____________________________________________________________________________________________________________________________________________________________________________________

TASMAN METALS LTD.

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED

AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

____________________________________________________________________________________________________________________________________________________________________________________

Page 1

 

Independent Auditor's Report

To the Shareholders of Tasman Metals Ltd.

We have audited the accompanying consolidated financial statements of Tasman Metals Ltd., which comprise the consolidated statements of financial position as at August 31, 2014 and August 31, 2013, and the consolidated statements of comprehensive loss, consolidated statements of changes in equity and consolidated statements of cash flows for the years ended August 31, 2014, August 31, 2013 and August 31, 2012 and a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.  We conducted our audits in accordance with Canadian generally accepted auditing standards and the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.  The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.  In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.  An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Tasman Metals Ltd. as at August 31, 2014 and August 31, 2013, and its financial performance and its cash flows for the years ended August 31, 2014, August 31, 2013 and August 31, 2012 in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.

/s/D&H Group LLP

Vancouver, B.C.

November 25, 2014                                                                                                                                Chartered Accountants

Page 2

TASMAN METALS LTD.

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

	Notes		August 31, 2014 $			August 31, 2013 $
ASSETS
Current assets
Cash				6,136,271			5,601,492
Amounts receivable				4,582			13,444
GST/VAT receivables				117,813			56,240
Prepaids				76,294			69,302
Total current assets				6,334,960			5,740,478
Non-current assets
Investments		5		39,018			24,805
Property, plant and equipment		6		103,075			175,485
Exploration and evaluation assets		7		10,866,653			7,883,939
Bond deposit				31,865			31,646
Total non-current assets				11,040,611			8,115,875
TOTAL ASSETS				17,375,571			13,856,353
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities				931,838			645,492
TOTAL LIABILITIES				931,838			645,492
SHAREHOLDERS' EQUITY
Share capital		8		25,910,384			20,299,802
Share-based payments reserve				9,122,790			9,056,102
Deficit				(18,476,032	)		(16,034,024	)
Accumulated other comprehensive loss				(113,409	)		(111,019	)
TOTAL SHAREHOLDERS' EQUITY				16,443,733			13,210,861
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY				17,375,571			13,856,353

Events after the Reporting Period - Note 14

These consolidated financial statements were approved and authorized for issue by the Board of Directors on November 25, 2014 and are signed on its behalf by:

/s/ Mark Saxon/s/ Nick DeMare

Mark SaxonNick DeMare

Director  Director

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

Page 3

TASMAN METALS LTD.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

			Year Ended August 31
	Notes		2014 $			2013 $			2012 $ (Note 3)
Expenses
Accounting and administration	9(b)(ii)			124,990			126,793			71,528
Audit				51,072			41,947			72,091
Corporate development				149,280			109,449			178,532
Depreciation		6		54,635			56,229			40,191
General exploration				82,650			165,846			71,126
Insurance				100,765			110,807			96,535
Investor relations				-			10,500			42,000
Legal				246,118			296,790			123,599
Management fees		9(a)		163,500			162,000			162,000
Office				91,905			101,981			212,491
Professional fees		9		475,484			583,023			718,443
Regulatory fees				71,001			69,403			126,355
Rent	9(b)(ii)			47,048			59,414			48,623
Salaries and benefits				304,999			290,616			204,970
Shareholder costs				26,158			35,056			43,381
Share-based compensation		8(d),9(a)		225,200			654,705			3,699,139
Transfer agent				36,752			24,452			42,586
Travel				180,525			194,759			277,123
				2,432,082			3,093,770			6,230,713
Loss before other items				(2,432,082	)		(3,093,770	)		(6,230,713	)
Other items
(Loss) gain on sale of property, plant and equipment				(9,345	)		1,921			-
Impairment of exploration and evaluation assets		7(a)		(46,636	)		(498,114	)		-
Interest and other income				105,160			95,935			151,298
Foreign exchange				(59,105	)		12,786			(29,898	)
				(9,926	)		(387,472	)		121,400
Loss before deferred income tax				(2,442,008	)		(3,481,242	)		(6,109,313	)
Deferred income tax		10		-			-			(27,746	)
Net loss for the year				(2,442,008	)		(3,481,242	)		(6,137,059	)
Other comprehensive loss, net of deferred income tax				(2,390	)		(56,057	)		(223,536	)
Comprehensive loss for the year				(2,444,398	)		(3,537,299	)		(6,350,595	)
Basic and diluted loss per common share				(0.04	)		(0.06	)		(0.10	)
Weighted average number of common shares outstanding				63,611,873			60,635,585			59,042,266

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

Page 4

TASMAN METALS LTD.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

	Year Ended August 31, 2014
	Share Capital											Accumulated
	Number of Shares		Amount $			Share-Based Payments Reserve $			Deficit $			Other Comprehensive Loss $			Total Equity $
Balance at September 1, 2013		60,850,982		20,299,802			9,056,102			(16,034,024	)		(111,019	)		13,210,861
Common shares issued for:
Cash - private placement		4,919,940		5,411,934			-			-			-			5,411,934
Cash - exercise of share options		285,000		351,000			-			-			-			351,000
Exploration and evaluation assets		86,000		104,420			-			-			-			104,420
Share issue costs		-		(643,672	)		-			-			-			(643,672	)
Share-based compensation on share options		-		-			225,200			-			-			225,200
Share-based compensation on finder's option		-		-			218,316			-			-			218,316
Share-based compensation on finders' warrants							10,072			-			-			10,072
Transfer on exercise of share options				386,900			(386,900	)		-			-			-
Unrealized loss on investments		-		-			-			-			(2,390	)		(2,390	)
Net loss for the year		-		-			-			(2,442,008	)		-			(2,442,008	)
Balance at August 31, 2014		66,141,922		25,910,384			9,122,790			(18,476,032	)		(113,409	)		16,443,733

	Year Ended August 31, 2013
	Share Capital										Accumulated
	Number of Shares		Amount $		Share-Based Payments Reserve $			Deficit $			Other Comprehensive Loss $			Total Equity $
Balance at September 1, 2012 (Note 3)		59,570,982		19,808,552		8,565,897			(12,552,782	)		(54,962	)		15,766,705
Common shares issued for:
Cash - exercise of share options		1,250,000		301,250		-			-			-			301,250
Exploration and evaluation assets		30,000		25,500											25,500
Share-based compensation on share options		-		-		654,705			-			-			654,705
Transfer on exercise of share options		-		164,500		(164,500	)		-			-			-
Unrealized loss on investment		-		-		-			-			(56,057	)		(56,057	)
Net loss for the year		-		-		-			(3,481,242	)		-			(3,481,242	)
Balance at August 31, 2013		60,850,982		20,299,802		9,056,102			(16,034,024	)		(111,019	)		(13,210,861	)

	Year Ended August 31, 2012
	Share Capital										Accumulated
	Number of Shares		Amount $		Share-Based Payments Reserve $			Deficit $			Other Comprehensive Gain (Loss) $			Total Equity $
Balance at September 1, 2011 (Note 3)		58,480,289		18,888,813		5,070,735			(6,415,723	)		168,574			17,712,399
Common shares issued for:
Cash - exercise of warrants		983,275		613,675		-			-			-			613,675
Cash - exercise of share options		69,672		6,967		-			-			-			6,967
Exploration and evaluation assets		37,746		95,120		-			-			-			95,120
Share-based compensation on share options		-		-		3,699,139			-			-			3,699,139
Transfer on exercise of agent's warrants		-		203,977		(203,977	)		-			-			-
Unrealized loss on investment		-				-			-			(251,282	)		(251,282	)
Deferred income tax on unrealized      loss on investment		-		-		-			-			27,746			27,746
Net loss for the year		-		-		-			(6,137,059	)		-			(6,137,059	)
Balance at August 31, 2012 (Note 3)		59,570,982		19,808,552		8,565,897			(12,552,782	)		(54,962	)		15,766,705

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

Page 5

TASMAN METALS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

	Year Ended August 31
	2014 $			2013 $			2012 $ (Note 3)
Operating activities
Net loss for the year		(2,442,008	)		(3,481,242	)		(6,137,059	)
Adjustments for:
Depreciation		54,635			56,229			40,191
Share-based compensation		225,200			654,705			3,699,139
Loss (gain) on sale of property, plant and equipment		9,345			(1,921	)		-
Impairment of exploration and evaluation assets		46,636			498,114			-
Deferred income tax		-			-			27,746
		(2,106,192	)		(2,274,115	)		(2,369,983	)
Changes in non-cash working capital items:
Decrease (increase) in amounts receivable		8,862			31,137			(32,893	)
(Increase) decrease in GST/VAT receivables		(61,573	)		102,031			(98,498	)
(Increase) decrease in prepaids		(6,992	)		627			(15,764	)
(Decrease) increase in accounts payable and accrued liabilities		(337,035	)		228,066			(75,490	)
		(396,738	)		361,861			(222,645	)
Net cash used in operating activities		(2,502,930	)		(1,912,254	)		(2,592,628	)
Investing activities
Proceeds from sale of property, plant and equipment		14,985			25,545			-
Additions to exploration and evaluation assets		(2,301,549	)		(2,562,939	)		(3,299,991	)
Additions to property, plant and equipment		(6,555	)		-			(166,875	)
Increase in bond deposits		(219	)		(28,150	)		(204	)
Increase in investments		(16,603	)		-			-
Net cash used in investing activities		(2,309,941	)		(2,565,544	)		(3,467,070	)
Financing activities
Issuance of common shares		5,762,934			301,250			620,642
Share issue costs		(415,284	)		-			-
Net cash provided by financing activities		5,347,650			301,250			620,642
Net change in cash		534,779			(4,176,548	)		(5,439,056	)
Cash at beginning of year		5,601,492			9,778,040			15,217,096
Cash at end of year		6,136,271			5,601,492			9,778,040

Supplemental cash flow information - see Note 13

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

Page 6

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

1. Nature of Operations

Tasman Metals Ltd. ("Tasman" or the "Company") was incorporated under the laws of the Province of British Columbia on August 27, 2007.  The Company's common shares are listed and traded on the TSX Venture Exchange ("TSXV") under the symbol "TSM" and on the New York Stock Exchange Market ("NYSE MKT"), under the symbol "TAS".  The Company's head office is located at #1305 - 1090 West Georgia Street, Vancouver, British Columbia, V6E 3V7, Canada.

The Company is a junior resource company engaged in the acquisition and exploration of unproven mineral interests in Scandinavia.  As at August 31, 2014 the Company has not earned any production revenue, nor found proved reserves on any of its mineral interests.

The Company is in the process of exploring and evaluating its mineral properties.  On the basis of information to date, it has not yet determined whether these properties contain economically recoverable ore reserves.  The underlying value of the mineral properties and related deferred acquisition costs is entirely dependent on the existence of economically recoverable reserves, the ability of the Company to obtain the necessary financing to complete development and upon future profitable production.  The amounts shown as resource interests represent net acquisition costs to date, less amounts written off, and do not necessarily represent present or future values.

As at August 31, 2014 the Company had working capital of $5,403,122.  These consolidated financial statements have been prepared on a going concern basis which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business operations for the foreseeable future.  The Company's ability to continue as a going concern is dependent upon the ability of the Company to obtain the necessary financing to develop properties and to establish future profitable production.  The Company's operations are funded from equity financings which are dependent upon many external factors and may be difficult to impossible to secure or raise when required.  Although management considers that the Company has adequate resources to maintain its core operations and planned exploration programs on its existing exploration and evaluation assets for the next twelve months, the Company recognizes that exploration expenditures may change with ongoing results and, as a result, it may be required to obtain additional financing.  While the Company has been successful in securing financings in the past, there can be no assurance that it will be able to do so in the future.

2. Basis of Preparation

Statement of Compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC").

Basis of Measurement

The Company's consolidated financial statements have been prepared on the historical cost basis except for the revaluation of certain financial assets and financial liabilities to fair value.

Details of the Group

In addition to the Company, the consolidated financial statements include all subsidiaries.  Subsidiaries are all corporations over which the Company is able, directly or indirectly, to control financial and operating policies, which is the authority usually connected with holding majority voting rights.  Subsidiaries are fully consolidated from the date on which control is acquired by the Company.  Inter-company transactions and balances are eliminated upon consolidation.  They are de-consolidated from the date that control by the Company ceases.

The Company has one wholly-owned Swedish subsidiary, Tasman Metals AB.

Comparative Figures

Certain figures for the comparative periods have been reclassified to conform with the current period reclassification.

Page 7

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

3. Change in Accounting Policy

During fiscal 2013 the Company changed its accounting policy with respect to exploration and evaluation expenditures.  In prior years the Company's policy was to expense mineral exploration and development costs as incurred until such time as either mineral reserves are proven or permits to operate the mineral resource property are received and financing to complete the development are obtained.  Effective with the presentation of the fiscal 2013 consolidated financial statements, on a retrospective basis, the Company elected to change this accounting policy to capitalize by property all costs relating to the exploration and evaluation of mineral properties classified as exploration and evaluation assets.

The effects of the change in accounting policy related to the Company's exploration and evaluation assets for fiscal 2012 are as follows:

Page 8

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

3. Change in Accounting Policy (continued)

Reconciliation of Statement of Comprehensive Loss

	Year Ended August 31, 2012
	As previously reported $			Effect of change in accounting policy $			As restated $
Mineral exploration costs		3,736,978			(3,736,978	)		-
Expenses
Accounting and administration		71,528			-			71,528
Audit		72,091			-			72,091
Corporate development		178,532			-			178,532
Depreciation		40,191			-			40,191
General exploration		71,126			-			71,126
Insurance		96,535			-			96,535
Investor relations		42,000			-			42,000
Legal		123,599			-			123,599
Management fees		162,000			-			162,000
Office		212,491			-			212,491
Professional fees		718,443			-			718,443
Regulatory fees		126,355			-			126,355
Rent		48,623			-			48,623
Salaries and benefits		204,970			-			204,970
Shareholder costs		43,381			-			43,381
Share-based compensation		3,699,139			-			3,699,139
Transfer agent		42,586			-			42,586
Travel		277,123			-			277,123
		6,230,713			-			6,230,713
Loss before other items		(9,967,691	)		3,736,978			(6,230,713	)
Other items
Interest income		151,298			-			151,298
Foreign exchange		(29,898	)		-			(29,898	)
		121,400			-			121,400
Loss before deferred income tax		(9,846,291	)		3,736,978			(6,109,313	)
Deferred income tax		(27,746	)		-			(27,746	)
Net loss for the year		(9,874,037	)		3,736,978			(6,137,059	)
Other comprehensive loss, net of deferred income tax		(223,536	)		-			(223,536	)
Comprehensive loss for the year		(10,097,573	)		3,736,978			(6,350,595	)
Basic and diluted loss per common share		(0.17	)					(0.10	)
Weighted average number of common shares outstanding		59,042,266						59,042,266

Page 9

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

3. Change in Accounting Policy (continued)

Reconciliation of Statement of Cash Flows

	Year Ended August 31, 2012
	As previously reported $			Effect of change in accounting policy $			As restated $
Operating activities
Net loss for the year		(9,874,037	)		3,736,978			(6,137,059	)
Adjustments for:
Depreciation		40,191			-			40,191
Share-based compensation		3,699,139			-			3,699,139
Deferred income tax		27,746			-			27,746
		(6,106,961	)		3,736,978			(2,369,983	)
Changes in non-cash working capital items:
Increase in amounts receivable		(131,391	)		-			(131,391	)
Increase in prepaids		(15,764	)		-			(15,764	)
Increase (decrease) in accounts payable and accrued liabilities		401,498			(476,988	)		(75,490	)
		254,343			(476,988	)		(222,645	)
Net cash used in operating activities		(5,852,618	)		3,259,990			(2,592,628	)
Investing activities
Additions to property, plant and equipment		(166,875	)		-			(166,875	)
Additions to exploration and evaluation assets		(40,001	)		(3,259,990	)		(3,299,991	)
Additions to bond deposits		(204	)		-			(204	)
Net cash used in investing activities		(207,080	)		(3,259,990	)		(3,467,070	)
Financing activity
Issuance of common shares		620,642			-			620,642
Net cash provided by financing activity		620,642			-			620,642
Net change in cash		(5,439,056	)		-			(5,439,056	)
Cash at beginning of year		15,217,096			-			15,217,096
Cash at end of year		9,778,040			-			9,778,040

4. Summary of Significant Accounting Policies

Critical Judgments and Sources of Estimation Uncertainty

The preparation of these consolidated financial statements requires management to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of expenses during the reporting period.  Actual outcomes could differ from these estimates.  These consolidated financial statements include estimates which, by their nature, are uncertain.  The impacts of such estimates are pervasive throughout the consolidated financial statements, and may require accounting adjustments based on future occurrences.  Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods if the revision affects both current and future periods.  These estimates are based on historical experience, current and future economic conditions and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Page 10

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

4. Summary of Significant Accounting Policies (continued)

Critical Judgments

The following are critical judgments that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements:

(i) The determination of categories of financial assets and financial liabilities has been identified as an accounting policy which involves judgments or assessments made by management.

(ii) Management is required to assess the functional currency of each entity of the Company.  In concluding that the Canadian dollar is the functional currency of the parent and its subsidiary company, management considered the currency that mainly influences the cost of providing goods and services in each jurisdiction in which the Company operates.  As no single currency was clearly dominant the Company also considered secondary indicators including the currency in which funds from financing activities are denominated and the currency in which funds are retained.

(iii) Management is required to assess impairment in respect of intangible exploration and evaluation assets.  The triggering events are defined in IFRS 6.  In making the assessment, management is required to make judgments on the status of each project and the future plans towards finding commercial reserves.  The nature of exploration and evaluation activity is such that only a proportion of projects are ultimately successful and some assets are likely to become impaired in future periods.

Management has determined impairment indicators were present in respect of certain exploration and evaluation assets and as a result an impairment test was performed.  See also Note 7.

Management has determined that there were no triggering events present as defined in IFRS 6 with the other properties as at August 31, 2014 and as such, no impairment test was performed.

(iv) Although the Company takes steps to verify title to exploration and evaluation assets in which it has an interest, these procedures do not guarantee the Company's title.  Such properties may be subject to prior agreements or transfers and title may be affected by undetected defects.

Estimation Uncertainty

The following are key assumptions concerning the future and other key sources of estimation uncertainty that have a significant risk of resulting in a material adjustment to the carrying amount of assets and liabilities within the next financial year:

(i) Provisions for income taxes are made using the best estimate of the amount expected to be paid based on a qualitative assessment of all relevant factors.  The Company reviews the adequacy of these provisions at the end of the reporting period.  However, it is possible that at some future date an additional liability could result from audits by taxing authorities.  Where the final outcome of these tax-related matters is different from the amounts that were originally recorded, such differences will affect the tax provisions in the period in which such determination is made.

(ii) The assessment of any impairment of exploration and evaluation assets, and property, plant and equipment is dependent upon estimates of the recoverable amount that take into account factors such as reserves, economic and market conditions and the useful lives of assets.  As a result of this assessment, management has carried out an impairment test on certain exploration and evaluation assets and an impairment charge of $46,636 was made in fiscal 2014.  See also Note 7.

Page 11

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

4. Summary of Significant Accounting Policies (continued)

Cash and Cash Equivalents

Cash includes cash on hand and demand deposits.  Cash equivalents include short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of change in value.  The Company is not exposed to significant credit or interest rate risk although cash is held in excess of federally insured limits with a major financial institution.  As at August 31, 2014 and 2013 the Company did not have any cash equivalents.

Amounts Receivable

Receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment.  Receivables are classified as loans and receivables.  A provision for impairment of receivables is established when there is objective evidence that the Company will not be able to collect all amounts due according to the original terms of the receivables.

Accounts Payable and Accrued Liabilities

Payables are obligations to pay for materials or services that have been acquired in the ordinary course of business from suppliers.  Payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer).  If not, they are presented as non-current liabilities.

Payables are classified as other financial liabilities initially at fair value and subsequently measured at amortized cost using the effective interest method.

Exploration and Evaluation Assets

The Company is in the exploration stage with respect to its investment in exploration and evaluation assets and accordingly follows the practice of capitalizing all costs relating to the acquisition of, exploration for and development of mineral properties and crediting all proceeds received against the cost of the related properties.  Such costs include, but are not exclusive to, geological, geophysical studies, exploratory drilling and sampling.  At such time as commercial production commences, these costs will be charged to operations on a unit-of-production method based on proven and probable reserves.  The aggregate costs related to abandoned mineral properties are charged to operations at the time of any abandonment, or when it has been determined that there is evidence of a permanent impairment.  An impairment charge relating to a mineral property is subsequently reversed when new exploration results or actual or potential proceeds on sale or farmout of the property result in a revised estimate of the recoverable amount, but only to the extent that this does not exceed the original carrying value of the property that would have resulted if no impairment had been recognized.

The recoverability of amounts shown for exploration and evaluation assets is dependent upon the discovery of economically recoverable reserves, the ability of the Company to obtain financing to complete development of the properties, and on future production or proceeds of disposition.

The Company recognizes in income costs recovered on mineral properties when amounts received or receivable are in excess of the carrying amount.

Once the technical feasibility and commercial viability of the extraction of mineral resources in an area of interest are demonstrable, exploration and evaluation assets attributable to that area of interest are first tested for impairment and then reclassified to mining property and development assets.

Although the Company takes steps to verify title to exploration and evaluation assets in which it has an interest, according to the usual industry standards for the stage of exploration of such interests, these procedures do not guarantee the Company's title.  Such interests may be subject to prior agreements or transfers and title may be affected by undetected defects.

Page 12

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

4. Summary of Significant Accounting Policies (continued)

From time to time, the Company will acquire or dispose of interests pursuant to the terms of option agreements.  Options are exercisable entirely at the discretion of the optionee and, accordingly, are recorded as exploration and evaluation assets costs or recoveries when the payments are made or received.

Property, Plant and Equipment

Property, plant and equipment are carried at cost, less accumulated depreciation and accumulated impairment losses.

The cost of an item of property, plant and equipment consists of the purchase price, any costs directly attributable to bringing the asset to the location and condition necessary for its intended use and an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Property, plant and equipment are depreciated annually on a straight-line basis over the estimated useful life of the assets at a rate of 20%.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset.  Any gain or loss arising on disposal of the asset, determined as the difference between the net disposal proceeds and the carrying amount of the asset, is recognized in profit or loss in the consolidated statement of comprehensive income or loss.

Where an item of plant and equipment comprises major components with different useful lives, the components are accounted for as separate items of plant and equipment.  Expenditures incurred to replace a component of an item of plant and equipment that is accounted for separately, including major inspection and overhaul expenditures are capitalized.

The Company compares the carrying value of property, plant and equipment to estimated net recoverable amounts, based on estimated future cash flows, to determine whether there is any indication of impairment whenever events or circumstances warrant.

Impairment of Assets

At each financial position reporting date, the carrying amounts of the Company's assets are reviewed to determine whether there is any indication that those assets are impaired.  If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment, if any.  Where the asset does not generate cash flows that are independent from other assets, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

An asset's recoverable amount is the higher of fair value less costs of disposal and value in use.  Fair value is determined as the price that would be received to sell an asset in an orderly transaction between market participants.  In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.  If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount and the impairment loss is recognized in the profit or loss for the period.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years.  A reversal of an impairment loss is recognized immediately in profit or loss.

Decommissioning Provision

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the exploration, development or ongoing production of a mineral interest by or on behalf of the Company.  Costs for restoration of site damage which is created on an ongoing basis during exploration and evaluation are provided for at their net present values and charged against profits in the period such exploration and evaluation occurs.

Page 13

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

4. Summary of Significant Accounting Policies (continued)

Discount rates using a risk-free rate that reflects the time value of money are used to calculate the net present value.  The related liability is adjusted for each period for the unwinding of the discount rate and for changes to the current market-based discount rate, amount or timing of the underlying cash flows needed to settle the obligation.  As at August 31, 2014 and 2013 the Company does not have any decommissioning obligations.

Financial Instruments

All financial assets are initially recorded at fair value and designated upon inception into one of the following four categories: held to maturity, available for sale, loans and receivables or at fair value through profit or loss ("FVTPL").

Financial assets classified as FVTPL are measured at fair value with unrealized gains and losses recognized through comprehensive loss.  Cash is classified as FVTPL.

Financial assets classified as loans and receivables and held to maturity are measured at amortized cost.  Amounts receivable are classified as loans and receivables.

Financial assets classified as available for sale are measured at fair value with unrealized gains and losses recognized in other comprehensive income (loss) except for losses in value that are considered other than temporary.  Investments in common shares are classified as available-for-sale.

Transaction costs associated with FVTPL are expensed as incurred, while transaction costs associated with all other financial assets are included in the initial carrying amount of the asset.

All financial liabilities are initially recorded at fair value and designated upon inception as FVTPL or other financial liabilities.

Financial liabilities classified as other financial liabilities are measured at amortized cost.  Accounts payable and accrued liabilities are classified as other financial liabilities.

Financial liabilities classified as FVTPL are measured at fair value with unrealized gains and losses recognized through comprehensive loss.  At August 31, 2014 and 2013 the Company has not classified any financial liabilities as FVTPL.

Share Capital

Common shares issued by the Company are classified as equity.  Costs directly attributable to the issue of common shares, share purchase warrants and share options are recognized as a deduction from equity, net of any related income tax effects.

Equity Financing

The Company engages in equity financing transactions to obtain the funds necessary to continue operations and explore and evaluate mineral properties.  These equity financing transactions may involve issuance of common shares or units.  Units typically comprise a certain number of common shares and share purchase warrants.  Depending on the terms and conditions of each equity financing transaction, the warrants are exercisable into additional common shares at a price prior to expiry as stipulated by the terms of the transaction.  The Company adopted a residual value method with respect to the measurement of common shares and share purchase warrants issued as private placement units.  The fair value of the common shares issued in the private placements is determined by the closing quoted bid price on the price reservation date, if applicable, or the announcement date.  The balance, if any, is allocated to the attached share purchase warrants.

Page 14

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

4. Summary of Significant Accounting Policies (continued)

Share-Based Payment Transactions

The share option plan allows Company employees and consultants to acquire shares of the Company.  The fair value of share options granted is recognized as a share-based compensation expense with a corresponding increase in the equity settled share-based payments reserve in equity.  An individual is classified as an employee when the individual is an employee for legal or tax purposes (direct employee) or provides services similar to those performed by a direct employee.

For employees the fair value is measured at grant date and each tranche is recognized separately on a straight line basis over the period during which the share options vest.  The fair value of the share options granted is measured using the Black-Scholes option pricing model taking into account the terms and conditions upon which the share options were granted.  At the end of each reporting period, the amount recognized as an expense is adjusted to reflect the actual number of share options that are expected to vest.

Equity-settled share-based payment transactions with non-employees are measured at the fair value of the goods or services received.  However, if the fair value cannot be estimated reliably, the share-based payment transaction is measured at the fair value of the equity instruments granted at the date the Company receives the goods or the services.

Current and Deferred Income Taxes

The tax expense comprises current and deferred income tax.  Tax is recognized separately in the statement of comprehensive income (loss), except to the extent that it relates to items recognized in other comprehensive income (loss) or directly in equity.  In this case the income tax is also recognized in other comprehensive income (loss) or directly in equity, respectively.

Current Tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date.  Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation.  It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred Tax

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.  However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.  Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax relating to items recognized directly in equity or other comprehensive income ("OCI") is recognized in equity or OCI and not in the statement of comprehensive loss.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Company and it is probable that the temporary difference will not reverse in the foreseeable future.  Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

Page 15

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

4. Summary of Significant Accounting Policies (continued)

Loss Per Share

Basic loss per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period.  The computation of diluted loss per share assumes the conversion, exercise or contingent issuance of securities only when such conversion, exercise or issuance would have a dilutive effect on loss per share.  The dilutive effect of convertible securities is reflected in diluted earnings per share by application of the "if converted" method.  The dilutive effect of outstanding options and warrants and their equivalents is reflected in diluted earnings per share.

Foreign Currency Translation

Functional and Presentation Currency

The financial statements of each of the Company's subsidiaries are prepared in the local currency of their home jurisdictions.  Consolidation of each subsidiary includes re-measurement from the local currency to the subsidiary's functional currency.  Each subsidiary's functional currency, being the currency of the primary economic environment in which the subsidiary operates, is the Canadian dollar.  The consolidated financial statements are presented in Canadian dollars.

Exchange rates published by the Bank of Canada were used to translate subsidiary financial statements into the consolidated financial statements.  Income and expenses for each statement of comprehensive loss presented are translated using the rates prevailing on the transaction dates.  All resulting foreign exchange differences are recognized in comprehensive loss.

Foreign Currency Transactions

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions.  Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in comprehensive loss.

Adoption of Accounting Standards and Interpretations

The Company has adopted the following new accounting standards and interpretations effective September 1, 2013. These changes were made in accordance with the applicable transitional provisions and had no impact on the financial statements.

(i) IFRS 10 Consolidated Financial Statements.  IFRS 10 defines a single concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of a parent company. The standard provides additional guidance to assist in the determination of control where this is difficult to assess.

(ii) IFRS 11 Joint Arrangements.  IFRS 11 focuses on the rights and obligations of an arrangement rather than its legal form, as is currently the case.  The standard distinguishes between joint operations, where the joint operator accounts for the assets, liabilities, revenues, and expenses relating to its involvement, and joint ventures, which must be accounted for using the equity method.

(iii) IFRS 12 Disclosure of Interests in Other Entities.  IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other entities, including subsidiaries, joint operations, joint ventures, associates and unconsolidated structured entities.

(iv) IFRS 13 Fair Value Measurement.  IFRS 13 is a new standard that applies to both financial and non-financial items measured at fair value.  It defines fair value, sets out a single framework for measuring fair value and requires disclosures about fair value measurements.  Previously, a variety of fair value techniques and disclosures were possible under the requirements of separate applicable IFRSs.

Page 16

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

4. Summary of Significant Accounting Policies (continued)

Accounting Standards and Interpretations Issued but Not Yet Adopted

As at the date of these financial statements, the following standards have not been applied in these financial statements:

(i) IFRS 9 Financial Instruments; tentatively effective for annual periods beginning on or after January 1, 2018.  IFRS 9 replaces the multiple classification and measurement models in IAS 39 with a single model that has only two classification categories: amortized cost and fair value.  IFRS 9 prohibits reclassifications except in rare circumstances when the entity's business model changes.  The new standard removes the requirement to separate embedded derivatives from financial asset hosts.  It requires a hybrid contract to be classified in its entirety at either amortized cost or fair value.

(ii) IFRS 15 Revenue from Contracts with Customers; is effective for annual periods beginning on or after January 1, 2017.  IFRS 15 specifies how and when to recognize revenue as well as requires entities to provide users of financial statements with more informative, relevant disclosures.  The standard supersedes IAS 18, Revenue, IAS 11, Construction Contracts, and a number of revenue-related interpretations.  The new standard will apply to nearly all contracts with customers: the main exceptions are leases, financial instruments and insurance contracts.

Management is currently assessing the impact of these new standards on the Company's accounting policies and financial statement presentation.

5. Investments

	August 31, 2014
	Number of Shares		Cost $		Accumulated Compre- hensive Loss $			Carrying Value $
Hannans Reward Limited ("Hannans")		2,647,059		135,824		(108,977	)		26,847
Thomson Resources Ltd. ("Thomson")		600,000		16,603		(4,432	)		12,171
				152,427		(113,409	)		39,018

	August 31, 2013
	Number of Shares		Cost $		Accumulated Compre- hensive Loss $			Carrying Value $
Hannans		2,647,059		135,824		(111,019	)		24,805

(a) The Company had received common shares of Hannans, a public company listed on the Australian Stock Exchange, from the option of certain of its iron ore properties, as described in Note 7(b)(i).  As at August 31, 2014 the quoted market value of the Hannans shares was $26,847.

(b) During fiscal 2014 the Company received 600,000 common shares of Thomson, at a fair value of $16,603, on the sale of exploration data which had been generated by the Company.  Thomson is a public company listed on the Australian Stock Exchange.  As at August 31, 2014 the quoted market value of the Thomson shares was $12,171.

Page 17

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

6.Property, Plant and Equipment

Cost:	Computers $			Office Furniture and Equipment $			Field Equipment $			Vehicles $			Total $
Balance at August 31, 2012		18,032			19,767			98,081			166,689			302,569
Disposal		-			-			-			(32,214	)		(32,214	)
Balance at August 31, 2013		18,032			19,767			98,081			134,475			270,355
Addition		-			-			6,555			-			6,555
Disposal		-			-			-			(44,168	)		(44,168	)
Balance at August 31, 2014		18,032			19,767			104,636			90,307			232,742
Accumulated Depreciation:
Balance at August 31, 2012		(5,035	)		(3,201	)		(13,822	)		(25,173	)		(47,231	)
Depreciation		(3,507	)		(3,842	)		(20,265	)		(28,615	)		(56,229	)
Disposal		-			-			-			8,590			8,590
Balance at August 31, 2013		(8,542	)		(7,043	)		(34,087	)		(45,198	)		(94,870	)
Depreciation		(3,500	)		(3,833	)		(20,888	)		(26,414	)		(54,635	)
Disposal		-			-			-			19,838			19,838
Balance at August 31, 2014		(12,042	)		(10,876	)		(54,975	)		(51,774	)		(129,667	)
Carrying Value:
Balance at August 31, 2013		9,490			12,724			63,994			89,277			175,485
Balance at August 31, 2014		5,990			8,891			49,661			38,533			103,075

Page 18

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

7. Exploration and Evaluation Assets

	August 31, 2014
	Acquisition Costs $		Deferred Exploration Costs $		Total $
Rare Earth Properties
Norra Kärr		92,797		9,889,283		9,982,080
Olserum		143,357		568,594		711,951
Other		15,960		4,758		20,718
Other Properties		112,853		39,051		151,904
		364,967		10,501,686		10,866,653

	August 31, 2013
	Acquisition Costs $		Deferred Exploration Costs $		Total $
Rare Earth Properties
Norra Kärr		23,045		7,179,904		7,202,949
Olserum		124,846		488,336		613,182
Other		49,088		15,860		64,948
Other Properties		2,406		454		2,860
		199,385		7,684,554		7,883,939

Page 19

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

7.Exploration and Evaluation Assets (continued)

	Rare Earth Element Properties										Other
	Norra Kärr $		Olserum $		Otanmaki $			Other $			Properties $			Total $
Balance at August 31, 2012		5,312,704		316,137		340,766			186,698			2,860			6,159,165
Exploration costs
Consulting		400,543		186,511		-			-			-			587,054
Core cutting		13,837		-		-			-			-			13,837
Database		3,707		3,698		-			-			-			7,405
Drilling		74,950		-		-			-			-			74,950
Exploration site		21,779		119		-			-			-			21,898
Fuel		1,253		668		-			-			-			1,921
Geochemical		385,093		35,306		-			-			-			420,399
Geological		92,398		31,511		-			-			-			123,909
Maps		-		-		-			1,920			-			1,920
Metallurgical consulting		21,152		-		-			-			-			21,152
Metallurgical testing		692,637		-		-			-			-			692,637
Preliminary economic assessment		27,559		-		-			-			-			27,559
Pre-feasibility study		117,594		-		-			-			-			117,594
Salaries		13,486		-		-			-			-			13,486
Sample preparation		-		17,791		-			-			-			17,791
Travel		24,257		83		-			-			-			24,340
		1,890,245		275,687		-			1,920			-			2,167,852
Acquisition costs						-
Mining rights		-		21,358		-			33,678			-			55,036
Impairment		-		-		(340,766	)		(157,348	)		-			(498,114	)
Balance at August 31, 2013		7,202,949		613,182		-			64,948			2,860			7,883,939
Exploration costs
Consulting		532,787		72,570		-			-			33,436			638,793
Database		2,424		-		-			-			191			2,615
Exploration site		8,490		1,069		-			-			265			9,824
Geochemical		94,079		3,723		-			-			4,192			101,994
Geological		156,299		-		-			-			-			156,299
Maps		1,442		-		-			-			437			1,879
Metallurgical testing		429,895		-		-			-			-			429,895
Pre-feasibility study		1,364,575		-		-			-			-			1,364,575
Salaries		29,188		-		-			-			-			29,188
Surface rights		76,364		-		-			-			-			76,364
Travel		13,836		2,896		-			-			76			16,808
		2,709,379		80,258		-			-			38,597			2,828,234
Acquisition costs
Mining rights		16,832		18,511		-			-			16,353			51,696
Issuance of common shares		52,920		-		-			-			51,500			104,420
Acquisition		-		-		-			-			45,000			45,000
		69,752		18,511		-			-			112,853			201,116
Impairment		-		-		-			(44,230	)		(2,406	)		(46,636	)
Balance at August 31, 2014		9,982,080		711,951		-			20,718			151,904			10,866,653

Page 20

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

7.Exploration and Evaluation Assets (continued)

(a) Rare Earth Element Properties

Norra Kärr

The Norra Kärr property consists of four staked exploration claims and a mining lease located in southern Sweden.

During fiscal 2014 the Company issued 36,000 common shares at a fair value of $52,920 to acquire certain surface access rights to the Norra Kärr property.

Olserum

During fiscal 2012 the Company acquired a 100 % interest in the Olserum property, comprising one claim, in southern Sweden.  The Olserum property was purchased from Norrsken Energy Limited, a private company registered in the United Kingdom, for total consideration of 37,746 common shares of the Company issued at a fair value of $95,120.  The Company subsequently staked a further five claims surrounding the Olserum property.

Otanmaki

During fiscal 2013 the Company determined to record an impairment charge of $340,766 on the Otanmaki property, comprising 24 staked exploration claims, located in central western Finland.

Other

On June 7, 2012 the Company entered into a purchase and sale agreement with Magnus Minerals Oy ("Magnus"), a Finnish private company at arms-length to the Company, whereby the Company agreed to acquire 25 mineral exploration licenses (the "Magnus Licenses") located in central Finland for total consideration of 60,000 common shares of the Company.  On May 27, 2013 the Company issued an initial 30,000 common shares to Magnus with a fair value of $25,500.  The Company subsequently determined to record an impairment charge of $81,628 on the Magnus Licenses.

During fiscal 2014 the Company relinquished certain exploration claims and recorded an impairment charge of $44,230 (2013 - $75,720) to exploration and evaluation assets.

As at August 31, 2014 the Company has 10 exploration claims and one mining lease in Sweden.

(b) Other Properties

(i) Iron Ore Properties

On May 16, 2010 the Company entered into an option agreement with Hannans whereby Hannans subsequently earned a 75% interest in the Sautusvaara, Vieto, Harrejaure and Lauukujarvi exploration claims (the "Iron Ore Claims") in Sweden.  Hannans may earn a further 15% interest in the Iron Ore Claims by funding a feasibility study on at least one Iron Ore Claim prior to June 30, 2018, including minimum expenditures of AUS $100,000 per annum.  Hannans has met its annual expenditure commitment as at August 31, 2014.

(ii) Tungsten Properties

On October 7, 2013 the Company entered into a letter agreement with Tumi Resources Ltd. ("Tumi") and acquired a 100% interest in seven exploration licenses (the "Tungsten Projects") located in south-central Sweden by paying $45,000 cash and issuing 50,000 common shares of the Company at a fair value of $51,500.  A further 50,000 common shares are issuable upon commencement of production from any of the Tungsten Projects.  Tumi has two common directors.

Page 21

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

7.Exploration and Evaluation Assets (continued)

(iii) Other

During fiscal 2014 the Company relinquished certain exploration claims in Sweden and recorded an impairment charge of $2,406 to exploration and evaluation assets.

8. Share Capital

(a)Authorized Share Capital

The Company's authorized share capital consists of an unlimited number of common shares without par value.  All issued common shares are fully paid.

(b) Reconciliation of Changes in Share Capital

(i) In February 2014 the Company completed the first tranche of a private placement of 3,875,863 units at a price of $1.10 per unit for gross proceeds of $4,263,449.  Each unit comprised one common share and one non-transferable share purchase warrant.  Each warrant entitles the holder to purchase an additional common share at a price of $1.50 per share on or before February 11, 2017.  The Company paid a finders' fee of $168,735 cash and issued finders' warrants which entitles the holder to purchase 15,495 common shares at a price of $1.50 per share on or before February 11, 2017.  The fair value of the finders' warrants, estimated using the Black-Scholes option pricing model, is $10,072.  The assumptions used were: a risk-free interest rate of 1.39%; an estimated volatility of 88%; an expected life of 3 years; an expected dividend yield of 0%; and an estimated forfeiture rate of 0%.  The Company also issued 192,000 compensation options exercisable into units with each unit having the same terms as the units issued under the private placement.  The fair value of the compensation options, estimated using the Black-Scholes option pricing model, is $124,800.  The assumptions used were: a risk-free interest rate of 1.39%; an estimated volatility of 88%; an expected life of 3 years; an expected dividend yield of 0%; and an estimated forfeiture rate of 0%.

In March 2014 the Company completed the final tranche of its private placement and issued 1,044,077 units as a price of $1.10 per unit for gross proceeds of $1,148,485.  Each unit comprised one common share and one non-transferable share purchase warrant.  Each warrant entitles the holder to purchase an additional common share at a price of $1.50 per share on or before March 31, 2017.  The Company paid a finder's fee of $80,009 cash and issued 103,907 compensation options exercisable into units with each unit having the same terms as the units issued under the private placement.  The fair value of the compensation options, estimated using the Black-Scholes option pricing model, is $93,516.  The assumptions used were: a risk-free interest rate of 1.26%; an estimated volatility of 87%; an expected life of 3 years; an expected dividend yield of 0%; and an estimated forfeiture rate of 0%.

The Company incurred $166,540 for legal and filing fees associated with this private placement.

Directors and officers of the Company purchased 83,000 units of this private placement.

See also Notes 7(a) and 7(b)(ii).

(ii) No equity financings were conducted by the Company during fiscal 2013 and 2012.  See also Note 7(a).

Page 22

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

8. Share Capital (continued)

(c) Compensation Options

A summary of the Company's compensation options at August 31, 2014, 2013 and 2012 and the changes for the years ended on those dates is presented below:

	2014				2013				2012
	Number		Weighted Average Exercise Price $		Number		Weighted Average Exercise Price $		Number		Weighted Average Exercise Price $
Balance, beginning of year		-		-		-		-		-		-
Issued on private placement		295,907		1.10		-		-		-		-
Balance, end of year		295,907		1.10		-		-		-		-

The following table summarizes information about the compensation options outstanding and exercisable at August 31, 2014:

Number Outstanding		Exercise Price $		Expiry Date
	192,000		1.10	February 11, 2017
	103,907		1.10	March 31, 2017
	295,907

(d) Warrants

A summary of the number of common shares reserved pursuant to the Company's warrants outstanding at August 31, 2014, 2013 and 2012, and the changes for the years ended on those dates is as follows:

	2014					2013					2012
	Number			Weighted Average Exercise Price $		Number			Weighted Average Exercise Price $		Number			Weighted Average Exercise Price $
Balance, beginning of year		2,090,667			1.85		2,177,607			1.85		3,160,882			1.47
Issued on private placement		4,935,435			1.50		-			-		-			-
Exercised		-			-		-			-		(983,275	)		0.62
Expired		(2,090,667	)		1.85		(86,940	)		1.85		-			-
Balance, end of year		4,935,435			1.50		2,090,667			1.85		2,177,607			1.85

The following table summarizes information about the number of common shares reserved pursuant to the Company's warrants outstanding and exercisable at August 31, 2014:

Number Outstanding		Exercise Price $		Expiry Date
	3,891,358		1.50	February 11, 2017
	1,044,077		1.50	March 31, 2017
	4,935,435

Page 23

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

8. Share Capital (continued)

(e)Share Option Plan

The Company has established a rolling share option plan (the "Plan"), in which the maximum number of common shares which can be reserved for issuance under the Plan is 10% of the issued and outstanding shares of the Company.  The minimum exercise price of the options is set at the Company's closing share price on the day before the grant date, less allowable discounts in accordance with the policies of the TSXV.  Options granted may be subject to vesting provisions as determined by the Board of Directors and have a maximum term of ten years.

During fiscal 2014 the Company granted 360,000 (2013 - 230,000;  2012 - 2,270,000) share options and recorded compensation expense of $225,200 (2013 - $154,000;  2012 - $3,307,750).  In addition, the Company recorded $nil (2013 - $9,475;  2012 - $391,389) compensation expense on share options previously granted which had vested during the period.

The fair value of share options granted and/or vested during fiscal 2014, 2013 and 2012 is estimated using the Black-Scholes option pricing model using the following assumptions:

	2014	2013	2012
Risk-free interest rate	1.26% - 1.46%	1.09% - 1.26%	0.97% - 1.21%
Estimated volatility	87% - 96%	86% - 130%	105% - 145%
Expected life	3 years	2 years - 3 years	2 years - 3 years
Expected dividend yield	0%	0%	0%
Estimated forfeiture rate	0%	0%	0%

The weighted average fair value of all share options granted and/or vested during fiscal 2014 was $0.63 (2013 - $0.56;  2012 - $1.44) per option.

During fiscal 2013 the Company re-priced 1,706,500 share options previously granted, from original exercise prices ranging from $2.13 to $4.22 per share, to a revised exercise price of $1.40 per share.  The fair value of the re-priced share options have been estimated using the Black-Scholes option pricing model.  The assumptions used were:  risk-free interest rate of 1.09% - 1.22%;  estimated volatility of 91% - 103%;  expected life of 1.25 years to 2.46 years;  expected dividend yield of 0%;  and estimated forfeiture rate of 0%.  The value assigned to the re-pricing of the share options was $491,230.

Option-pricing models require the use of estimates and assumptions including the expected volatility.  Changes in the underlying assumptions can materially affect the fair value estimates and, therefore, existing models do not necessarily provide a reliable measure of the fair value of the Company's share options.

A summary of the Company's share options at August 31, 2014, 2013 and 2012 and the changes for the years ended on those dates is presented below:

	2014					2013					2012
	Number			Weighted Average Exercise Price $		Number			Weighted Average Exercise Price $		Number			Weighted Average Exercise Price $
Balance, beginning of year		3,781,500			2.01		5,181,500			2.09		3,041,172			1.98
Granted		360,000			0.96		230,000			0.96		2,270,000			2.35
Exercised		(285,000	)		1.23		(1,250,000	)		0.24		(69,672	)		0.10
Expired		(1,321,500	)		2.07		(380,000	)		2.32		(60,000	)		2.96
Balance, end of year		2,535,000			1.92		3,781,500			2.01		5,181,500			2.09

Page 24

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

8.Share Capital (continued)

The following table summarizes information about the share options outstanding and exercisable at August 31, 2014:

Number Outstanding		Exercise Price $		Expiry Date
	100,000		3.37	September 13, 2014
	275,000		1.40	December 6, 2014
	250,000		1.40	January 9, 2015
	445,000		2.13	January 9, 2015
	700,000		2.70	January 9, 2015
	50,000		1.40	February 27, 2015
	200,000		1.87	May 3, 2015
	50,000		1.40	September 13, 2015
	25,000		1.44	October 31, 2015
	30,000		1.07	February 11, 2016
	125,000		0.66	April 12, 2016
	60,000		0.65	September 2, 2016
	85,000		0.76	September 23, 2016
	40,000		0.95	January 3, 2017
	100,000		1.47	April 7, 2017
	2,535,000

See also Note 14.

(f)Escrow Shares

As at August 31, 2014, 91,745 (2013 - nil) common shares are held in escrow.

9. Related Party Disclosures

A number of key management personnel hold positions in other entities that result in them having control or significant influence over the financial or operating policies of those entities.  Certain of these entities transacted with the Company during the reporting period.

(a) Transactions with Key Management Personnel

During fiscal 2014, 2013 and 2012 the following amounts were incurred with respect to the Company's executive officers, comprising the President, Vice-President of Corporate Development ("VPCD") and Chief Financial Officer ("CFO"):

	2014 $		2013 $		2012 $
Management fees		163,500		162,000		162,000
Professional fees		131,500		156,000		181,009
Share-based compensation		-		51,250		930,736
		295,000		369,250		1,273,745

As at August 31, 2014, $32,000 (2013 - $18,000) of the above amounts remained unpaid and has been included in accounts payable and accrued liabilities.

Page 25

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

9. Related Party Disclosures (continued)

The Company has a management agreement with the President which provides that, in the event the President's services are terminated without cause or upon a change of control of the Company, a termination payment of two years of compensation, at $15,000 per month, is payable.  If the termination had occurred on August 31, 2014 the amount payable under the agreement would be $360,000.

(b)Transactions with Other Related Parties

(i) During fiscal 2014, 2013 and 2012 the following amounts were incurred with respect to the Company's non-management directors of the Company:

	2014 $		2013 $		2012 $
Professional fees		123,000		126,000		121,750
Share-based compensation		-		-		1,534,250
		123,000		126,000		1,656,000

As at August 31, 2014, $20,000 (2013 - $32,500) of the above amounts remained unpaid and has been included in accounts payable and accrued liabilities.

(ii) During fiscal 2014 the Company incurred a total of $58,300 (2013 - $48,650;  2012 - $48,000) to Chase Management Ltd. ("Chase") for accounting and administration services provided by Chase personnel, excluding the CFO and $4,020 (2013 - $4,475;  2012 - $4,800) for rent.  Chase is a private corporation owned by the CFO of the Company.  As at August 31, 2014, $3,335 (2013 - $4,085) remained unpaid and has been included in accounts payable and accrued liabilities.

(c) During fiscal 2014 the Company incurred $23,251 (2013 - $25,110;  2012 - $7,068) for shared administration costs with public companies with common directors and officers.  As at August 31, 2014, $363 (2013 - $2,640) of the amount remained unpaid and has been included in accounts payable and accrued liabilities.

(d) During fiscal 2014 the Company recorded a recovery of $36,844 (2013 - $96,625;  2012 - $36,441) for shared office personnel and costs from public companies with common directors and officers.  As at August 31, 2014, $nil (2013 - $9,821) of the amount remained outstanding and has been included in amounts receivable.

(e) See also Notes 7(b)(ii) and 8(b)(i).

10.Income Tax

Deferred income tax assets and liabilities of the Company as at August 31, 2014 and 2013 are as follows:

	2014 $			2013 $
Deferred income tax assets
Losses carried forward		3,054,300			2,533,700
Other		114,800			65,700
		3,169,100			2,599,400
Valuation allowance		(3,169,100	)		(2,599,400	)
Net deferred income tax asset		-			-

Page 26

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

10.Income Tax (continued)

The recovery of income taxes shown in the consolidated statements of comprehensive loss for fiscal 2014, 2013 and 2012 differs from the amounts obtained by applying statutory rates to the loss before provision for income taxes due to the following:

	2014 $			2013 $			2012 $
Income tax rate reconciliation
Combined federal and provincial income tax rate		26.0	%		25.0	%		25.5	%
Expected income tax recovery		634,900			870,300			1,557,900
Effect of income tax rate changes		75,400			(24,900	)		(46,600	)
Foreign income tax rate differences		(34,000	)		16,100			6,400
Non-deductible share-based compensation		(58,500	)		(163,700	)		(943,300	)
Other		45,400			23,600			27,400
Unrecognized benefit of income tax losses		(663,200	)		(721,400	)		(629,546	)
Actual income tax (expense) recovery		-			-			(27,746	)

As at August 31, 2014, the Company has non-capital losses of approximately $8,864,400 and accumulated pools of approximately $385,000 for Canadian income tax purposes and are available to reduce taxable income of future years.  The non-capital losses expire commencing in 2024 through 2034.  The Company's subsidiary in Sweden has losses for income tax purposes of approximately $3,406,800 (SEK 21,892,000) which may be carried forward indefinitely.

11.Segmented Information

The Company is involved in the exploration and development of resource properties in certain Scandinavian countries, with corporate operations in Canada.  The Company is in the exploration stage and accordingly, has no reportable segment revenues or operating results.

The Company's total assets are segmented geographically as follows:

	August 31, 2014
	Canada $		Scandinavia $		Total $
Current assets		5,945,775		389,185		6,334,960
Investments		39,018		-		39,018
Property, plant and equipment		-		103,075		103,075
Exploration and evaluation assets		-		10,866,653		10,866,653
Bond deposit		-		31,865		31,865
		5,984,793		11,390,778		17,375,571

	August 31, 2013
	Canada $		Scandinavia $		Total $
Current assets		5,518,107		222,371		5,740,478
Investment		24,805		-		24,805
Property, plant and equipment		-		175,485		175,485
Exploration and evaluation assets		-		7,883,939		7,883,939
Bond deposit		-		31,646		31,646
		5,542,912		8,313,441		13,856,353

Page 27

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

12. Financial Instruments and Risk Management

Categories of Financial Assets and Financial Liabilities

Financial assets are classified into one of the following four categories:  FVTPL; held-to-maturity investments; loans and receivables; and available-for-sale.  Financial liabilities are classified as FVTPL or other temporary liabilities.  The carrying values of the Company's financial instruments are classified into the following categories:

Financial Instrument	Category	August 31, 2014 $			August 31, 2013 $
Cash	FVTPL		6,136,271			5,601,492
Investments	Available-for-sale		39,018			24,805
Amounts receivable	Loans and receivables		4,582			13,444
Accounts payable and accrued liabilities	Other liabilities		(931,838	)		(645,492	)

The Company's financial instruments recorded at fair value require disclosure about how the fair value was determined based on significant levels of inputs described in the following hierarchy:

Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reporting date.  Active markets are those in which transactions occur in sufficient frequency and value to provide pricing information on an ongoing basis.

Level 2 - Pricing inputs are other than quoted prices in active markets included in Level 1.  Prices in Level 2 are either directly or indirectly observable as of the reporting date.  Level 2 valuations are based on inputs including quoted forward prices for commodities, time value and volatility factors, which can be substantially observed or corroborated in the market place.

Level 3 - Valuations in this level are those with inputs for the asset or liability that are not based on observable market data.

The recorded amounts for amounts receivable and accounts payable and accrued liabilities approximate their fair value due to their short-term nature.  The Company's cash and investments under the fair value hierarchy are measured using Level 1 inputs.

The Company's risk exposures and the impact on the Company's financial instruments are summarized below:

Credit Risk

Credit risk is the risk of loss associated with a counterparty's inability to fulfill its payment obligations.  The Company's credit risk is primarily attributable to cash and amounts receivable.  Management believes that the credit risk concentration with respect to financial instruments included in cash and amounts receivable is remote.

Liquidity Risk

Liquidity risk is the risk that the Company will not have the resources to meet its obligations as they fall due.  The Company manages this risk by closely monitoring cash forecasts and managing resources to ensure that it will have sufficient liquidity to meet its obligations.  All of the Company's financial liabilities are classified as current and are anticipated to mature within the next fiscal period.  The following table is based on the contractual maturity dates of financial assets and the earliest date on which the Company can be required to settle financial liabilities.

Page 28

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

12. Financial Instruments and Risk Management (continued)

	Contractual Maturity Analysis at August 31, 2014
	Less than 3 Months $			3 - 12 Months $		1 - 5 Years $		Over 5 Years $		Total $
Cash		6,136,271			-		-		-		6,136,271
Investments		-			-		39,018		-		39,018
Amounts receivable		4,582			-		-		-		4,582
Accounts payable and      accrued liabilities		(931,838	)		-		-		-		(931,838	)

	Contractual Maturity Analysis at August 31, 2013
	Less than 3 Months $			3 - 12 Months $		1 - 5 Years $		Over 5 Years $		Total $
Cash		5,601,492			-		-		-		5,601,492
Investment		-			-		24,805		-		24,805
Amounts receivable		13,444			-		-		-		13,444
Accounts payable and      accrued liabilities		(645,492	)		-		-		-		(645,492	)

Market Risk

Market risk is the risk of loss that may arise from changes in market factors such as interest rates, foreign exchange rates, and commodity and equity prices.  These fluctuations may be significant.

(a) Interest Rate Risk

The Company is exposed to interest rate risk to the extent that the cash bears floating rates of interest.  The interest rate risk on cash and on the Company's obligations are not considered significant.

(b) Foreign Currency Risk

The Company's functional currency is the Canadian dollar and major transactions are transacted in Canadian Dollars and Swedish Kronors ("SEK").  The Company maintains SEK bank accounts in Sweden to support the cash needs of its foreign operation.  Management believes the foreign exchange risk related to currency conversions are minimal and therefore does not hedge its foreign exchange risk.  At August 31, 2014, 1 Canadian Dollar was equal to 6.43 SEK.

Balances are as follows:

	Swedish Kronors			CDN $ Equivalent
Cash		1,604,158			249,480
Amounts receivable		16,349			2,543
VAT receivable		681,610			106,005
Accounts payable and accrued liabilities		(3,096,716	)		(481,604	)
		(794,599	)		(123,576	)

Based on the net exposures as of August 31, 2014 and assuming that all other variables remain constant, a 10% fluctuation on the Canadian Dollar against the SEK would result in the Company's net loss to be approximately $11,000 higher (or lower).

Page 29

TASMAN METALS LTD.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED AUGUST 31, 2014, 2013 AND 2012

(Expressed in Canadian Dollars - Unless Otherwise Stated)

_____________________________________________________________________________________________________________________________________

12. Financial Instruments and Risk Management (continued)

Capital Management

The Company manages its capital structure and makes adjustments to it, based on the funds available to the Company, in order to support the acquisition and exploration of mineral properties.  The Board of Directors does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business.  The Company defines capital that it manages as share capital, cash and cash equivalents and short-term investments.  The Company will continue to assess new properties and seek to acquire an interest in additional properties if it feels there is sufficient geologic or economic potential and if it has adequate financial resources to do so.  Management reviews its capital management approach on an ongoing basis and believes that this approach, given the relative size of the Company, is reasonable.

13.Supplemental Cash Flow Information

Non-cash activities were conducted by the Company as follows:

	2014 $			2013 $			2012 $
Operating activity
Increase in accounts payable and accrued liabilities		734,818			111,437			476,988
Financing activities
Issuance of common shares		104,420			190,000			299,097
Share issue costs		(228,388	)		-			-
Share-based payments reserve		228,388			(164,500	)		(203,977	)
		104,420			25,500			95,120
Investing activities
Additions to exploration and evaluation assets		(839,238	)		(136,937	)		(572,108	)

14.Events after the Reporting Period

Subsequent to August 31, 2014:

(i) the Company granted share options to consultants to purchase 135,000 common shares of the Company at an exercise price of $0.60 per share, expiring October 7, 2017; and

(ii) share options to purchase 100,000 common shares of the Company at $3.37 per share and 10,000 common shares at $2.13 per share expired without exercise.

Page 30