100	%

 

The variance in accounts payable and accrued expenses is mainly for the lease expense accrual at June 30, 2014.

 

We believe that the level of financial resources is a significant factor for our future development, and accordingly we may choose at any time to raise capital through private debt or equity financing to strengthen its financial position, facilitate growth and provide us with additional flexibility to take advantage of business opportunities. While we are presently considering a limited private offering of our securities, we do not have immediate plans to have a public offering of our common stock and there is no guarantee that any such offering would be successful or be completed on terms that are beneficial to the Company.

 

 

CRITICAL ACCOUNTING POLICIES

 

In presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable change to current conditions, it could result in a material adverse impact to our results of operations, financial position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could potentially affect reported results. However, the majority of our businesses operate in environments where we pay a fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements using accounting policies that are not particularly subjective, nor complex.

 

Revenue Recognition

 

Revenue from the sale of product obtained from our mining contractor is recognized when ownership passes to the purchaser at which time the following conditions are met:

 

i)   persuasive evidence that an agreement exists;

ii)  the risks and rewards of ownership pass to the purchaser including delivery of the product;

iii) the selling price is fixed and determinable; or,

iv) collectively is reasonably assured.

 

Stock Based Compensation

 

Stock based compensation is accounted for using the Equity-Based Payments to Non-Employee Topic of the FASB ASC, which establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. We determine the value of stock issued at the date of grant. We also determine at the date of grant the value of stock at fair market value or the value of services rendered (based on contract or otherwise) whichever is more readily determinable.

 

Shares issued to employees are expensed upon issuance.

 

If the Company issues stock for services which are performed over a period of time, the Company capitalizes the value paid in the equity section of the Company’s financial statements as it’s a non-cash equity transaction. The Company accretes the expense to stock based compensation expense on a monthly basis for services rendered within the period.

 

On January 23, 2014, 3,500,007 shares of the Company’s outstanding common stock were returned to the Company for non-performance of services that were recorded as expense during 2012.

 

On April 29, 2014, 4,534,247 shares of the Company’s outstanding common stock were returned to the company for non-performance of services that were recorded as expense during 2013.

 

We use the fair value method for equity instruments granted to non-employees and will use the Black-Scholes model for measuring the fair value of options, if issued. The stock based fair value compensation is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is recognized over the vesting periods.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

 

ITEM 4. INTERNAL CONTROL OVER FINANCIAL REPORTING

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

 

●

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

 

●

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

 

As of June 30, 2014, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures may not be effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.

 

The matter involving internal controls and procedures that our management considered may be a material weakness under the standards of the COSO was the lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in the potential for ineffective oversight in the establishment and monitoring of required internal controls and procedures. The aforementioned material weakness was identified by our Chief Executive Officer in connection with the review of our financial statements as of September 30, 2011.

 

 

Management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.

 

Management’s Remediation Initiatives

 

In an effort to remediate the identified material weakness and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:

 

Management believes that the appointment of one or more outside directors, who shall be appointed to a fully-functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.

 

We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2014. Additionally, we plan to test our updated controls and remediate our deficiencies by December 31, 2014.

 

Changes in internal controls over financial reporting

 

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

ITEM 1A. RISK FACTORS.

 

As disclosed on the Form 10K recently, the Company is involved in a legal proceeding concerning the ownership of four million five hundred thousand shares of common stock paid for certain financial public relations services which were not adequately performed or not performed at all. The shares are being held in abeyance pending the court determination of whether or not the service provider performed the services for which it was hired. The Company expects an outcome favorable to the Company.

 

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None

 

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

The name change and forward stock split were approved by consent of the shareholders owning a majority of the outstanding common stock of the Company

 

  

ITEM 5. OTHER INFORMATION

 

On October 26, 2009, U.S. Rare Earth Minerals, Inc. (USMN) (formerly known as U.S. Natural Nutrients and Minerals, Inc., a Nevada corporation (entered into an Agreement with M Strata, LLC, a Nevada limited liability company (“M Strata”) (“M Strata Agreement”) whereby M Strata granted to USMN permission and consent to mine the certain mineral products (the “Product”) from certain mining claims owned or controlled by M Strata located in Panaca, Nevada.  Pursuant to the terms of the M Strata Agreement, M Strata will designate which claims may be mined and USMN shall have the right to mine the Product and remove the Product from the mining claims so designated.

 

The M Strata Agreement further provided that it was granting USMN the exclusive right to mine and purchase the Product from M Strata (“Exclusive Right”) and M Strata agreed that it will not sell Product or permit any other person or entity to purchase Product or mine on the claims controlled by M Strata other than USMN, on condition that USNNM meets certain Purchase Minimums (as defined in the agreement) (“Purchase Minimums”) and makes timely payments therefor.  In the event USMN fails to meet the Purchase Minimums for a period of one year, then such Exclusive Right shall terminate and M Strata shall be entitled to either (i) terminate the M Strata Agreement and cause USMN to terminate all mining operations on M Strata’s claims or (ii) sell Product to other purchasers in addition to USMN.   USMN may cure any default in the Purchase Minimum by paying for the difference between the amount actually purchased in any one calendar year which was less than the Purchase Minimum and the amount actually ordered and paid for. Nothing in the M Strata Agreement conferred on USMN or its agents any rights of ownership in any mining claims owned or controlled by M Strata now or in the future.  In addition, USMN agreed that it would only purchase Calcium Montmorillonite (“Product”) from M Strata and from no other source for the term of the M Strata Agreement or any extensions thereof.. No default has been declared by M Strata of any of the terms of the Agreement as of the date hereof.

 

The initial term of the M Strata Agreement was for five (5) years and there was a provision for automatic extensions of the term for consecutive additional one (1) year terms thereafter.  The M Strata Agreement provided for payments by USMN of $24.00 per ton of Product removed from M Strata’s claims, subject to periodic adjustment for cost of living in accordance with the terms of the M Strata Agreement.  Payments for Product were to be made by USNNM to M Strata on a monthly basis, upon presentation of invoices and in accordance with the terms of the M Strata Agreement. There were monthly minimum purchases of Product that were required to be made during the term of the M Strata Agreement dated October 26, 2009. M Strata has agreed in the past to accept unregistered shares of common stock of USMN in consideration for the obligations of the Company pursuant to the terms of the M Strata Agreement.

 

A copy of the Agreement was attached to the filing of a Form 8K in November, 2009.

 

The Agreement was supplemented in 2011 to include the right of the Company to mine various rare earth minerals on the mining claims.

 

On December 9, 2013, the Company and M Strata renegotiated the M Strata Agreement dated October 26, 2009. The Company and M Strata entered into the First Amended and Restated Mining Agreement effective as of November 1, 2013 (Amended M Strata Agreement). The Amended M Strata Agreement relieved the Company of its contractual obligation to purchase a minimum annual amount of 40,000 tons of Product . The Amended M Strata Agreement, amends and substantially modifies the terms of the October 26, 2009 Agreement. At the time of the execution of the Amended M Strata Agreement, the Company owed M Strata $606.000 for Product. As part of the agreements between the Company and M Strata, M Strata agreed to accept 400,000 shares of $1, 6% Cumulative Preferred Stock in satisfaction of $400,000 of the Company’s obligation to it and to cancel the remaining $206,000 of the amount owed.

 

 

Management believes the Amended Agreement is of significant and substantial benefit and value to the Company because it eliminates the requirement that the Company purchase a minimum of 40,000 tons of Product per year (whether or not it was able to sell such amount in each year or not) at the current price calculated pursuant to the October 26, 2009 Agreement of a total of $1,080,000. Under the terms of the Amended M Strata Agreement, that minimum purchase requirement has been eliminated. Under the Amended M Strata Agreement, the Company is only required to pay for Product according to the greater of either (i) a minimum of one hundred tons a week at a price of $27 per ton (a minimum amount of $2,700 per week) or (ii) the actual amount of tons sold multiplied by $27 per ton. Accordingly, the Amended Agreement no longer obligates the Company to purchase a minimum of thousands of tons per year. The Amended Agreement contains additional modifications and provisions, which include, but are not limited to the following:

 

a. The $27 per ton price will be subject to adjustment based on an annual price adjustment equal to the increase in the cost of living;

b. Payment of the greater of the minimum or the actual amounts must be made weekly;

c. All mining costs and fees payable to all government agencies shall continue to be paid by the Company;

d. All insurance requirements remain the same; and,

e. The term of the Amended M Strata Agreement has been extended for an initial term of 5 years and the Company has the option to extend the term for an additional 5 years so long as it is not in default under any of its obligations at the time of the exercise of the extension.

 

Twenty-five percent (25%) of the beneficial ownership of M Strata is owned by Dennis Cullison, who also serves as the Chairman of the Board and President of the Company. A twenty-five percent (25%) beneficial ownership of M Strata is also owned by Paul Hait, formerly a member of the Board of Directors of the Company. Mr. Hait is a retired Chairman of the Board of the Company. Neither Mr. Cullison nor Mr. Hait participated in the negotiation of the Amended Agreement.

 

A copy of the Agreement was attached to the filing of a Form 8K on December 9, 2013.

  

ITEM 6. EXHIBITS

 

Exhibit No.		Description
31.1		Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

SIGNATURES

 

In accordance with 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.

 

	U.S. Rare Earth Minerals, Inc (Formerly known as U.S. Natural Nutrients & Minerals, Inc.)
Dated: August 12, 2014
	By	/s/ Michael Herod
		Michael Herod
		Chief Operating Officer, President and Director
Dated: August 12, 2014
	By	/s/ Larry Bonafide
		Larry Bonafide
		Principle Financial Officer, Secretary and Director

 

 

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