NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – Organization
Liberty
Star Uranium & Metals Corp. (the “Company”, “we” or “Liberty Star”) 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 the Company’s mineral properties. Redwall ceased
drilling activities in July 2008 and was dissolved on March 30, 2010. We formed the wholly owned subsidiary, Hay Mountain Super
Project LLC (“HMSP”) incorporated on October 24, 2014, to serve as the primary holding company for development of
the potential ore bodies encompassed in the Hay Mountain area of interest in Arizona. In April 2007, we changed our name to Liberty
Star Uranium & Metals Corp. We have not generated any revenues from operations.
These
consolidated financial statements include the results of operations and cash flows of Liberty Star Uranium & Metals Corp.
and its wholly owned subsidiaries, Big Chunk and HMSP. All significant intercompany accounts and transactions were eliminated
upon consolidation.
These
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) with the on-going assumption that we will be able to realize our assets and discharge our
liabilities in the normal course of business. However, certain conditions noted below currently exist which raise substantial
doubt about our ability to continue as a going concern. These consolidated financial statements do not include any adjustments
to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue as a going
concern. Our operations have primarily been funded by the issuance of common stock and debt. Continued operations are dependent
on our ability to complete equity financings or generate profitable operations in the future. Management’s plan in this
regard is to secure additional funds through future equity financings, joint venture agreements or debt. Such financings may not
be available, or may not be available on reasonable terms.
NOTE
2 – Summary of significant accounting policies
The
summary of significant accounting policies presented below is designed to assist in understanding the Company's consolidated financial
statements. Such consolidated financial statements and accompanying notes are the representations of the Company’s management,
who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted
in the United States of America in all material respects, and have been consistently applied in preparing the accompanying consolidated
financial statements. The significant accounting policies adopted by the Company are as follows:
Use
of estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The
valuation of stock-based compensation, classification and valuation of common stock purchase warrants, classification and value
of embedded conversion options, value of beneficial conversion features, valuation allowance on deferred tax assets, the determination
of useful lives and recoverability of depreciable assets, accruals, and contingencies are significant estimates made by management.
It is at least reasonably possible that a change in these estimates may occur in the near term.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Big Chunk and HMSP. All
significant intercompany accounts and transactions have been eliminated upon consolidation.
Cash
and cash equivalents
We
consider cash held at banks and all highly liquid investments with original maturities of three months or less to be cash and
cash equivalents. We maintain our cash in bank deposit accounts which, for periods of time, may exceed federally insured limits.
At January 31, 2016 and 2015, we had no cash balances in bank deposit accounts that exceeded federally insured limits.
Mineral
claim costs
We
account for costs incurred to acquire, maintain and explore mineral properties as a charge 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.
Long-lived
assets and impairment of long-lived assets
Property
and equipment is stated at cost. We capitalize all purchased equipment over $500 with a useful life of more than one year. Depreciation
is calculated using the straight line method over the estimated useful lives of the assets. Leasehold improvements are stated
at cost and are amortized over their estimated useful lives or the lease term, whichever is shorter. Maintenance and repairs are
expensed as incurred while betterments or renewals are capitalized. Property and equipment is reviewed periodically for impairment.
The estimated useful lives range from 3 to 7 years.
We
review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. Recoverability of a long-lived asset group to be held and used in operations is measured by a comparison of the
carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset
group. If such asset group is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount
of the asset group exceeds its fair value. Long-lived assets to be disposed of are carried at the lower of cost or fair value
less the costs of disposal.
Convertible
promissory notes
We
report convertible promissory notes as liabilities at their carrying value less unamortized discounts, which approximates fair
value. We bifurcate 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. When convertible promissory notes
are converted into shares of our common stock in accordance with the debt’s terms, no gain or loss is recognized. We account
for inducements to convert as an expense in the period incurred, included in debt conversion expense.
Derivative
liabilities
The
valuation of the derivative liability of our warrants is 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 is 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 are 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 are assigned to each variable such as redemption likelihood, default likelihood, and timing and pricing
of reset events over the remaining term of the notes based on management projections. This leads to a cash flow simulation over
the life of the note. A discounted cash flow for each simulation is completed, and is compared to the discounted cash flow of
the note without the embedded features, thus determining a value for the derivative liability.
Common
stock purchase warrants
We
report common stock purchase warrants as equity unless a condition exists which requires reporting as a derivative liability at
fair market value.
Stock
based compensation
The
Company recognizes stock-based compensation for all share-based payment awards made to employees based on the estimated fair values,
using the Black-Scholes option pricing model.
Non-employee
stock-based compensation is accounted for based on the fair value of the related stock or options or the fair value of the services
on the grant date, whichever is more readily determinable. The fair value of options to be granted are estimated on the date of
each grant using the Black-Scholes option pricing model and amortized ratably over the option's vesting periods, which approximates
the service period.
Environmental
expenditures
Our
operations have been and may in the future be affected from time to time in varying degree by changes in environmental regulations,
including those for future removal and site restoration costs. The likelihood of new regulations and their overall effect upon
us are not predictable. We provide for any reclamation costs in accordance with the accounting standards codification section
410-30. It is management’s opinion that we are not currently exposed to significant environmental and reclamation liabilities
and have recorded no reserve for environmental and reclamation expenditures as of January 31, 2016 or 2015.
Fair
Value of Financial Assets and Liabilities
The
Company measures and discloses certain financial assets and liabilities at fair value. Authoritative guidance 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.
Authoritative guidance 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
- Quoted prices in active markets for identical assets or liabilities.
Level
2
- Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level
3
- Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
Income
taxes
Income
taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are
recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected
to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax
rates is recognized in income in the period that enactment occurs. To the extent that the Company does not consider it more likely
than not that a future tax asset will be recovered, it provides a valuation allowance against the excess. Interest and penalties
associated with unrecognized tax benefits, if any, are classified as additional income taxes in the statement of operations. With
few exceptions, we are no longer subject to U.S. federal, state and local examinations by tax authorities for the tax year ended
January 31, 2012 and prior.
Net
income (loss) per share
Basic
net income (loss) per share is computed by dividing net loss attributable to common shareholders by the weighted average number
of shares of common stock outstanding during the period. Diluted net income (loss) per share takes into consideration shares of
common stock outstanding (computed under basic income or loss per share) and potentially dilutive shares of common stock that
are not anti-dilutive. For the year ended January 31, 2016, potentially dilutive instruments were not included in the determination
of diluted loss per share as their effect was anti-dilutive. For the year ended January 31, 2015, potentially dilutive shares
included in the calculation of diluted net income per share included 1,345,666 shares related to warrants and 119,442,929 shares
related to convertible promissory notes.
Statement
Presentation
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.
NOTE
3 – Going concern
The
Company 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 consolidated financial statements do not include any adjustments that might result from the outcome
of these uncertainties.
NOTE
4 – Mineral claims
At
January 31, 2016 we held a 100% interest in 11 standard federal lode mining claims on the Colorado Plateau Province of Northern
Arizona (the “North Pipes Claims”).
At
January 31, 2016 we held a 100% interest in 95 standard federal lode mining claims located in the Tombstone region of Arizona.
29 federal lode mining claims are owned by JABA US Inc, an Arizona Corporation in which two of our directors are owners and 66
federal lode mining claims belong to Liberty Star Uranium & Metals Corp. At January 31, 2016 we held Arizona State Land Department
Mineral Exploration Permits covering 1,886.88 acres in the Tombstone region of Arizona.
At
January 31, 2016 we held an option to explore 26 standard federal lode mining claims located in the East Silver Bell region of
northwest Tucson, Arizona. The mineral claims are owned by JABA US Inc., an Arizona Corporation in which two of our directors
are owners.
At
January 31, 2016 we held a 100% interest to retain 9 Alaska State mining claims in the Iliamna region of Southwestern Alaska,
located on the north side of the Cook Inlet, approximately 200 miles southwest of the city of Anchorage, Alaska (the “Big
Chunk Claims”). The transaction for 199 claims transferred to Northern Dynasty in conjunction with our loan settlement agreement
has now closed, and is no longer pending.
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 conveyance history characteristic of many mineral properties.
All
of the Company’s claims for mineral properties are in good standing as of January 31, 2016.
NOTE
5 – Prepaid expenses
At
January 31, 2016, the company had prepaid approximately $70,000 relating to a private investor event scheduled for a future date.
This amount is included in prepaid expenses as of January 31, 2016.
NOTE
6 – Property and equipment
The
balances of our major classes of depreciable assets and useful lives are:
|
|
January 31, 2016
|
|
|
January 31, 2015
|
|
Geology Equipment (3 to 7 years)
|
|
$
|
264,734
|
|
|
$
|
264,734
|
|
Vehicles and transportation equipment (5 years)
|
|
|
44,284
|
|
|
|
44,284
|
|
Office furniture and equipment (3 to 7 years)
|
|
|
85,363
|
|
|
|
81,061
|
|
|
|
|
394,381
|
|
|
|
390,079
|
|
Less: accumulated depreciation and amortization
|
|
|
(380,249
|
)
|
|
|
(357,741
|
)
|
|
|
$
|
14,132
|
|
|
$
|
32,338
|
|
Depreciation
expense was $22,509 and $27,324 for the years ended January 31, 2016 and 2015, respectively.
NOTE
7 – Long-term debt and convertible promissory notes
Note
payable to Ford Credit is payable in monthly installments of $544 including interest at a fixed rate of 9.49% through maturity
in February 2016. The principal balance at January 31, 2016 and 2015 is $561 and $6,710, respectively. The carrying amount of
the vehicle that serves as collateral is $0 and $6,891 at January 31, 2016 and 2015, respectively.
The
following is a summary of the principal maturities of long-term debt during the next five years:
Minimum future debt payments
|
|
|
|
|
|
|
|
For the year ending January 31,
|
|
|
|
2017
|
|
|
561
|
|
2018 and thereafter
|
|
|
-
|
|
|
|
$
|
561
|
|
Less: current maturities
|
|
|
561
|
|
|
|
$
|
-
|
|
Following
is a summary of convertible promissory notes:
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
12% convertible note payable issued August 2013, due in August 2016
|
|
$
|
62,160
|
|
|
$
|
144,519
|
|
Convertible note payable issued November 2013, due November 2015
|
|
|
-
|
|
|
|
147,500
|
|
12% convertible note payable issued August 2014, due August 2015
|
|
|
-
|
|
|
|
157,791
|
|
10% convertible note payable issued October 2014, due October 2015
|
|
|
-
|
|
|
|
108,136
|
|
10% convertible note payable issued December 2014, due December 2016
|
|
|
-
|
|
|
|
106,697
|
|
12% convertible note payable issued November 2015, due November 2017
|
|
|
55,000
|
|
|
|
-
|
|
12% convertible note payable issued December 2015, due September 2016
|
|
|
50,542
|
|
|
|
-
|
|
|
|
|
167,702
|
|
|
|
664,643
|
|
Less debt discount
|
|
|
(8,470
|
)
|
|
|
(41,928
|
)
|
Less current portion of convertible notes
|
|
|
(108,670
|
)
|
|
|
(516,018
|
)
|
Long-term convertible notes payable
|
|
$
|
50,562
|
|
|
$
|
106,697
|
|
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. After the $150,000 portion of the August 2013 Note became convertible,
the note holder elected to convert the principal and interest totaling $186,480 into 17,937,915 shares of the company’s
common stock during the months of February through May of 2014. 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. In June, July and August 2014, the note holder converted principal and interest totaling $93,240 into
9,983,507 shares of the Company’s common stock. On June 24, 2014 and September 3, 2014, we received additional consideration
of $75,000 and $75,000, respectively, pursuant to the terms of the August 2013 Note. In December 2014 and January 2015, the note
holder converted principal and interest totaling $41,961 into 5,900,000 shares of the Company’s common stock. On February
25, 2015, we received additional consideration of $50,000 with $5,500 of original issue discount pursuant to the terms of the
August 2013 Note. On August 28, 2015, we received additional consideration of $50,000 with $5,500 of original issue discount pursuant
to the terms of the August 2013 Note. We elected not to repay the $50,000 portion of the August 2013 Note within 90 days from
the effective date. During the year ended January 31, 2016, the note holder converted principal and interest totaling $206,679
into 123,158,044 shares of the Company’s common stock. As of January 31, 2016, we had $62,160 of principal and interest
outstanding for the August 2013 Note.
On
November 18, 2013, we entered into a securities purchase agreement (the “November 2013 Note”), whereby we agreed to
issue a convertible note to one lender in the principal amount of $250,000. The proceeds from the note were $225,000, which created
an original issue discount of $25,000. The note was 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 183rd day (after May 20, 2014) 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. On November 13, 2014, we entered into an Assignment
of Promissory Note & Acknowledgment, whereby we consented to an assignment of the note to another lender, pursuant to which
$250,000 remains owing by the Company. The maturity date of the November 2013 Note was extended to November 18, 2015. From November
2014 through January 2015, the new noteholder converted principal of $102,500 into 11,792,944 shares of the Company’s common
stock. During the year ended January 31, 2016, the new noteholder converted principal of $153,046 into 48,243,936 shares of the
Company’s common stock. As of January 31, 2016, we had $0 of principal and interest outstanding for the November 2013 Note.
In
August 2014, we received $150,000 pursuant to the terms of a convertible promissory note (the “August 2014
Note”) dated August 26, 2014. The Note bears interest at 12%, is due on August 26, 2015, and is convertible after 180
days at a 45% discount to the average of the daily VWAP prices for the previous 10 trading days before the date of
conversion. During March and April 30, 2015, the new noteholder converted principal and accrued interest of $160,834 into
56,676,739 shares of the Company’s common stock. As of January 31, 2016, we had $0 of principal and interest
outstanding for this Note.
On
October 14, 2014, we entered into a securities purchase agreement, whereby we agreed to issue a convertible note (the “October
2014 Note”) to one lender in the principal amount of $105,000. The Note is payable in full on October 14, 2015, bears interest
at the rate of 10% per annum, and includes a $5,000 original issuance discount. The Note may be convertible into shares of common
stock of our company at any time from 180 days after the execution date of the Note at a price per share of 40% discount to the
average of the daily VWAP for the previous five trading days before the date of conversion. During the year ended January 31,
2016, the note holder converted principal and interest totaling $110,901 into 74,878,264 shares of the Company’s common
stock. As of January 31, 2016, we had $0 of principal and interest outstanding for this Note.
On
December 3, 2014, we entered into a note purchase agreement, whereby we agreed to issue a convertible note (the “December
2014 Note”) to lender in the principal amount of $210,000, with a $10,000 original issuance discount. The initial purchase
price was $105,000 of consideration of which $100,000 was received our company and $5,000 was retained through the original issue
discount. An additional $50,000 was received on February 27, 2015 with a $2,500 original issue discount. An additional $30,000
was received on June 11, 2015 with a $1,500 original issue discount. An additional $20,000 was received on July 9, 2015 with a
$1,000 original issue discount. The Note bears interest at 10%, is due on December 3, 2016, and is convertible after six months
of advance of funds at a 37.5% discount to the average of the daily VWAP prices for the previous 5 trading days before the date
of conversion. During the year ended January 31, 2016, the note holder converted principal and interest totaling $231,000 into
196,244,876 shares of the Company’s common stock. As of January 31, 2016, we had of $0 of principal and interest outstanding
for the December 2014 Note.
On
November 2, 2015, we entered into a promissory note (the “November 2015 Note”) for a principal sum of up to
$500,000. The consideration is up to $450,000, which would produce an original issue discount of $50,000 if all the
consideration is received. The lender paid $50,000 upon closing pursuant to the terms of the November 2015 Note, which
resulted in the Company recording a $5,000 original issue discount. The maturity date is two years from the effective date of
each payment, as well as any unpaid interest and other fees. The November 2015 Note may be convertible into shares of common
stock of our company at any time at a conversion price of 70% of the average of the three lowest closing prices in the 20
trading days previous to the conversion. We may repay the November 2015 Note at any time on or before 90 days from the
effective date of the November 2015 with an interest rate of 0%, after which we may not make any further payments on the
November 2015 Note prior to the maturity date without written approval from the lender. If we elect not to repay the November
2015 Note on or before 90 days from the effective date of the November 2015, a one-time interest charge of 12% will be
applied to the principal sum. On March 23, 2016, the November 2015 Note was amended to allow for conversion only after 180
days. As of January 31, 2016, we had of $55,000 of principal and interest outstanding for the November 2015 Note.
On
December 29, 2015, the Company entered into a convertible promissory note (the “December 2015 Note”) for a
principal sum of $50,000, due on demand by the lender at any time on or after September 29, 2016, with interest at 12% per
annum. The lender paid $49,000 upon closing of the December 2015 Note, which included the lender retaining $1,000 as an
original issue discount. The December 2015 Note may be convertible into shares of the common stock of our company at any time
after 180 days at a conversion price of the lower of: (i) a 45% discount to the second lowest trading price during the
previous ten trading days to the date of a conversion notice; or (ii) a 45% discount to the second lowest trading price
during the previous ten trading days before the date the December 2015 Note was executed on December 29, 2015. As of January
31, 2016, we had of $50,542 of principal and interest outstanding for the December 2015 Note.
During the years ended January 31, 2016
and 2015, the Company recorded debt discounts of $549,531 and $382,173, respectively, due to the derivative liabilities, and original
issue debt discounts of $22,000 and $28,750, respectively, due to the convertible notes. The Company recorded amortization of these
discounts of $606,270 and $403,579 for the years ended January 31, 2016 and 2015, respectively.
NOTE
8 – Derivative Liabilities
The
embedded conversion feature in the convertible debt instruments that the Company issued (See Note 7), that became convertible
during the years ended January 31, 2016 and 2015, 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 notes 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 January 31, 2016:
|
●
|
The
stock projections are based on the historical volatilities for each date. These ranged
in the 146.9-155.8% range. The stock price projection was modeled such that it follows
a geometric Brownian motion with constant drift and a 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: 5% 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: 5% 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 1/31/16 through 4/30/16 at 70% of market.
|
Using the results from the model, the
Company recorded a derivative liability of $52,050 for newly granted warrants (see note 11) and a derivative liability of $688,562
for the fair value of the convertible feature included in the Company’s convertible debt instruments. The derivative liability
recorded for the convertible feature created a debt discount of $549,531 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 year ended January 31, 2016, was $59,239. Additionally, $547,031 of debt discount
was charged 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 related to the derivative liability was $0 as of January 31, 2016. The Company recorded the
change in the fair value of the derivative liability as a loss of $102,444 to reflect the value of the derivative liability for
warrants and convertible notes as $3,293 as of January 31, 2016. The Company also recorded a reclassification from derivative liability
to equity of $833,583 for the conversions of a portion of the Company’s convertible notes.
The
following table sets forth a reconciliation of changes in the fair value of the Company’s derivative liability:
|
|
Year Ended January 31,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
216,705
|
|
|
$
|
46,985
|
|
Total (gains) losses
|
|
|
(102,444
|
)
|
|
|
(482,697
|
)
|
Settlements
|
|
|
(865,387
|
)
|
|
|
(256,748
|
)
|
Additions
|
|
|
549,531
|
|
|
|
909,165
|
|
Ending balance
|
|
$
|
3,293
|
|
|
$
|
216,705
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized (gains) losses included in earnings relating to derivatives still held as of January 31, 2016 and 2015
|
|
$
|
211
|
|
|
$
|
(482,697
|
)
|
NOTE
9 – Common stock
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.
On
October 30, 2013, the Company entered into an investment agreement with KVM Capital Partners LLC, a New York limited liability
company (“KVM”). Pursuant to the agreement, KVM has agreed to purchase up to $8,000,000 of our common stock over a
period of up to thirty-six (36) months. The purchase price per share to be paid by KVM shall be calculated at a twenty percent
(20%) discount to the lowest volume weighted average price of the common stock as reported by Bloomberg, L.P. during the five
(5) consecutive trading days immediately prior to the receipt by KVM of the put notice. We initially reserved 244,500,000 shares
of our common stock for issuance under the KVM Investment Agreement. In connection with the KVM Investment Agreement, we also
entered into a registration rights agreement with KVM, pursuant to which we are obligated to file a registration statement with
the SEC covering 244,500,000 shares of our common stock underlying the KVM Investment Agreement within 21 days after the closing
of the transaction. In addition, we are obligated to use all commercially reasonable efforts to have the registration statement
declared effective by the SEC and maintain the effectiveness of such registration statement until termination of the KVM Investment
Agreement. On November 6, 2013, we filed form S-1 related to the KVM investment agreement. Between February 2014 and July 2014,
pursuant to the KVM investment agreement, KVM purchased 34,214,226 shares for $456,924, of which $55,673 is still owed to the
Company and is reflected as a stock subscription receivable as of January 31, 2016. On November 14, 2014, we filed a Post-Effective
Amendment to deregister the remaining unsold securities, which became effective on December 2, 2014.
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 Company’s common stock and a warrant to purchase one-half share
of the Company’s 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 with 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 year ended
January 31, 2015 was recorded in other income and expense.
During
the year ended January 31, 2015, $321,680 of the August 2013 Note was converted into 33,821,422 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.006 to $0.012.
From
November 2014 through January 2015, the holder of the November 2013 Note converted principal of $102,500 into 11,792,944 shares
of the Company’s common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.006 to
$0.011.
During the year ended January 31, 2015,
the Company issued 6,424,979 units to three investors for total proceeds of $73,000. Each unit consists of one share of the Company’s
common stock and a warrant to purchase one share of the Company’s common stock. The warrants have exercise prices ranging
from $0.015 to $0.021 and have a three year term.
During
the year ended January 31, 2016, $206,679 of the August 2013 Note was converted into 123,158,044 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00098 to $0.00574.
During
the year ended January 31, 2016, $153,046 of the November 2013 Note was converted into 48,243,936 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00147 to $0.00609.
During the year ended January 31, 2016,
$160,833 of the August 2014 Note was converted into 56,676,739 shares of the Company’s common stock. The conversions occurred
on multiple dates with conversion prices ranging from $0.00193 to $0.00416.
During
the year ended January 31, 2016, $110,901 of the October 2014 Note was converted into 74,878,264 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00101 to $0.00263.
During
the year ended January 31, 2016, $231,000 of the December 2014 Note was converted into 196,244,876 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00090 to $0.00197.
In
May of 2015, we issued 2,941,176 units to an investor for total proceeds of $10,000. Each unit consists of one share of our common
stock and two warrants to purchase one share each of the Company’s common stock. The warrants have an exercise price of
$0.0048 and have a three year term.
On
May 29, 2015, we issued a non-interest bearing promissory note with the principal amount of $30,000 to Brett Gross, a director
of our company. The promissory note is convertible into 16,806,723 units at a price of $0.001785 per unit upon the increase of
the authorized capital of our company. Each unit is comprised of one share of common stock and two warrants. Each warrant will
be exercisable for a period of three years at a price of $0.002499. On August 11, 2015, the note was converted in full and the
16,806,723 common shares were issued.
In
June of 2015, we issued 1,846,154 units to an investor for total proceeds of $3,000. Each unit consists of one share of our common
stock and one warrant to purchase one share of our common stock. The warrants have an exercise price of $0.002275 and have a three
year term.
In
August of 2015, the Company issued 16,077,170 units to an investor for total proceeds of $25,000. Each unit consists of one share
of the Company’s common stock and one warrant to purchase one share of the Company’s common stock. The warrants have
an exercise price of $0.00218 and have a three year term.
In
July of 2015, the Company issued 2,822,912 units to an investor, the Company’s CEO, CFO, President and Chairman of the Board,
for proceeds of $4,300. Each unit consists of one share of the Company’s common stock and one warrant to purchase one share
each of the Company’s common stock. The warrants have an exercise price of $0.002130 and have a three year term.
In
September of 2015, the Company issued 1,851,852 units to an investor for total proceeds of $3,000. Each unit consists of one share
of the Company’s common stock and one warrant to purchase one share of the Company’s common stock. The warrants have
an exercise price of $0.00227 and have a three year term.
In
November of 2015, we issued 1,655,629 units to an investor for total proceeds of $5,000. Each unit consists of one share of our
common stock and one warrant to purchase one share of our common stock. The warrants have an exercise price of $0.00423 and have
a three year term.
On
June 20, 2015, we entered into an investment agreement (the “Investment Agreement”) with Tangiers Investment Group,
LLC (the “Investor”), whereby the Investor has agreed to invest up to $8,000,000 to purchase shares of our common
stock. Subject to the terms and conditions of the Investment Agreement and a registration rights agreement, we may, in our sole
discretion, deliver a notice to the Investor which states the dollar amount which we intend to sell to the Investor on a certain
date. The amount that we shall be entitled to sell to Investor shall be equal to one hundred and fifty percent (150%) of the average
daily volume (U.S. market only) of the common stock for the ten (10) trading days prior to the applicable notice date so long
as such amount does not exceed an accumulative amount per month of $100,000. The minimum amount shall be equal to $5,000. In connection
with the Investment Agreement, we also entered into a registration rights agreement dated June 20, 2015, whereby we agreed to
file a Registration Statement on Form S-1 with the SEC within thirty (30) days of the date of the registration rights agreement
and to have the Registration Statement declared effective by the SEC within ninety (90) days after we have filed the Registration
Statement. We filed Form S-1 on July 2, 2015 and Form S-1 Amendment No. 1 on July 29, 2015, for registration of 100,000,000 shares
of the Company’s common stock under the Investment Agreement, which was declared effective by the SEC on August 5, 2015.
During the year ended January 31, 2016, the Company issued an aggregate of 100,000,000 shares of common stock for total proceeds
of $129,751 to Tangiers Investment Group, LLC under the Investment Agreement.
In
September 2015, the Company issued 5,733,000 shares to a former service provider for services totaling $10,320.
NOTE
10 – Share-based compensation
The
2010 Stock Option Plan was approved and adopted by the Board of Directors on August 10, 2010. The plan allows for up to 95,500,000
shares to be granted to key employees and non-employee consultants after specific objectives are met. The 2007 Stock Option Plan
was approved and adopted by the Board of Directors on December 10, 2007. The plan allows for up to 2,500,000 shares to be granted
to key employees and non-employee consultants after specific objectives are met. The 2004 Stock Option Plan was approved and adopted
by the Board of Directors on December 27, 2004. The plan allows for up to 962,500 shares to be granted to key employees and non-employee
consultants after specific objectives are met. Employees can receive incentive stock options and non-qualified stock options while
non-employee consultants can receive only non-qualified stock options. The options granted vest under various provisions using
graded vesting, not to exceed four years. The options granted have a term not to exceed ten years from the date of grant or five
years for options granted to more than 10% stockholders. The option price set by the Plan Administration shall not be less than
the fair market value per share of the common stock on the grant date or 110% of the fair market value per share of the common
stock on the grant date for options granted to greater than 10% stockholders. Options remaining available for grant under the
2010 Stock Option Plan at January 31, 2016 and 2015 are 13,000,000 and 12,500,000, respectively. Options remaining available for
grant under the 2007 Stock Option Plan at January 31, 2016 and 2015 are 50,000 and 50,000, respectively. Options remaining available
for grant under the 2004 Stock Option Plan at January 31, 2016 and 2015 are 127,626 and 127,626, respectively.
In
September 2013, there were 7,423,624 stock options granted at an exercise price of $0.0257 per share, exercisable until September
5, 2023 with a fair value net of forfeitures at grant date of $210,300. The options granted were 100% vested for directors and
shall vest in 25% immediately and 25% over four years increments on a yearly basis over the next four years for employees. In
order to calculate the fair value of stock options at the date of grant, we use the Black-Scholes option pricing model. The volatility
used was based on our historical volatility. The expected term was determined based on the simplified method outlined in Staff
Accounting Bulletin No. 110. The risk-free interest rate for periods within the contractual life of the option is based on the
U.S. Treasury yield curve in effect at the time of grant. Remaining stock option expense to be recognized in future periods related
to the award is $18,224 as of January 31, 2016.
The
following tables summarize the Company’s stock option activity during the years ended January 31, 2016 and 2015. Incentive
stock options to employees and directors outstanding at January 31, 2016 are as follows:
|
|
Number of options
|
|
|
Weighted average exercise price
|
|
|
Weighted average remaining life (years)
|
|
|
Aggregate intrinsic value
|
|
Outstanding, January 31, 2014
|
|
|
85,476,124
|
|
|
$
|
0.047
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(54,750
|
)
|
|
|
6.710
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2015
|
|
|
85,421,374
|
|
|
$
|
0.042
|
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2016
|
|
|
85,421,374
|
|
|
$
|
0.042
|
|
|
|
4.81
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, January 31, 2016
|
|
|
84,951,211
|
|
|
$
|
0.042
|
|
|
|
4.79
|
|
|
$
|
-
|
|
In December 2015, the board of directors
approved a five-year extension of 77,500,000 options expiring on August 16, 2015 to an extended expiration date of August 16, 2020.
This modification resulted in a charge of $29,067 to share based compensation for the year ended January 31, 2016, representing
the fair value of option extension. The options are held by four directors. The options cancelled during the year ended January
31, 2015 were a result of the options expiring. The aggregate intrinsic value is calculated based on the stock price of $0.0019
and $0.0086 per share as of January 31, 2016 and 2015, respectively.
We
estimate the fair value of option awards on the grant date using the Black-Scholes valuation model. The Company uses historical
volatility, disregarding identifiable periods of time in which share price was extraordinarily volatile due to certain events
that are not expected to recur during the expected term, as its method to estimate expected volatility. The Company used the following
assumptions to estimate the fair value of stock option grants to employees and non-employees:
|
|
|
|
|
Expected
|
|
|
|
|
Risk-free
|
|
|
|
|
|
|
Expected
|
|
|
dividend
|
|
|
Expected
|
|
interest
|
|
|
Forfeiture
|
|
Grant date
|
|
volatility
|
|
|
yield
|
|
|
term
|
|
rate
|
|
|
rate
|
|
January 10, 2012
|
|
|
128
|
%
|
|
|
0
|
%
|
|
10 years
|
|
|
2
|
%
|
|
|
10
|
%
|
December 13, 2012
|
|
|
174
|
%
|
|
|
0
|
%
|
|
3 years
|
|
|
0.34
|
%
|
|
|
0
|
%
|
January 1, 2013
|
|
|
173
|
%
|
|
|
0
|
%
|
|
3 years
|
|
|
0.36
|
%
|
|
|
0
|
%
|
January 1, 2013
|
|
|
171
|
%
|
|
|
0
|
%
|
|
3 years
|
|
|
0.41
|
%
|
|
|
0
|
%
|
September 5, 2013
|
|
|
221
|
%
|
|
|
0
|
%
|
|
6.25 years
|
|
|
2.15
|
%
|
|
|
20
|
%
|
Share-based
compensation expense is reported in our statement of operations as follows:
|
|
January 31, 2016
|
|
|
January 31, 2015
|
|
Geological and geophysical costs
|
|
$
|
4,728
|
|
|
$
|
4,728
|
|
Salaries and benefits
|
|
|
33,795
|
|
|
|
4,728
|
|
Investor relations
|
|
|
1,776
|
|
|
|
1,776
|
|
General and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
40,299
|
|
|
$
|
11,232
|
|
At
January 31, 2016 there is $18,224 of unrecognized share-based compensation for all share-based awards outstanding with a weighted
average remaining period for amortization of 1.8 years.
Non-qualified
stock options to non-employee consultants and vendors outstanding as of January 31, 2016 are as follows:
|
|
Number of options
|
|
|
Weighted average exercise price
|
|
|
Weighted
average
remaining life
(years)
|
|
|
Aggregate intrinsic value
|
|
Outstanding, January 31, 2014
|
|
|
903,500
|
|
|
$
|
0.376
|
|
|
|
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(40,000
|
)
|
|
|
1.678
|
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2015
|
|
|
863,500
|
|
|
$
|
0.316
|
|
|
|
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(500,000
|
)
|
|
|
0.038
|
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2016
|
|
|
363,500
|
|
|
$
|
0.697
|
|
|
|
2.23
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, January 31, 2016
|
|
|
363,500
|
|
|
$
|
0.697
|
|
|
|
2.23
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated based on the stock price of $.0019 and $0.0086 per share for the years ended January 31,
2016 and 2015, respectively.
At January 31, 2016 there were 363,500 non-qualified stock options outstanding with a weighted average exercise
price of $0.697 per option; of those options 363,500 are exercisable. At January 31, 2016 there were 85,421,374 incentive stock
options outstanding with a weighted average exercise price of $0.042 per option; of those options 84,951,211 are exercisable with
a weighted average exercise price of $0.042.
During the years ended January 31, 2016 and 2015 we recognized $40,299 and $11,232
of
compensation expense related to incentive and non-qualified stock options previously granted to officers, employees and consultants.
NOTE
11 – Warrants
As
of January 31, 2016, there were 98,731,285 whole share purchase warrants outstanding and exercisable. The warrants have a weighted
average remaining life of 1.75 years and a weighted average exercise price of $0.008 per whole warrant for one common share. Whole
share purchase warrants outstanding at January 31, 2015 and 2014 are as follows:
|
|
Number of
whole share
purchase warrants
|
|
|
Weighted average exercise price per share
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2014
|
|
|
58,441,729
|
|
|
$
|
0.026
|
|
Issued
|
|
|
6,924,979
|
|
|
|
0.017
|
|
Expired
|
|
|
(5,800,000
|
)
|
|
|
0.037
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding, January 31, 2015
|
|
|
59,566,708
|
|
|
$
|
0.024
|
|
Issued
|
|
|
63,749,514
|
|
|
|
0.003
|
|
Expired
|
|
|
(24,584,937
|
)
|
|
|
0.034
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, January 31, 2016
|
|
|
98,731,285
|
|
|
$
|
0.008
|
|
|
|
|
|
|
|
|
|
|
Exercisable, January 31, 2016
|
|
|
98,731,285
|
|
|
$
|
0.008
|
|
The
weighted average intrinsic value for warrants outstanding was $0 and $0 as of January 31, 2015 and 2014, respectively.
NOTE
12 – Income taxes
As
of January 31 our deferred tax asset is as follows:
|
|
January 31, 2016
|
|
|
January 31, 2015
|
|
Deferred Tax Assets
|
|
$
|
9,391,000
|
|
|
$
|
8,853,000
|
|
Less Valuation Allowance
|
|
|
(9,391,000
|
)
|
|
|
(8,853,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Management
has elected to provide a deferred tax asset valuation allowance equal to the potential benefit due to our history of losses. If
we demonstrate the ability to generate future taxable income, management will re-evaluate the allowance. The decrease in the valuation
allowance of $538,000 during the year ended January 31, 2016 primarily represents the increase in net operating loss carry-forwards
during the period offset against the valuation allowance. The decrease in the valuation allowance of $1,390,000 during the year
ended January 31, 2015 primarily represents the utilization of net operating loss carry-forwards during the period to offset taxable
income for the year. As of January 31, 2016, our estimated net operating loss carry-forward is approximately $27,000,000 and expires
beginning in 2026 through 2036.
Internal
Revenue Code Section 382 limits the ability to utilize net operating losses if a 50% change in ownership occurs over a three year
period. Such limitation of the net operating losses may have occurred but we have not analyzed it at this time as the deferred
tax asset is fully reserved. We have federal and state net operating loss carry-forwards that are available to offset future taxable
income.
NOTE
13 – Related party transactions
We
entered into the following transactions with related parties during the year ended January 31, 2016:
Paid
or accrued $6,263 in rent on an office from Jim Briscoe, our Chairman of the Board, CEO and CFO, and President on a month-to-month
basis for $522 per month.
At
January 31, 2016 we had a balance of accrued unpaid wages of $472,953 to Jim Briscoe, our Chairman of the Board, CEO, CFO and
President.
At
January 31, 2016, we had a balance of accrued unpaid wages of $15,625 to Larry Liang, our former President.
We
have an option to explore 26 standard federal lode mining claims at the East Silver Bell project and 29 standard federal lode
mining claims at the Walnut Creek project from JABA US Inc., an Arizona Corporation in which two of our directors are owners.
We are required to pay annual rentals to maintain the claims in good standing. During the year ended January 31, 2016 we paid
$8,525 in rental fees to maintain the mineral claims in good standing. The original option agreement was for the period from April
11, 2008 through January 1, 2011 and was extended through June 1, 2013, June 1, 2015 and now to June 1, 2021. This may additionally
be extended in five year periods or increments in the future by any JABA director.
We
entered into the following transactions with related parties during the year ended January 31, 2015:
Paid
or accrued $6,263 in rent on an office from Jim Briscoe, our Chairman of the Board, CEO and CFO, and President on a month-to-month
basis for $522 per month.
At
January 31, 2015 we had a balance of accrued unpaid wages of $389,367 to Jim Briscoe, our Chairman of the Board, CEO, CFO and
President.
At
January 31, 2015, we had a balance of accrued unpaid wages of $15,625 to Larry Liang, our former President.
We
have an option to explore 26 standard federal lode mining claims at the East Silver Bell project and 29 standard federal lode
mining claims at the Walnut Creek project from JABA US Inc., an Arizona Corporation in which two of our directors are owners.
We are required to pay annual rentals to maintain the claims in good standing. During the year ended January 31, 2015 we paid
$8,525 in rental fees to maintain the mineral claims in good standing. The original option agreement was for the period from April
11, 2008 through January 1, 2011 and has been extended through June 1, 2013 and now to June 1, 2015. This may additionally be
extended in five year periods or increments in the future by any JABA director.
NOTE
14 – Commitments and Contingencies
We
are required to perform annual assessment work in order to maintain the Big Chunk Alaska State mining claims. If annual assessment
work is not performed the Company must pay the assessment amount in cash in order to maintain the claims. Completion of annual
assessment work in the amount of $400 per ¼ section (160 acre) claim or $100 per ¼ -¼ section (40 acre) claim
extends the claims for a one-year period from the staking of claims. Assessment work performed in excess of the required amount
may be carried forward for up to four years to satisfy future obligations. The Company estimates that the required annual assessments
per year to maintain the claims from 2015 forward will be $3,600 each year Sufficient assessment work has been performed for Big
Chunk to maintain the claims beyond the next labor year if retained.
The
annual state rentals for the Big Chunk Alaska State mining claims vary from $70 to $280 per mineral claim. The rental period begins
at noon September 1st through the following September 1st and annual rental payments are due on November 30th of each year. The
rentals of $6,120, to extend the Big Chunk claims through September 1, 2015 were not paid in November 2014. The estimated state
rentals due by November 30, 2016 for the period from September 1, 2015 through September 1, 2016 are $6,120 plus an equal amount
in penalty if reclaimed. Alaska State production royalty is three percent of net income. State law prescribes that after a 3.5
-year exemption from state taxes a metal mine is liable for a 15% state licensing tax on net income from the mine.
We
are required to pay annual rentals for our federal lode mining claims for the North Pipes project in the State of Arizona. The
rental period begins at noon on September 1st through the following September 1st and rental payments are due by the first day
of the rental period. The annual rentals are $155 per claim. The rentals of $1,705 for the period from September 1, 2015 to September
1, 2016 have been paid. The rentals due by September 1, 2016 for the period from September 1, 2016 through September 1, 2017 of
$1,705 have not been paid.
We
are required to pay annual rentals for our federal lode mining claims for our East Silver Bell project in the State of Arizona.
The rental period begins at noon on September 1st through the following September 1st and rental payments are due by the first
day of the rental period. The annual rental is $155 per claim. The rentals of $4,030 for the period from September 1, 2015 to
September 1, 2016 have been paid. The annual rentals due by September 1, 2016 of $4,030 are required to maintain the East Silver
Bell claims are for the period from September 1, 2016 through September 1, 2017 have not been paid. There is no requirement for
annual assessment or exploration work on the federal lode mining claims. There are no royalties associated with the federal lode
mining claims.
We
are required to pay annual rentals for our federal lode mining claims for the Tombstone project in the State of Arizona. The rental
period begins at noon on September 1st through the following September 1st and rental payments are due by the first day of the
rental period. The annual rentals are $155 per claim. The rentals due by September 1, 2016 for the period from September 1, 2016
through September 1, 2017 of $14,725 have not been paid. We are required to pay annual rentals for our Arizona State Land Department
Mineral Exploration Permits (“AZ MEP”) at our Tombstone Hay Mountain project in the State of Arizona. AZ MEP permits
are valid for 1 year and renewable for up to 5 years. The rental fee is $2.00 per acre for the first year, which includes the
second year, and $1.00 per acre per year for years three through five. The minimum work expenditure requirements are $10 per acre
per year for years one and two and $20 per acre per year for years three through five. If the minimum work expenditure requirement
is not met the applicant can pay the equal amount in fees to the Arizona State Land Department to keep the AZ MEP permits current.
The rental period begins on September 30th through the following September 29th for our Phase 1 permits, and September 14th through
September 13th for our Phase 2 permits. Rental payments are due by the first day of the rental period. We hold AZ MEP permits
for 2,366.88 acres at our Tombstone project. We will need to pay rental fees for our Phase 1 AZ MEP’s before September 29,
2016 in the amount of $3,346.88. Required minimum work expenditures for the period ending September 29, 2016 is $36,937.60. The
annual rental due by September 13, 2016 to maintain the Phase 2 AZ MEP permit is $540.
A
civil action was pending in the Alaska Superior Court in Anchorage, Alaska, that concerned title to some Alaska state mining claims
owned by Big Chunk Corp., a subsidiary of Liberty Star. In that action Big Chunk and Liberty Star requested a judicial determination
that certain lien claim notices recorded by a party named MBGS, LLC, against the mining claims were void; and MBGS sought an order
enforcing the lien claims. Liberty Star and Big Chunk filed a motion for summary judgment to invalidate the lien claims. As was
anticipated, MBGS opposed this motion. The lien claims were based on a debt alleged by MBGS to be due from Liberty Star. The existence
of this alleged debt was disputed.
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 lien claims for the Northern Dynasty transfer were released. As a result of those claims released
by MBGS, LLC, in May 2014 the company completed its loan settlement agreement with Northern Dynasty and discharged the principal
balance and accrued interest for the 2010 Convertible Note which also terminated Northern Dynasty’s earn-in-rights.
On
June 1, 2011 we rented a warehouse located at Building No. 1, 7900 South Kolb Road, Tucson, Arizona 85706. We rent this warehouse
space for $3,673 per month. The lease was in effect until May 31, 2014 with an option to extend for two additional years. The
lease was not renewed and is currently on a month to month basis. In addition to using the warehouse for standard purposes, such
as storage of our exploration equipment, supplies and samples, the warehouse space also includes office facilities for the use
of field geologists and geotechs.
NOTE
15 – Fair value of financial instruments
|
|
|
|
|
Fair value measurements at reporting date using:
|
|
Description
|
|
Fair Value
|
|
|
Quoted prices in
active markets
for
identical liabilities
(Level 1)
|
|
|
Significant
other
observable inputs
(Level 2)
|
|
|
Significant
unobservable inputs
(Level 3)
|
|
Warrant and convertible note derivative liability at January 31, 2016
|
|
$
|
3,293
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
3,293
|
|
Warrant and convertible note derivative liability at January 31, 2015
|
|
$
|
216,705
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
216,705
|
|
Our
financial instruments consist of cash and cash equivalents, accounts payable, accrued liabilities, convertible notes payable,
notes payable, and derivative 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 derivative 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 warrant liability are reported in other income (expense) as gain (loss) on change in fair value.
NOTE
16 – Subsequent events
In
February and March, 2016, an aggregate of $62,160 of the August 2013 Note was converted into 46,526,995 shares of the Company’s
common stock.
In
February 2016, we issued 2,631,579 units to an investor for total proceeds of $5,000. Each unit consists of one share of our common
stock and one warrant to purchase one share of our common stock at a price of $0.0027 per share.
We
filed a registration statement on Form S-1 with the SEC on January 21, 2016 and Amendment No. 1 thereto on February 24, 2016,
for registration of 350,000,000 shares of the Company’s common stock under the Investment Agreement dated June 20, 2015
with Tangiers Investment Group, LLC. The registration statement, as amended, was declared effective by the SEC on March 15, 2016.
On
March 10, 2016, we received proceeds of $50,000 under the November 2015 Note.
On
March 29, 2016, we issued 3,588,452 shares of common stock for proceeds of $9,077 under the Investment Agreement.
On
April 13, 2016, we issued 6,343,677 shares of common stock for net proceeds of $10,879 under the Investment Agreement.
On
April 29, 2016, we issued 4,524,285 shares of common stock for proceeds of $7,702 under the Investment Agreement