Item 1. Financial Statements.
LIBERTY STAR URANIUM & METALS CORP.
CONDENSED
CONSOLIDATED BALANCESHEETS
(Unaudited)
|
|
April 30,
|
|
|
January 31,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
72,262
|
|
$
|
55,089
|
|
Advances
|
|
1,000
|
|
|
1,000
|
|
Deferred financing costs
|
|
26,636
|
|
|
38,052
|
|
Prepaid expenses
and supplies
|
|
539
|
|
|
9,109
|
|
Total current assets
|
|
100,437
|
|
|
103,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
46,214
|
|
|
49,792
|
|
Total assets
|
$
|
146,651
|
|
$
|
153,042
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Current portion
of long-term debt
|
$
|
5,728
|
|
$
|
5,594
|
|
Convertible promissory note, net
of debt discount of $38,570 and $34,584
|
|
338,067
|
|
|
4,193,090
|
|
Accounts payable
and accrued liabilities
|
|
288,763
|
|
|
254,261
|
|
Accrued wages to related parties
|
|
356,992
|
|
|
340,992
|
|
Accrued interest
|
|
-
|
|
|
1,465,059
|
|
Derivative liability
|
|
283,398
|
|
|
46,985
|
|
Total current
liabilities
|
|
1,272,948
|
|
|
6,305,981
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
5,227
|
|
|
6,710
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
1,278,175
|
|
|
6,312,691
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
Common stock -
$.00001 par value; 1,250,000,000 shares
authorized;
860,730,165
and 830,236,231 shares issued and outstanding
|
|
8,607
|
|
|
8,302
|
|
Additional
paid-in capital
|
|
49,029,829
|
|
|
49,026,144
|
|
Deficit accumulated during the
exploration stage
|
|
(50,169,960
|
)
|
|
(55,194,095
|
)
|
Total
stockholders' deficit
|
|
(1,131,524
|
)
|
|
(6,159,649
|
)
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' deficit
|
$
|
146,651
|
|
$
|
153,042
|
|
The Accompanying Notes are an Integral Part of the Condensed
Consolidated Unaudited Financial Statements
LIBERTY STAR URANIUM & METALS CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For the Three Months Ended
|
|
|
|
April 30,
|
|
|
|
2014
|
|
|
2013
|
|
Revenues
|
$
|
-
|
|
$
|
-
|
|
Expenses:
|
|
|
|
|
|
|
Geological and
geophysical costs
|
|
44,768
|
|
|
18,569
|
|
Salaries and benefits
|
|
71,780
|
|
|
80,613
|
|
Public relations
|
|
40,587
|
|
|
26,839
|
|
Depreciation
|
|
8,286
|
|
|
8,207
|
|
Legal
|
|
41,814
|
|
|
38,760
|
|
Professional services
|
|
24,150
|
|
|
15,529
|
|
General and
administrative
|
|
46,657
|
|
|
74,244
|
|
Travel
|
|
10,181
|
|
|
5,126
|
|
Net operating expenses
|
|
288,223
|
|
|
267,887
|
|
Loss from operations
|
|
(288,223
|
)
|
|
(267,887
|
)
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
Interest income
|
|
2
|
|
|
1
|
|
Gain (Loss) on settlement of
debt
|
|
5,322,943
|
|
|
-
|
|
Interest expense
|
|
(285,218
|
)
|
|
(116,439
|
)
|
Gain (loss) on change in fair
value of derivative liability
|
|
274,631
|
|
|
(2,553
|
)
|
Total other income (expense)
|
|
5,312,358
|
|
|
(118,991
|
)
|
Net income (loss)
|
|
5,024,135
|
|
|
(386,878
|
)
|
|
|
|
|
|
|
|
Basic net income (loss) per share of common stock
|
$
|
0.01
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
Diluted net income (loss) per share of common stock
|
$
|
0.01
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
Basic weighted average number of shares of common stock
outstanding
|
|
846,559,898
|
|
|
756,542,165
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares of common stock
outstanding
|
|
893,901,745
|
|
|
756,542,165
|
|
The Accompanying Notes are an Integral Part of the Condensed
Consolidated Unaudited Financial Statements
LIBERTY STAR URANIUM & METALS CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
For the Three Months Ended April 30,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
5,024,135
|
|
$
|
(386,878
|
)
|
Adjustments to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
8,286
|
|
|
8,207
|
|
Amortization of deferred
financing charges
|
|
11,416
|
|
|
-
|
|
Amortization of original issuance discount
|
|
14,481
|
|
|
-
|
|
Amortization of debt discount
from derivatives
|
|
98,737
|
|
|
-
|
|
(Gain) loss on settlement of debt
|
|
(5,322,943
|
)
|
|
-
|
|
(Gain) loss on change in fair
value of warrant liability
|
|
(274,631
|
)
|
|
2,553
|
|
Share based compensation
|
|
2,808
|
|
|
34,984
|
|
Common shares issued for third
party services
|
|
17,500
|
|
|
20,000
|
|
Warrants issued for third party services
|
|
6,440
|
|
|
-
|
|
Changes in assets and
liabilities:
|
|
|
|
|
|
|
Prepaid
expenses and supplies
|
|
8,570
|
|
|
(1,151
|
)
|
Accounts payable and accrued expenses
|
|
34,501
|
|
|
(22,055
|
)
|
Accrued
wages related parties
|
|
16,000
|
|
|
16,000
|
|
Accrued interest
|
|
157,680
|
|
|
115,605
|
|
Cash flows provided by (used in) operating activities:
|
|
(197,020
|
)
|
|
(212,735
|
)
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
Purchase of equipment
|
|
(4,708
|
)
|
|
(1,418
|
)
|
Net cash used in
investing activities
|
|
(4,708
|
)
|
|
(1,418
|
)
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
Payments on long-term debt
|
|
(1,349
|
)
|
|
(1,228
|
)
|
Proceeds from the issuance of common stock,
net of expenses
|
|
220,250
|
|
|
190,000
|
|
Net cash provided by
financing activities
|
|
218,901
|
|
|
188,772
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
17,173
|
|
|
(25,381
|
)
|
Cash and cash equivalents, beginning of period
|
|
55,089
|
|
|
117,716
|
|
Cash and cash equivalents, end of period
|
$
|
72,262
|
|
$
|
92,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid
|
$
|
-
|
|
$
|
-
|
|
Interest paid during the period
|
$
|
2,904
|
|
$
|
834
|
|
Stock subscription receivable
|
$
|
-
|
|
$
|
50,000
|
|
Resolutions of derivative liabilities due to debt
conversions
|
$
|
94,131
|
|
$
|
-
|
|
Warrants reclassed to derivative liabilities
|
$
|
483,781
|
|
$
|
-
|
|
Debt discounts due to derivative
liabilities
|
$
|
114,954
|
|
$
|
-
|
|
Common stock issued for conversion of debt and interest
|
$
|
153,082
|
|
$
|
-
|
|
Original issue discount
|
$
|
2,250
|
|
|
|
|
The Accompanying Notes are an Integral Part of the Condensed
Consolidated Unaudited Financial Statements
LIBERTY STAR URANIUM & METALS CORP.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 Interim financial statement disclosure
The condensed consolidated financial statements included herein
have been prepared by Liberty Star Uranium & Metals Corp. without audit,
pursuant to the rules and regulations of the United States Securities and
Exchange Commission (SEC) and should be read in conjunction with our annual
report on Form 10-K for the year ended January 31, 2014 as filed with the SEC
under the Securities and Exchange Act of 1934 (the Exchange Act). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted, as permitted by the
SEC, although we believe the disclosures which are made are adequate to make the
information presented not misleading. The condensed consolidated financial
statements reflect, in the opinion of management, all normal recurring
adjustments necessary to present fairly our financial position at April 30, 2014
and the results of our operations and cash flows for the periods presented.
Interim results are subject to significant seasonal variations
and the results of operations for the three months ended April 30, 2014 are not
necessarily indicative of the results to be expected for the full year.
Certain amounts in the prior-year financial statements have
been reclassified for comparative purposes to conform with the presentation in
the current-year financial statements
In the quarter ending April 30, 2014, the Company has elected
to early adopt Accounting Standards Update No. 2014-10,
Development Stage
Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements
. The adoption of this ASU allows the Company to remove the
inception to date information and all references to exploration stage.
NOTE 2 Going concern
The Company, which is in the exploration phase of operations, has incurred losses from operations, and requires additional funds for further exploratory activity and to maintain its claims prior to attaining a revenue generating status. There are no assurances that a commercially viable mineral deposit exists on any of our properties. In addition, the Company may not find sufficient ore reserves to be commercially mined. As such, there is substantial doubt about the Company’s ability to continue as a going concern.
Management is working to secure additional funds through the
exercise of stock warrants already outstanding, equity financings, debt
financings or joint venture agreements. The condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
NOTE 3 Summary of Significant Accounting Policies
Fair
Value
ASC 820 Fair Value Measurements and Disclosures (ASC 820),
defines fair value, establishes a framework for measuring fair value and
enhances disclosures about fair value measurements. It defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. ASC 820 also establishes a fair value hierarchy which requires
an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable
for the asset or liability, either directly or indirectly. These include quoted
prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities that are not active; and model-driven
valuations whose inputs are observable or whose significant value drivers are
observable. Valuations may be obtained from, or corroborated by, third-party
pricing services.
Level 3: Unobservable inputs to measure fair value of assets
and liabilities for which there is little, if any market activity at the
measurement date, using reasonable inputs and assumptions based upon the best
information at the time, to the extent that inputs are available without undue
cost and effort.
As of April 30, 2014 the significant inputs to the Companys
derivative liability calculation were Level 3 inputs.
The following schedule summarizes the valuation of financial
instruments at fair value in the balance sheets as of April 30, 2014 and January
31, 2014:
|
|
|
|
|
Fair value measurements at reporting date using:
|
|
|
|
|
|
|
Quoted prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
active markets for
|
|
|
Significant other
|
|
|
unobservable
|
|
|
|
|
|
|
identical liabilities
|
|
|
observable inputs
|
|
|
inputs
|
|
Description
|
|
Fair
Value
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant and convertible note derivative
liability at April 30, 2014
|
$
|
283,398
|
|
|
-
|
|
|
-
|
|
$
|
283,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant and convertible note derivative
liability at January 31, 2014
|
$
|
46,985
|
|
|
-
|
|
|
-
|
|
$
|
46,985
|
|
Our financial instruments consist of cash and cash equivalents,
accounts payable, accrued liabilities, convertible notes payable, notes payable,
and warrant liability. It is management's opinion that we are not exposed to
significant interest, currency or credit risks arising from these financial
instruments. With the exception of the warrant liability, the fair value of
these financial instruments approximates their carrying values based on their
short maturities or for long-term debt based on borrowing rates currently
available to us for loans with similar terms and maturities. Gains and losses
recognized on changes in estimated fair value of the derivative liability are
reported in other income (expense) as gain (loss) on change in fair value.
NOTE 4 Related party transactions
We entered into the following transactions with related
parties during the three months ended April 30, 2014:
Paid or accrued rent of $1,566 for the three months ended April
30, 2014. We rented an office from Jim Briscoe, our Chairman of the Board, CEO
and CFO, on a month-to-month basis for $522 per month.
At April 30, 2014 we had a balance of accrued unpaid wages of
$341,367 to Jim Briscoe, our Chairman of the Board, CEO, CFO and President.
Additionally, we had a balance of accrued unpaid wages of $15,625 to Larry
Liang, our former President.
NOTE 5 Warrants
As of April 30, 2014, there were 58,941,729 whole share
purchase warrants outstanding and 58,941,729 exercisable. The warrants have a
weighted average remaining life of 0.87 years and a weighted average exercise
price of $0.026 per whole warrant for one common share. The warrants had an
aggregate intrinsic value of $2,417 as of April 30, 2014.
Warrants issued in private placement outstanding at April 30,
2014 is as follows:
|
|
Number of whole share
|
|
|
Weighted average exercise
|
|
|
|
purchase warrants
|
|
|
price per share
|
|
Outstanding, January 31, 2014
|
|
58,441,729
|
|
$
|
0.026
|
|
Issued
|
|
500,000
|
|
|
0.028
|
|
Expired
|
|
-
|
|
|
-
|
|
Exercised
|
|
-
|
|
|
-
|
|
Outstanding, April 30, 2014
|
|
58,941,729
|
|
$
|
0.026
|
|
Exercisable, April 30, 2014
|
|
58,941,729
|
|
$
|
0.026
|
|
During the three months ended April 30, 2014, the Company
issued 500,000 warrants to a designee of MBGS, LLC, pursuant to a settlement
agreement with Northern Dynasty which discharged the $3,730,174 principal
balance and $1,592,769 of accrued interest for the 2010 Convertible Note (See
Note 7). The warrants were fully vested upon issuance, have an exercise price of
$0.028 and have a three year term. The company expensed $6,440, the fair value
of the warrant issued upon issuance.
NOTE 6 Derivative Liabilities
The embedded conversion feature in the convertible debt
instrument that the Company issued in August 2013 (See Note 7), that became
convertible during the three months ending April 30, 2014, qualified it as a
derivative instrument since the number of shares issuable under the note is
indeterminate based on guidance in FASB ASC 815, Derivatives and Hedging. This
convertible note tainted all other equity linked instruments including
outstanding warrants and fixed rate convertible debt on the date that the
instrument became convertible.
The valuation of the derivative liability of the warrants was
determined through the use of a Monte Carlo options model that values the
liability of the warrants based on a risk-neutral valuation where the price of
the option is its discounted expected value. The technique applied generates a
large number of possible (but random) price paths for the underlying common
stock via simulation, and then calculates the associated exercise value (i.e. "payoff") of the option for each path.
These payoffs are then averaged and discounted to a current valuation date
resulting in the fair value of the option.
The valuation of the derivative liability attached to the
convertible debt was arrived at through the use of a Monte Carlo model that
values the derivative liability within the notes. The technique applied
generates a large number of possible (but random) price paths for the underlying
(or underlyings) via simulation, and then calculates the associated payment
value (cash, stock, or warrants) of the derivative features. The price of the
underlying common stock is modeled such that it follows a geometric Brownian
motion with constant drift, and elastic volatility (increasing as stock price
decreases). The stock price is determined by a random sampling from a normal
distribution. Since the underlying random process is the same, for enough price
paths, the value of the derivative is derived from path dependent scenarios and
outcomes. The features in the notes that were analyzed and incorporated into the
model included the conversion features with the reset provisions, the
call/redemption/prepayment options, and the default provisions. Based on these
features, there are six primary events that can occur; payments are made in
cash; payments are made with stock; the note holder converts upon receiving a
redemption notice; the note holder converts the note; the issuer redeems the
note; or the Company defaults on the note. The model simulates the underlying
economic factors that influenced which of these events would occur, when they
were likely to occur, and the specific terms that would be in effect at the time
(i.e. stock price, conversion price, etc.). Probabilities were assigned to each
variable such as redemption likelihood, default likelihood, and timing and
pricing of reset events over the remaining term of the note based on management
projections. This led to a cash flow simulation over the life of the note. A
discounted cash flow for each simulation was completed, and it was compared to
the discounted cash flow of the note without the embedded features, thus
determining a value for the derivative liability.
Key inputs and assumptions used to value the convertible notes
and warrants upon issuance or tainting and also as of April 30, 2014:
-
The stock projections are based on the historical volatilities for each
date. These ranged in the 138-139% range. The stock price projection was
modeled such that it follows a geometric Brownian motion with constant drift
and an constant volatility, starting with the market stock price at each
valuation date;
-
An event of default would not occur during the remaining term of the note;
-
Conversion of the notes to stock would be completed monthly after any
holding period and would be limited based on: 25% of the last 6 months average
trading volume and the ownership limit identified in the contract assuming the
underlying number of common shares increases at 1% per month. The effective
discount was determined based on the historical trading history of the Company
based on the specific pricing mechanism in each note;
-
The Company would not have funds available to redeem the notes during the
remaining term of the convertible notes;
-
Discount rates were based on risk free rates in effect based on the
remaining term and date of each valuation and instrument.
-
The holder would exercise the warrant at maturity if the stock price was
above the exercise price;
-
The Holder would exercise the warrant after any holding period prior to
maturity at target prices starting at 2 times the exercise price for the
Warrants or higher subject to monthly limits of: 25% of the last 6 months
average trading volume increasing by 1% per month and the ownership limit
identified in the contract assuming the underlying number of common shares
increases at 1% per month.
-
For the warrants with reset features, the Company assumed it would issue
equity linked instruments in the quarters ended 7/30/14 and 10/31/14 at 70% of
market.
Using the results from the model, the Company recorded a
derivative liability of $483,781 for the fair value of the tainted warrants
previously classified in equity, a derivative liability of $6,440 for newly
granted warrants (see note 5) and a derivative liability of $114,954 for the
fair value of the convertible feature included in one of the Companys
convertible debt instruments. The derivative liability recorded for the
convertible feature created a debt discount of $114,954, which is being
amortized over the remaining term of the note using the effective interest rate
method, and is classified as convertible debt on the balance sheet. Interest
expense related to the amortization of this debt discount for the three months
ending April 30, 2014, was $9,699. Additionally, $89,038 of debt discount was
reclassified to interest expense as a result of the conversion of a portion of
the underlying debt instrument (See Note 7). The remaining unamortized debt
discount was $16,217 as of April 30, 2014. The Company recorded the change in
the fair value of the derivative liability as a gain of $274,631 to reflect the
value of the derivative liability for warrants and convertible notes as $283,398
as of April 30, 2014. The Company also recorded a reclassification from
derivative liability to equity of $94,131 for the conversions of a portion of
one of the Companys convertible notes (See Note 6).
The following table sets forth a reconciliation of changes in
the fair value of the Companys derivative liability:
|
|
Three
Months
Ended
April
30,
|
|
|
|
2014
|
|
|
2013
|
|
Beginning balance
|
$
|
46,985
|
|
$
|
15,112
|
|
Total (gains) losses
|
|
(274,631
|
)
|
|
2,553
|
|
Settlements
|
|
(94,131
|
)
|
|
-
|
|
Additions
|
|
605,175
|
|
|
-
|
|
Ending balance
|
$
|
283,398
|
|
$
|
17,665
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses)
included in earnings relating to derivatives
still held as of April 30,
2014 and 2013
|
$
|
(274,631
|
)
|
$
|
2,553
|
|
NOTE 7 Convertible promissory notes
Following is a summary of convertible promissory notes:
|
|
April 30,
|
|
|
January 31,
|
|
|
|
2014
|
|
|
2014
|
|
|
|
|
|
|
|
|
10% convertible note
payable with Northern Dynasty Minerals Ltd (Northern Dynasty) issued
July 15, 2010
|
$
|
-
|
|
$
|
3,730,174
|
|
|
|
|
|
|
|
|
12% convertible note
payable issued August 2013
|
|
126,637
|
|
|
247,500
|
|
|
|
|
|
|
|
|
7% convertible note
payable issued November 2013
|
|
250,000
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
376,637
|
|
|
4,227,674
|
|
Less debt discount
|
|
(38,570
|
)
|
|
(34,584
|
)
|
Less current portion of convertible notes
|
|
(338,067
|
)
|
|
(4,193,090
|
)
|
Long-term convertible notes payable
|
$
|
-
|
|
$
|
-
|
|
We issued convertible promissory notes in private placements of
our securities to institutional investors pursuant to exemptions from
registration set out in Rule 506 of Regulation D under the Securities Act of
1933.
On July 15, 2010 we issued a secured convertible promissory
note bearing interest at a rate of 10% per annum compounded monthly (the 2010
Convertible Note) to Northern Dynasty Minerals Ltd (Northern Dynasty). During
the year ended January 31, 2012 the agreement with Northern Dynasty was amended
to issue additional secured convertible promissory notes totaling $730,174 to
reimburse Northern Dynasty for assessment work, rental fees, cash in lieu of
assessment work and filing fees on the mineral claims that was paid in fiscal
2011 and fiscal 2012 because we could not come to an agreement on the earn-in
option and joint venture agreement with Northern Dynasty.
As part of the transaction noted above, Northern Dynasty could
earn a 60% interest in our Big Chunk project in Alaska (the Joint Venture
Claims) by spending $10,000,000 on those properties over six years. The
borrowings from Northern Dynasty could be applied as part of Northern Dynastys
earn-in requirements. Northern Dynastys minimum annual expenditures under the
earn-in would be the minimum level necessary to keep the Joint Venture Claims in
good standing. Northern Dynasty could elect to abandon the earn-in at any time
on 30 days notice, so long as sufficient annual labor was performed, or a cash
payment in lieu of labor was made, in order to fulfill the annual labor
requirements for the Joint Venture Claims for a minimum of 12 months after
termination of the earn-in. No such notice by Northern Dynasty was received.
On November 14, 2012, we signed a loan settlement agreement
with Northern Dynasty which would have discharged the $3,730,174 principal
balance and $972,617 of accrued interest for the 2010 Convertible Note and would
have terminated Northern Dynastys earn-in rights. In exchange for the
settlement, we initiated the transfer of 199 Alaska mining claims to Northern
Dynastys subsidiary, U5 Resources. However, MBGS, LLC filed liens against the
claims before the transfer could be completed. In March 2014 Liberty Star and
Big Chunk entered into a settlement agreement with MBGS, LLC, following a
resolution conference conducted in Anchorage, Alaska whereby all Northern
Dynasty claims recorded by MBGS, LLC were released. As a result of the
settlement agreement with MBGS, LLC, the Company completed its loan settlement
agreement with Northern Dynasty and discharged the principal balance and accrued
interest for the 2010 Convertible Note and terminated Northern Dynastys
earn-in-rights. A gain of $5,322,943 for the settlement of the Northern Dynasty
debt and accrued interest was recorded in other income during the three months
ended April 30, 2014. As of April 30, 2014, we had no principal or interest
outstanding for the 2010 Convertible Note.
In August, 2013, we entered into a promissory note (the August
2013 Note) for a principal sum of $555,000 plus accrued and unpaid interest and
any other fees. The consideration is up to $500,000, which would produce an
original issue discount of $55,000 if all the consideration is received. The
lender paid $150,000 upon closing pursuant to the terms of the August 2013 Note.
The August 2013 Note has a maturity of one year from the delivery of each
payment. The August 2013 Note may be convertible into shares of common stock of
our company at any time from 180 days after the date of each payment of
consideration, at a conversion price which is 70% of the average of the three
lowest closing prices in the 20 trading days previous to the conversion. We may
repay the August 2013 Note at any time on or before 90 days from the effective
date of the August 2013 Note with an interest rate of 0%, after which we may not
make any further payments on the August 2013 Note prior to the maturity date
without written approval from the lender. If we elect not to repay the August
2013 Note on or before 90 days from the effective date of the August 2013 Note,
a one-time interest charge of 12% will be applied to the principal sum. We
elected not to pay the $150,000 portion of the August 2013 Note within 90 days
from the effective date. Additionally, after the $150,000 portion of the August
2013 Note became convertible, the note holder elected to convert $153,082 of
principal and interest into 13,900,000 shares of the companys common stock
during the three months ended April 30, 2014. During May 2014 the note holder
converted the remaining principal and interest of $33,398 portion of the
$150,000 portion of the August 2013 Note into 4,037,195 shares of the Companys
common stock. On December 9, 2013, we received additional consideration of
$75,000 pursuant to the terms of the August 2013 Note. We elected not to pay the
$75,000 portion of the August 2013 Note within 90 days from the effective date.
As of April 30, 2014, we had $126,637 principal outstanding for the August 2013
Note.
On November 18, 2013, we entered into a securities purchase
agreement, whereby we agreed to issue a convertible note to one lender in the
principal amount of $250,000. The proceeds from the note was $225,000, which
created an original issue discount of $25,000 The Note is payable in full on November 18, 2014 and bears no interest
except in an event of default. The lender may, at its option, after the
183
rd
day following the closing date, convert the principal amount or
any portion of such principal amount of the Note into shares of common stock of
our company at the price equal to the lesser of (a) 100% of the volume weighted
average price (VWAP), as reported on the closing date (November 18, 2013), and
(b) 70% of the average of the 5 day VWAP immediately prior to the day of
conversion. As of April 30, 2014, we had $250,000 principal outstanding for the
August 2013 Note. As of April 30, 2014, we have not made any repayments on this
convertible note and the note has not been converted.
Due to the derivative liabilities the Company recorded during
the three months ending April 30, 2014, the Company recorded a net discount to
debt of $16,217.
The company recorded $14,481 for the amortization of original
issuance discounts during the three months ended April 30, 2014. Unamortized
original issuance discount was $22,353 as of April 30, 2014.
NOTE 8 Stockholders deficit
Our common shares are all of the same class, are voting and
entitle stockholders to receive dividends as defined. Upon liquidation or
wind-up, stockholders are entitled to participate equally with respect to any
distribution of net assets or any dividends that may be declared.
In March 2014, the Company issued 1,000,000 units of common
stock to a designee of MBGS, LLC, pursuant to a settlement agreement with
Northern Dynasty which discharged the $3,730,174 principal balance and
$1,592,769 of accrued interest for the 2010 Convertible Note (See Note 7). Each
unit consists of one share of the Companys common stock and a warrant to
purchase one-half share of the Companys common stock. The fair value of the
common stock issued was $17,500, which was recorded as an expense upon issuance
of the units. The 500,000 warrants, which have an exercise price of $0.028 and
have a three year term (See Note 5), had a fair value of $6,440. The fair value
was expensed and a derivative liability was recorded for the fair value of the
warrant on the date of issuance of the units. The change in the fair value of
the derivative liability between the date of issuance and the balance sheet date
of April 30, 2014 was recorded in other income and expense.
Between February 2014 and April 2014, pursuant to the
investment agreement with KVM, KVM purchased 15,593,934 shares for proceeds of
$220,250.
During the three months ending April 30, 2014, $153,082 of the
August 2013 Note were converted into 13,900,000 shares of the Companys common
stock. The conversions happened on multiple dates with conversion prices ranging
from $0.008 to $0.011.
At April 30, 2014 there were 903,500 non-qualified stock
options outstanding with a weighted average exercise price of $0.376 per option;
of those options 903,500 are exercisable. At April 30, 2014 there were
85,476,124 incentive stock options outstanding with a weighted average exercise
price of $0.047 per option; of those options 85,476,124 are exercisable with a
weighted average exercise price of $0.047.
During the three months ended April 30, 2014 we recognized
$2,808 of compensation expense related to incentive and non-qualified stock
options previously granted to officers, employees and consultants.
NOTE 9 Subsequent events
In May 2014, we sold 1,203,704 shares to one investor for gross
proceeds of $13,000.
In May 2014, $50,156 of the August 2013 Note was converted into
5,937,915 shares of the Companys common stock.
In May and June 2014, pursuant to the investment agreement with KVM, KVM purchased 9,456,840 shares for proceeds of $111,673.
In May 2014, we sold 3,551,402 shares to one investor for gross
proceeds of $38,000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Much of the information included in this quarterly report
includes or is based upon estimates, projections or other "forward looking
statements". Such forward looking statements include any projections or
estimates made by us and our management in connection with our business
operations. While these forward-looking statements, and any assumptions upon
which they are based, are made in good faith and reflect our current judgment
regarding the direction of our business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions
or other future performance suggested herein. Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance or
achievements. Except as required by applicable law, including the securities
laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Such estimates, projections or other "forward looking
statements" involve various risks and uncertainties as outlined below. We
caution the reader that important factors in some cases have affected and, in
the future, could materially affect actual results and cause actual results to
differ materially from the results expressed in any such estimates, projections
or other "forward looking statements".
Business Development
The following Managements Discussion and Analysis is intended
to help the reader understand the results of operations and financial condition
of our company. Managements Discussion and Analysis is provided as a supplement
to, and should be read in conjunction with, our condensed consolidated financial
statements and the accompanying notes to the condensed consolidated financial
statements.
Liberty Star Uranium & Metals Corp. was formerly Liberty
Star Gold Corp. and formerly Titanium Intelligence, Inc. (Titanium). Titanium
was incorporated on August 20, 2001 under the laws of the State of Nevada. On
February 5, 2004 we commenced operations in the acquisition and exploration of
mineral properties business. Big Chunk Corp. (Big Chunk) is our wholly owned
subsidiary and was incorporated on December 14, 2003 in the State of Alaska. Big
Chunk is engaged in the acquisition and exploration of mineral properties
business in the State of Alaska. Redwall Drilling Inc. (Redwall) was our
wholly owned subsidiary and was incorporated on August 31, 2007 in the State of
Arizona. Redwall performed drilling services on our mineral properties. Redwall
ceased drilling activities in July 2008 and was dissolved on March 30, 2010. In
April 2007, we changed our name to Liberty Star Uranium & Metals Corp
(Liberty Star) to reflect our current general exploration for base and
precious metals. We are in the exploration phase of operations and have not generated any revenues from operations.
Our Current Business
We are in the exploration phase of operations and are engaged in the acquisition and exploration of mineral properties in the States of Arizona and Alaska. Claims in the State of Alaska are held in the name of our wholly-owned subsidiary, Big Chunk. Claims in the State of Arizona are held in the name of Liberty Star. We use the term “Super Project” to indicate a project in which numerous mineral targets have been identified, any one or more of which could potentially contain commercially viable quantities of minerals. Our significant projects are described below.
North Pipes Super Project (North Pipes and NPSP):
Located in Northern Arizona on the Arizona Strip, we plan to ascertain
whether the NPSP claims possess commercially viable deposits of uranium and
associated co-product metals. We have not identified any ore reserves to date.
Big Chunk Super Project (Big Chunk):
Located in the
Iliamna region of Southwestern Alaska, we plan to ascertain whether the Big
Chunk claims possess commercially viable deposits of copper, gold, molybdenum,
silver, palladium rhenium and zinc. We have not identified any ore reserves to
date.
Tombstone Super Project (Tombstone)(formerly referred to
as Tombstone Porphyry Precious Metals Project):
Tombstone is located in
Cochise County, Arizona and the Super Project covers the Tombstone caldera and
its environs. Within the Tombstone Caldera is the Hay Mountain target where we
are concentrating our work at this time. We plan to ascertain whether the
Tombstone, Hay Mountain claims possess commercially viable deposits of copper,
molybdenum, gold, silver, lead, zinc, manganese and other metals including Rare
Earth Elements (REEs). We have not identified any ore reserves to date.
East Silver Bell Porphyry Copper Project (East Silver
Bell):
Located northwest of Tucson, Arizona, we plan to ascertain whether
the East Silver Bell claims possess commercially viable deposits of copper. We
have not identified any ore reserves to date.
Title to mineral claims involves certain inherent risks due to
difficulties of determining the validity of certain claims as well as potential
for problems arising from the frequently ambiguous conveyancing history
characteristic of many mineral properties. We have investigated title to all the
Companys mineral properties and, to the best of its knowledge, title to all
properties are in good standing.
The mineral resource business generally consists of three stages: exploration, development and production. Mineral resource companies that are in the exploration stage phase of operatons have not yet found mineral resources in commercially exploitable quantities, and are engaged in exploring land in an effort to discover them. Mineral resource companies that have located a mineral resource in commercially exploitable quantities and are preparing to extract that resource are in the development stage, while those engaged in the extraction of a known mineral resource are in the production stage. We are in the exploration phase of operations and have not found any mineral resources in commercially exploitable quantities.
There is no assurance that a commercially viable mineral
deposit exists on any of our properties, and further exploration is required
before we can evaluate whether any exist and, if so, whether it would be
economically feasible to develop or exploit those resources. Even if we complete
our current exploration program and we are successful in identifying a mineral
deposit, we would be required to spend substantial funds on further drilling and
engineering studies before we could know whether that mineral deposit will
constitute an ore reserve (an ore reserve is a commercially viable mineral
deposit).
To date, we have not generated any revenues as we are in the exploration phase of operations. Our ability to
pursue our business plan and generate revenues is subject to our ability to
obtain additional financing, and we cannot give any assurance that we will be
able to do so.
Letter Agreement and Secured Convertible Notes with
Northern Dynasty Minerals Ltd
On July 15, 2010 we issued a secured convertible promissory
note bearing interest at a rate of 10% per annum compounded monthly (the 2010
Convertible Note) to Northern Dynasty Minerals Ltd (Northern Dynasty). During
the year ended January 31, 2012 the agreement with Northern Dynasty was amended
to issue additional secured convertible promissory notes totaling $730,174 to
reimburse Northern Dynasty for assessment work, rental fees, cash in lieu of
assessment work and filing fees on the mineral claims that was paid in fiscal
2011 and fiscal 2012 because we could not come to an agreement on the earn-in
option and joint venture agreement with Northern Dynasty.
As part of the transaction noted above, Northern Dynasty could
earn a 60% interest in our Big Chunk project in Alaska (the Joint Venture
Claims) by spending $10,000,000 on those properties over six years. The
borrowings from Northern Dynasty could be applied as part of Northern Dynastys
earn-in requirements. Northern Dynastys minimum annual expenditures under the
earn-in would be the minimum level necessary to keep the Joint Venture Claims in
good standing. Northern Dynasty could elect to abandon the earn-in at any time
on 30 days notice, so long as sufficient annual labor was performed, or a cash
payment in lieu of labor was made, in order to fulfill the annual labor
requirements for the Joint Venture Claims for a minimum of 12 months after
termination of the earn-in. No such notice by Northern Dynasty was received.
On November 14, 2012, we signed a loan settlement agreement
with Northern Dynasty which would have discharged the $3,730,174 principal
balance and $972,617 of accrued interest for the 2010 Convertible Note and would
have terminated Northern Dynastys earn-in rights. In exchange for the
settlement, we initiated the transfer of 199 Alaska mining claims to Northern
Dynastys subsidiary, U5 Resources. However, MBGS, LLC filed liens against the
claims before the transfer could be completed. In March 2014 Liberty Star and
Big Chunk entered into a settlement agreement with MBGS, LLC, following a
resolution conference conducted in Anchorage, Alaska whereby all Northern
Dynasty claims recorded by MBGS, LLC were released. As a result of the
settlement agreement with MBGS, LLC, the Company completed its loan settlement
agreement with Northern Dynasty and discharged the principal balance and accrued
interest for the 2010 Convertible Note and terminated Northern Dynastys
earn-in-rights. A gain of $5,322,943 for the settlement of the Northern Dynasty
debt and accrued interest was recorded in other income during the three months
ended April 30, 2014.
Results of Operations
Material Changes in Financial Condition for the Three Month
Period Ended April 30, 2014
We had cash and cash equivalents in the amount of $72,262 as of
April 30, 2014 compared to $55,089 as of January 31, 2014. We had negative
working capital of $1,172,511 as of April 30, 2014 compared to $6,202,731 as of
January 31, 2014. We used $197,020 net cash inflows from operating activities
during the three months ended April 30, 2014 which was utilized for working
capital. We also utilized our cash funds to continue exploration activities at
our Hay Mountain mineral lands by working on geochemical soil, rock chip and
vegetation sampling. We purchased $4,708 in new equipment during the three
months ended April 30, 2014. We have been raising capital from selling equity by
way of private placements. We intend to continue to raise capital from such
sources. In addition to seeking sources of funding through the sale of equity,
we may seek to enter into joint venture agreements, or other types of agreements
with other companies to finance our projects for the long term. In addition, we
may choose to sell a portion of our assets to finance our projects. Should our
properties prove to be commercially viable, we may be in a position to seek debt
financing to help build infrastructure, and finally, we eventually hope to
obtain revenues from commercial mining of our properties.
Material Changes in Results of Operations for the Three
Month Period Ended April 30, 2014
We had net income of $5,024,135 and a net loss of $368,878 for the three months ended April 30, 2014 and 2013, respectively. We incurred a one-time non-recurring gain of $5,322,943 during the three months ending April 30, 2014 due to our settlement of the Northern Dynasty Note. Under the terms of the settlement agreement, signed in November, 2012, our Alaska incorporated subsidiary Big Chunk Corp. transferred to a subsidiary of Northern Dynasty a number of Alaska State mineral claims in exchange for the forgiveness of the $3,730,174 principal balance and $972,617 of accrued interest that our company owed Northern Dynasty under the 2010 Convertible Note. The settlement agreement also terminated other contractual rights of Northern Dynasty. The settlement agreement was considered completed by our company in 2012 but Northern Dynasty did not acknowledge its completion until March 2014. During the period of over one year that the dispute continued as to whether the settlement agreement had been completed, our company continued to accrue the principal and interest that was claimed by Northern Dynasty and reported that amount as a liability in our financial statements. The “gain” in the first quarter of fiscal 2015 of our company recognizes that the debt and interest under the 2010 Convertible Note are no longer being claimed by Northern Dynasty.
During the three months ended April 30, 2014 we incurred an increase of approximately $26,199 in geological and geophysical costs compared to the three months ended April 30, 2013, due to increase in geochemical reports ordered by the Company. We incurred an increase in public relations of approximately $13,748 during the three months ended April 30, 2014 as compared to the three months ended April 30, 2013 due to the costs associated with increased seminar and conference activity. We incurred a non-cash gain on the change in fair value of our derivative liabilities of $274,631 during the three months ended April 30, 2014 as compared to a loss of $2,553 during the three months ended April 30, 2013 due to the embedded conversion features in our debt instruments that require us to record our equity linked instruments including outstanding warrants and fixed rate convertible debt at fair value during the three months ending April 30, 2014.
Liquidity and Capital Resources
Convertible promissory notes
We issued convertible promissory notes in private placements of
our securities to institutional investors pursuant to exemptions from
registration set out in Rule 506 of Regulation D under the Securities Act of
1933.
On July 15, 2010 we issued a secured convertible promissory
note bearing interest at a rate of 10% per annum compounded monthly (the 2010
Convertible Note) to Northern Dynasty Minerals Ltd (Northern Dynasty). During
the year ended January 31, 2012 the agreement with Northern Dynasty was amended
to issue additional secured convertible promissory notes totaling $730,174 to
reimburse Northern Dynasty for assessment work, rental fees, cash in lieu of
assessment work and filing fees on the mineral claims that was paid in fiscal
2011 and fiscal 2012 because we could not come to an agreement on the earn-in
option and joint venture agreement with Northern Dynasty.
As part of the transaction noted above, Northern Dynasty could
earn a 60% interest in our Big Chunk project in Alaska (the Joint Venture
Claims) by spending $10,000,000 on those properties over six years. The
borrowings from Northern Dynasty could be applied as part of Northern Dynastys
earn-in requirements. Northern Dynastys minimum annual expenditures under the
earn-in would be the minimum level necessary to keep the Joint Venture Claims in
good standing. Northern Dynasty could elect to abandon the earn-in at any time
on 30 days notice, so long as sufficient annual labor was performed, or a cash
payment in lieu of labor was made, in order to fulfill the annual labor
requirements for the Joint Venture Claims for a minimum of 12 months after
termination of the earn-in. No such notice by Northern Dynasty was received.
On November 14, 2012, we signed a loan settlement agreement
with Northern Dynasty which would have discharged the $3,730,174 principal
balance and $972,617 of accrued interest for the 2010 Convertible Note and would
have terminated Northern Dynastys earn-in rights. In exchange for the
settlement, we initiated the transfer of 199 Alaska mining claims to Northern
Dynastys subsidiary, U5 Resources. However, MBGS, LLC filed liens against the
claims before the transfer could be completed. In March 2014 Liberty Star and
Big Chunk entered into a settlement agreement with MBGS, LLC, following a
resolution conference conducted in Anchorage, Alaska whereby all Northern
Dynasty claims recorded by MBGS, LLC were released. As a result of the
settlement agreement with MBGS, LLC, the Company completed its loan settlement
agreement with Northern Dynasty and discharged the principal balance and accrued
interest for the 2010 Convertible Note and terminated Northern Dynastys
earn-in-rights. A gain of $5,322,943 for the settlement of the Northern Dynasty
debt and accrued interest was recorded in other income during the three months
ended April 30, 2014.
In August, 2013, we entered into a promissory note (the August
2013 Note) for a principal sum of $555,000 plus accrued and unpaid interest and
any other fees. The consideration is up to $500,000, which would produce an
original issue discount of $55,000 if all the consideration is received. The
lender paid $150,000 upon closing pursuant to the terms of the August 2013 Note.
The August 2013 Note has a maturity of one year from the delivery of each
payment. The August 2013 Note may be convertible into shares of common stock of
our company at any time from 180 days after the date of each payment of
consideration, at a conversion price which is 70% of the average of the three
lowest closing prices in the 20 trading days previous to the conversion. We may
repay the August 2013 Note at any time on or before 90 days from the effective
date of the August 2013 Note with an interest rate of 0%, after which we may not
make any further payments on the August 2013 Note prior to the maturity date
without written approval from the lender. If we elect not to repay the August
2013 Note on or before 90 days from the effective date of the August 2013 Note,
a one-time interest charge of 12% will be applied to the principal sum. We
elected not to pay the $150,000 portion of the August 2013 Note within 90 days
from the effective date. Additionally, after the $150,000 portion of the August
2013 Note became convertible, the note holder elected to convert $153,082 of
principal and interest into 13,900,000 shares of the companys common stock
during the three months ended April 30, 2014. During May 2014 the note holder
converted the remaining principal and interest of $33,398 portion of the
$150,000 portion of the August 2013 Note into 4,037,195 shares of the Companys
common stock. On December 9, 2013, we received additional consideration of
$75,000 pursuant to the terms of the August 2013 Note. We elected not to pay the
$75,000 portion of the August 2013 Note within 90 days from the effective date.
As of April 30, 2014, we had $126,637 principal outstanding for the August 2013
Note.
On the date the August 2014 Note became convertible, the
variable conversion feature of the note qualifies it as a derivative instrument
since the number of shares issuable under the note is indeterminate.
On November 18, 2013, we entered into a securities purchase
agreement, whereby we agreed to issue a convertible note to one lender in the
principal amount of $250,000. The Note is payable in full on November 18, 2014
and bears no interest except in an event of default. The lender may, at its
option, after the 183
rd
day following the closing date, convert the
principal amount or any portion of such principal amount of the Note into shares
of common stock of our company at the price equal to the lesser of (a) 100% of
the volume weighted average price (VWAP), as reported on the closing date
(November 18, 2013), and (b) 70% of the average of the 5 day VWAP immediately
prior to the day of conversion. As of April 30, 2014, we have not made any
repayments on this convertible note and the note has not been converted.
Critical Accounting Policies
The condensed consolidated financial statements of Liberty Star
have been prepared in conformity with accounting principles generally accepted
in the United States of America. Our significant accounting policies are
described in Note 2 to the consolidated financial statements included in Item 8
in our Form 10-K for the year ended January 31, 2014. The critical accounting
policies adopted by our company are as follows:
Going Concern
Since we have not generated any revenue, we have negative cash
flows from operations, and negative working capital we have included a reference
to the substantial doubt about our ability to continue as a going concern in
connection with our condensed consolidated financial statements for the three
months ended April 30, 2014. Our total stockholders deficit at April 30, 2014
was $1,131,524.
These condensed consolidated financial statements have been
prepared on the going concern basis, which assumes that adequate sources of
financing will be obtained as required and that our assets will be realized, and
liabilities settled in the ordinary course of business. Accordingly, these
condensed consolidated financial statements do not include any adjustments
related to the recoverability of assets and classification of assets and
liabilities that might be necessary should we be unable to continue as a going
concern.
Mineral claims
We account for costs incurred to acquire, maintain and explore
mineral properties as charged to expense in the period incurred until the time
that a proven mineral resource is established at which point development of the
mineral property would be capitalized. Currently, we do not have any proven
mineral resources on any of our mineral properties.
Convertible promissory notes
We reviewed the convertible promissory notes and the related
subscription agreements to determine the appropriate reporting within the
condensed consolidated financial statements. We report convertible promissory
notes as liabilities at their carrying value less unamortized discounts in
accordance with the applicable accounting guidance. We record conversion options
and detachable common stock purchase warrants and report them as liabilities at
fair value at each reporting period when required in accordance with the
applicable accounting guidance. No gain or loss is reported when the notes are
converted into shares of our common stock in accordance with the notes terms.
Common stock purcha
se warrants
We report common stock purchase warrants
as equity unless a condition exists which requires reporting as a derivative
liability at fair market value. For common stock purchase warrants reported as a
derivative liability, as well as new and modified warrants reported as equity,
we utilize a Monte Carlo options model in order to determine fair value.