* | Less than 1%.
(1) | Consists of a ten year option to purchase up to 2,500,000 shares of common stock at an exercise price of $2.50 per share. |
(2) (1) | Represents (i) 600,0004,800,000 shares of common stock held by entitiesand 60,000 shares of which Mr. Wall has voting and investment control and (ii) 30,000 shares underlyingcommon stock acquirable upon exercise of a five-year10 year option exercisable at $4.70an exercise price of $0.50 per share. |
(3) (2) | Represents (i) the following securities registered in the name of Mr. Marchese (a) 362,500 shares of common stock, (b) 62,500a 3.5 year option to purchase up to 45,000 shares of common stock underlying Class A Warrants,at an exercise price of $0.45 per share, (c) 31,250a ten year option to purchase up to 100,000 shares of common stock underlying Class B Warrants, (iv)at an exercise price of $0.45 per share (d) a five year option to purchase up to 150,000 shares of common stock at an exercise price of $2.50 per share, and (v)$0.45 (e) a five year option to purchase up to 175,000 shares of common stock at an exercise price of $4.15 per share;$0.45, (f) a five year option to purchase up to 250,000 shares of common stock at an exercise price of $0.45, (g) a five year option to purchase up to 225,000 shares of common stock at an exercise price of $0.45 and (h) a ten year option to purchase up to 240,000 shares of common stock at an exercise price of $0.45; and (ii) the following securities registered in the name of the Insiders Trend Fund, LP., an entity in which Mr. Marchese serves as general partner and chief investment officer (x) 125,500officer: 312,500 shares of common stock. | (3) | Consists of (i) 599,923 shares of common stock, (y) 125,500 shares of common stock underlying Class A Warrants, and (z) 62,500 shares of common stock underlying Class B Warrants. |
(4) | Mr. Mathers was issued(ii) a five year option to purchase up to 400,00090,000 shares of common stock at an exercise price of $2.50 per share. The$0.45; (iii) a ten year option vests 1/36 each month provided Mr. Mathers’ is employed by the Company on the vesting dates. |
(5) | Consiststo purchase up to 100,000 shares of common stock at an exercise price of $0.45; and (iv) a fiveten year option to purchase up to 60,000 shares of common stock at an exercise price of $2.50 per share.$0.45. |
(6) | | (4) | Consists of (i) 158,940 shares of common stock; (ii) a ten year option to purchase up to 100,000 shares of common stock at an exercise price of $0.45, (iii) a five year option to purchase up to 250,000 shares of common stock at an exercise price of $0.45, (iv) a five year option to purchase up to 225,000 shares of common stock at an exercise price of $0.45; and (v) a ten year option to purchase up to 160,000 shares of common stock at an exercise price of $0.45. | (5) | Consists of 5,000 shares of common stock and (i) a ten year option to purchase up to 100,000 shares of common stock at an exercise price of $0.45, (ii) a five year option to purchase up to 250,000 shares of common stock at an exercise price of $0.45, (iii) a five year option to purchase up to 225,000 shares of common stock at an exercise price of $0.45; and (iv) a ten year option to purchase up to 60,000 shares of common stock at an exercise price of $4.00 per share$0.45. |
(7)(6) | Represents 3,560,000Consists of 2,000 shares of common stock directly owned by Libra Fund. The warrants issuedand (i) a ten year option to Libra Fund in connection with the January 2011 Private Placement include a provision whereby Libra Fund may only exercise the warrantspurchase up to the extent such exercise does result in Libra Fund owning in excess of 9.99% of the100,000 shares of Company common stock issuedat an exercise price of $0.45 and outstanding. As(ii) a result, the 3,560,000ten year option to purchase up to 60,000 shares of common stock at an exercise price of $0.45. | (7) | Consists of (i) a ten year option to purchase up to 100,000 shares of common stock at an exercise price of $0.45 and (ii) a ten year option to purchase up to 60,000 shares of common stock at an exercise price of $0.45. | (8) | Includes 1,889,597 shares of common stock, 149,000 shares of common stock underlying the five-year warrants exercisable at $2.50 per share have not been included for purposes of determining beneficial ownership.and 475,000 Shares underlying options that are currently exercisable. |
(8) | Represents 4,000,000 shares of common stock held in the accounts of two private investment funds (the “Funds”), including Libra Fund, the investments of which are managed by Libra Advisors, LLC and/or Libra Associates, LLC, each of which Ranjan Tandon is the managing member. The warrants issued to the Funds in connection with the January 2011 Private Placement include a provision whereby the Funds may only exercise the warrants to the extent such exercise does result in the Funds owning in excess of 9.99% of the shares of Company common stock issued and outstanding. As a result, the 4,000,000 shares of common stock underlying the five-year warrants exercisable at $2.50 per share have not been included for purposes of determining beneficial ownership. Each of Libra Advisors, LLC, Libra Associates LLC, and Mr. Tandon disclaim beneficial ownership with respect to the securities directly owned by Libra Fund except to the extent of their pecuniary interest therein. |
(9) | In July 2011, Brewer & Pritchard, P.C. (“B&P), counsel to the Company, assigned to Thomas Pritchard 1,500,000 shares of Company common stock and to Mark Brewer 1,500,000 shares of Company common stock pursuant to written agreement. Messrs. Pritchard and Brewer are shareholders of B&P, and have voting and investment control over the shares held by B&P. As a result, each of Messrs. Brewer and Pritchard may be deemed to have beneficial ownership over the shares held by the firm. The number reflected in the table therefore represents 2,250,000 shares held individually by each of Messrs. Pritchard and Brewer and 750,000 shares held by B&P. Each of Messrs. Brewer and Pritchard disclaim beneficial ownership over the shares held by B&P, except to the extent of their pecuniary interest therein. |
(10) | Anthony Kamin shares voting and investment control over the shares held by RLR Services Partnership with a family member. |
(11) | Highline Capital Management, L.L.C.LLC (“Highline Management”) serves as the investment manager ofadvisor for Highline Capital International, Ltd.,Partners QP LP, Highline Capital Partners, LP, Highline A Masterfund, LLC and Highline Master, LP and may be deemed to have beneficial ownership over the securities held by Highline Capital International, Ltd.each of these entities. Jacob W. Doft is the managing member of Highline Management, and as the sole managing member has voting and investment control over securities held by Highline Capital International, Ltd.Management. |
(12) (10) | Represents (i) 1,319,9962,500,000 shares of common stock and (ii) 284,8231,189,369 shares of common stock underlying a five year warrant exercisable at $2.50 per share,share. | (11) | Represents shares held by related persons and (iii) 982,080 shares of common stock underlying an option exercisable at $2.50 per shares.entities SC Fundamental Value Fund, L.P., SC Fundamental LLC, Peter M. Collery, Neil H. Koffler, John T. Bird and David Hurwitz. |
It is believed by the Company that all persons named have full voting and investment power with respect to the shares indicated, unless otherwise noted in the table and the footnotes thereto. Under the rules of the Securities and Exchange Commission, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock. The Company is not, to the best of our knowledge, directly or indirectly owned or controlled by another corporation or foreign government. Change in Control The Company is not aware of any arrangement that might result in a change in control in the future. The Company has no knowledge of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in the Company’s control. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for our common stock is Securities Transfer Corporation whose address is 2591 Dallas Parkway, Suite 102, Frisco, Texas 75034. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation provides our directors with protection for breaches of their fiduciary duties to us or our stockholders. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons as provided in the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is unenforceable. In the event that a claim for indemnification against such liabilities, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
EXPERTS Our financial statements as of August 31, 20102013 and 20092012 have been audited by LBB & Associates Ltd., LLP (an independent registered public accounting firm) to the extent and for the periods set forth in their report thereon, appearing elsewhere in this registration statement, and are included in reliance upon such report given on the authority of such firm as experts in auditing and accounting.
The validity of the shares of common stock and the shares of common stocksecurities to be sold in this offering will be passed upon by BrewerDorsey & Pritchard, P.C., Houston, Texas. Brewer & Pritchard, P.C. is also the holderWhitney LLP, of 750,000 shares of our common stock, none of which are included in this registration statement. The shareholders of Brewer & Pritchard, P.C. hold an aggregate of 3,000,000 shares of our common stock, none of which are included in this registration statement.Denver, Colorado.
WHERE YOU CAN FIND MORE INFORMATION This prospectus is part of a registration statement on Form S-1 that we have filed registering the common stock to be sold in this offering. We also file annual, quarterly and current reports, proxy statements and other information with the SEC. You may access and read our SEC filings, including this registration statement and all of the exhibits to the registration statement, through the SEC’s website (http:www.sec.gov)(http:www.sec.gov). This site contains reports, proxy and information statements and other information regarding registrants, including us, that file electronically with the SEC. This registration statement, including the exhibits and schedules filed as a part of the registration statement, may be inspected at the public reference facility maintained by the SEC at its public reference room 100 F Street NE, NW, Washington, DC 20549 and copies of all or any part thereof may be obtained from that office. You may call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. GLOSSARY OF TERMSAlteration | | Any physical or chemical change in a rock or mineral subsequent to its formation. | | | | Breccia | | A rock in which angular fragments are surrounded by a mass of fine-grained minerals. | | | | Concession | | A grant of a tract of land made by a government or other controlling authority in return for stipulated services or a promise that the land will be used for a specific purpose. | | | | Core | | The long cylindrical piece of a rock, about an inch in diameter, brought to the surface by diamond drilling. | | | | Diamond drilling | | A drilling method in which the cutting is done by abrasion using diamonds embedded in a matrix rather than by percussion. The drill cuts a core of rock, which is recovered in long cylindrical sections. | | | | Drift | | A horizontal underground opening that follows along the length of a vein or rock formation as opposed to a cross-cut which crosses the rock formation. | | | | Exploration | | Work involved in searching for ore, usually by drilling or driving a drift. | | | | Exploration expenditures | | Costs incurred in identifying areas that may warrant examination and in examining specific areas that are considered to have prospects that may contain mineral deposit reserves. | | | | Grade | | The average assay of a ton of ore, reflecting metal content. | | | | Host rock | | The rock surrounding an ore deposit. | | | | Intrusive | | A body of igneous rock formed by the consolidation of magma intruded into other rocks, in contrast to lavas, which are extruded upon the surface. | | | | Lode | | A mineral deposit in solid rock. | | | | Ore | | The naturally occurring material from which a mineral or minerals of economic value can be extracted profitably or to satisfy social or political objectives. The term is generally but not always used to refer to metalliferous material, and is often modified by the names of the valuable constituent; e.g., iron ore. | | | | Ore body | | A continuous, well-defined mass of material of sufficient ore content to make extraction economically feasible. | | | | Mine development | | The work carried out for the purpose of opening up a mineral deposit and making the actual ore extraction possible. | | | | Mineral | | A naturally occurring homogeneous substance having definite physical properties and chemical composition, and if formed under favorable conditions, a definite crystal forms. | | | | Mineralization | | The presence of minerals in a specific area or geological formation. | | | | Mineral Reserve | | That part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. Reserves are customarily stated in terms of “Ore” when dealing with metalliferous minerals. | | | | Probable (Indicated) Reserves | | Reserves for which quantity and grade and/or quality are computed from information similar to that used for proven (measured) reserves, but the sites for inspection, sampling, and measurement are farther apart or are otherwise less adequately spaced. The degree of assurance, although lower than that for proven (measured) reserves, is high enough to assume continuity between points of observation. |
TEXAS RARE EARTH RESOURCES CORP.
INDEX TO FINANCIAL STATEMENTS
ReportProspect Proven (Measured) Reserves | | A mining property, the value of Independent Registered Public Accounting Firm | F-2which has not been determined by exploration. 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. | Financial Statements of Texas Rare Earth Resources Corp. as of and | | | Tonne | | A metric ton which is equivalent to 2,200 pounds. | | | | Trend | | A general term for the years ended August 31, 2010 and 2009. | F-3direction or bearing of the outcrop of a geological feature of any dimension, such as a layer, vein, ore body, or fold. | Unaudited Financial Statements | | | Unpatented mining claim | | A parcel of Texas Rare Earth Resources Corp. asproperty 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 for the ninemine such claim. | | | | Vein | | A mineralized zone having a more or less regular development in length, width, and three month periods ended May 31, 2011 and 2010. | F-16depth, which clearly separates it from neighboring rock. |
INDEX TO FINANCIAL STATEMENTS The following audited financial statements of the Company as at and for the years ended August 31, 2013 and 2012 are attached as pages F-1 through F-15 and are incorporated herein by reference: Report of Independent Registered Public Accounting Firm | | | F-1 | | Balance Sheet | | | F-2 | | Statement of Operations | | | F-3 | | Statement of Shareholders’ Equity | | | F-4 | | Statement of Cash Flows | | | F-5 | | Notes to the Financial Statements | | | F-6 – F-15 | |
Supplementary Data As a smaller reporting company, we are not required to provide any supplementary data. The following unaudited financial statements of the Company as at May 31, 2014 and for the three and nine month periods ended May 31, 2014 and 2013 are attached as pages F-16 through F-23 and are incorporated herein by reference: Interim Unaudited Balance Sheet | | | F-16 | | Interim Unaudited Statements of Operations | | | F-17 | | Interim Unaudited Statement of Cash Flows | | | F-18 | | Notes to the Interim Unaudited Financial Statements | | | F-19 – F-23 | |
LBB & ASSOCIATES LTD., LLP
10260 Westheimer Road, Suite 310 Houston, TX 77042 Phone: (713) 800-4343 Fax: (713) 456-2408 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Texas Rare Earth Resources Corp. (Formerly Standard Silver Corporation)Corp Houston,Sierra Blanca, Texas
We have audited the accompanying balance sheets of Texas Rare Earth Resources Corp. (formerly Standard Silver Corporation)Corp (the “Company”) as of August 31, 20102013 and 2009,2012, and the related statements of operations, shareholders' equity, and cash flows and stockholders' equity (deficit) for each of the years then ended. These financial statements are the responsibility of the Company'sCompany’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 audit 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 include 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Texas Rare Earth Resources Corp.Corp as of August 31, 20102013 and 2009,2012, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.
/s/ LBB & Associates Ltd.ASSOCIATES LTD., LLP
LBB & Associates Ltd., LLP Houston, Texas December 21, 2010, except for Note 8,
for which the date is February 6, 2011November 25, 2013
F-1 TEXAS RARE EARTH RESOURCES CORP. TEXAS RARE EARTH RESOURCES CORP | | (Formerly Standard Silver Corporation) | | BALANCE SHEETS | | | | | | August 31, 2010 | | | August 31, 2009 | | | | | | | | | ASSETS | | | | | | | | | | | | | | CURRENT ASSETS | | | | | | | Cash & cash equivalents | | $ | 74,434 | | | $ | - | | | | | | | | | | | Total current assets | | | 74,434 | | | | - | | | | | | | | | | | Property and equipment, net | | | 26,559 | | | | - | | Mineral properties | | | 44,539 | | | | - | | | | | | | | | | | TOTAL ASSETS | | $ | 145,532 | | | $ | - | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | | | | | | | | | | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | Accounts payable and accrued expenses | | $ | 20,624 | | | $ | 12,456 | | Notes and interest payable to related parties | | | 90,448 | | | | 157,954 | | Total current liabilities | | | 111,072 | | | | 170,410 | | | | | | | | | | | COMMITMENTS AND CONTINGENCIES | | | | | | | | | | | | | | | | | | SHAREHOLDERS' EQUITY (DEFICIT) | | | | | | | | | Preferred stock, par value $0.001; 10,000,000 shares authorized, no | | | | | | | | | shares issued and outstanding as of August 31, 2010 and 2009 | | | - | | | | - | | Common stock, par value $0.01; 100,000,000 shares authorized | | | | | | | | | 23,670,260 and 22,655,260 issued and outstanding as of | | | | | | | | | August 31, 2010 and August 31, 2009, respectively | | | 236,703 | | | | 226,553 | | Additional paid-in capital | | | 1,220,391 | | | | 467,291 | | Accumulated deficit | | | (1,422,634 | ) | | | (864,254 | ) | Total shareholders' equity (deficit) | | | 34,460 | | | | (170,410 | ) | | | | | | | | | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) | | $ | 145,532 | | | $ | - | | | | | | | | | | | The accompanying notes are an integral part of these financial statements. | | | | | | | | |
| | August 31, 2013 | | August 31, 2012 | ASSETS | | | | | | | | | CURRENT ASSETS | | | | | | | | | Cash & cash equivalents | | $ | 2,374,017 | | | $ | 6,517,935 | | Prepaid expenses and other current assets | | | 61,828 | | | | 74,149 | | Total current assets | | | 2,435,845 | | | | 6,592,084 | | Property and equipment, net | | | 148,217 | | | | 250,909 | | Mineral properties | | | 1,718,286 | | | | 343,434 | | Deposits | | | 111,250 | | | | 102,840 | | TOTAL ASSETS | | $ | 4,413,598 | | | $ | 7,289,267 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | Accounts payable and accrued liabilities | | $ | 228,834 | | | $ | 478,430 | | Current portion of note payable | | | 29,007 | | | | — | | Total current liabilities | | | 257,841 | | | | 478,430 | | Note payable – net of current portion and discount | | | 290,845 | | | | — | | Total liabilities | | | 548,686 | | | | 478,430 | | COMMITMENTS AND CONTINGENCIES | | | | | | | | | SHAREHOLDERS' EQUITY | | | | | | | | | Preferred stock, par value $0.001; 10,000,000 shares authorized, no shares issued and outstanding as of August 31, 2013 and August 31, 2012 | | | — | | | | — | | Common stock, par value $0.01; 100,000,000 shares authorized, 37,036,916 and 36,550,009 shares issued and outstanding as of August 31, 2013 and August 31, 2012, respectively | | | 370,370 | | | | 365,501 | | Additional paid-in capital | | | 30,001,752 | | | | 29,262,684 | | Accumulated deficit | | | (26,507,210 | ) | | | (22,817,348 | ) | Total shareholders' equity | | | 3,864,912 | | | | 6,810,837 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 4,413,598 | | | $ | 7,289,267 | |
The accompanying notes are an integral part of these financial statements. F-2 TEXAS RARE EARTH RESOURCES CORP. TEXAS RARE EARTH RESOURCES CORP | | | (Formerly Standard Silver Corporation) | | | STATEMENTS OF OPERATIONS | | | | | | | | Year ended | | | Year ended | | | | | August 31, | | | August 31, | | | | | 2010 | | | 2009 | | | Year Ended August 31, | | | | | | | | | 2013 | | 2012 | OPERATING EXPENSES | | | | | | | | | | | | | | | Exploration costs | | $ | 126,929 | | | $ | 19,042 | | | $ | 1,281,998 | | | $ | 7,633,368 | | General & administrative expenses | | | 424,987 | | | | 32,749 | | | | 2,403,226 | | | | 6,754,706 | | Impairment loss on mineral property investment | | | - | | | | 21,799 | | | | | | | | | | | | | Total operating expenses | | | 551,916 | | | | 73,590 | | | | 3,685,224 | | | | 14,388,074 | | | | | | | | | | | | LOSS FROM OPERATIONS | | | (551,916 | ) | | | (73,590 | ) | | | (3,685,224 | ) | | | (14,388,074 | ) | | | | | | | | | | | OTHER (INCOME) EXPENSE | | | | | | | | | | OTHER INCOME (EXPENSE) | | | | | | | | | | Loss on asset disposal | | | | (12,835 | ) | | | (14,498 | ) | Interest and other income | | | (1,031 | ) | | | (2,623 | ) | | | 24,388 | | | | 28,306 | | Interest expense | | | 7,495 | | | | 8,706 | | | | (16,191 | ) | | | (334 | ) | Impairment loss on notes receivable | | | - | | | | 54,370 | | | Total other (income) expense | | | 6,464 | | | | 60,453 | | | | | | | | | | | | | Total other income (expense) | | | | (4,638 | ) | | | 13,474 | | NET LOSS | | $ | (558,380 | ) | | $ | (134,043 | ) | | $ | (3,689,862 | ) | | $ | (14,374,600 | ) | | | | | | | | | | | Net loss per share: | | | | | | | | | | | | | | | | | Basic and diluted net loss per share | | $ | (0.02 | ) | | $ | (0.01 | ) | | $ | (0.10 | ) | | $ | (0.40 | ) | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | | | | | Basic and diluted | | | 23,433,144 | | | | 21,031,972 | | | | 36,670,297 | | | | 35,964,877 | | | | | | | | | | | | The accompanying notes are an integral part of these financial statements. | | | | | | | | | |
The accompanying notes are an integral part of these financial statements. F-3 TEXAS RARE EARTH RESOURCES CORP. TEXAS RARE EARTH RESOURCES CORP | | (Formerly Standard Silver Corporation) | | STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) | | For the Years Ended August 31, 2010 | | | | | | | | | | | | | | | | Common Stock | | | | | | | | Shares | | Amount | | Additional Paid-in Capital | | Accumulated Deficit | | Total | | | | | | | | | | | | | | Balance at August 31, 2008 | | | 15,155,260 | | $ | 151,553 | | $ | 542,291 | | $ | (730,211 | ) | $ | (36,367 | ) | | | | | | | | | | | | | | | | | | Share issuances | | | 7,500,000 | | | 75,000 | | | (75,000 | ) | | - | | | - | | Net loss | | | - | | | - | | | - | | | (134,043 | ) | | (134,043 | ) | Balance at August 31, 2009 | | | 22,655,260 | | | 226,553 | | | 467,291 | | | (864,254 | ) | | (170,410 | ) | | | | | | | | | | | | | | | | | | Shares issued for cash proceeds | | | 1,000,000 | | | 10,000 | | | 390,000 | | | - | | | 400,000 | | Units subscribed | | | - | | | - | | | 55,000 | | | - | | | 55,000 | | Shares issued for services | | | 15,000 | | | 150 | | | 13,350 | | | - | | | 13,500 | | Stock-based compensation, shares | | | | | | | | | | | | | | | - | | issued October 2010 | | | - | | | - | | | 249,000 | | | - | | | 249,000 | | Shares owed for services | | | - | | | - | | | 45,750 | | | - | | | 45,750 | | Net loss | | | - | | | - | | | - | | | (558,380 | ) | | (558,380 | ) | Balance at August 31, 2010 | | | 23,670,260 | | $ | 236,703 | | $ | 1,220,391 | | $ | (1,422,634 | ) | $ | 34,460 | | | | | | | | | | | | | | | | | | | The accompanying notes are an integral part of these financial statements | | | | | | | | | | |
STATEMENTS OF SHAREHOLDERS' EQUITY For the Period Ended August 31, 2013 and 2012
| | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | | | | | | Shares | | Amount | | Shares | | Amount | | Total | Balance at August 31, 2011 | | | — | | | | — | | | | 34,596,260 | | | | 345,964 | | | | 24,818,022 | | | | (8,442,748 | ) | | | 16,721,238 | | Shares issued for services | | | — | | | | — | | | | 10,000 | | | | 100 | | | | 19,100 | | | | — | | | | 19,200 | | Shares issued for cash | | | — | | | | — | | | | 1,943,749 | | | | 19,437 | | | | 1,083,687 | | | | — | | | | 1,103,124 | | Options issued to Officers | | | — | | | | — | | | | — | | | | — | | | | 3,341,875 | | | | — | | | | 3,341,875 | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (14,374,600 | ) | | | (14,374,600 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at August 31, 2012 | | | — | | | $ | — | | | | 36,550,009 | | | $ | 365,501 | | | $ | 29,262,684 | | | $ | (22,817,348 | ) | | $ | 6,810,837 | | Options issued to Officers and Directors | | | — | | | | — | | | | — | | | | — | | | | 376,629 | | | | — | | | | 376,629 | | Repurchase of common stock outstanding | | | — | | | | — | | | | (576,923 | ) | | | (5,769 | ) | | | (126,923 | ) | | | — | | | | (132,692 | ) | Common Stock issued for assumption of West Lease | | | — | | | | — | | | | 1,063,830 | | | | 10,638 | | | | 489,362 | | | | — | | | | 500,000 | | Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | (3,689,862 | ) | | | (3,689,862 | ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Balance at August 31, 2013 | | | — | | | | — | | | | 37,036,916 | | | $ | 370,370 | | | $ | 30,001,752 | | | $ | (26,507,210 | ) | | $ | 3,864,912 | |
The accompanying notes are an integral part of these financial statements. F-4 TEXAS RARE EARTH RESOURCES CORP. TEXAS RARE EARTH RESOURCES CORP | | (Formerly Standard Silver Corporation) | | STATEMENTS OF CASH FLOWS | | | | | | Year ended | | | Year ended | | | | August 31, | | | August 31, | | | | 2010 | | | 2009 | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | Net loss | | $ | (558,380 | ) | | $ | (134,043 | ) | Adjustment to reconcile net loss to net cash | | | | | | | | | used in operating activities: | | | | | | | | | Depreciation and amortization | | | 3,977 | | | | - | | Stock-based compensation | | | 249,000 | | | | - | | Shares issued for services | | | 59,250 | | | | - | | Impairment loss on notes receivable | | | - | | | | 54,370 | | Impairment loss on mineral property investments | | | - | | | | 21,799 | | Changes in current assets and liabilities: | | | | | | | | | Interest accrued on notes receivable from related party | | | - | | | | (5,161 | ) | Accounts payable and accrued expenses | | | 8,168 | | | | 5,912 | | Interest accrued on notes payable from related parties | | | 7,494 | | | | 6,384 | | Net cash used in operating activities | | | (230,491 | ) | | | (50,739 | ) | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | Capital expenditures | | | (30,536 | ) | | | - | | Mineral property expenditures | | | (44,539 | ) | | | - | | Loans to related parties | | | - | | | | (16,638 | ) | Net cash used in investing activities | | | (75,075 | ) | | | (16,638 | ) | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | Proceeds from sale of common stock | | | 455,000 | | | | - | | Note proceeds from related parties | | | - | | | | 56,000 | | Payments on related party notes payable | | | (75,000 | ) | | | - | | Net cash provided by financing activities | | | 380,000 | | | | 56,000 | | NET CHANGE IN CASH | | | 74,434 | | | | (11,377 | ) | CASH, BEGINNING OF PERIOD | | | - | | | | 11,377 | | CASH, END OF PERIOD | | $ | 74,434 | | | $ | - | | | | | | | | | | | SUPPLEMENTAL INFORMATION | | | | | | | | | Interest paid | | $ | - | | | $ | 2,321 | | Taxes paid | | $ | - | | | $ | - | | | | | | | | | | | NON-CASH TRANSACTIONS: | | | | | | | | | Share issuances for cash previously received | | $ | - | | | $ | 75,000 | | | | | | | | | | | The accompanying notes are an integral part of these financial statements | | | | | |
| | Year Ended August 31 | | | 2013 | | 2012 | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | Net loss | | $ | (3,689,862 | ) | | $ | (14,374,600 | ) | Adjustment to reconcile net loss to net cash used in operating activities: | | | | | | | | | Depreciation expense | | | 86,272 | | | | 84,838 | | Loss on disposition of fixed asets | | | 12,835 | | | | 14,498 | | Stock-based compensation | | | 376,629 | | | | 3,361,075 | | Changes in operating assets and liabilities: | | | | | | | | | Prepaid expenses and other assets | | | 3,912 | | | | (122,885 | ) | Accounts payable and accrued expenses | | | (249,596 | ) | | | (101,377 | ) | Net cash used in operating activities | | | (3,459,810 | ) | | | (11,138,451 | ) | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | Investment in mineral properties | | | (510,000 | ) | | | (200,078 | ) | Purchase of fixed assets | | | (696 | ) | | | (158,226 | ) | Proceeds from sale of property and equipment | | | 4,280 | | | | 25,500 | | Net cash used in investing activities | | | (506,416 | ) | | | (332,804 | ) | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | Proceeds from exercise of common stock warrants | | | — | | | | 1,103,124 | | Payment on note payable | | | (45,000 | ) | | | — | | Repurchase of treasury stock | | | (132,692 | ) | | | — | | Net cash provided by (used in) financing activities | | | (177,692 | ) | | | 1,103,124 | | NET CHANGE IN CASH | | | (4,143,918 | ) | | | (10,368,131 | ) | CASH, BEGINNING OF PERIOD | | | 6,517,935 | | | | 16,886,066 | | CASH, END OF PERIOD | | $ | 2,374,017 | | | $ | 6,517,935 | | SUPPLEMENTAL INFORMATION | | | | | | | | | Interest paid | | $ | 191 | | | $ | 334 | | Taxes paid | | $ | — | | | $ | — | | Issuance of common stock for lease assignment. | | $ | 500,000 | | | | | | Note payable for lease assignment | | $ | 364,852 | | | $ | — | |
The accompanying notes are an integral part of these financial statements.
F-5 Texas Rare Earth Resources Corp.TEXAS RARE EARTH RESOURCES CORP.
Notes to financial statements
AugustNOTES TO FINANCIAL STATEMENTS
AUGUST 31, 2010 and 20092013 AND 2012
NOTE 1 –— ORGANIZATION AND NATURE OF BUSINESS
Texas Rare Earth Resources Corp. (formerly Standard Silver Corporation)Corp (the “Company” or “Standard Silver”) was incorporated in the State of Nevada in 1970. In July 2004, our articles of incorporation were amended and restated to increase the authorized capital to 25,000,000 common shares and, in April 2007, we affectedeffected a 1-for-21 for 2 reverse stock split. In September 2008, our articles of incorporation were further amended and restated to increase the authorized capital to 100,000,000 common shares with a par value of $0.01 per share and to authorize 10,000,000 preferred shares with a par value of $0.001 per share. The Company’sOur fiscal year-end is August 31.
The Company was initially formed to develop silver properties located in the Cornucopia Mining District of Nevada. We later broadened our focus to include other natural resources such as gold, coal, oil, and gas.
Between 2003 and 2007, our operations were minimal. In 2007 we acquired (i) interests in two mineral properties, the Old Hadley and the Macho Mines, located in southwestern New Mexico, (ii) a 28.5% interest in La Cañada Mining and Exploration LLC (“La Cañada”), (iii) the King Mine located in Boise County, Idaho, and (iv) rights to lease the Round Top Beryllium Deposit (“Round Top Deposit”) located in Hudspeth County, Texas. In July 2008, the Old Hadley and Round Top Deposit mines were assigned to La Cañada in exchange for La Cañada’s commitment to finance and develop the assigned properties. In September 2008, La Cañada assigned these two mines back to Standard Silver. In October 2009, the Company divested itself of any interest in La Cañada. In January 2009, the Company relinquished all of its rights to the King Mine.
Effective September 1, 2010, the Companywe changed itsour name from “Standard Silver Corporation” to “Texas Rare Earth Resources Corp.” We are now a mining company engaged in the business of the acquisition and development of mineral properties. As of the date of this filing, we hold a twentytwo nineteen year lease,leases, executed in August 2010,September and November of 2011, to explore and develop an 860a 950 acre rare earth uranium-beryllium prospectearths project located in Hudspeth County, Texas known as “Round Top”,the Round Top Project and prospecting permits covering an adjacent 9,6709,345 acres. We also hold prospecting permits on certain other mineral properties locatedown unpatented mining claims in Texas and New Mexico. We are currently not evaluating any additional prospects, and intend to focus the primarily on the development of our Round Top rare earth prospect.
For the years endedOn August 31, 2010 and 2009, the Company incurred losses24, 2012, we changed our state of $558,380 and $134,043, respectively, and had a working capital deficit of $36,638 as of August 31, 2010. The Company continues to finance its minimal operations through loans from shareholders and proceedsincorporation from the private placementState of shares.Nevada to the State of Delaware (the “Reincorporation”) pursuant to a plan of conversion dated August 24, 2012. The Reincorporation was previously submitted to a vote of, and approved by, our stockholders at a special meeting of the stockholders held on April 25, 2012.
NOTE 2 –— SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
Our financial records are maintained on the accrual basis of accounting whereby revenues are recognized when earned and expenses are recorded when incurred. Effective July 1, 2009, the Financial Accounting Standards Board (“FASB”) issued Standard No. 168, also known as Accounting Standards Codification (“ASC”) 105, which established the ASC as the primary source of authoritativeincurred, in accordance with generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied to nongovernmental entities. Although the establishment of ASC did not change current GAAP, it did change the way we refer to GAAP throughout our financial statements to reflect the updated referencing convention. As of the date of this filing, we have adopted ASC 105. — United States.
Cash and Cash Equivalents
The Company considersWe consider all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of demand deposits at commercial banks. We currently have cash deposits at financial institutions in excess of federally insured limits.
Investments
Investments in entities over which the Company can exercise significant influence, but not control, are accounted for under the equity method of accounting. Whether the Company exercises significant influence with respect to an investment depends on an evaluation of several factors including, among others, representation on the investee’s board of directors and ownership level, generally 20% to 50% interest in the voting securities of the investee including voting rights associated with the Company’s holdings in common, preferred, and other convertible instruments in the investee. Under the equity method of accounting, the Company’s share of the earnings or losses of these companies is included in the Statements of Operations. The Company’s investment in La Cañada was accounted for under the equity method until redemption in October 2009. As of August 31, 2010, the Company does not have any investments accounted for under the equity method of accounting.
A loss in value of an investment that is other than a temporary decline is recognized as a charge to operations. Evidence of a loss in value might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the investment or inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.
Property and Equipment
The Company’sOur property and equipment consists primarily of vehicles, furniture and equipment, and are recorded at cost. Expenditures related to acquiring or extending the useful life of our property plant and equipment are capitalized. Expenditures for repair and maintenance are charged to operations as incurred. Depreciation is computed using the straight-line method over an estimated useful life of 3-203 – 20 years.
Lease Deposits
From time to time, the Company makes deposits in anticipation of executing leases. The deposits are capitalized as an element of mineral properties upon execution of the applicable leases.agreements.
Long-lived Assets
The Company reviews the recoverability of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through operations. To determine if these costs are in excess of their recoverable amount, periodic evaluation of carrying value of capitalized costs and any related property and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC 360,360”), Property, Plant and Equipment. We have not incurred any impairment losses and, therefore, no impairment is reflected in these financial statements.
F-6 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 2 — SUMMARY OF ACCOUNTING POLICIES – (continued) Revenue Recognition
The Company recognizesWe recognize revenue when persuasive evidence of an arrangement exists, services have been performed, the sales price is fixed or determinable, and collectability is probable. The Company hasWe have yet to generate any revenue.
Mineral Exploration and Development Costs
All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs incurred to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If the Company does not continue with exploration after the completion of the feasibility study, the mineral rights will be expensed at that time. Costs of abandoned projects are charged to mining costs including related property and equipment costs. To determine if these costs are in excess of their recoverable amount, periodic evaluation of carrying value of capitalized costs and any related property and equipment costs are based upon expected future cash flows and/or estimated salvage value in accordance with ASC 360-10-35-15,Impairment or Disposal of Long-Lived Assets. Exploration costs were $126,929approximately $1,282,000 and $19,042$7,633,000 for the years ended August 31, 20102013 and 2009,2012, respectively.
Stock-based CompensationShare-based Payments
The Company estimates the fair value of share-based paymentscompensation using the Black-Scholes valuation model, in accordance with the provisions of ASC 718,Stock Compensation and ASC 505, Share-Based. Payments. Key inputs and assumptions used to estimate the fair value of stock options include the grant price of the award, the expected option term, volatility of the Company’sour stock, the risk-free rate, and dividend yield. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the option holders, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company.
Amended 2008 Stock Option Plan
The Company has approvedIn September 2008, the Board adopted our 2008 Stock Option Plan (the “Stock Option“2008 Plan”) providing, which was also approved by our shareholders in September 2008. In May 2011, the board of directors adopted an amendment to our 2008 Plan (the “Amended 2008 Plan”), which was also approved by our shareholders in August 2011. The Amended 2008 Plan increased the number of shares available for upgrant from 2,000,000 to 2,000,0005,000,000 shares of the Company’sour common stock for awards to be grantedour officers, directors, employees and consultants. On February 15, 2012, our stockholders approved an increase of 2,000,000 of shares of common stock available for issuance under the termsamended 2008 Stock Option Plan (the “Plan”). As amended, the Plan provides for 7,000,000 shares of common stock for all awards. Other provisions of the Stock OptionAmended 2008 Plan remain the same as under our 2008 Plan. The Company has not granted anyAs of August 31, 2013, a total of 3,125,000 shares of our common stock options since its inception related to this Stock Optionremained available for future grants under the Amended 2008 Plan.
Income Taxes
Income taxes are computed using the asset and liability method, in accordance with ASC 740,Income TaxesTaxes.. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities, and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
F-7 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 2 — SUMMARY OF ACCOUNTING POLICIES – (continued) Basic and Diluted Loss Per Share
The Company computes loss per share in accordance with ASC 260,Earnings Per Share,, which requires presentation of both basic and diluted earnings per share on the face of the Statements of Operations. Basic loss per share is computed by dividing net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted loss per share gives effect to all dilutive potential common shares outstanding during the period, including stock options and warrants using the treasury method. Dilutive loss per share excludes all potential common shares if their effect is anti-dilutive.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management believes that these financial statements include all normal and recurring adjustments necessary for a fair presentation under Generally Accepted Accounting Principles.
Fair Value Measurements
We account for assets and liabilities measured at fair value in accordance with ASC 820,Fair Value Measurements and DisclosuresDisclosures. . ASC 820 emphasizes that fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, ASC 820 establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified with Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The.The three levels of inputs used to measure fair value are as follows:
| •● | Level 1: Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities traded in active markets. |
| •● | Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. |
| •● | Level 3: Inputs that are generally unobservable. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. |
Our financial instruments consist principally of cash, accounts payable and accrued liabilities.liabilities and note payable. The carrying amounts of such financial instruments in the accompanying financial statements approximate their fair values due to their relatively short-term nature. It is management’s opinion that the Company is not exposed to any significant currency or credit risks arising from these financial instruments.
In January 2010, the FASB issued Accounting Standards Update 2010-06, Fair Value Measurements and Disclosures (Topic 820)-Improving Disclosures about Fair Value Measurements, which enhances the usefulness of fair value measurements. The amended guidance requires both the disaggregation of information in certain existing disclosures, as well as the inclusion of more robust disclosures about valuation techniques and inputs to recurring and nonrecurring fair value measurements. The amended guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disaggregation requirement for the reconciliation disclosure of Level 3 measurements, which is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years. The Company adopted ASU 2010-06 effective December 31, 2009, and the adoption did not have a significant impact on the Company’s financial statements.
Recent Accounting Pronouncements
Pronouncements between August 31, 20102013 and the date of this filing didare not expected to have a significant impact on the Company’sour operations, financial position, or cash flow, nor does the Company expect the adoption of recently issued, but not yet effective, accounting pronouncements to have a significant impact on the Company’sour results of operations, financial position or cash flows.
F-8 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 3 –— PROPERTY AND EQUIPMENT, NET
Property and equipment consist of office furniture, equipment vehicles, and a motor home.vehicles. The fixed assetsproperty and equipment are depreciated using the straight-line method over their estimated useful life of 3-203 – 20 years. Our fixed assets constconsist of the following: | | August 31, 2010 | | | August 31, 2009 | | | August 31, 2013 | | August 31, 2012 | Office equipment | | $ | 195 | | | $ | - | | | Furniture & office equipment | | | $ | 85,889 | | | $ | 111,582 | | Vehicles | | | 22,329 | | | | - | | | | 105,299 | | | | 105,299 | | Motor home | | | 8,012 | | | | - | | | Computers & software | | | | 48,071 | | | | 56,176 | | Field equipment | | | | 71,396 | | | | 73,953 | | Total cost basis | | | 30,536 | | | | - | | | | 310,655 | | | | 347,010 | | Less: Accumulated depreciation | | | (3,977 | ) | | | - | | | | (162,438 | ) | | | (96,101 | ) | Property, plant and equipment, net | | $ | 26,559 | | | $ | - | | | Property & equipment, net | | | $ | 148,217 | | | $ | 250,909 | |
Depreciation expense for the years ending August 31, 20102013 and 20092012 was $3,977$86,272 and $0,$84,838, respectively.
NOTE 4 – RELATED PARTY TRANSACTIONS
The Company has periodically received cash for loans from the Company’s officers and relatives of the Company’s officers to fund operations. As of August 31, 2010 and 2009, $90,448 and $157,954, respectively, in principal and interest is due and outstanding to the Company’s officers. The advances are due on December 31, 2010, and accrue interest at rates ranging from five percent (5%) to six percent (6%) per annum. The loans were paid in full in December 2010.
The Company had periodically loaned money to La Cañada bearing interest ranging from 6.0% to 7.75% per annum. During the year ended August 31, 2009, the Company loaned an additional $16,638 to La Cañada, bringing the principal balance and accrued interest to $68,638 and $7,531, respectively, as of August 31, 2009. Effective August 31, 2009, the Company elected to divest its ownership interest in La Cañada. Accordingly, the Company entered into a Redemption and Mutual Release and Settlement Agreement (“Redemption Agreement”) with La Cañada, in which the Company agreed to pay La Cañada $9,303 as payment in full settlement of the Company’s obligations to La Cañada. In return La Cañada redeemed the 28.5% Standard Silver has in La Cañada back. As a result, the La Cañada loans and related accrued interest receivable were written off during the year ended August 31, 2009.
NOTE 5 – INVESTMENTS
The Company owned a 28.5% interest in La Cañada through October 2009, the date of the Redemption Agreement.
The Company’s investment in La Cañada is accounted for under the equity method based on its ownership interest. For the years ending August 31, 2010 and 2009, losses of $0 were recorded as the Company’s share of losses of La Cañada.
In August 2010, the Company made a $37,200 payment to the Texas General Land Office and entered into a twenty year mining lease covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres at Round Top Mountain in Hudspeth County, Texas. The mining lease issued by the Texas General Land Office gives us the right to explore, produce, develop, mine, extract, mill, remove, and market beryllium, uranium, rare earth elements, all other base and precious metals, industrial minerals and construction materials and all other minerals excluding oil, gas, coal, lignite, sulfur, salt, and potash. The term of the lease is twenty years so long as minerals are produced in paying quantities.
Under the lease, we will pay the State of Texas a lease bonus of $197,800, $35,000 of which was paid upon the execution of the lease, $65,000 of which will be due when we submit our initial plan of operations to conduct exploration, and $97,800 of which will be due when we submit a supplemental plan of operations to conduct mining. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $500,000 minimum advance royalty. Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (6 ¼%) of the market value of all other minerals removed and sold from Round Top.
If production of paying quantities of minerals has not been obtained on or before August 17, 2011, we may pay the State of Texas a delay rental to extend the term of the lease in an amount equal to $44,718. Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:
| | Per Acre Amount | | | Total Amount | | August 17, 2012 – 2014 | | $ | 50 | | | $ | 44,718 | | August 17, 2015 – 2019 | | $ | 75 | | | $ | 67,077 | | August 17, 2019 – 2024 | | $ | 150 | | | $ | 134,155 | | August 17, 2025 – 2029 | | $ | 200 | | | $ | 178,873 | |
NOTE 6 – INCOME TAXES
As of August 31, 2010 and 2009, the cumulative tax effect at the expected rate of 35% and 34%, respectively, of significant items comprising our net deferred tax amount is as follows:— MINERAL PROPERTIES
| | August 31, 2010 | | | August 31, 2009 | | Net operating loss carryforward | | $ | 381,000 | | | $ | 276,000 | | Less: Valuation allowance | | | (381,000 | ) | | | (276,000 | ) | | | | | | | | | | Deferred tax asset, net of allowance | | $ | - | | | $ | - | |
As a result of a change in control effective in April 2007, the Company’s net operating losses prior to that date may be partially or entirely unavailable, by law, to offset future income and, accordingly, are excluded from the associated deferred tax asset.
The provision for income taxes for the year ended August 31, 2010 differs from the result which would be obtained by applying the statutory income tax rate of 35% to income before income taxes because, (i) the Company has recorded a valuation allowance in the amount of the change in the deferred tax asset for each period, and (ii) the Company has $249,000 of non-deductible stock compensation expense for the year ended August 31, 2010.
The table below presents a reconciliation of the tax at the prevailing statutory rate to the Company’s provision for taxes:September 2011 Lease
| | Year ended August 31, | | | 2010 | | | 2009 | | Net operating loss | | $ | 190,000 | | | $ | 44,000 | | Less: Non-deductible stock compensation | | | (85,000 | ) | | | - | | Change in valuation allowance | | | (105,000 | ) | | | (44,000 | ) | | | | | | | | | | Tax provision | | $ | - | | | $ | - | |
The Company’s net operating loss carry forwards expire beginning in 2022.
NOTE 7 – SHAREHOLDERS’ EQUITY
Capital Stock
The Company is authorized to issue 110,000,000 shares of capital stock, of which 100,000,000 shares of capital stock are designated as common stock with a par value of $0.01 per share and 10,000,000 shares of capital stock are designated as preferred stock with a par value of $0.001 per share. As of August 31, 2010, there were 23,670,260 shares of our common stock outstanding. All shares of common stock have equal voting rights and, when validly issued and outstanding, are entitled to one non-cumulative vote per share in all matters to be voted upon by shareholders. The shares of common stock have no pre-emptive, subscription, conversion or redemption rights and may be issued only as fully paid and non-assessable shares. Holders of the common stock are entitled to equal ratable rights to dividends and distributions with respect to the common stock, as may be declared by the Board of Directors out of funds legally available. In the event of a liquidation, dissolution or winding up of the affairs of the Company, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding.
In August 2010, the Company granted 61,000 shares of common stock at a value of $0.75 per share as payment for services to two external consultants. As of August 31, 2010, these shares have not been issued and are included in Additional Paid-in Capital (APIC). These shares were issued inOn September and October 2010.
In December 2009, the Company granted 300,000 shares of common stock at a value of $0.83 per share as compensation to a director of the Company. As of August 31, 2010, these shares have not been issued and are included in APIC. These shares were issued in September 2010.
In November 2009, the Company issued 15,000 shares of common stock at a value of $0.90 per share as payment to a vendor for certain services rendered.
In May 2008 the Company received $50,000 of cash funds for stock offered to two investors. In November 2008, the Company issued to each of these investors, Brewer & Pritchard, PC and RLR Services Partnership, 3,750,000 shares of common stock for a purchase price of $25,000 by each investor.
For the year ended August 31, 2010, the Company raised $400,000 through the issuance of 1,000,000 shares of common stock and the issuance of Class A Warrants to purchase 1,000,000 shares of common stock and Class B Warrants to purchase 500,000 shares of common stock (the “2009-2010 Private Placement”). Also during the year ended August 31, 2010, the Company received $52,500 proceeds, as subscriptions related to the 2009-2010 Private Placement, for 118,750 shares of common stock, Class A Warrants to purchase 137,500 shares of common stock and Class B Warrants to purchase 59,375 shares of common stock.
Warrants
The fair value of the warrants issued with the units was estimated at the date of issue using the Black-Scholes valuation model, and the relative fair value of the Class A Warrants, Class B Warrants, and shares of common stock issued during the twelve months ended August 31, 2010 as part of the units was $0.82, $0.84, and $0.85, respectively. The Company recorded the relative fair value of the warrants of $269,978 as APIC.
The assumptions used are as follows:
| | August 31, 2010 | | | August 31, 2009 | | Expected dividend yield | | | 0 | % | | | N/A | | Risk-free interest rate | | | 0.340%-0.815 | % | | | N/A | | Expected volatility | | | 387.97%-406.46 | % | | | N/A | | Expected warrant life (in years) | | | 1.00-1.50 | | | | N/A | |
The following Class A Warrants are outstanding:
Expiry Date | | | | | August 31, 2010 | | | August 31, 2009 | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 125,000 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 187,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 75,000 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.50 | | | | 125,000 | | | | N/A | | | | | | | | | 1,137,500 | | | | | |
The following Class B Warrants are outstanding:
Expiry Date | | | | | August 31, 2010 | | | August 31, 2009 | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 62,500 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 93,750 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 37,500 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 31,250 | | | | N/A | | December 31, 2011 | | $ | 0.75 | | | | 62,500 | | | | N/A | | | | | | | | | 568,750 | | | | | |
In connection with the 2009-2010 Private Placement, the Company entered into certain registration rights agreements. Key provisions of these registration rights are as follows:
· | Equity instruments subject to registration rights: |
o | The 1,132,500 shares of the Company’s common stock issued under the 2009-2010 Private Placement are subject to registration rights; |
o | The shares underlying the Class A Warrants, expiring December 31, 2011, entitle the holders to purchase 1,132,500 shares of common stock; |
o | The shares underlying the Class B Warrants, also expiring December 31, 2011, entitle the holders to purchase 566,250 shares of common stock. |
· | Term – The Company is required to file a registration statement covering the resale of the shares of common stock and shares of common stock underlying the warrants by February 9, 2011, and the registration is required to be deemed effective by the Securities and Exchange Commission (SEC) on or before the 150th calendar day after the filing of such registration statement.
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· | Events requiring transfer of consideration – Failure of the Company to file a registration statement by February 9, 2011 and/or the registration statement not deemed effective by the SEC on or before the 150th calendar day after the filing of such registration statement.
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· | Settlement alternatives – There are no alternative settlement arrangements. |
· | Maximum potential amount of consideration – In the event that transfer of consideration is required under the registration rights agreement, the Company is obligated to issue, as liquidated damages on a pro-rata basis to the subject investors, approximately 290,000 shares for each month, or pro-rated for a period less than one month, the registration is late up to a maximum of approximately 1,450,000 shares. |
· | Liability – Management estimates that transfer of consideration will not be required. Accordingly, the Company has not accrued a liability related to the registration rights agreements. |
In connection with the January 2011 Private Placement, the Company entered into certain registration rights agreements. Key provisions of these registration rights are as follows:
· | Equity instruments subject to registration rights: |
o | The 800,000 shares of the Company’s common stock issued under the January 2011 Private Placement are subject to registration rights; |
o | The shares underlying the warrants, expiring December 31, 2011, which entitle the holders to purchase 800,000 shares of common stock. |
· | Term – The Company is required to file a registration statement covering the resale of the shares of common stock and shares of common stock underlying the warrants by February 9, 2011, and the registration is required to be deemed effective by the SEC on or before the 150th calendar day after the filing of such registration statement.
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· | Events requiring transfer of consideration – Failure of the Company to file a registration statement by February 9, 2011 and/or the registration statement not deemed effective by the SEC on or before the 150th calendar day after the filing of such registration statement.
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· | Settlement alternatives – There are no alternative settlement arrangements. |
· | Maximum potential amount of consideration – In the event that transfer of consideration is required under the registration rights agreement, the Company is obligated to issue, as liquidated damages, a number of shares of common stock equal to ten percent of the shares of common stock purchased by the respective investors and issued upon the exercise of the warrants for a 30-day period or pro-rated for a period less than one month. However, in no event shall that amount exceed five times the first month’s liquidated damages amount. |
· | Liability – Management estimates that transfer of consideration will not be required. Accordingly, the Company has not accrued a liability related to the registration rights agreements. |
Stock-based Compensation
In January 2010, the Company entered into an agreement with Anthony Marchese pursuant to which the Company issued to Mr. Marchese 300,000 shares of common stock as compensation for serving as a member of the Company’s board of directors. In October 2009, as a part of our 2009-2010 Private Placement, the Company sold Mr. Marchese, a director, 62,500 shares of common stock, Class A Warrants to purchase up to 62,500 shares of common stock, and Class B Warrants to purchase up to 31,250 shares of common stock for gross proceeds of $25,000, the terms of which were identical to those offered to other investors. In October 2009, as a part of our 2009-2010 Private Placement, the Company sold Insiders Trend Fund, LP, an affiliate of Mr. Marchese, 125,000 shares of common stock, Class A Warrants to purchase up to 125,000 shares of common stock, and Class B Warrants to purchase up to 62,500 shares of common stock for gross proceeds of $50,000, the terms of which were identical to those offered to other investors.
NOTE 8 – SUBSEQUENT EVENTS
Between September and November 2010, the Company raised $453,000 through the issuance of 1,132,500 shares of common stock and the issuance of Class A Warrants to purchase 1,132,500 shares of common stock and Class B Warrants to purchase 566,250 shares of common stock as part of our 2009-2010 Private Placement. Between November 2010 and January 2011, Class A Warrants to purchase 437,500 shares were exercised, and Class B Warrants to purchase 218,750 shares were exercised, resulting in $382,813 of proceeds being raised by the Company.
In January2, 2011, we entered into a series of transactions with accredited investors pursuant to which we sold an aggregate of 800,000 shares of our common stock and five year warrants to purchase up to 800,000 shares of common stock, exercisable at $2.50 per share, for gross proceeds of $2,000,000 (“January 2011 Private Placement”). As additional consideration for the purchase of the shares and warrants, the Company issued to the January 2011 Private Placement investors an option for 120 days to purchase up to 3,200,000 shares of common stock at $2.50 per share with 100% warrant coverage through the issuance of warrants to purchase up to 3,200,000 shares of common stock at an exercise price of $2.50 per share. The Company paid cash commissions of $208,000 and issued five year warrants to purchase up to 169,000 shares of its common stock at an exercise price of $2.50 per share in connection with the sale of its securities in the January 2011 Private Placement. We have agreed to register the resale of the 169,000 shares of common stock underlying the warrant issued as payment of commissions.
In connection with the 2009-2010 Private Placement, the Company also entered into certain registration rights agreements. Under the registration rights agreements, the Company is required to file a registration statement covering the resale of the shares of common stock and shares of common stock underlying the warrants by February 9, 2011, and the registration is required to be deemed effective by the Securities and Exchange Commission (SEC) on or before the 150th calendar day after the filing of such registration statement. In the event these milestones are not met by the Company, the Company is obligated to issue, as liquidated damages on a pro-rata basis to these investors, approximately 290,000 shares for each month, or pro-rated for a period less than one month, the registration is late up to a maximum of approximately 1,450,000 shares. In connection with the January 2011 Private Placement, we have granted the same demand registration rights with respect to the 800,000 shares of common stock and five year warrants to purchase up to 800,000 shares of common stock. If a registration statement is not filed with the SEC on or before February 9, 2011, or if such registration statement is not deemed effective by the SEC on or before the 150th calendar day after the filing of the registration statement, the Company has agreed to make pro rata payments to the investors, as liquidated damages, a number of shares of Company common stock equal to ten percent of the shares of common stock purchased by the respective investors and issued upon the exercise of the warrants for each 30-day period or pro rata for any portion thereof for which no registration statement has been filed or has not been declared effective by the SEC, as the case may be, provided that such amount shall not exceed five times the liquidated damages amount. There can be no assurance that the Company’s registration statement will be effective within 150 days after February 9, 2011.
In November 2010, the Company entered into a non-exclusive investment banking agreement with Sunrise Securities Corp. pursuant to which it agreed to pay a sales commission with respect to certain financings effected, or alternative transactions entered into, by the Company through introductions by Sunrise. The Company agreed to pay Sunrise a monthly fee of 5,000 shares of restricted stock. The Company concurrently entered into a 24 month institutional public relations retainer agreement with Sunrise pursuant to which it agreed to issue Sunrise five-year options to purchase 250,000 shares at $1.60 per share and 250,000 shares at $5.00 per share, with certain demand registration rights.
In November 2010, as a part of our 2009-2010 Private Placement, the Company sold RLR Services Partnership, a five percent shareholder, 37,500 shares of common stock, Class A Warrants to purchase up to 37,500 shares of common stock, and Class B Warrants to purchase up to 18,750 shares of common stock for gross proceeds of $15,000, the terms of which were identical to those offered to other investors.
In December 2010, the Company hired a new Chief Financial Officer.
In December 2010, the principal and accrued interest for the advances to certain officers was paid in full.
In January 2011, we entered into a finders agreement with Aspenwood Capital (“Aspenwood”) under which Aspenwood would introduce potential investors to the Company. The Company agreed to pay Aspenwood up to a 10% cash fee and to issue a five year warrant to purchase shares of common stock in an amount up to 10% of the number of shares sold to investors introduced to the Company by Aspenwood. The exercise price of the warrants will be equal to 125% of the equity purchase price. The warrant may be exercised on a cashless basis at any time subsequent to August 31, 2011 in the event the Company does not maintain an effective registration statement on file with the SEC.
Texas Rare Earth Resources Corp | | (Formerly Standard Silver Corporation) | | BALANCE SHEETS | | | | | | | | | | | May 31, 2011 | | | August 31, 2010 | | | | (Unaudited) | | | | | ASSETS | | | | | | | | | | | | | | CURRENT ASSETS | | | | | | | Cash & cash equivalents | | $ | 9,845,128 | | | $ | 74,434 | | Prepaid expenses and other current assets | | | 50,872 | | | | - | | Total current assets | | | 9,896,000 | | | | 74,434 | | | | | | | | | | | Property, plant and equipment, net | | | 125,711 | | | | 26,559 | | Mineral properties | | | 130,076 | | | | 44,539 | | Deposits | | | 6,876 | | | | - | | | | | | | | | | | TOTAL ASSETS | | $ | 10,158,663 | | | $ | 145,532 | | | | | | | | | | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | Accounts payable and accrued liabilities | | $ | 201,713 | | | $ | 20,624 | | Notes and interest payable to related parties | | | - | | | | 90,448 | | Total current liabilities | | | 201,713 | | | | 111,072 | | | | | | | | | | | COMMITMENTS AND CONTINGENCIES | | | | | | | | | | | | | | | | | | SHAREHOLDERS' EQUITY | | | | | | | | | Preferred stock, par value $0.001; 10,000,000 shares authorized, no | | | | | | | | | shares issued and outstanding as of May 31, 2011 and | | | | | | | | | August 31, 2010 | | | - | | | | - | | Common stock, par value $0.01; 100,000,000 shares authorized, | | | | | | | | | 27,636,260 and 23,670,260 issued and outstanding as of | | | | | | | | | May 31, 2011 and August 31, 2010, respectively | | | 276,363 | | | | 236,703 | | Additional paid-in capital | | | 15,451,466 | | | | 1,220,391 | | Accumulated deficit | | | (5,770,879 | ) | | | (1,422,634 | ) | Total shareholders' equity | | | 9,956,950 | | | | 34,460 | | | | | | | | | | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 10,158,663 | | | $ | 145,532 | | | | | | | | | | | The accompanying notes are an integral part of these financial statements. | | | | | | | | |
TEXAS RARE EARTH RESOURCES CORP | | (Formerly Standard Silver Corporation) | | UNAUDITED STATEMENTS OF OPERATIONS | | | | | | Nine Months ended May 31, | | | Three Months ended May 31, | | | | 2011 | | | 2010 | | | 2011 | | | 2010 | | | | | | | | | | | | | | | | | | | | | | | | | | | | OPERATING EXPENSES | | | | | | | | | | | | | Exploration costs | | $ | 365,237 | | | $ | 78,711 | | | $ | 246,419 | | | $ | 48,711 | | General & administrative expenses | | | 3,991,311 | | | | 360,446 | | | | 2,571,134 | | | | 12,514 | | | | | | | | | | | | | | | | | | | Total operating expenses | | | 4,356,548 | | | | 439,157 | | | | 2,817,553 | | | | 61,225 | | | | | | | | | | | | | | | | | | | LOSS FROM OPERATIONS | | | (4,356,548 | ) | | | (439,157 | ) | | | (2,817,553 | ) | | | (61,225 | ) | | | | | | | | | | | | | | | | | | OTHER (INCOME) EXPENSE | | | | | | | | | | | | | | | | | Interest and other income | | | (9,479 | ) | | | (389 | ) | | | (6,140 | ) | | | (323 | ) | Interest expense | | | 1,176 | | | | 8,892 | | | | - | | | | 4,860 | | | | | | | | | | | | | | | | | | | Total other (income) expense | | | (8,303 | ) | | | 8,503 | | | | (6,140 | ) | | | 4,537 | | | | | | | | | | | | | | | | | | | NET LOSS | | $ | (4,348,245 | ) | | $ | (447,660 | ) | | $ | (2,811,413 | ) | | $ | (65,762 | ) | | | | | | | | | | | | | | | | | | Net loss per share: | | | | | | | | | | | | | | | | | Basic and diluted net loss per share | | $ | (0.17 | ) | | $ | (0.02 | ) | | $ | (0.10 | ) | | $ | (0.00 | ) | | | | | | | | | | | | | | | | | | Weighted average shares outstanding: | | | | | | | | | | | | | | | | | Basic and diluted | | | 25,858,428 | | | | 23,308,593 | | | | 27,589,237 | | | | 23,420,260 | | | | | | | | | | | | | | | | | | | The accompanying notes are an integral part of these financial statements. | | | | | | | | | |
TEXAS RARE EARTH RESOURCES CORP | | (Formerly Standard Silver Corporation) | | UNAUDITED STATEMENTS OF CASH FLOWS | | | | | | Nine Months Ended May 31, | | | | 2011 | | | 2010 | | | | | | | | | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | Net loss | | $ | (4,348,245 | ) | | $ | (447,660 | ) | Adjustment to reconcile net loss to net cash | | | | | | | | | used in operating activities: | | | | | | | | | Depreciation expense | | | 6,348 | | | | 2,612 | | Stock issued for services | | | 1,118,221 | | | | 13,500 | | Stock based compensation | | | 2,320,651 | | | | 249,000 | | Changes in current assets and liabilities: | | | | | | | | | Prepaid expenses | | | (38,548 | ) | | | - | | Accounts payable and accrued expenses | | | 163,641 | | | | (3,236 | ) | Net cash used in operating activities | | | (777,932 | ) | | | (185,784 | ) | | | | | | | | | | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | Investment in mineral properties | | | (85,536 | ) | | | (5,558 | ) | Purchase of fixed assets | | | (105,501 | ) | | | (30,536 | ) | Net cash used in investing activities | | | (191,037 | ) | | | (36,094 | ) | | | | | | | | | | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | Net proceeds from sale of common stock | | | 10,812,663 | | | | 452,500 | | Repayment of notes payable to related parties | | | (73,000 | ) | | | - | | Net cash provided by financing activities | | | 10,739,663 | | | | 452,500 | | NET CHANGE IN CASH | | | 9,770,694 | | | | 230,622 | | CASH, BEGINNING OF PERIOD | | | 74,434 | | | | - | | CASH, END OF PERIOD | | $ | 9,845,128 | | | $ | 230,622 | | | | | | | | | | | | | | | | | | | | SUPPLEMENTAL INFORMATION | | | | | | | | | Interest paid | | $ | 18,846 | | | $ | - | | Taxes paid | | $ | - | | | $ | - | | Issuance of 131,250 shares of common stock for cash previously received | | $ | 1,313 | | | $ | - | | Issuance of 61,000 shares of common stock for services previously recorded | | $ | 610 | | | $ | - | | Issuance of 300,000 shares of common stock for director compensation | | | | | | | | | previously recorded | | $ | 3,000 | | | $ | - | | | | | | | | | | | The accompanying notes are an integral part of these financial statements. | | | | | | | | |
Texas Rare Earth Resources Corp
(formerly Standard Silver Corporation)
Notes to Interim Financial Statements
May 31, 2011
(Unaudited)
NOTE 1 – SUMMARY OF ACCOUNTING POLICIES
The accompanying unaudited interim financial statements of Texas Rare Earth Resources Corp. (the "Company") (formerly Standard Silver Corporation) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company's Form 10-K, dated August 31, 2010, as filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year August 31, 2010 as reported in Form 10-K, have been omitted.
NOTE 2 – RELATED PARTY TRANSACTIONS
The Company had periodically received cash advances from the Company’s officers and relatives of the Company’s officers to fund operations. The advances accrued interest at rates ranging from five percent (5%) to six percent (6%) per annum. In December 2010, the notes payable principal balance of $73,000 plus accrued interest for these advances was paid in full.
NOTE 3 – INVESTMENTS
In August 2010, we entered into a mining lease with the Texas General Land Office covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres at Round Top Mountain in Hudspeth County, Texas. The mining lease issued by the Texas General Land Office gives us the right to explore, produce, develop, mine, extract, mill, remove, and market beryllium, uranium, rare earth elements, all other base and precious metals, industrial minerals and construction materials and all other minerals excluding oil, gas, coal, lignite, sulfur, salt, and potash. The term of the lease is twentynineteen years so long as minerals are produced in paying quantities.
Under the lease, we will pay the State of Texas a lease bonus of $197,800, $35,000$142,518; $44,718 of which was paid upon the execution of the lease, $65,000 which was paid in April 2011 when we submitted our initial plan of operations to conduct exploration, and $97,800 which will be due when we submit a supplemental plan of operations to conduct mining. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $500,000 minimum advance royalty. Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (6¼%) of the market value of all other minerals removed and sold from Round Top. Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule: | | Per Acre Amount | | Total Amount | September 2, 2013 – 2014 | | $ | 50 | | | $ | 44,718 | | September 2, 2015 – 2019 | | $ | 75 | | | $ | 67,077 | | September 2, 2020 – 2024 | | $ | 150 | | | $ | 134,155 | | September 2, 2025 – 2029 | | $ | 200 | | | $ | 178,873 | |
In August 2013, we paid a delay rental to the State of Texas upon execution of the lease in the amount of $44,718.
F-9 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 4 — MINERAL PROPERTIES – (continued) November 2011 Lease On November 1, 2011, we entered into a mining lease with the State of Texas covering 90 acres, more or less, of land that we purchased in September 2011 near our Round Top site. The deed was recorded with Hudspeth County on September 16, 2011. Under the lease, we paid the State of Texas a lease bonus of $20,700 which was paid upon the execution of the lease. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $50,000 minimum advance royalty. Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (6 ¼%(6¼%) of the market value of all other minerals removed and sold from Round Top.
If production of paying quantities of minerals has not been obtained on or before August 17, 2011,November 1, 2012, we may pay the State of Texas a delay rental to extend the term of the lease in an amount equal to $44,718.$4,500. Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule:
| | Per Acre Amount | | | Total Amount | | August 17, 2012 – 2014 | | $ | 50 | | | $ | 44,718 | | August 17, 2015 – 2019 | | $ | 75 | | | $ | 67,077 | | August 17, 2019 – 2024 | | $ | 150 | | | $ | 134,155 | | August 17, 2025 – 2029 | | $ | 200 | | | $ | 178,873 | |
| | Per Acre Amount | | Total Amount | November 1, 2013 – 2014 | | $ | 50 | | | $ | 4,500 | | November 1, 2015 – 2019 | | $ | 75 | | | $ | 6,750 | | November 1, 2020 – 2024 | | $ | 150 | | | $ | 13,500 | | November 1, 2025 – 2029 | | $ | 200 | | | $ | 18,000 | |
In August 2013, we paid a delay rental to the State of Texas of $4,500. On March 6, 2013, we entered into a lease assignment (the “Lease Assignment Agreement”) with Southwest Range & Wildlife Foundation, Inc., a Texas non-profit corporation (the “Foundation”), pursuant to which the Foundation agreed to assign to us a surface lease identified with the State of Texas as Surface Lease SL20040002 (the “West Lease”), which covers 54,990.11 acres in Hudspeth County, Texas. In exchange for the West Lease, we agreed to: (i) pay the Foundation $500,000 in cash; (ii) issue 1,063,830 of our common shares, par value $0.01 (the “Common Shares”); and (iii) make ten (10) payments to the Foundation of $45,000 each. The first payment was made in June 2013, and the nine (9) subsequent payments due on or before June 1 of each of the following years, such payments to be used by the Foundation to support conservation efforts within the Rio Grande Basin. The Lease Assignment Agreement contains standard representations, warranties and covenants. The closing of the transaction. contemplated by the Lease Assignment Agreement was completed on March 8, 2013. F-10 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 5 — NOTE PAYABLE
In relation to the Foundation lease discussed in Note 4 – CAPITAL STOCKthe Company recorded a note payable for an amount for the initial $45,000 due upon signing of lease and the nine (9) future payments due of $45,000 which has been recorded at its present value discounted with an imputed interest rate of 5% for a total note payable of $364,852. At August 31, 2013 the current portion due is $29,007 and long-term portion due is $290,845. The total note payable due at August 31, 2013 is $319,852. The Company has also accrued interest expense of $16,000 as of period end which is included in accrued liabilities.
Future maturities Year | | Principle amount due | 2014 | | $ | 29,007 | | 2015 | | | 30,458 | | 2016 | | | 31,981 | | 2017 | | | 33,580 | | 2018 | | | 35,259 | | 2019 thereafter | | | 159,567 | | Total | | $ | 319,852 | |
NOTE 6 — INCOME TAXES The Company’sfollowing table sets forth a reconciliation of the federal income tax for the years ended August 31, 2013 and 2012: | | 2013 | | 2012 | Loss before income taxes | | $ | (3,689,862 | ) | | $ | (14,374,600 | ) | Income tax benefit computed at statutory rates | | $ | (1,254,553 | ) | | $ | (4,887,364 | ) | Increase in valuation allowance | | | 1,282,989 | | | | 3,701,883 | | Non-deductible stock compensation | | | 128,054 | | | | 1,136,237 | | Permanent differences, nondeductible expenses | | | 1,379 | | | | 4,771 | | Other | | | (157,869 | ) | | | 44,473 | | Tax benefit | | $ | — | | | $ | — | |
The tax effects of the temporary differences between reportable financial statement income and taxable income are recognized as a deferred tax asset and liability. Significant components of the deferred tax assets are set out below along with a valuation allowance to reduce the net deferred tax asset to zero. In order to comply with generally accepted accounting principles, management has decided to establish a valuation allowance because of the potential that the tax benefits underlying deferred tax asset may not be realized. Significant components of our deferred tax asset at August 31, 2013 and 2012 are as follows: | | 2013 | | 2012 | Deferred tax assets (liability) | | | | | | | | | Net operating loss carryfowards | | $ | 2,948,178 | | | $ | 2,248,448 | | Stock compensation | | | 1,264,291 | | | | 1,136,237 | | Assets, exploration cost, depreciation and amortization | | | 3,299,156 | | | | 2,843,950 | | Less: valuation allowance | | | (7,511,624 | ) | | | (6,228,635 | ) | Net deferred tax assets | | $ | — | | | $ | — | |
F-11 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 6 — INCOME TAXES – (continued) As a result of a change in control effective in April 2007, our net operating losses prior to that date may be partially or entirely unavailable, by law, to offset future income and, accordingly, are excluded from the associated deferred tax asset. The net operating loss carryforward in the approximate amount of $8,671,000 will begin to expire in 2033. We file income tax returns in the United States and in one state jurisdiction. With few exceptions, we are no longer subject to United States federal income tax examinations for fiscal years ending before 2009, and is no longer subject to state tax examinations for years before 2008. NOTE 7 — SHAREHOLDERS’ EQUITY Our authorized capital stock consists of 100,000,000 shares of common stock, with a par value of $0.01 per share, and 10,000,000 preferred shares with a par value of $0.001 per share.
All shares of common stock have equal voting rights and, when validly issued and outstanding, are entitled to one non-cumulative vote per share in all matters to be voted upon by shareholders. The shares of common stock have no pre-emptive, subscription, conversion or redemption rights and may be issued only as fully paid and non-assessable shares. Holders of the common stock are entitled to equal ratable rights to dividends and distributions with respect to the common stock, as may be declared by theour Board of Directors (our “Board”) out of funds legally available. In the event of a liquidation, dissolution or winding up of the affairs of the Company,Corporation, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding.
The Company received cash proceeds fromDuring the saleyear ended August 31, 2013, we expensed approximately $354,100 in non-cash stock-based compensation to directors and approximately $22,500 in non-cash compensation to outside consultants.
On December 12, 2012, our Board authorized, on recommendation of its commonthe Compensation Committee, that all of our issued and outstanding stock andoptions issued to our directors be exercisable on a cashless basis by permitting the exercise of Class A Warrants and Class B WarrantsCorporation to purchase common stock during the nine months ended May 31, 2011 as follows:
Description | | Shares of Common Stock Issued | | | Cash Proceeds Received | | 2009-2010 Private Placement (issuances occurred in quarter ended November 30, 2010) (1) | | | 1,132,500 | | | $ | 453,000 | | Exercise of Class A & B Warrants issued in connection with 2009 – 2010 Private Placement (issuances occurred in quarter ended February 28, 2011) (1) | | | 656,250 | | | | 382,813 | | January 2011 Private Placement (issuance occurred in quarter ended February 28, 2011) (2) | | | 1,600,000 | | | | 4,000,000 | | Exercise of options issued in January 2011 Private Placement (cash received and stock issued in quarter ended May 31, 2011)(2) | | | 40,000 | | | | 100,000 | | Exercise of options issued in January 2011 Private Placement (cash received in quarter ended May 31, 2011 and stock issued subsequent to quarter ended May 31, 2011)(2) | | | - | | | | 6,300,000 | | Net offering costs | | | - | | | | (383,150 | ) | Total shares of common stock issued and net cash proceeds received from sale of common stock and from the exercise of Class A & B Warrants during the nine months ended May 31, 2011 (3) | | | 3,428,750 | | | $ | 10,852,663 | |
(1) See “2009-2010 Private Placement” below.
(2) See “January 2011 Private Placement” below.
(3) Does not include an aggregate of 406,000withhold shares of common stock issued for services rendered duringwith a fair market value equal to the nine months ended May 31, 2011. See “Other Equity Issues” below.exercise price as determined on the date of exercise.
2009 – 2010 Private Placement
Between October 2009On December 19, 2012, our Board re-priced Mr. Cecil Wall’s five year options to purchase up to 90,000 shares at a price of $4.70 such that all such options are now exercisable at a price of $1.00 per share. The other terms and November 2010,conditions of these options remain the Company raised cash proceeds of $905,500 through the issuance of 2,263,750same. On December 19, 2012, our Board also re-priced Mr. Anthony Marchese’s five year options to purchase up to 45,000 shares of common stock and the issuanceat an exercise price of Class A Warrants$2.60, five year option to purchase 2,263,750up to 175,000 shares of common stock and Class B Warrants to purchase 1,131,875 sharesat an exercise price of common stock. Of the $905,500 cash proceeds raised for this private placement, $452,500 was raised prior to September 1, 2010 and $453,000, representing the sale of 1,132,500 shares of common stock, was raised in September through November 2010. The final closing of this private placement was January 10, 2011.
During the nine months ended May 31, 2011, the Company issued 131,250 shares to two investors in connection with our 2009 – 2010 Private Placement that were paid for in a prior period.
NOTE 4 – CAPITAL STOCK (Continued)
In January 2011, Class A Warrants to purchase 62,500 shares of the Company’s common stock and Class B warrants to purchase 31,250 shares of the Company’s common stock were exercised by an investor, resulting in $31,250 of proceeds being raised by the Company for the Class A warrants and $23,438 of proceeds being raised by the Company for the Class B Warrants. Total proceeds to the Company as a result of the Class A and Class B Warrant exercise was $54,688. In February 2011, Class A Warrants to purchase 375,000 shares of the Company’s common stock and Class B Warrants to purchase 187,500 shares of the Company’s common stock were exercised by an investor, resulting in $187,500 of proceeds being raised by the Company for the Class A Warrants and $140,625 of proceeds being raised by the Company for the Class B Warrants. Total proceeds to the Company as a result of the Class A and Class B Warrant exercise was $328,125. The shares of common stock issued upon exercise of the Class A and Class B Warrants by these two investors was 437,500 and 218,750, respectively (a total of 656,250 shares of common stock), resulting in $382,813 of total cash proceeds to the Company.
January 2011 Private Placement
Between January and February 2011, we entered into a series of transactions with accredited investors pursuant to which we sold an aggregate of 1,600,000 shares of our common stock and$4.15, five year warrantsoption to purchase up to 1,600,000150,000 shares of common stock, exercisable at $2.50 per share, for gross proceeds of $4,000,000. The Company has determined these warrants to have an approximate relative fair value of $950,000. The Company paid cash commissions of $318,000 and issued five year warrants to purchase up to 305,000 shares of its common stock at an exercise price of $2.50 per share, in connection withand ten year option to purchase up to 100,000 shares of common stock at an exercise price of $1.51 per share, such that all such options are now exercisable at a price of $1.00 per share. The other terms and conditions of these options remain the sale of its securities insame. With respect to the January 2011 Private Placement. The Company has determined these warrants to have an approximate fair value of $900,000. Theoptions held by Mr. Wall and Mr. Marchese, the Black-Scholes pricing model was used to estimate the fair value of the 1,600,000 and 305,000 warrants issued during the period, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 404%, and an expected life of 5 years. The Company paid $65,150 in legal fees associated with the issuance of the shares associated with the January 2011 Private Placement.
In May 2011, an investor participating in the January 2011 Private Placement exercised his option and was issued 40,000 shares of common stock and a five-year warrant to purchase up to 40,000 shares of common stock, exercisable at $2.50 per share, resulting in aggregate gross proceeds to the Company of $100,000. In connection with the option exercise, the Company paid a sales commission of $1,000 in cash and issued a five-year warrant to purchase up to 8,000 shares of common stock at an exercise price of $2.50 per share.
In May 2011, certain investors participating in the January 2011 Private Placement exercised their options to purchase 2,520,000 shares of common stock resulting in gross proceeds to the Company in the amount of $6,300,000 funded in May 2011. These 2,520,000 shares were issued in June 2011, subsequent to the quarter ended May 31, 2011. These investors were also issued five-year warrants to purchase up to 2,520,000 shares of common stock, exercisable at $2.50 per share. In June 2011, and in connection with these option exercises, the Company paid a sales commission of $672,000 in cash and issued a five-year warrant to purchase up to 512,000 shares of common stock at an exercise price of $2.50 per share.
Other Equity Issues
In September 2010, the Company issued 300,000 common shares to a director for compensation recorded in the prior year at a fair value on the date of grant of $249,000.
During the quarter ended November 30, 2010, the Company issued 61,000 shares of common stock to two external consultants as payment for services performed in a prior period.
In November 2010, the Company entered into a non-exclusive investment banking agreement with Sunrise Securities Corp. (“Sunrise”) pursuant to which it agreed to pay a sales commission with respect to certain financings effected, or alternative transactions entered into, by the Company through introductions by Sunrise. The Company agreed to pay Sunrise a monthly fee of 5,000 shares of restricted common stock beginning in November 2010. The Company has issued 45,000 shares totaling $67,350 of expense from November through May related to this fee.
In November 2010, the Company also entered into a 24 month institutional public relations retainer agreement with Sunrise Financial Group, Inc., (“SFG”), an affiliate of Sunrise, pursuant to which it agreed to issue SFG five-year options to purchase 250,000 shares at $1.60 per share and 250,000 shares at $5.00 per share, with certain demand registration rights. The Black-Scholes pricing model was used to estimate the fair value of the 500,000 options, assuming a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 425%, and an expected life of 5 years. The Company has determined these options to have an approximate fair value of $960,000, which was recognized as an immediate expense during the nine months ended May 31, 2011 in accordance with FASB ASC 505-50-25.
NOTE 4 – CAPITAL STOCK (Continued)
In January 2011, we entered into a finders agreement with Aspenwood Capital (“Aspenwood”) under which Aspenwood would introduce potential investors to the Company. The Company agreed to pay up to a 10% cash fee and to issue a five year warrant to purchase up to 10% of the number of shares sold to investors introduced to the Company by Aspenwood at an exercise price equal to 100% of the equity purchase price. The warrant may be exercised on a cashless basis at any time subsequent to August 31, 2011 in the event the Company does not maintain an effective registration statement on file with the SEC. The Company has paid $25,000 under this agreement as of June 30, 2011.
In February 2011, the Company entered into a Director’s agreement with General Gregory Martin pursuant to which the Company issued to General Martin 5-year options to purchase 60,000 shares of the Company’s common stock at $2.50 per share as compensation for serving as a member of the Company’s board of directors. The Black-Scholes pricing model was used to estimate the fair value of the 60,000560,000 options issued during the period to this director, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 421%, and an expected life of 5 years. The Company has determined these options to have an approximate fair value of $150,000. General Martin’s award immediately vests on the grant date and were awarded for services as a nonemployee director acting in his role as a member of the board of directors. Therefore, the Company has recorded the entire amount of this award on the grant date as an immediate expense for the nine month period ending May 31, 2011 in accordance with FASB ASC 718.
In March 2011, the Company granted to Wm Chris Mathers, its chief financial officer, as a part of his employment arrangement, a five year option to purchase up to 400,000 shares of our common stock at an exercise price of $2.50 per share. These options vest 1/36 each month provided he is employed by the Company on the vesting dates. The Black-Scholes pricing model was used to estimate the fair value of the 400,000 options issued during the period, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 376%, and an expected life of 5 years. The Company has determined these options to have an approximate fair value of $1,000,000. Since Mr. Mathers’ award vests over a 36 month period, the Company is expensing approximately $28,000 monthly for this award over the 36 month vesting period in accordance with FASB ASC 718.
In March 2011, the Company entered into a Director’s agreement with Graham Karklin pursuant to which the Company issued to Mr. Karklin a 5-year option to purchase 60,000 shares of the Company’s common stock at $2.50 per share as compensation for serving as a member of the Company’s board of directors. The Black-Scholes pricing model was used to estimate the fair value of the 60,000 options issued during the period to this director, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 325%, and an expected life of 5 years. The Company has determined these options to have an approximate fair value of $150,000. Mr. Karklin’s award immediately vests on the grant date and were awarded for services as a nonemployee director acting in his role as a member of the board of directors. Therefore, the Company has recorded the entire amount of this award on the grant date as an immediate expense for the nine month period ending May 31, 2011 in accordance with FASB ASC 718.
In March 2011, the Company issued Anthony Marchese a 5-year option to purchase 150,000 shares of the Company’s common stock at $2.50 per share as compensation for serving as a member of the Company’s board of directors. The Black-Scholes pricing model was used to estimate the fair value of the 150,000 options issued during the period to this director, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 323%, and an expected life of 5 years. The Company has determined these options to have an approximate fair value of $375,000. Mr. Marchese’s award immediately vests on the grant date and were awarded for services as a nonemployee director acting in his role as a member of the board of directors. Therefore, the Company has recorded the entire amount of this award on the grant date as an immediate expense for the nine month period ending May 31, 2011 in accordance with FASB ASC 718.
In April 2011, the Company issued Cecil Wall a 5-year option to purchase 90,000 shares of the Company’s common stock at $4.70 per share as compensation for serving as a member of the Company’s board of directors. The Black-Scholes pricing model was used to estimate the fair value of the 90,000 options issued during the period to this director, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 325%, and an expected life of 5 years. The Company has determined these options to have an approximate fair value of $423,000. The Company has recorded the entire amount of this award on the grant date as an immediate expense for the nine month period ending May 31, 2011 in accordance with FASB ASC 718.
In April 2011, the Company entered into a Director’s agreement with Jim Graham pursuant to which the Company issued to Mr. Graham a 5-year option to purchase 60,000 shares of the Company’s common stock at $4.00 per share as compensation for serving as a member of the Company’s board of directors. The Black-Scholes pricing model was used to estimate the fair value of the 60,000 options issued during the period to this director, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 322%, and an expected life of 5 years. The Company has determined these options to have an approximate fair value of $240,000. Mr. Graham’s award immediately vests on the grant date and were awarded for services as a nonemployee director acting in his role as a member of the board of directors. Therefore, the
NOTE 4 – CAPITAL STOCK (Continued)
Company has recorded the entire amount of this award on the grant date as an immediate expense for the nine month period ending May 31, 2011 in accordance with FASB ASC 718.
In May 2011, the Company issued Anthony Marchese a 5-year option to purchase 175,000 shares of the Company’s common stock at $4.15 per share as compensation for his appointment as non-executive Chairman of the Company’s board of directors. The Black-Scholes pricing model was used to estimate the fair value of the 175,000 options issued during the period to this director,directors, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 324%, and an expected life of 5ranging from 3.5 to 10 years. The Company hasWe have determined that the expense associated with the repricing of these options to have an approximate fair valuebe immaterial.
On June 4, 2013, the Board of $726,000. Mr. Marchese’s awardDirectors approved and granted options to Ms. Lynch for her service to the Board. Ms. Lynch received 100,000 options exercisable at $0.50 per share for a period of ten years, vesting immediately, vests on the grant date and were awarded for servicesservice as a nonemployee director acting in his role as a member of the board of directors. Therefore,corporation. With respect to these options, the Company has recorded the entire amount of this award on the grant date as an immediate expense for the nine month period ending May 31, 2011 in accordance with FASB ASC 718. In May 2011, the Company granted to K. Marc LeVier, its chief executive officer, as a part of his employment arrangement, a five year option to purchase up to 2,500,000 shares of our common stock at an exercise price of $2.50 per share. These options vest 1/36 each month provided he is employed by the Company on the vesting dates. The Black-Scholes pricing model was used to estimate the fair value of the 2,500,000100,000 options issued during the period to these directors, using the assumptions of a risk free interest rate of 2.14%, dividend yield of 0%, volatility of 311%, and an expected life of ten years. Total value of options expensed is about $27,000.
F-12 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 7 — SHAREHOLDERS’ EQUITY – (continued) On June 17, 2013, the Board of Directors approved and granted options to Mr. Marchese, Mr. Pingitore and Mr. Wolfe for their service to the Board. Each of these three members received 250,000 options exercisable at $0.50 per share for a period of five years, vesting 1/36 at the end of each month of service as a director of the corporation and 225,000 options exercisable at $1.00 per share for a period of five years, vesting 1/36 at the end of each month of service as a director of the corporation. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 1,425,000 options issued during the period to these directors, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 376%310%, and an expected life of 5 years. These options are being expensed over the vesting period of 36 months. Total value to be expensed is about $427,000 On June 17, 2013, the Board of Directors approved and granted a total of 300,000 options to consultants. The options are exercisable at $0.40 per share for a period of five years. All options vest 1/12 at the end of each month of consulting services. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 300,000 options issued during the period to these consultants, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 310%, and an expected life of 5 years. These options are being expensed over the vesting period of 12 months. Total value to be expensed is about $89,900. Other Equity Items On December 27, 2012, we repurchased 576,923 shares of our common stock from a private investor, representing approximately 1.58% of our issued and outstanding shares of common stock, at a price of $0.23 per share for an aggregate purchase amount of $132,692. Following the repurchase, we canceled the entire amount of shares from treasury, resulting in the Corporation having 35,973,086 shares of common stock issued and outstanding. The repurchase was made pursuant to a privately negotiated stock repurchase agreement. The per share repurchase price for the shares repurchased was determined through arms-length negotiations with the private investor. The stock repurchase agreement and the related transactions were approved by our Board. The repurchase price was paid through cash on hand from our available surplus. Other than this private transaction as described in this report, our Board has not authorized any stock repurchase program or plan, and we have no current plans to effect any open-market purchases of our common stock or other repurchases of our common stock. On March 6, 2013, we entered into a lease assignment (the “Lease Assignment Agreement”) with Southwest Range & Wildlife Foundation, Inc., a Texas non-profit corporation (the “Foundation”), pursuant to which the Foundation agreed to assign to us a surface lease identified with the State of Texas as Surface Lease SL20040002 (the “West Lease”), which covers 54,990.11 acres in Hudspeth County, Texas. In exchange for the West Lease, we agreed to: (i) pay the Foundation $500,000 in cash; (ii) issue 1,063,830 of our common shares, par value $0.01 (the “Common Shares”); and (iii) make ten (10) payments to the Foundation of $45,000 each, with the first such payment due on or before June 1, 2013, and the nine (9) subsequent payments due on or before June 1 of each of the following years, such payments to be used by the Foundation to support conservation efforts within the Rio Grande Basin. The common shares were valued at $500,000 based on the market price on March 6, 2013. The Lease Assignment Agreement contains standard representations, warranties and covenants. The closing of the transaction contemplated by the Lease Assignment Agreement was completed on March 8, 2013. Future payments due on the lease assignment have been recorded as a note payable with an imputed interest rate of 5%. Amended 2008 Stock Option Plan Issuances In September 2008, the Board adopted our 2008 Stock Option Plan (the “2008 Plan”), which was also approved by our shareholders in September 2008. In May 2011, the board of directors adopted an amendment to our 2008 Plan (the “Amended 2008 Plan”), which was also approved by our shareholders in August 2011. The Amended 2008 Plan increased the number of shares available for grant from 2,000,000 to up to F-13 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 7 — SHAREHOLDERS’ EQUITY – (continued) 5,000,000 shares of our common stock for awards to our officers, directors, employees and consultants. On February 15, 2012, our stockholders approved an increase of 2,000,000 of shares of common stock available for issuance under the amended 2008 Stock Option Plan (the “Plan”). As amended, the Plan provides for 7,000,000 shares of common stock for all awards. Other provisions of the Amended 2008 Plan remain the same as under our 2008 Plan. As of August 31, 2013, a total of 3,125,000 shares of our common stock remained available for future grants under the Amended 2008 Plan. The following table sets forth certain information as of August 31, 2013 concerning our common stock that may be issued upon the exercise of options or warrants or pursuant to purchases of stock under the Amended 2008 Plan: Plan Category | | (a) Number of Securities to be Issued Upon the Exercise of Outstanding Options and Warrants | | (b) Weighted-Average Exercise Price of Outstanding Options and Warrants | | (c) Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | Equity compensation plans approved by stockholders | | | 3,875,000 | | | $ | 1.14 | | | | 3,125,000 | | Equity compensation plans not approved by stockholders | | | — | | | | N/A | | | | — | | Total | | | 3,875,000 | | | $ | 1.14 | | | | 3,125,000 | |
As of August 31, 2013, the Company had 3,875,000 common stock options outstanding. Warrants The fair value of the 1,600,000 warrants issued in January 2011 with our 2011 Private Placement was estimated at the date of issue using the Black-Scholes valuation model. The Company included the relative fair value of the warrants of $944,000 as APIC. The assumptions used are as follows: | | August 31, 2013 | Expected dividend yield | | | 0 | % | Risk-free interest rate | | | 1.1 | % | Expected volatility | | | 404 | % | Expected warrant life (in years) | | | 5.00 | |
The following January 2011 Warrants are outstanding as of August 31, 2013: Expiry Date | | Exercise Price | | August 31, 2013 | January 31, 2016 | | $ | 2.50 | | | | 1,600,000 | |
The fair value of the 6,240,000 Option Warrants issued in May and June with our 2011 Private Placement was estimated at the date of issue using the Black-Scholes valuation model. The Company recorded the relative fair value of the warrants of $2,236,000 as Additional Paid In Capital. F-14 TEXAS RARE EARTH RESOURCES CORP. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2013 AND 2012 NOTE 7 — SHAREHOLDERS’ EQUITY – (continued) The assumptions used are as follows: | | August 31, 2013 | Expected dividend yield | | | 0 | % | Risk-free interest rate | | | 1.1 | % | Expected volatility | | | 380 | % | Expected warrant life (in years) | | | 5.00 | |
The following January 2011 Option Warrants are outstanding as of August 31, 2013: Expiry Date | | Exercise Price | | August 31, 2013 | June 30, 2016 | | $ | 2.50 | | | | 6,240,000 | |
As of August 31, 2013, the Company had 7,840,000 common stock warrants outstanding. NOTE 8 — SUBSEQUENT EVENTS On October 1, 2013, we appointed Mr. Jack Lifton to serve as a member of the our Board of Directors (the “Board”). As of the date of the Current Report on Form 8-K, Mr. Lifton has not been appointed to serve on any committees of the Board. In connection with the appointment of Mr. Jack Lifton to our Board of Directors on October 1, 2013, Mr. Lifton was granted 100,000 options to purchase shares of our common stock, vesting immediately with a term of 5 years and at an exercise price of $0.50. The options were issued pursuant to our amended and restated 2008 Stock Option Plan, a general description of which is contained in our definitive proxy statement on Schedule 14A as filed with the SEC on December 28, 2011, which description is incorporated herein by reference. In addition, Mr. Lifton, as a non-executive director, will receive $10,000 annually, $1,000 for in person board meetings, $500 for telephonic board meetings and $500 for committee meetings (both in person and telephonic) pursuant to our director compensation program. On August 31, 2013, we entered into a 6 month consulting agreement, effective September 1, 2013 (the “Consulting Agreement”), with Carmot Strategic Group, Inc to provide issue advocacy and industry outreach services. The Consulting Agreement provides for a monthly retainer in the amount of $7,000 (the “Retainer”). In addition to the Retainer, the Board of Directors approved a grant of 10,000 common stock purchase options each month during the term of the agreement at an exercise price of $0.30 per share. One-sixth of the total grant of the common stock purchase options vest at the end of each month. The Black-Scholes pricing model was used to estimate the fair value of the 60,000 options issued, using the assumptions of a risk free interest rate of 1.1%, dividend yield of 0%, volatility of 304%, and an expected life of 5 years. The Company has determined these options to have ana total approximate fair value of $6,250,000.$16,000. Since Mr. LeVier’sthe award vests in equal monthly increments over a 366 month period, the Company is expensing approximately $174,000$2,700 monthly for this award over the 366 month vesting period in accordance with FASBthe Financial Accounting Standards Board (“FASB”) ASC 718.505. F-15 Texas Rare Earth Resources Corp. | | May 31, 2014 | | August 31, 2013 | ASSETS | | | | | | | | | CURRENT ASSETS | | | | | | | | | Cash and cash equivalents | | $ | 707,617 | | | $ | 2,374,017 | | Prepaid expenses and other current assets | | | 102,156 | | | | 61,828 | | Total current assets | | | 809,773 | | | | 2,435,845 | | Property and equipment, net | | | 93,429 | | | | 148,217 | | Mineral properties | | | 1,718,286 | | | | 1,718,286 | | Deposits | | | 61,359 | | | | 111,250 | | TOTAL ASSETS | | $ | 2,682,847 | | | $ | 4,413,598 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | CURRENT LIABILITIES | | | | | | | | | Accounts payable and accrued liabilities | | $ | 35,218 | | | $ | 228,834 | | Current portion of notes payable | | | 30,458 | | | | 29,007 | | Total current liabilities | | | 65,676 | | | | 257,841 | | Notes payable – net of current portion and discount | | | 260,387 | | | | 290,845 | | Total liabilities | | | 326,063 | | | | 548,686 | | COMMITMENTS AND CONTINGENCIES | | | | | | | | | SHAREHOLDERS' EQUITY | | | | | | | | | Preferred stock, par value $0.001; 10,000,000 shares authorized, no shares issued and outstanding as of May 31, 2014 and August 31, 2013, respectively | | | — | | | | — | | Common stock, par value $0.01; 100,000,000 shares authorized, 37,036,916 shares issued and outstanding as of May 31, 2014 and August 31, 2013, respectively | | | 370,370 | | | | 370,370 | | Additional paid-in capital | | | 30,721,205 | | | | 30,001,752 | | Accumulated deficit | | | (28,734,791 | ) | | | (26,507,210 | ) | Total shareholders' equity | | | 2,356,784 | | | | 3,864,912 | | TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | | $ | 2,682,847 | | | $ | 4,413,598 | |
In
The accompanying notes are an integral part of these financial statements. F-16 Texas Rare Earth Resources Corp. UNAUDITED STATEMENTS OF OPERATIONS
| | Nine Months Ended May 31, | | Three Months Ended May 31, | | | 2014 | | 2013 | | 2014 | | 2013 | OPERATING EXPENSES | | | | | | | | | | | | | | | | | Exploration costs | | $ | 304,443 | | | $ | 837,049 | | | $ | 29,023 | | | $ | 380,487 | | General and administrative expenses | | | 1,923,807 | | | | 1,924,931 | | | | 497,325 | | | | 493,620 | | Total operating expenses | | | 2,228,250 | | | | 2,761,980 | | | | 526,348 | | | | 874,107 | | LOSS FROM OPERATIONS | | | (2,228,250 | ) | | | (2,761,980 | ) | | | (526,348 | ) | | | (874,107 | ) | OTHER INCOME (EXPENSE) | | | | | | | | | | | | | | | | | Interest and other income | | | 4,662 | | | | 8,699 | | | | (11,647 | ) | | | 7,217 | | Interest and other expense | | | (3,993 | ) | | | (4,191 | ) | | | 4,007 | | | | — | | Total other income (expense) | | | 669 | | | | 4,508 | | | | (7,640 | ) | | | 7,217 | | NET LOSS | | $ | (2,227,581 | ) | | $ | (2,757,472 | ) | | $ | (533,988 | ) | | $ | (866,890 | ) | Net loss per share: | | | | | | | | | | | | | | | | | Basic and diluted net loss per share | | $ | (0.06 | ) | | $ | (0.08 | ) | | $ | (0.01 | ) | | $ | (0.02 | ) | Weighted average shares outstanding: | | | | | | | | | | | | | | | | | Basic and diluted | | | 37,036,916 | | | | 36,546,294 | | | | 37,036,916 | | | | 36,967,536 | |
The accompanying notes are an integral part of these financial statements. F-17 Texas Rare Earth Resources Corp. UNAUDITED STATEMENTS OF CASH FLOWS
| | Nine Months Ended May 31, | | | 2014 | | 2013 | CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | Net loss | | $ | (2,227,581 | ) | | $ | (2,757,472 | ) | Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | | Depreciation expense | | | 54,788 | | | | 59,742 | | Loss on disposition of fixed assets | | | — | | | | 21,003 | | Stock based compensation | | | 719,453 | | | | 291,564 | | Changes in current assets and liabilities: | | | | | | | | | Prepaid expenses and other assets | | | 9,563 | | | | 15,399 | | Accounts payable and accrued expenses | | | (177,623 | ) | | | (286,312 | ) | Net cash used in operating activities | | | (1,621,400 | ) | | | (2,656,076 | ) | CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | Investment in mineral properties | | | — | | | | (510,000 | ) | Purchase of fixed assets | | | — | | | | (696 | ) | Proceeds from sale of fixed assets | | | — | | | | 3,405 | | Net cash used in investing activities | | | — | | | | (507,291 | ) | CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | | Proceeds from exercise of common stock warrants | | | — | | | | — | | Payment on note payable | | | (45,000 | ) | | | (45,000 | ) | Purchase of common stock | | | — | | | | (132,692 | ) | Proceeds from exercise of common stock warrants issued in subsequent period | | | — | | | | — | | Net cash used in financing activities | | | (45,000 | ) | | | (177,692 | ) | NET CHANGE IN CASH AND CASH EQUIVALENTS | | | (1,666,400 | ) | | | (3,341,059 | ) | CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | 2,374,017 | | | | 6,517,935 | | CASH AND CASH EQUIVALENTS, END OF PERIOD | | $ | 707,617 | | | $ | 3,176,876 | | SUPPLEMENTAL INFORMATION | | | | | | | | | Interest paid | | $ | 15,993 | | | $ | 137 | | Taxes paid | | $ | — | | | $ | — | |
The accompanying notes are an integral part of these financial statements. F-18 Texas Rare Earth Resources Corp Notes to Interim Financial Statements May 2011,31, 2014 (Unaudited) NOTE 1 — BASIS OF PRESENTATION The accompanying unaudited interim financial statements of Texas Rare Earth Resources Corp. (“we”, “us”, “our”, the Company entered into an agreement“Corporation”) have been prepared in accordance with an investor relations firm thataccounting principles generally accepted in the Company subsequently terminated in July 2011. In connection withUnited States of America and the agreement, the investor relations firm had received $15,575 cash and a warrant to purchase 200,000 sharesrules of the Company’s common stock at an exercise price of $3.75 per share vesting over twelve months. Upon termination of the agreement, the investor relations firm agreed to accept a vested warrant to purchase only 33,334 shares of the Company’s common stock at an exercise price of $3.75 per shareSecurities and no future cash payments. The remaining 166,666 warrants were cancelledExchange Commission (“SEC”), and should be read in conjunction with the terminationaudited financial statements and notes thereto contained in our annual report on Form 10-K, for the year ended August 31, 2013, dated November 26, 2013 as filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the agreement.results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended August 31, 2013 as reported in our annual report on Form 10-K, have been omitted. NOTE 2 — MINERAL PROPERTIES September 2011 Lease On September 2, 2011, we entered into a new mining lease with the Texas General Land Office covering Sections 7 and 18 of Township 7, Block 71 and Section 12 of Block 72, covering approximately 860 acres at Round Top Mountain in Hudspeth County, Texas. The mining lease issued by the Texas General Land Office gives us the right to explore, produce, develop, mine, extract, mill, remove, and market beryllium, uranium, rare earth elements, all other base and precious metals, industrial minerals and construction materials and all other minerals excluding oil, gas, coal, lignite, sulfur, salt, and potash. The term of the lease is nineteen (19) years. The lease can be extended beyond its primary term by applying for and receiving approval from the GLO or by production so long as minerals are produced in paying quantities. Under the lease, we will pay the State of Texas a lease bonus of $142,518; $44,718 of which was paid upon the execution of the lease, and $97,800 of which will be due when we submit a supplemental plan of operations to conduct mining. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $500,000 minimum advance royalty. Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (6¼%) of the market value of all other minerals removed and sold from Round Top. Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule: | | Per Acre Amount | | Total Amount | September 2, 2013 – 2014 | | $ | 50 | | | $ | 44,718 | | September 2, 2015 – 2019 | | $ | 75 | | | $ | 67,077 | | September 2, 2020 – 2024 | | $ | 150 | | | $ | 134,155 | | September 2, 2025 – 2029 | | $ | 200 | | | $ | 178,873 | |
In August 2013, we paid a delay rental to the State of Texas upon execution of the lease in the amount of $44,718. F-19 Texas Rare Earth Resources Corp Notes to Interim Financial Statements May 31, 2014 (Unaudited) NOTE 2 — MINERAL PROPERTIES – (continued)
November 2011 Lease On November 1, 2011, we entered into a mining lease with the State of Texas covering 90 acres, more or less, of land that we purchased in September 2011 near our Round Top site. The primary term of the lease is nineteen (19) years. The deed was recorded with Hudspeth County on September 16, 2011. Under the lease, we paid the State of Texas a lease bonus of $20,700 which was paid upon the execution of the lease. Upon the sale of minerals removed from Round Top, we will pay the State of Texas a $50,000 minimum advance royalty. Thereafter, we will pay the State of Texas a production royalty equal to eight percent (8%) of the market value of uranium and other fissionable materials removed and sold from Round Top and six and one quarter percent (6¼%) of the market value of all other minerals sold from Round Top. If production of paying quantities of minerals has not been obtained on or before November 1, 2012, we may pay the State of Texas a delay rental to extend the term of the lease in an amount equal to $4,500. Thereafter, assuming production of paying quantities has not been obtained, we may pay additional delay rental fees to extend the term of the lease for successive one (1) year periods pursuant to the following schedule: | | Per Acre Amount | | Total Amount | November 1, 2013 – 2014 | | $ | 50 | | | $ | 4,500 | | November 1, 2015 – 2019 | | $ | 75 | | | $ | 6,750 | | November 1, 2020 – 2024 | | $ | 150 | | | $ | 13,500 | | November 1, 2025 – 2029 | | $ | 200 | | | $ | 18,000 | |
In August 2013, we paid a delay rental to the State of Texas of $4,500. State of Texas Surface Lease On March 6, 2013, we entered into a lease assignment (the “Lease Assignment Agreement”) with Southwest Range & Wildlife Foundation, Inc., a Texas non-profit corporation (the “Foundation”), pursuant to which the Foundation agreed to assign to us a surface lease identified with the State of Texas as Surface Lease SL20040002 (the “West Lease”), which covers 54,990.11 acres in Hudspeth County, Texas. In exchange for the West Lease, we agreed to: (i) pay the Foundation $500,000 in cash; (ii) issue 1,063,830 of our common shares, par value $0.01 (the “Common Shares”); and (iii) make ten (10) payments to the Foundation of $45,000 each. The first payment was made in June 2013, and the nine (9) subsequent payments due on or before June 1 of each of the following years, such payments to be used by the Foundation to support conservation efforts within the Rio Grande Basin. The Lease Assignment Agreement contains standard representations, warranties and covenants. The closing of the transaction contemplated by the Lease Assignment Agreement was completed on March 8, 2013. NOTE 3 — NOTE PAYABLE In relation to the Foundation lease discussed in Note 2 the Company recorded a note payable for an amount for the initial $45,000 due upon signing of lease and the nine (9) future payments due of $45,000 which has been recorded at its present value discounted with an imputed interest rate of 5% for a total note payable of $364,852. At May 31, 2014 the current portion due is $30,458 and long-term portion due is $260,387. The total note payable due at May 31, 2014 is $290,845. The Company has also accrued interest expense of approximately $4,000 as of May 31, 2014 which is included in accrued liabilities. F-20 Texas Rare Earth Resources Corp Notes to Interim Financial Statements May 31, 2014 (Unaudited) NOTE 3 — NOTE PAYABLE – (continued) Future maturities Year | | Principal amount due | 2015 | | | 30,458 | | 2016 | | | 31,981 | | 2017 | | | 33,580 | | 2018 | | | 35,259 | | 2019 thereafter | | | 159,567 | | Total | | $ | 290,845 | |
NOTE 4 — SHAREHOLDERS’ EQUITY Capital Stock Our authorized capital stock consists of 100,000,000 shares of common stock, with a par value of $0.01 per share, and 10,000,000 preferred shares with a par value of $0.001 per share. All shares of common stock have equal voting rights and, when validly issued and outstanding, are entitled to one non-cumulative vote per share in all matters to be voted upon by shareholders. The shares of common stock have no pre-emptive, subscription, conversion or redemption rights and may be issued only as fully paid and non-assessable shares. Holders of the common stock are entitled to equal ratable rights to dividends and distributions with respect to the common stock, as may be declared by our Board of Directors (our “Board”) out of funds legally available. In the event of a liquidation, dissolution or winding up of the affairs of the Corporation, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment or provision for all liabilities and any preferential liquidation rights of any preferred stock then outstanding. During the nine months ended May 31, 2014, we expensed approximately $719,000 for stock based compensation to our directors and consultants for stock options previously issued. On September 1, 2013, our Board approved and granted a total of 60,000 options to consultants. The options are exercisable at $0.30 per share for a period of five years. All options vest 1/6 at the end of each month of consulting services. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 33,33460,000 options assumingissued during the period to these consultants, using the assumptions of a risk free interest rate of 1.1%1.62%, dividend yield of 0%, volatility of 125%303%, and an expected life of 90 days. The Company has determined5 years. These options are valued at approximately $16,000 and are being expensed over the vesting period of 6 months in the amount of approximately $2,700 per month. On October 1, 2013, we appointed Mr. Jack Lifton to serve as a member of our Board. In connection with the appointment of Mr. Jack Lifton to our Board on October 1, 2013, Mr. Lifton was granted 100,000 options to purchase shares of our common stock, vesting immediately with a term of 5 years and at an exercise price of $0.50. With respect to these options, the Black-Scholes pricing model was used to have an approximateestimate the fair value of $91,000,the 100,000 options issued during the period to this director, using the assumptions of a risk free interest rate of 1.10%, dividend yield of 0%, volatility of 302%, and an expected life of 5 years. These options were immediately expensed during the current period in the amount of approximately $47,000. In addition, Mr. Lifton, as a non-executive director, will receive $10,000 annually, $1,000 for in person board meetings, $500 for telephonic board meetings and $500 for committee meetings (both in person and telephonic) pursuant to our director compensation program. On November 25, 2013, our Board approved and granted a total of 10,000 options to consultants. The options are exercisable at $0.50 per share for a period of five years. All options vest immediately. With respect to F-21 Texas Rare Earth Resources Corp Notes to Interim Financial Statements May 31, 2014 (Unaudited) NOTE 4 — SHAREHOLDERS’ EQUITY – (continued) these options, the Black-Scholes pricing model was used to estimate the fair value of the 10,000 options issued during the period to these consultants, using the assumptions of a risk free interest rate of 1.37%, dividend yield of 0%, volatility of 298%, and an expected life of 5 years. These options are being expensed immediately in the amount of approximately $5,000. On December 8, 2013, our Board approved and granted 240,000 options to Mr. Marchese, 160,000 options to Dr. Pingitore, and 60,000 options each to Mr. Gorski, Dr. Wolfe, Mr. Lifton, Dr. Goodell, Ms. Lynch and Mr. Wall. All options to these members are exercisable at $0.50 per share for a period of ten years, vesting immediately. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 760,000 options issued during the period to these directors, using the assumptions of a risk free interest rate of 2.88%, dividend yield of 0%, volatility of 297%, and an expected life of 10 years. These options were expensed during the quarter ending February 28, 2014. Total value expensed was approximately $380,000. On January 10, 2014, our Board entered into an agreement with a consultant to provide advisory services to the Company’s Board. As a part of the agreement our Board approved to provide the consultant with annual cash compensation of $5,000 and a grant of 25,000 options. The options are exercisable at $0.42 per share for a period of five years. All options vest immediately. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 25,000 options issued during the period to this advisor, using the assumptions of a risk free interest rate of 2.88%, dividend yield of 0%, volatility of 293%, and an expected life of 5 years. These options are being expensed immediately in the amount of approximately $10,500. On February 19, 2014, our Board approved a grant of 50,000 options to a consultant to the Company. The options are exercisable at $0.41 per share for a period of five years. All options vest immediately. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 50,000 options issued during the period to this advisor, using the assumptions of a risk free interest rate of 2.88%, dividend yield of 0%, volatility of 291%, and an expected life of 5 years. These options are being expensed immediately in the amount of approximately $20,500. On March 31, 2014, April 30, 2014, and May 31, 2014, the Board approved a total grant of 30,000 options to a consultant to the Company. The options are exercisable at $0.30 per share for a period of five years. All options vest immediately. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 30,000 options issued during the period to this advisor, using the assumptions of a risk free interest rate of 1.54% to 1.74%, dividend yield of 0%, volatility of 284% to 288%, and an expected life of 5 years. These options are being expensed immediately in the amount of approximately $12,000. On March 3, 2014, our Board approved the repricing of all outstanding Board options for active directors to $0.45. A total of 3.185 million Directors’ options that were outstanding as of March 3, 2014. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 3.185 million options outstanding on March 3, 2014, using the assumptions of a risk free interest rate from 0.39% to 2.6%, a dividend yield of 0%, volatility of 158%, to 883% and an expected life of 2 to 9.75 years. The options will be expensed in full during the third quarter 2014 in the amount of approximately $43,000. On March 19, 2014, our Board approved a grant of 25,000 options to a consultant to the Company. The options are exercisable at $0.41 per share for a period of five years. All options vest immediately. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 25,000 options issued during the period to this advisor, using the assumptions of a risk free interest rate of 1.56%, dividend yield of 0%, volatility of 289%, and an expected life of 5 years. These options are being expensed immediately in the amount of approximately $10,500. F-22 Texas Rare Earth Resources Corp Notes to Interim Financial Statements May 31, 2014 (Unaudited) NOTE 4 — SHAREHOLDERS’ EQUITY – (continued) We currently have 37,036,916 shares of our common stock outstanding. As of May 31, 2014, the Company has 9,587,000 warrants issued in prior year, exercisable and outstanding with exercise prices of $2.50 to $5.00 per warrant, expiring 2015 and 2016. As of May 31, 2014, the Company has 4,935,000 options issued and outstanding, of which was recognized as an immediate expense1,060,000 were issued during the nine months ended May 31, 20112014. The options have an exercise prices of $0.30 to $1.00 and 3,971,022 are vested and exercisable, expiring in accordance with FASB ASC 505-50-25.2016 and 2024.
NOTENote 5 – CONTINGENCIES AND COMMITMENTS— Subsequent Events
Registration RightsOn June 30, 2014, the Board approved a grant of 10,000 options to a consultant to the Company. The options are exercisable at $0.30 per share for a period of five years. All options vest immediately. With respect to these options, the Black-Scholes pricing model was used to estimate the fair value of the 10,000 options issued during the period to this advisor, using the assumptions of a risk free interest rate of 1.62%, dividend yield of 0%, volatility of 282% and an expected life of 5 years. These options are being expensed immediately in the amount of approximately $4,000.In connection with the May and June option exercises associated with the January 2011 Private Placement, the Company entered into certain registration rights agreements. Key provisions of these registration rights are as follows:
· | 40,000 shares of the Company's common stock issued in May 2011 under the January 2011 Private Placement are subject to registration rights. Proceeds of $100,000 were received in May 2011 for these shares; |
· | 2,520,000 shares of the Company’s common stock issued in June 2011 under the January 2011 Private Placement are subject to registration rights. Proceeds of $6,300,000 were received in May 2011 for these shares; |
· | 3,680,000 shares of the Company’s common stock issued in June under the January 2011Private Placement are subject to registration rights. Proceeds of $9,200,000 were received in June 2011 for these shares. |
· | Term – The Company is required to file a registration statement covering the resale of the shares of common stock and shares of common stock underlying the warrants by July 27, 2011, and the registration is required to be deemed effective by the SEC on or before the 150 th calendar day after the filing of such registration statement. |
· | Events requiring transfer of consideration – Failure of the Company to file a registration statement by July 27, 2011 and/or the registration statement not deemed effective by the SEC on or before the 150th calendar day after the filing of such registration statement. |
· | Settlement alternatives – There are no alternative settlement arrangements. |
F-23
· | Maximum potential amount of consideration – In the event that transfer of consideration is required under the registration rights agreement, the Company is obligated to issue, as liquidated damages, a number of shares of common stock equal to ten percent of the shares of common stock purchased by the respective investors and issued upon the exercise of the warrants for a 30-day period or pro-rated for a period less than one month. However, in no event shall that amount exceed five times the first month’s liquidated damages amount. |
· | Liability – Management estimates that transfer of consideration will not be required. Accordingly, the Company has not accrued a liability related to the registration rights agreements. |
NOTE 6 – SUBSEQUENT EVENTS
In June 2011, certain investors participating in the January 2011 Private Placement exercised their options and were issued an aggregate of 3,680,000 shares of common stock and five-year warrants to purchase up to 3,680,000 shares of common stock, exercisable at $2.50 per share, resulting in aggregate gross proceeds to the Company of $9,200,000. In connection with the option exercises, the Company paid sales commissions of $200,000 in cash and issued five-year warrants to purchase up to 157,360 shares of common stock at an exercise price of $2.50 per share. As a result of the options exercised in May 2011, as fully described in Note 4, and in June 2011 by the investors described in this paragraph, we had cash and cash equivalents totaling approximately $17,700,000 as of June 30, 2011.
In June 2011, SFG exercised a warrant to purchase 250,000 shares on a cashless basis resulting in the issuance of 175,000 shares of common stock.
In June 2011, certain investors exercised Class A Warrants to purchase 302,500 shares of common stock for cash proceeds of $151,250 and Class B Warrants to purchase 141,250 shares of common stock for cash proceeds of $105,938.
On June 27, 2011, the Company’s registration statement registering the resale of 8,908,125 shares of its common stock, which consists of (i) 4,738,750 shares of common stock, (ii) an aggregate of 1,336,250 shares of common stock issuable upon exercise of Class A Warrants, (iii) an aggregate of 678,125 shares of common stock issuable upon exercise of Class B Warrants, (iv) an aggregate of 250,000 shares of common stock issuable upon the exercise of options exercisable at $5.00 per share, and (v) 1,905,000 shares of common stock issuable upon the exercise of warrants exercisable at $2.50 per share issued in the January 2011 private placement, was deemed effective by the SEC. TEXAS RARE EARTH RESOURCES CORP.
13,672,000 Shares of Common Stock
PROSPECTUS ________________, 2011
____________________, 2014 PartPART II
Information not required in prospectus
INFORMATION NOT REQUIRED IN PROSPECTUS
Item
ITEM 13. Other Expenses of Issuance and DistributionOTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in connection with the distribution of the securities being registered. The expenses shall be paid by the Company.
SEC registration fees | | $ | 4,842 | | | $ | 920 | | Legal fees | | | 40,000 | | | | 30,000* | | Accounting fees | | | 10,000 | | | | 15,000* | | EDGAR/financial printing | | | 1,000 | | | Misc. | | | 10,000 | | | EDGAR/financial | | | | 10,000* | | Printing/Misc. | | | | 20,000* | | Total | | $ | 65,842 | | | $ | 75,920* | | | | | | | |
ITEM 14. Indemnification of directors and officersINDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Articles of Incorporation as amended, provide to the fullest extent permitted by NevadaDelaware law, our directors or officers shall not be personally liable to us or our shareholders for damages for breach of such director's or officer's fiduciary duty. The effect of this provision of our Articles of Incorporation as amended, is to eliminate our right and our shareholders (through shareholders' derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the indemnification provisions in its Articles of Incorporation as amended, are necessary to attract and retain qualified persons as directors and officers.
Our Articles of Incorporation also provide that we shall indemnify, advance expenses, and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “Proceeding”), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Company or, while a director or officer of the Company, is or was serving at the request of the Company as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except for claims for indemnification (following the final disposition of such Proceeding) or advancement of expenses not paid in full, we shall be required to indemnify a Covered Person in connection with a Proceeding (or part thereof) commenced by such Covered Person only if the commencement of such Proceeding (or part thereof) by the Covered Person was authorized in the specific case by our Board of Directors. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
ItemII-1
ITEM 15. Recent Sales of Unregistered SecuritiesRECENT SALES OF UNREGISTERED SECURITIES
During the past three fiscal years through to the date of this registration statement, the registrant has sold the following securities which were not registered under the Securities Act:
Date | Description | Number | Purchaser | Proceeds ($) | Consideration | Exemption | | Description | | Number | | Purchaser | | Proceeds ($) | | Consideration | | Exemption | March 31, 2014 | | | Common Stock Purchase Options | | 10,000 | | Consultant | | $Nil | | Advisory Services | | 4(a)(2) | April 30, 2014 | | | Common Stock Purchase Options | | 10,000 | | Consultant | | $Nil | | Advisory Services | | 4(a)(2) | May 31, 2014 | | | Common Stock Purchase Options | | 10,000 | | Consultant | | $Nil | | Advisory Services | | 4(a)(2) | February 19, 2014 | | | Common Stock Purchase Options | | 50,000 | | Consultant | | $Nil | | Advisory Services | | 4(a)(2) | September 1, 2013 | | | Common Stock Purchase Options | | 60,000 | | Private Placement Investor | | $Nil | | Consulting Services | | 4(a)(2) | March 6, 2013 | | | Common Stock | | 1,063,830 | | Private Placement Investor | | $Nil | | Property Lease | | 4(a)(2) | December 2011/January 2012 | | | Common Stock | | 1,786,875 | | Private Placement Investors | | 1,012,968 | | Cash | | 4(a)(2) | November 2011 | | | Common Stock | | 140,625 | | Private Placement Investors | | 82,031 | | Cash | | 4(a)(2) | September 2011 | | | Common Stock | | 16,250 | | Private Placement Investor | | 8,125 | | Cash | | 4(a)(2) | August 2011 | | | Common Stock | | 93,750 | | Private Placement Investor | | 54,688 | | Cash | | 4(a)(2) | July 2011 | Common Stock | 42,500 | Private Placement Investors | 21,250 | Cash | 4(2) | | Common Stock | | 42,500 | | Private Placement Investors | | 21,250 | | Cash | | 4(a)(2) | July 2011 | Warrants | 33,334 | First Canadian Capital Corp | - | Services rendered | 4(2) | | Warrants | | 33,334 | | First Canadian Capital Corp | | — | | Services rendered | | 4(a)(2) | June 2011 | | | Common Stock | | 443,750 | | Private Placement Investors | | 257,188 | | Cash | | 4(a)(2) | June 2011 | Options | 1,192,000 | Registered Broker-dealers | - | Services rendered/commissions | 4(2) | | Options | | 1,192,000 | | Registered Broker-dealers | | — | | Services rendered/ commissions | | 4(a)(2) | June 2011 | Common Stock | 175,000 | Nathan Low | - | Cashless exercise of warrant | 4(2) | | Common Stock | | 175,000 | | Nathan Low | | — | | Cashless exercise of warrant | | 4(a)(2) | June 2011 | Common Stock | 302,500 | Private Placement Investors | 151,250 | Cash | 4(2) | | Common Stock | | 302,500 | | Private Placement Investors | | 151,250 | | Cash | | 4(a)(2) | June 2011 | Common Stock | 141,250 | Private Placement Investors | 105,938 | Cash | 4(2) | | Common Stock | | 141,250 | | Private Placement Investors | | 105,938 | | Cash | | 4(a)(2) | June 2011 | Common Stock | 3,680,000 | Private Placement Investors(5) | 9,200,000 | Cash | 4(2) | | Common Stock | | 3,680,000 | | Private Placement Investors | | 9,200,000 | | Cash | | 4(a)(2) | June 2011 | Warrants | 3,680,000 | Private Placement Investors(5) | - | Issued as additional consideration | 4(2) | | Warrants | | 3,680,000 | | Private Placement Investors | | — | | Issued as additional consideration | | 4(a)(2) | May/June 2011 | Common Stock | 2,520,000 | Private Placement Investors(7) | 6,300,000 | Cash | 4(2) | | Common Stock | | 2,520,000 | | Private Placement Investors | | 6,300,000 | | Cash | | 4(a)(2) | May/June 2011 | Warrants | 2,520,000 | Private Placement Investors(7) | - | Issued as additional consideration | 4(2) | | Warrants | | 2,520,000 | | Private Placement Investors | | — | | Issued as additional consideration | | 4(a)(2) | May 2011 | Common Stock | 40,000 | Private Placement Investor(1) | 100,000 | Cash | 4(2) | | Common Stock | | 40,000 | | Private Placement Investor | | 100,000 | | Cash | | 4(a)(2) | May 2011 | Warrants | 40,000 | Private Placement Investor(1) | - | Issued as additional consideration | 4(2) | | Warrants | | 40,000 | | Private Placement Investor | | — | | Issued as additional consideration | | 4(a)(2) | May 2011 | Common Stock | 15,000 | Sunrise Securities Corp. | - | Services rendered | 4(2) | | Common Stock | | 15,000 | | Sunrise Securities Corp. | | — | | Services rendered | | 4(a)(2) | May 2011 | | | Options | | 2,500,000 | | Marc LeVier | | — | | Services rendered | | 4(a)(2) | May 2011 | | | Options | | 175,000 | | Anthony Marchese | | — | | Services rendered | | 4(a)(2) | April 2011 | | | Options | | 60,000 | | Jim Graham | | — | | Services rendered | | 4(a)(2) | April 2011 | | | Options | | 90,000 | | Cecil Wall | | — | | Services rendered | | 4(a)(2) | March 2011 | | | Options | | 400,000 | | Wm Chris Mathers | | — | | Services rendered | | 4(a)(2) | March 2011 | | | Options | | 60,000 | | Graham A. Karklin | | — | | Services rendered | | 4(a)(2) |
II-2 May 2011 | Options | 2,500,000 | Marc LeVier | - | Services rendered | 4(2) | May 2011 | Options | 175,000 | Anthony Marchese | - | Services rendered | 4(2) | April 2011 | Options | 60,000 | Jim Graham | - | Services rendered | 4(2) | April 2011 | Options | 90,000 | Cecil Wall | - | Services rendered | 4(2) | March 2011 | Options | 400,000 | Wm Chris Mathers | - | Services rendered | 4(2) | March 2011 | Options | 60,000 | Graham A. Karklin | - | Services rendered | 4(2) | March 2011 | Options | 150,000 | Anthony Marchese | - | Services rendered | 4(2) | February 2011 | Options | 60,000 | Gen. Gregory Martin | - | Services rendered | 4(2) | February 2011 | Common Stock | 800,000 | Private Placement Investors (2) | 2,000,000 | Cash | 4(2) | February 2011 | Warrants | 800,000 | Private Placement Investors | - | Issued as additional consideration | 4(2) | February 2011 | Options | 3,200,000 | Private Placement Investors | - | Issued as additional consideration | 4(2) | February 2011 | Option Warrants | 3,200,000 | Private Placement Investors | - | Issued as additional consideration | 4(2) | January 2011 | Common Stock | 562,500 | John C. Tumazos | 328,125 | Cash | 4(2) | January 2011 | Common Stock | 93,750 | Paul Lewis | 54,688 | Cash | 4(2) | January 2011 | Warrants | 305,000 | Registered Broker-dealers | - | Services rendered | 4(2) | January 2011 | Common Stock | 30,000 | Sunrise Securities Corp. | - | Services rendered | 4(2) | January 2011 | Common Stock | 800,000 | Private Placement Investors (7) | 2,000,000 | Cash | 4(2) | January 2011 | Warrants | 800,000 | Private Placement Investors | - | Issued as additional consideration | 4(2) | January 2011 | Options | 3,200,000 | Private Placement Investors | - | Issued as additional consideration | 4(2) | January 2011 | Option Warrants | 3,200,000 | Private Placement Investors | - | Issued as additional consideration | 4(2) | November 2010 | Common Stock | 125,000 | Private Placement Investors (2) | 50,000 | Cash | 4(2) | November 2010 | Class A Warrants | 125,000 | Private Placement Investors | - | Issued as part of placement | 4(2) | November 2010 | Class B Warrants | 62,500 | Private Placement Investors | - | Issued as part of placement | 4(2) | November 2010 | Options to purchase common stock | 500,000 | Sunrise Securities Corp. | - | Services rendered | 4(2) | October 2010 | Common Stock | 36,000 | DRC Partners, LLC | - | Services rendered | 4(2) | October 2010 | Common Stock | 845,000 | Private Placement Investors (7) | 338,000 | Cash | 4(2) | October 2010 | Class A Warrants | 845,000 | Private Placement Investors | - | Issued as part of placement | 4(2) | October 2010 | Class B Warrants | 422,500 | Private Placement Investors | - | Issued as part of placement | 4(2) | September 2010 | Common Stock | 25,000 | Henry C. Bradbury | - | Services rendered | 4(2) | September 2010 | Common Stock | 162,500 | Private Placement Investors (2) | 65,000 | Cash | 4(2) | September 2010 | Class A Warrants | 162,500 | Private Placement Investors | - | Issued as part of placement | 4(2) | September 2010 | Class B Warrants | 81,250 | Private Placement Investors | - | Issued as part of placement | 4(2) | April 2010 | Common Stock | 262,500 | Private Placement Investors (5) | 105,000 | Cash | 4(2) | April 2010 | Class A Warrants | 262,500 | Private Placement Investors | - | Issued as part of placement | 4(2) | April 2010 | Class B Warrants | 131,250 | Private Placement Investors | - | Issued as part of placement | 4(2) | March 2010 | Common Stock | 62,500 | Private Placement Investors (1) | 25,000 | Cash | 4(2) | March 2010 | Class A Warrants | 62,500 | Private Placement Investors | - | Issued as part of placement | 4(2) | March 2010 | Class B Warrants | 31,250 | Private Placement Investors | - | Issued as part of placement | 4(2) | January 2010 | Common Stock | 62,500 | Private Placement Investors (1) | 25,000 | Cash | 4(2) | January 2010 | Class A Warrants | 62,500 | Private Placement Investors | - | Issued as part of placement | 4(2) | January 2010 | Class B Warrants | 31,250 | Private Placement Investors | - | Issued as part of placement | 4(2) | January 2010 | Common Stock | 300,000 | Anthony Marchese | - | Services rendered | 4(2) | November 2009 | Common Stock | 125,000 | Private Placement Investors (2) | 50,000 | Cash | 4(2) | November 2009 | Class A Warrants | 125,000 | Private Placement Investors | - | Issued as part of placement | 4(2) | November 2009 | Class B Warrants | 62,500 | Private Placement Investors | - | Issued as part of placement | 4(2) | November 2009 | Common Stock | 15,000 | Robert O’Shaughnessy | - | Services rendered | 4(2) | October 2009 | Common Stock | 312,500 | Private Placement Investors (4) | 125,000 | Cash | 4(2) | October 2009 | Class A Warrants | 312,500 | Private Placement Investors | - | Issued as part of placement | 4(2) | October 2009 | Class B Warrants | 156,250 | Private Placement Investors | - | Issued as part of placement | 4(2) | September 2009 | Common Stock | 250,000 | Private Placement Investors (4) | 100,000 | Cash | 4(2) | September 2009 | Class A Warrants | 250,000 | Private Placement Investors | - | Issued as part of placement | 4(2) | September 2009 | Class B Warrants | 125,000 | Private Placement Investors | - | Issued as part of placement | 4(2) | November 2008 | Common Stock | 3,750,000 | Brewer & Pritchard, PC | 25,000 | Cash | 4(2) | November 2008 | Common Stock | 3,750,000 | RLR Services Partnership | 25,000 | Cash | 4(2) |
(A) With respect to sales designated by “Sec. 4(2),” these shares were issued pursuant to the exemption from registration contained in to Section 4(2) of the Securities Act of 1933 as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser was given adequate access to sufficient information about us to make an informed investment decision. Except as described in this prospectus, none of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved.
Item 16. Exhibits
Date | | Description | | Number | | Purchaser | | Proceeds ($) | | Consideration | | Exemption | March 2011 | | Options | | 150,000 | | Anthony Marchese | | — | | Services rendered | | 4(a)(2) | February 2011 | | Options | | 60,000 | | Gen. Gregory Martin | | — | | Services rendered | | 4(a)(2) | February 2011 | | Common Stock | | 800,000 | | Private Placement Investors | | 2,000,000 | | Cash | | 4(a)(2) | February 2011 | | Warrants | | 800,000 | | Private Placement Investors | | — | | Issued as additional consideration | | 4(a)(2) | February 2011 | | Options | | 3,200,000 | | Private Placement Investors | | — | | Issued as additional consideration | | 4(a)(2) | February 2011 | | Option Warrants | | 3,200,000 | | Private Placement Investors | | — | | Issued as additional consideration | | 4(a)(2) | January 2011 | | Common Stock | | 562,500 | | John C. Tumazos | | 328,125 | | Cash | | 4(a)(2) | January 2011 | | Common Stock | | 93,750 | | Paul Lewis | | 54,688 | | Cash | | 4(a)(2) | January 2011 | | Warrants | | 305,000 | | Registered Broker-dealers | | — | | Services rendered | | 4(a)(2) | January 2011 | | Common Stock | | 30,000 | | Sunrise Securities Corp. | | — | | Services rendered | | 4(a)(2) | January 2011 | | Common Stock | | 800,000 | | Private Placement Investors | | 2,000,000 | | Cash | | 4(a)(2) | January 2011 | | Warrants | | 800,000 | | Private Placement Investors | | — | | Issued as additional consideration | | 4(a)(2) | January 2011 | | Options | | 3,200,000 | | Private Placement Investors | | — | | Issued as additional consideration | | 4(a)(2) | January 2011 | | Option Warrants | | 3,200,000 | | Private Placement Investors | | — | | Issued as additional consideration | | 4(a)(2) |
| (A) | With respect to sales designated by “Sec. 4(a)(2),” these shares were issued pursuant to the exemption from registration contained in to Section 4(a)(2) of the Securities Act of 1933 as privately negotiated, isolated, non-recurring transactions not involving any public offer or solicitation. Each purchaser represented that such purchaser’s intention to acquire the shares for investment only and not with a view toward distribution. We requested our stock transfer agent to affix appropriate legends to the stock certificate issued to each purchaser and the transfer agent affixed the appropriate legends. Each purchaser was given adequate access to sufficient information about us to make an informed investment decision. Except as described in this prospectus, none of the securities were sold through an underwriter and accordingly, there were no underwriting discounts or commissions involved. |
II-3 ITEM 16 — EXHIBITS
The exhibits and financial schedules filed as part of this registration statement Exhibit No. | Description | Description | 2.1 | | Plan of Conversion, dated August 24, 2012, incorporated by reference to Exhibit 2.1 of our Form 8-K filed with the SEC on August 29, 2012. | 3.1 | Amended and Restated Bylaws, | Delaware Certificate of Conversion, incorporated by reference to Exhibit 3.1 of the Company’sour Form 108-K filed with the SEC on October 30, 2008.August 29, 2012. | 3.2 | Amended and Restated Articles | Delaware Certificate of Incorporation, incorporated by reference to Exhibit 3.2 of the Company’sour Form 108-K filed with the SEC on October 30, 2008.August 29, 2012. | 3.3 | Amendment to Articles of Incorporation, | Delaware Bylaws, incorporated by reference to Exhibit 3.3(i)3.3 of the Company’sour Form 10-K for the period ended August 31, 20098-K filed with the SEC on February 8, 2011.August 29, 2012. | 4.1 | | Form of Common Stock Certificate, incorporated by reference to Exhibit 4.1 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 4.2(1) | | Form of Rights Certificate. | 4.3(1) | | Form of Warrant Indenture. | 4.4(1) | | Form of Class A Unit Warrant, included as Schedule A in Exhibit 4.3. | 4.5(1) | | Form of Class B Unit Warrant, included Schedule B in Exhibit 4.3. | 5.1(1) | | Opinion of BrewerDorsey & PritchardWhitney LLP. | 10.1* 10.1 | | Amended and Restated 2008 Stock Option Plan, incorporated by reference to Exhibit 10.1 of the Company’sour Form 10-Q for the period ended May 31, 2011 filed with the SEC on July 15, 2011. | 10.2 | | Lease, incorporated by reference to Exhibit 10.2 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.3 | | Form of Class A Warrant, incorporated by reference to Exhibit 10.3 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.4 | | Form of Class B Warrant, incorporated by reference to Exhibit 10.4 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.5 | | Form of Registration Rights Agreement, incorporated by reference to Exhibit 10.5 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.6 * 10.6* | | Director’s Agreement by and between the Company and Anthony Marchese, incorporated by reference to Exhibit 10.6 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.7 | | Form of Subscription Agreement for January 2011 Investment, incorporated by reference to Exhibit 10.7 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.8 | | Form of Warrant for January 2011 Investment, incorporated by reference to Exhibit 10.8 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.9 | | Form of Registration Rights Agreement for January 2011 Investment, incorporated by reference to Exhibit 10.9 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.10 | | Shareholders’ Agreement, incorporated by reference to Exhibit 10.10 of the Company’sour Form 10-K for the period ended August 31, 2009 filed with the SEC on February 8, 2011. | 10.11* | | Director’s Agreement by and between the Company and General Gregory Martin, incorporated by reference to Exhibit 10.1 of the Company’sour Form 8-K filed with the SEC on February 23, 2011. | 10.12* | | Director’s Agreement by and between the Company and Graham A. Karklin incorporated by reference to Exhibit 10.12 of our Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the Company’sSEC on May 25, 2011. |
II-4 Exhibit No. | | Description | 10.13 | | Investment Banking Agreement by and between the Company and Sunrise Securities Corp. incorporated by reference to Exhibit 10.13 of our Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 2011. | 10.1310.14 | Investment Banking | Finders Agreement by and between the Company and Sunrise Securities Corp.Aspenwood Capital incorporated by reference to Exhibit 10.1310.14 of the Company’sour Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 2011 | 10.14 | Finders Agreement by and between the Company and Aspenwood Capital incorporated by reference to Exhibit 10.14 of the Company’s Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 20112011. | 10.15 | | Institutional Public Relations Retainer Agreement by and between the Company and Sunrise Financial Group, Inc. incorporated by reference to Exhibit 10.15 of the Company’sour Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 20112011. | 10.16* | | Summary of Dan Gorski Employment Arrangement incorporated by reference to Exhibit 10.16 of the Company’sour Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 20112011. | 10.17* | | Summary of Wm. Chris Mathers Employment Arrangement incorporated by reference to Exhibit 10.17 of the Company’sour Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 20112011. | 10.18* | | Summary of Stanley Korzeb Employment Arrangement incorporated by reference to Exhibit 10.18 of the Company’sour Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 20112011. |
10.19* | | Employment Agreement by and between the Company and Marc LeVier, incorporated by reference to Exhibit 10.1 of the Company’sour Form 8-K filed with the SEC on May 9, 2011. | 10.20* | | Director’s Agreement by and between the Company and Jim Graham, incorporated by reference to Exhibit 10.2 of the Company’sour Form 8-K filed with the SEC on May 9, 2011. | 10.2110.21* | | Option Agreement for Wm. Chris Mathers incorporated by reference to Exhibit 10.21 of the Company’sour Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 20112011. | 10.22* | | Form of Directors Option Agreement incorporated by reference to Exhibit 10.22 of the Company’sour Amendment No. 2 to its Registration Statement on Form S-1 (333-172116) filed with the SEC on May 25, 20112011. | 10.23 | | Form of Registration Rights Agreement for May/June option exercises, incorporated by reference to Exhibit 10.12 of the Company’s Form 10-Q for the period ended May 31, 2011 filed with the SEC on July 15, 2011 | 10.24 | Denver Colorado Facilities Lease, incorporated by reference to Exhibit 10.13 of the Company’s Form 10-Q for the period ended May 31, 2011 filed with the SEC on July 15, 2011 | 14.1 | Code of Ethics, incorporated by reference to Exhibit 14.1 of the Company’sour Form 10-Q for the period ended May 31, 2011 filed with the SEC on July 15, 2011. | 10.24 | | Denver Colorado Facilities Lease, incorporated by reference to Exhibit 10.13 of our Form 10-Q for the period ended May 31, 2011 filed with the SEC on July 15, 2011. | 10.25* | | Employment Agreement between the Company and Anthony Garcia dated August 11, 2011, incorporated by reference to Exhibit 10.25 of the Company’s Form 10-K filed with the SEC on November 15, 2012. | 10.26* | | Director Appointment Agreement dated February 2, 2012, incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the SEC on February 6, 2012. | 10.27 | | Separation Agreement and Release between the Company and Marc LeVier incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on July 24, 2012. | 10.28 | | Severance, Waiver and Release Agreement between the Company and Anthony Garcia dated September 14, 2012, incorporated by reference to Exhibit 10.28 of the Company’s Form 10-K filed with the SEC on November 15, 2012. | 10.29 | | Supplemental Agreement between the Company and Christopher Mathers dated September 26, 2012, incorporated by reference to Exhibit 10.29 of the Company’s Form 10-K filed with the SEC on November 15, 2012. |
II-5 Exhibit No. | | Description | 10.30 | | Consulting Agreement between the Company and Chemetals, Inc., dated January 22, 2013, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on January 28, 2013. | 10.31 | | Lease Agreement between the Company and Southwest Range & Wildlife Foundation, Inc., dated March 6, 2012, incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the SEC on March 12, 2013. | 23.1(1) | | Consent of LBB and& Associates Ltd., LLP. | 23.2(1) | | Consent of Dorsey & Whitney LLP, incorporated in Exhibit 5.1 hereto. | 24.1 | | Power of Attorney (included in signature pages hereto). | 101.INS(2) | Consent of Brewer & Pritchard, P.C. | XBRL Instance Document. | 101.SCH(2) | | XBRL Taxonomy Extension — Schema. | 101.CAL(2) | | XBRL Taxonomy Extension — Calculations. | 101.DEF(2) | | XBRL Taxonomy Extension — Definitions. | 101.LAB(2) | | XBRL Taxonomy Extension — Labels. | 101.PRE(2) | | XBRL Taxonomy Extension — Presentations. |
* | * | Management contract or compensatory plan or arrangement. |
| (2) | IncludedSubmitted Electronically Herewith. Attached as Exhibit 101 to this report are the following formatted in Exhibit 5.1.XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Income/(Loss) and Comprehensive Income/(Loss) for the year ended August 31, 2013 and 2012, (ii) Consolidated Balance Sheets at August 31, 2013 and 2012, (iii) Consolidated Statements of Cash Flows for the year ended August 31, 2013 and 2012, and (iv) Notes to Consolidated Financial Statements. |
II-6
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes: | 1. | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| 2. | That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initialbona fide offering thereof. |
| 3. | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| 4. | For determining liability of the undersigned registrant under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: |
(i) | (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;424; |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the II-7 matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. Each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. II-8 SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-1 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Englewood,Sierra Blanca, State of Colorado,Texas, on July 25, 2011.September 30, 2014.
| | TEXAS RARE EARTH RESOURCES CORP. | | | By: | | By: | /s/ Marc LeVierDaniel E Gorski | | Marc LeVier | | Daniel E Gorski Principal Executive Officer (Chief Executive Officer) |
POWER OF ATTORNEY Each person whose signature appears below constitutes and appoints Dan Gorski his attorney-in-fact and agent, with the full power of substitution and resubstitution and full power to act without the other, for them in any and all capacities, to sign any and all amendments, including post-effective amendments, and any registration statement relating to the same offering as this registration that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, to this registration statement, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that said attorneys-in-fact, or their substitute or substitutes, may do or cause to be done by virtue hereof. In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following persons in the capacities and on the dates indicated:
Signature | Title | Capacity | | Date | /s/ Daniel E Gorski
Daniel E Gorski | | Chief Executive Officer, Principal Executive Officer and Director | | September 30, 2014 | | | | | | | /s/ Marc LeVierMike McDonald *
Mike McDonald | | Chief ExecutiveFinancial Officer and DirectorPrincipal Financial and Accounting Officer | July 25, 2011 | | Marc LeVier | | | | | | /s/ Wm. Chris MathersAnthony Marchese *
Anthony Marchese * | Principal Financial Officer and | July 25, 2011Chairman of the Board | | | Wm. Chris Mathers | Principal Accounting Officer (Chief Financial Officer) | | | | | /s/ Graham A. KarklinCecil C Wall *
Cecil C Wall | | Director | July 25, 2011 | | Graham A. Karklin | | | | | | /s/ Anthony MarcheseNicholas Pingitore *
Nicholas Pingitore | | Director | July 25, 20111 | | Anthony Marchese | | | | | | /s/ Gregory MartinJames R Wolfe *
James R Wolfe | | Director | July 25, 2011 | | Gregory Martin | | | | | 0/s/ Laura Lynch *
Laura Lynch | | Director | | | | | | | | /s/ Daniel E. GorskiJack Lifton *
Jack Lifton | | Director | July 25, 2011 | Daniel E. Gorski | | | | | | /s/ James J. Graham | Director | July 25, 2011 | James J. Graham | | |
* - Signed by Daniel E. Gorski pursuant to Power of Attorney filed with the Commission on August 28, 2014 with the Registrant’s Form S-1 (333-198457).
/s/ Daniel E. Gorski Daniel E. Gorski Attorney-in-Fact Date: September 30, 2014
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