Business
Development
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.
In
October 2014, we formed the wholly owned subsidiary, Hay Mountain Super Project LLC (“HMSP LLC”), to serve as the
primary holding company for development of the potential ore bodies encompassed in the Hay Mountain area of interest in Arizona.
Our
Current Business
We
are engaged in the acquisition and exploration of mineral properties in the States of Arizona, Alaska and Southwest USA. Claims
in the State of Alaska had been held in the name of 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”):
The NPSP is 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:
The Big Chunk Super Project located in the Iliamna region of Southwestern Alaska: After much caution
and thought, as of November 30, 2016, we have decided to no longer put any funds into Big Chunk due to the current decision making
of the Environmental Protection Agency (“EPA”). If the situation becomes clarified next year, we believe we will have
the opportunity to reacquire strategic claims within the area.
Tombstone
Super Project (“Tombstone”) (formerly referred to as Tombstone Porphyry Precious Metals Project):
Tombstone is
located in Cochise County, Arizona and 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 (REE’s). We have not identified any ore reserves to date.
East
Silver Bell Porphyry Copper Project (“East Silver Bell”):
East Silver Bell is 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 in 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 Company’s mineral properties and, to the best of its knowledge, title to all properties
retained 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 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 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 a commercially viable mineral deposit, known as an “ore reserve.”
To
date, we have not generated any revenues. 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.
Competition
We
are a mineral resource company engaged in the business of mineral exploration. We compete with other mineral resource exploration
companies for financing from a limited number of investors that are prepared to make investments in mineral resource exploration
companies. The presence of competing mineral resource exploration companies may impact our ability to raise additional capital
in order to fund our property acquisitions and exploration programs if investors are of the view that investments in competitors
are more attractive based on the merit of the mineral properties under investigation and the price of the investment offered to
investors.
We
also compete for mineral properties of merit with other exploration companies. Competition could reduce the availability of properties
of merit or increase the cost of acquiring additional mineral properties.
Many
of the resource exploration companies with whom we compete may have greater financial and technical resources than we do. Accordingly,
these competitors may be able to spend greater amounts on acquisitions of properties of merit and on exploration of their properties.
In addition, they may be able to afford greater geological expertise in the targeting and exploration of resource properties.
This competition could result in our competitors having resource properties of greater quality and interest to prospective investors
who may finance additional exploration and to senior exploration companies that may purchase resource properties or enter into
joint venture agreements with junior exploration companies. This competition could adversely impact our ability to finance property
acquisitions and further exploration.
Compliance
with Government Regulation
We
will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the
exploration of minerals in the States of Arizona and Alaska.
As
of November 30, 2016, we no longer hold or retain Big Chunk mining claims as we no longer put any funds into Big Chunk due to
the current decision making of the EPA. If the situation becomes clarified next year, we believe we will have the opportunity
to reacquire strategic claims within the area.
We
are required to perform annual assessment work in order to maintain the Big Chunk mining claims. If annual assessment work is
not performed, we must pay the assessment amount in cash in order to maintain the claims. Completion of annual assessment work
in the amount of $400 per 1/4 section (160 acre) claim or $100 per 1/16 section (40 acre) claim extends the claims for a one year
period. Assessment work performed in excess of the required amount may be carried forward for up to 4 years to reduce future obligations
for assessment work. Since we have in excess of the required amount remaining from work performed within the four year period,
assessment work was not required, but was and will be carried forward up to 4 years.
The
annual state rentals for the Big Chunk mining claims vary from $70 to $680 per mineral claim and escalate with the age of the
mining claim. The rental period begins at noon September 1
st
through the following September 1
st
and annual
rental payments are due on November 30
th
of each year. Annual rent is due in full within 45 days of staking a new claim
and covers the period from staking until the next September 1
st
. The rentals of $6,120 to extend the Big Chunk claims
through September 1, 2015 were paid in November 2014. 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.
The
estimated state rentals due for the Big Chunk claims were not paid for 2016, although we could have remedied that up to November
2016 by paying rentals due. Notwithstanding, Big Chunk rental fees for claims were ultimately not paid by November 30, 2016. As
stated above, it was management’s decision that funds spent retaining claims for Big Chunk would be better spent elsewhere
due to the restrictions placed by the EPA. This will be re-addressed if EPA restrictions change.
Our
North Pipes claims are federal lode mining claims located on U.S. federal lands and administered by the Department of Interior,
Bureau of Land Management (the “BLM”). The BLM has prepared an environmental impact statement (“EIS”)
addressing potential for contamination of significant amounts of uranium leaking into the Colorado River. The EIS indicated the
danger of such contamination insignificant. Regardless, the United States Secretary of the Interior, Kenneth Salazar, through
executive order, has withdrawn federal lands from locatable mineral exploration and mining North of the Grand Canyon along the
Utah border in Arizona, the so-called “Arizona Strip”. Nearly 1 million acres of land managed by the BLM and the Forest
Service were segregated in July 2009 by the Secretary of Interior. The executive order has resulted in the withdrawal of an area
of the Arizona Strip from mining in particular, and the moratorium now is instated for the next 20 years. However, the moratorium
permits existing claims and mines to continue as before, including our North Pipes lode mining claims.
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 1
st
through the following September 1
st
, and rental payments
are due by the first day of the rental period. The annual rental is $155 per claim. The rental fees 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. There is no requirement for annual
assessment or exploration work on the federal lode mining claims, this having been supplanted by the rental fee. 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 our Tombstone project in the State of Arizona. The rental
period begins at noon on September 1
st
through the following September 1
st
, and rental payments are due
by the first day of the rental period. The annual rental is $155 per claim. Additional fees of $57 per claim are due in the first
year of filing a federal lode mining claim along with the first year’s rent. The rental fees of $14,725 for the period from
September 1, 2015 to September 1, 2016 have been paid. The annual rentals due by September 1, 2016 of $ $14,725 are required to
maintain the Tombstone claims for the period from September 1, 2016 through September 1, 2017. There is no requirement for annual
assessment or exploration work on the federal lode mining claims, this having been supplanted by the rental fee. There are no
royalties associated with the federal lode mining claims. Beginning September 1, 2011 at 12:01 PM, Liberty Star started, and subsequently
completed, staking 9 federal lode mining claims along the east edge of old patented mining claims in the main producing part of
the old Tombstone mining area. These new claims are adjacent to the south end of the Walnut Creek TS claim block and are also
named the TS claims. These claims occupy fractional land areas open to location by federal lode mining claims.
We
are required to pay annual rentals for our Arizona State Land Department (“ASLD”) Mineral Exploration Permits (“AZ
MEP”) at our Tombstone Hay Mountain Project in the State of Arizona. A mineral exploration permit is permission from ASLD
to prospect and explore for minerals on State Trust land. Exploration is any activity conducted for the purpose of determining
the existence of a valuable mineral deposit, such as: geologic mapping, drilling, geochemical sampling, and geophysical surveys.
Prior to exploration, the Plan of Operations must be approved by ASLD. The permitting process for an exploration permit takes
a minimum of 60 days. If the application is approved, the initial rent is $2 per acre. If renewed, no additional rents are due
for the second year. Rents are set at $1 per acre for years 3 thru 5. Work expenditure requirements are: $10 per acre for years
1-2; and $20 per acre for years 3-5. Removal of any minerals or materials from State Trust land without the appropriate lease
or permit is prohibited. The permit is valid for one year from the due date of the rental and bond. If renewal requirements are
met, the permit can be renewed annually for up to five years. If discovery of a valuable mineral deposit is made, the permittee
must apply for a mineral lease before actual mining activities can begin. A mineral lease permits the mining of minerals discovered
under the exploration permit. The approval process takes a minimum of six months. The mineral lease is issued for a term of 20
years. Leases may be renewed for an additional term. Both rents and royalties are determined by appraisal. Royalties may be based
on: 1) a fixed rate subject to annual adjustment; or 2) a sliding-scale rate which is linked to a commodity index price and the
operation’s break-even price. There is a statutory minimum royalty rate of 2% of gross value. These AZ MEPs require a reclamation
bond of $3,000 which we currently hold. The first year’s rental has been paid for these MEPs and the escalating rental is
due on the anniversary of the MEP each year. After the end of the 4th year, the MEPs must transition to a State Mineral Lease
upon satisfaction of the State Mineral Inspector that economic indications of a minable deposit exist. After commencement of mining,
the State of Arizona shall be paid a minimal net smelter return after taking into consideration any extenuating mining challenges
royalty but not less than a 2% gross royalty. The rental period begins on September 30 through the following September 29 and
rental payments are due by the first day of the rental period. We hold AZ MEP permits for 1,886.88 acres at our Tombstone project.
Required minimum work expenditures for the period ended September 29, 2016 are $37,737. The annual rentals and renewal fees due
by September 30, 2016 to maintain the AZ MEP permits are $3,886.88.
With
respect to the foregoing properties, additional approvals and authorizations may be required from other government agencies, depending
upon the nature and scope of the proposed exploration program. The amount of these costs is not known at this time as we do not
know the size, quality of any resource or reserve at this time, and it is extremely difficult to assess the impact of any capital
expenditures on earnings or our competitive position.
Personnel
Currently
we employ one full time geologist who is also our CEO, CFO, President and Chairman of the Board, James A. Briscoe. We also employ
one full time VP for management of finance and accounting, one as-needed PhD consulting geologist specializing in GIS computer
mapping and database creation, one full time geo-tech, who is also our manager of field operations, and one investor relations
representative.and one CPA on an as needed basis. We hire consultants for investor relations, exploration, derivative accounting,
and administrative functions also on an as needed basis.
Description
of Property
Our
offices
We
rent the premises for our principal office located at 5610 E. Sutler Lane, Tucson, Arizona 85712. We rent this office space which
is located in the home of our CEO, CFO and President for $522 per month plus a pro rata share of taxes and maintenance. Our employees
work either from our principal office or from offices maintained in their homes.
We
believe that our existing office facilities are adequate for our needs. Should we require additional space in the future, we believe
that such space can be secured on commercially reasonable terms.
Our
warehouse
In
2011 we rented a warehouse located at Building No. 1, 7900 South Kolb Road, Tucson, Arizona 85706. We rented this warehouse space
until September 2016. The lease was on a month-to-month basis for a rental payment of $3,673 per month. In addition to using the
warehouse for standard purposes, such as storage of our exploration equipment, supplies and samples, the warehouse space also
included office facilities.
As
of October 1, 2016, the Company entered into a 24-month office lease at 5232 E Pima Street, Suite D, Tucson, Arizona, effective
October 1, 2016 through September 30, 2018, with a base rent of $2,100 per month through September 30, 2017 and then $2,163 per
month through September 30, 2018.
Our
mineral claims
All
of the Company’s claims for mineral properties are in good standing as of January 31, 2016.
North
Pipes Super Project (“North Pipes” and “NPSP”):
We
hold a 100% interest in 11 (unpatented) federal lode mining claims strategically placed on the Arizona Strip. The 11 unpatented
federal lode mining claims with an area of 227.7 acres include breccia pipe targets (“Pipes”). Breccia pipes are cylindrical
formations in the earth’s crust sometimes identified by a surface depression, or surface bump or no visible surface expression
at all, and contain a high concentration of fragmented rock “breccia” sometimes cemented by uranium and other minerals.
We plan to ascertain whether our North Pipes claims possess commercially viable deposits of uranium. Due to the moratorium of
location of lode mining claims on the Arizona Strip and the low price of U3O8 we have no current exploration plans and will not
until the uranium price increases and the moratorium expires in about 15 years. We intend to hold a strategic position until such
time that it is economically feasible to mount a new drilling program. We want to take advantage of more than a million dollars
of exploration data which was acquired by Liberty Star when uranium prices were higher and before the moratorium was instituted.
North
Pipes is located on the Arizona Strip, which is located approximately 10 miles south of the town of Fredonia, AZ. Access is by
Hwy 389 and various dirt roads, some of which are maintained and some that are very primitive. 4WD vehicles are necessary for
the primitive dirt roads. Some of the claims cannot be driven to and require hiking to their location or under an approved plan
of operation it is possible to create an access road.
North
Pipes-AZ Claims:
|
|
11
LA Claims
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Total:
11 Claims - 227.7 Acres
|
Our
NPSP claims are undeveloped. There are neither open-pit nor underground mines, nor is there any mining plant or equipment located
on the properties. There is no power supply to the properties. We have not found any mineral resources on any of our claims. The
Arizona Strip was an active exploration district in the 1970’s and 1980’s with multiple producing uranium mines. No
evidence of actual development work has been found on any of our properties and no significant exploration activities have been
performed on our NPSP claims since 2008 due to many factors including the lowered uranium prices and the moratorium on locating
claims. Below is a summary of prior exploration activities performed on our NPSP claims:
Geophysics:
We have completed PEM (Pulse Electro-magnetic) geophysical surveys on some of our NPSP claims. Two types of PEM surveys were
conducted in 2007: (i) Downhole PEM and (ii) In-Loop PEM. We have also used CSAMT and NSAMT (Controlled and Natural Source Audio-range
Magneto Tellurics), run on the ground and executed by Zonge Engineering of Tucson AZ. A survey was also completed on an approximately
six square mile area by VTEM helicopter borne electromagnetic survey along right angle crossing grid lines spaced 100 meters apart,
which was performed by Geotech of Aurora, Ontario, Canada. Significant anomalies resulted from this survey. Preliminary drilling
on one of Liberty Star’s anomalies intersected strong breccia, alteration and pyrite mineralization. The holes did not penetrate
down to the elevation where uranium mineralization would be expected, but are targets for future work. As of this date we have
not developed any uranium resources on the Arizona Strip.
Stereoscopic
geologic color air photo interpretation (photo-geology):
Stereoscopic geologic interpretation of 1:24,000 (1 inch = 2,000
feet) high resolution color air photographs were contracted for and completed by Dr. Karen Wenrich and Edward Ulmer, a Registered
Professional Geologist. Dr. Wenrich worked on the Arizona Strip uranium bearing breccia pipes almost exclusively during her twenty
three year tenure with the United States Geological Survey from which she is now retired. During this period of study she authored
many professional papers on breccia pipes of the Grant Canyon area, and is considered a foremost expert on them. Mr. Ulmer worked
on the Arizona Strip in the mid to late 1970s working on both imagery interpretation and surface geology.
Geologic
field mapping on the surface:
Geological field mapping was conducted in the fall of 2005 through 2007 by our staff geologists
as well as contracted geologists. Approximately 180 of the breccia pipe target areas have been mapped in detail 1:5,000 (1 inch
= 417 feet). Several detailed measured stratigraphic sections have also been completed.
Geochemical
sampling:
A comprehensive soil geochemical survey was completed in 2007. We have collected approximately 14,000 soil samples
over all identifiable breccia pipes, both those with known ore and those that are yet to be proven by drilling. A strict chain
of custody procedures were followed and quality assurance/quality control (QA/QC) samples were inserted regularly into the sample
stream. The samples were assayed for 63 elements. Assay analyses were conducted by a Certified Assay Lab, Acme Analytical Laboratories
of Vancouver, British Columbia, Canada. We believe that these samples allow us to identify potential uranium bearing breccia pipes
versus barren or non-uranium bearing breccia pipes.
Drilling:
In 2007 a drilling program was undertaken using both rotary drilling and core drilling. Rotary drilling was contracted by
Boart Longyear. Diamond core drilling was completed by Redwall Drilling Inc., a former wholly owned subsidiary of Liberty Star.
A total of 22 holes were drilled for a total of 16,226 feet of drilling. Important intersections of rock generally associated
with producing breccia pipes were made. We did not intersect any ore mineralization during the drilling program.
Total
costs including claim staking (initially in 2005), claim maintenance and a drilling program (exploratory) in calendar years 2007
and 2008, are $5,220,794.
Beginning
in 2006, Certified Professional Geologist Dr. Karen Wenrich and a dozen other well regarded geoscientists engaged in an exploratory
program centering on the region’s breccia pipes. By the time Dr. Wenrich came to work on the North Pipes project, she had
27 years with the USGS working on breccia pipe research and was a member of a Nobel Peace Prize winning team of UN atomic science
specialists. The Liberty Star team worked with high resolution color aerial photographs and other reconnaissance covering approximately
2,000 square miles to format geological maps of the terrain. In addition to geology, geophysics gamma ray spectroscopy, approximately
14,000 soil samples were collected and analyzed by a certified lab for 63 elements. These were located precisely as they were
collected using GPS. The results were compiled and plotted using GIS software, and various contouring and interpretation techniques.
Expenses included food and lodging and a daily commute of approximately 100 miles. Road conditions were extreme and resulted in
vehicle expenses of approximately $2.00 per mile. Various contractors were used in claim staking, and other contract work in sample
collection. Helicopters and light planes were used for various transportation tasks. Home office support also involved permanent
and contract support.
Exploratory
drilling includes costs of travel, food and lodging, payments on the drill rig, drill bits, fuel, drilling permits, and maintenance
costs of the drill rig and of support vehicles. Also included are the costs of reclamation bonds and reclamation costs of lands
disturbed by drilling, as well as the costs of conducting archaeological surveys to identify prehistoric remains of human habitation
or human activity.
Currently
there are no planned costs for the North Pipes Super Project unless commodity prices, specifically for uranium, increase sufficiently
to make exploration financially tenable. The Moratorium on acquiring any additional land has also negatively affected the current
investment climate for such work. However we have a letter agreement with Mr. Andrew Mueller to option our existing claims North
Pipes claims to him for mining using his vertical bore technology. He believes this will make the Pipes exploitable.
Big
Chunk Super Project (“Big Chunk”) – Location, claims, geology and technical studies:
Prior
to November 30, 2015, we held and retained a 100% interest in 9 State mining claims in the Iliamna region of Southwestern Alaska
with an area of 1,440 acres, located on the north side of the Cook Inlet, approximately 265 miles southwest of the city of Anchorage,
Alaska. During 2015 until November 30, 2016, we planned to ascertain whether the Big Chunk claims possessed commercially viable
deposits of copper, gold, molybdenum, silver, palladium, rhenium and zinc. During such time, due to decisions made by the EPA
regarding the nearby Pebble Deposit we had no immediate exploration plans, however, we intended to hold our land position until
such a time we determined it was clear that exploration was economically viable again.
However,
as of November 30, 2016, after much caution and thought, we decided to no longer put any funds into Big Chunk due to the current
decision making of the EPA. Accordingly, Big Chunk rental fees for claims for 2016 were not paid by November 30, 2016. It was
management’s decision that funds spent retaining claims for Big Chunk would be better spent elsewhere due to the restrictions
placed by the EPA. Therefore, we currently no longer hold or retain Big Chunk claims. If the situation becomes clarified next
year, we believe we will have the opportunity to reacquire strategic claims within the area.
Historical
Information Regarding Big Chunk:
Historical
Big Chunk-AK Claims
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BC
817
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BC
1114
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BC
818
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BC
1115
|
BC
841
|
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BC
842
|
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BC
1104
|
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BC
1105
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BC
1113
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9
BC Claims- 1,440 acres
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Our
Big Chunk claims were not developed. Big Chunk is in the Iliamna region of Southwestern Alaska, located on the north side of the
Cook Inlet, approximately 265 miles southwest of the city of Anchorage Alaska. The claims were located in a remote area of Southwestern
Alaska near Lake Iliamna, Alaska’s largest lake. The claims were immediately adjacent and contiguous to the Pebble mine
property and about 3 miles north east from the Pebble Porphyry copper, gold, molybdenum, silver, palladium, rhenium and zinc mineral
deposit which is reportedly one of the largest of its type in the world. Two or more Air Taxi services connect to the village
of Iliamna roughly 240 miles distant from Anchorage. At Iliamna, approximately 27 miles southeast of Big Chunk, there is a major
regional airport, Fixed Base Operator (FBO), fuel, bush planes and, periodically, helicopters for rent with pilot. Air is the
only practical way to the property either by float plane, ski plane in the winter, or helicopter. Ground travel is unsafe and
impractical in the summer due to the dense population of black bears, grizzly bears, bogs and small lakes. Winter access by snow
machine could be possible, although difficult.
In
2011, the Company engaged the international firm of SRK Consulting, Engineering and Scientist of Tucson (“SRK”) through
its Tucson, Arizona office to prepare a Technical Report in the same format of the internationally accepted Canadian National
Instrument NI 43-101. Because the Company’s stock does not trade on any Canadian stock exchanges, this Technical Report
was not submitted to SEDAR, the electronic system for the official filing of documents by public companies and investment funds
across Canada. In their report which encompasses some 194 pages of technical data, they compared the Northern Dynasty NI 43-101
geologic and drill data, published on the Northern Dynasty web site in its entirety, to results of Liberty Star’s technical
work on the Big Chunk ground. They concluded amongst other things: (1) Twenty seven scout diamond drill holes drilled by Liberty
Star in 2004 – 2005 intersected the same rock types as were intersected in the exploration drilling on the Pebble deposit
(2) All drill holes, which were spaced over some 500 square miles, intersected the outer shell or propylitic halo of multiple
porphyry copper systems, which is the model co-developed by our director, Dr. John Guilbert; and (3) Copper and molybdenum sulfides
along with low grade gold were intersected in two drill holes in the White Sox target area. “This mineralization and associated
alteration may indicate a porphyry Cu-Mo system” (SRK Big Chunk Technical Report- page 109, 11.2 Results of Drilling). After
publication of the report in August of 2012 during a review of core logs it was discovered that diamond core hole 1003 showed
characteristic copper and molybdenum chalcopyrite and molybdenite, as well as lead, zinc and silver. The hole was stopped prematurely
in increasing values of these metals at a depth of 206.4 meters. The area of the Big Chunk Claims is largely covered by glacial
debris, soil, and tundra. There are no open-pit or underground mines, nor is there any mining plant or equipment located on the
properties. There is no power supply to the properties. There is no road access to the properties, but such public road access
is planned for the Pebble mine, and as currently planned, that road will cross the Company’s land, and be accessible for
the Company’s use. Extensive geotechnical data on the Big Chunk claims has been acquired between startup of 2004 and the
current time. Extensive geophysical data has been acquired by the Company of several types, which includes the following:
(1)
an extensive airborne magnetic survey flown by McPhar Geosurveys Ltd., Newmarket, Ontario Canada over 18,243 line kilometers covering
3,646 square kilometers using: (a) a draped survey with a mean elevation of the instrument above the terrain of 200 meters (600
feet) feet; (b) a line spacing of 250 meters (800 feet); (c) and a sample interval of 8 meters (26.4 feet). State of the art magnetometer,
GPS, radar altimeter, and computer recording of data were used and in our opinion no other survey of this quality and precision
is available in the area.
(2)
127 linear miles of Induced Polarization (IP) was run by Zonge Engineering of Tucson AZ. Of necessity lines were brushed of all
trees and undergrowth and all access was by helicopter, however, the lines themselves were done on the ground by foot. All data
was recorded on appropriate computers, downloaded each evening and sent to the Zonge Office in Tucson and to our consulting geophysicist
Mr. Jan Klein in Vancouver, BC, Canada. Mr. Klein supervised all IP and other geophysical surveys over the Pebble for Cominco
who sold the Pebble Project to Northern Dynasty. Thus, we believe Mr. Klein has had more experience in the geophysics of the area,
which includes over 2,000 square miles, than any other geophysicist. The results were interpreted and sent back to the Alaska
headquarters every night.
(3)
Liberty Star contracted with Geotech Limited of London, Ontario, Canada to run their ZTEM Electro Magnetic (EM) airborne survey
equipment over the Big Chunk project. This thoroughly tested system can look down 2,000 meters (6,000 feet) in to the crust of
the earth and detect sulfide mineralization associated with porphyry copper-gold systems, as well as other geologic features.
This survey was completed in August 2009. The survey covered 315.2 sq. kilometers (121.7 sq. miles) and consisted of north-south
lines spaced 250 meters apart on our Big Chunk Super Project mineral claims. In May 2010, Liberty Star received feedback from
Geotech Ltd. that its interpretation showed at least 4 to 7 signatures that are consistent with porphyry copper responses. The
2D computer model shows typical low responsive areas, which could correspond to an ore mineral core zones with a surrounding responsive
cylinders representing a pyrite halos typical of Porphyry copper systems. For control, Geotech flew a survey the day after completing
the Big Chunk survey, over the Pebble mineral deposit. The anomalies on Big Chunk show strong similarities to the Pebble.
During
the field seasons of 2004 and 2005 Liberty collected approximately 11,000 geochemical samples. The sampling program was designed
by both consulting geochemist, Shea Clark Smith, of MEG Laboratories in the Reno area of Nevada, and Liberty Chief Geologist,
James A. Briscoe. The sampling program was based on many years of geochemical studies and sampling throughout the world by Mr.
Smith and his Master’s Degree thesis on sampling tundra plants and detecting metals in their woody stems reflecting metals
at depth. Further, Mr. Smith and Mr. Briscoe used this technique to locate buried porphyry copper deposits in the Silver Bell
district (see discussion of the East Silver Bell Project in this report) near Tucson, Arizona in 1996 -1998. The methodology was
conceived, discovered and proven in a well-known porphyry district south of Tucson, Arizona between the periods 1950 to 1955.
At Big Chunk the samples collected included: (1) stream sediment; (2) stream water; (3) pond and small-lake water; (4) soil samples;
and (5) vegetation sampling new growth of woody plants. These samples were analyzed by Acme Labs, a Certified Assayer in Canada
for 64 elements for each sample. For the eleven thousand samples, this resulted in approximately seven hundred thousand separate
analyses including blanks, repeat and control samples part of the QA/QC (Quality Assurance Quality Control) procedures. Because
of the overload worldwide in all assay labs at the time, turnaround time for the assays was up to three or more months. After
receipt of the samples, they were processed using computer techniques and the results analyzed and interpreted. Known indicator
elements, including porphyry copper-gold mineral center elements, formed typical porphyry copper center anomaly zones. Additionally,
samples taken by Liberty Star over the Pebble deposit, with the permission of Northern Dynasty, indicated that mineral body to
be detectable by these methods. The geochemical methodology was used by the US Geological Survey, under contract for the Pebble
partnership over the Pebble mineral zone, and data was published in 2010. It was again shown to be effective in indicating the
Pebble deposit mineralization at depth. The anomalies generated by both deep looking ZTEM and geochemistry by Liberty Star have
been tested by published results from drilling in the Pebble mineral body. The same types of targets in the Liberty Star Big Chunk
have yet to be tested by drilling in a significant way.
We
were unaware of any previous claim ownership anywhere on our Big Chunk claims in Alaska. No historical drilling resulting in mineral
resources or reserves appears in the published literature concerning the property. Minor exploration was conducted by Teck Cominco
Alaska, and Anaconda Mining Inc. The United States Geological Survey does not do exploration but they had done minor geological
mapping in the north part of the Big Chunk caldera, along with widely spaced aeromag surveys in the same area. We are not aware
of any prior exploration that was conducted on our Big Chunk claims in Alaska prior to January 10, 2004, when our aerial magnetic
survey began.
We
had not defined mineral resources on any of our previous claims at Big Chunk.
Letter
Agreement and Secured Convertible Note with Northern Dynasty Minerals Ltd. With Respect to Big Chunk
On
July 15, 2010, we issued a secured convertible promissory note (the “2010 Convertible Note”) to Northern Dynasty Minerals
Ltd (“Northern Dynasty”). The original advanced amount is $4,000,000 and bears interest at a rate of 10% per annum
compounded monthly (the “Loan”). On August 17, 2010, we transferred 95 of our Alaska State mineral claims from the
Big Chunk Super Project to Northern Dynasty for consideration of $1,000,000 of the original advanced amount under the Convertible
Note, leaving $3,000,000 of the Loan amount outstanding. No interest accrued on the $1,000,000 of the original advanced amount.
Effective September 1, 2011, the agreement with Northern Dynasty was amended to increase the 2010 Convertible Note by $561,816
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 an earn-in option and joint venture
agreement with Northern Dynasty. On February 29, 2012, with effect from November 30, 2011, we executed an additional convertible
promissory note (the “2011 Convertible Note” and together with the 2010 Convertible Note, the “Convertible Notes”)
in the amount of $168,358 in reimbursement to Northern Dynasty of assessment work, rental fees and filing fees on our mineral
claims.
As
part of the transactions noted above, we entered into a letter agreement with Northern Dynasty whereby, subject to negotiating
and signing a definitive earn-in option and joint venture agreement, Northern Dynasty could earn a 60% interest in our Big Chunk
and Bonanza Hills projects in Alaska (the “Joint Venture Claims”) by spending $10,000,000 on those properties over
six years. The outstanding loan amounts from Northern Dynasty could be applied as part of Northern Dynasty’s earn-in requirements.
Northern Dynasty’s 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.
On
November 14, 2012, we signed a loan settlement agreement with Northern Dynasty which would have discharged the $3,730,174 principal
balance and $1,592,769 of accrued interest for the 2010 Convertible Note and would have terminated Northern Dynasty’s earn-in
rights. In exchange for the settlement, we initiated the transfer of 199 Alaska mining claims to Northern Dynasty’s 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 Dynasty’s 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 in April 2014.
Tombstone
Super Project (“Tombstone”):
Our
CEO, CFO, President, Chief Geologist and Chairman of the Board, James A. Briscoe, has long experience in the Tombstone district,
southeast Arizona, where he first worked in 1972. In the mid-1980s, he concluded that much earlier regional geologic work had
reached erroneous conclusions and that Tombstone was a large and ancient (72 million years before the present – or Laramide
in age) volcanic structure – a caldera. He brought this to the attention of the US Geological Survey caldera experts, who
after study concluded that Briscoe was correct. Subsequently, more than seventeen calderas of various ages have been identified
in Arizona by the US Geological survey, the Arizona Geological Survey and others. Such calderas of Laramide age are all associated
with porphyry alteration and copper and associated mineralization; many of these have become very large copper mines. Studies
by Mr. Briscoe over the years, and more recently using advanced technology, have indicated that alteration associated mineralization
at Tombstone is much more extensive than originally thought. This alteration lies largely under cover and is indicated by geochemistry,
geophysics and projection of known geology into covered areas.
We
hold 95 unpatented standard federal lode mining claims with an area of 1,798.68 acres located due east and southeast of the town
of Tombstone, Arizona. The Walnut Creek Project is located immediately east of the town of Tombstone. The Hay Mountain Project
is located 6.5 miles southeast of Tombstone; access is by Hwy 89 and Davis Rd. We also hold Arizona State Mineral Exploration
Permits (MEPs) covering (1,886.88 acres) or 3 square miles in the same area. We also hold an option to explore 29 unpatented standard
federal lode mining claims (604 acres out of the total 1,798.68 acres) located in the same region. On April 29, 2008 Liberty Star
announced that it had leased, with an option to purchase, three properties from JABA US Inc. in Arizona and Nevada, USA. Liberty
Star President James A. Briscoe controls JABA US INC and Dr. J. M. Guilbert, Director of the Company, holds a small stock position
as well. The properties in Arizona are part of the Tombstone and the 26 claims East Silver Bell projects. The option covering
the property in Nevada was sold in October, 2008 to NPX Metals. Proceeds from that sale were loaned immediately back to Liberty
Star by Mr. Briscoe. For the remaining claims, according to the option agreement, Liberty Star could earn up to 100% interest
by keeping up annual assessment work and spending $175,000 in exploration expenditures on the properties between April 2008 and
January 1, 2011. This provision payment of assessment and related expenses has been met and option agreement has been maintained
over the Tombstone and East Silver Bell Claims.
LIBERTY
STAR
|
|
|
TOMBSTONE-AZ
|
|
JABA
Optioned Claims
|
Federal
Unpatented Claims
|
Claim
Names
|
HM
87-143
|
|
TS
129- 152
|
TS
168-176
|
|
TS
163- 167
|
Claim
Acreage
|
57
HM Claims- 1095.18 acres
|
|
29
TS Claims- 604 acres
|
9
TS Claims- 99.5 acres
|
|
|
|
|
|
State
Exploration Permits
|
3
State MEP’s- 1,886.88 acres
|
|
|
At
Hay Mountain, we plan to ascertain whether the Hay Mountain lode mining claims and AZ MEPs possess commercially viable deposits
of copper, gold, molybdenum, silver, zinc, rare earth metals and other valuable metals. We have a phased exploration plan that
involves diamond core drilling of multiple holes over targets determined by analysis of geochemical sampling and ZTEM electromagnetic
and magnetic survey. Initial phase 1 drilling is planned to take approximately one year. Should results indicate the viability
of the project, additional phased work, both exploration and development, is planned over the course of seven total years to define
the nature and size of an ore body(s) and move toward mining. Any exploration plans are dependent on acquiring suitable funding.
No part of the phased program is currently funded.
The
Tombstone claims are undeveloped. However significant amounts of aeromagnetic surveys, IP (Induced Polarization Surveys), geologic
mapping by the USGS and others, and geochemical surveys including soil, rock and vegetation sampling have been conducted at various
times by various parties, over the last 60 years. When compiled and analyzed these various data suggest a compelling series of
anomalies that are typical of buried, dirt and rock covered porphyry copper system(s). Below is a summary of prior exploration
activities performed on our Tombstone claims:
Technical Report
: In mid-March 2011, Liberty Star contracted SRK to prepare
three (3) Technical studies and Reports in a form similar to mineral reports prescribed under NI 43-101. Members of SRK’s
engineering/scientific staff supervised by a Qualified Person as defined under NI 43-101 and SRK’s Tucson Office Principal
Geologist, Corolla Hoag, and geologist Dr. Jan Rasmussen have visited the Tombstone property. This information was combined with
historic technical reports going back to 1878 and more recent data up to August 2011 (the date of their reports). The three Technical
Reports are entitled: (1) Walnut Creek Exploration Report, Tombstone District, Arizona –August 31, 2011, 147 pages; (2)
The Tombstone Caldera South Exploration Report, Tombstone District, Arizona –August 31, 2011, 144 pages; and (3) Hay Mountain
Exploration Report, Tombstone District, Arizona – August 31 2011, 155 pages. Because the Company’s stock does not
trade on any Canadian stock exchanges, these three Technical Reports were not submitted to SEDAR, the electronic system for the
official filing of documents by public companies and investment funds across Canada. We had also requested that SRK prepare a
report on the Tombstone Consolidated Mines patented claims. These claims covered the entirety of historic productive area of the
Tombstone mines which date to their discovery in 1877. However, before that report could be completed a competitor acquired a
lease on those lands. These Technical Reports thoroughly summarize and illustrate the salient geotechnical data of the Tombstone
Mining District covering about 250 square miles and present much data in computer map format. In such context, they analyze Liberty
Star’s exploration programs as related to the entire area, make estimates and recommend execution of proposed Company exploration
programs. Because of competitive pressure and the unique nature of the data which includes 40+ years of private report compilation
by Mr. Briscoe, these reports are considered confidential and will not be released for the foreseeable future.
Geochemical
sampling at the Hay Mountain Project
: In 2011 and early 2012 we collected nearly 1,800 rock, soil and vegetation samples over
621 sample sites over approximately 14 square miles centered on the Hay Mountain property. These samples have been assayed for
63 elements generating about 113,000 analyses. The samples were prepared by MEG Inc. and have been shipped to ALS Minerals (ALS-Chemex)
a Certified (under NI 43-101 criteria and approved by regulatory processes) geochemical analysis lab in Vancouver, British Columbia.
Assay results have been sent to our Tucson office and all assays have been received. Our geology team has generated computer analyses
that allow interpretation of the data.
Geologic
Mapping:
Small scale geologic mapping was performed in the Hay Mountain area by two different U.S. Geological Survey Senior
Geologists. The first was by James Gilully starting in the late 1930s and published in the early 1950’s, as a Professional
Paper 281, 1956, and the second by Harold Drewes, published USGS Professional Paper 1144 1981. The Drewes map was a simplified
version of the Gilully map with faults adjusted to Drewes’s interpretation. Unfortunately, little or no refinement of the
rock types or actual outcropping rocks was accomplished. Gilully, while apparently generally correct in outcrop identification,
disturbingly on close examination it appears he missed important outcropping rocks and at least in the Hay Mountain area of the
major geochemical anomaly he misinterpreted stratigraphic rock types. In the area we have termed the Chrysocolla Block he failed
to note the outcrop completely and our thorough examination revealed it to be Earp formation, whereas all the surrounding mapped
area was mapped as the younger Colina limestone. This would put the Chrysocolla Block more than 1,000 feet above the Earp and
1,700 feet or more above the receptive-to- mineralization Horquilla formation where most of the production from Bisbee has been
found and high grade which is now being drilled out at Rosemont Camp about 50 miles to the west. This critical error we have corrected
on our maps to show this area as the lower Earp and believe that the recently discovered gossan outcrops are lying perhaps 200
to 400 feet above the Earp- Horquilla contact. Furthermore, neither Gilully nor Drewes noticed pervasively fluidized and rounded
limestone breccia which covers square miles and is typical feature of porphyry copper deposits. We believe perhaps massive copper
(chalcopyrite) mineralization will be located in the Horquilla formation 200 to 400 feet below the gossan outcrops in the Earp
formation. This analysis plus all of our geochemistry and geophysics is the justification for our currently planned drillhole
program.
ZTEM
EM
Survey
: We have requested and have received a cost estimate from Geotech of Aurora (Toronto area) Ontario, Canada, which
is the only purveyor of this helicopter borne electromagnetic (EM) geophysical method. This geophysical method has the ability
to “look down” into the crust of the earth about 2,000 meters (6,000 feet) and detect sulfides which may be associated
with porphyry copper systems. Test work over known Safford, Arizona porphyry copper deposits along with thousands of verifying
drill holes show the geometry of such mineral systems can be determined, thus identifying whether it is a porphyry copper system
or some other mineral system. When combined with our geochemical data, we can determine the position of the copper-moly center
of the system and design our drill program to efficiently test and define mineralization. We flew ZTEM in July 2013 and the analysis
report was received in February 2014.
East
Silver Bell Porphyry Copper Project (“East Silver Bell” or “ESB”)
:
Located
northwest of Tucson, Arizona, these claims currently are within the Ironwood National Monument, which was established after the
claims were staked and validated by numerous drill holes in addition to extensive technical studies. We plan to ascertain whether
the East Silver Bell claims possess commercially viable deposits of copper. We hold an option to explore 26 unpatented standard
federal lode mining claims with an area of 536.03 acres located in the same region. The optioned mineral claims are owned by JABA
US Inc., a corporation in which two of our directors are owners. On April 29, 2008 Liberty Star announced that it had leased,
with an option to purchase, three properties from JABA US Inc. in Arizona and Nevada, USA. The properties in Arizona, are part
of the Tombstone (and the 26 claims) East Silverbell projects. The option covering the property in Nevada was sold in October,
2008 to NPX Metals, and the proceeds were paid by JABA US Inc. as a loan to Liberty Star. According to the option agreement, Liberty
Star can earn up to 100% interest by keeping up annual assessment work and spending $175,000 in exploration expenditures on the
properties between April 2008 and January 1, 2011. This provision has been met for the assessment work and other related expense
payments, and even though the work commitment is now in arrears, the option agreement has been maintained over the Tombstone and
East Silver Bell Claims.
JABA
Optioned Properties
|
East
Silver Bell-AZ Claims
|
ESB
180-191
|
ESB
193
|
ESB
195
|
ESB
238
|
ESB
240
|
ESB
242-245
|
ESB
247-251
|
ESB
301
|
26
ESB Claims- 536.03 acres
|
Located
approximately 30 miles northwest of Tucson, Arizona, 18 miles from the Avra Valley road off ramp and then 18 miles west, just
north of that road on dirt roads (accessible with a 2 wheel drive vehicle), the claims currently are within the Ironwood Forest
National Monument, which was created after the claims were staked, underwent detailed geochem and geophysical studies and drilled
with numerous drill holes revealing a mineralized body. We plan to ascertain whether the East Silverbell claims possess commercially
viable deposits of copper. Due to difficulty of doing work on the Ironwood Forest National Monument, which was created after drill
definition of a mineral body on our claims, we are negotiating with an adjacent fee-simple, land-owner on which half of the mineral
zone lies, to explore in detail to develop a viable ore body.
The
East Silver Bell claims are undeveloped. The ESB block of claims were staked circa 1994 about five miles east of the ASARCO Solvent-Extraction-Electro-Winning
(SXEW) plant. The East Silver Bell claims are directly adjacent and contiguous to the ASARCO Patented (fee simple) lands. Circa
1994 JABA (US) Inc. compiled geophysics –consisting of existing, widely spaced airborne magnetics, collected soil and vegetation
geochemical samples, performed detailed photo interpretation from high resolution color aerial photography, mapped surface geology,
breccia pipes and performed detailed mapping and interpretation of leached capping and performed very closely spaced man borne
magnetic surveys over alteration and projection of the edge of the Silver Bell caldera and associated mineral belt that includes
the Silver Bell porphyry copper mines that could be seen on the color air photos. The surface magnetic survey was interpreted
by geophysicist Edward DeRidder, who pointed out a magnetic low that he interpreted as a porphyry copper magnetic low. Subsequently,
north-south Induced Polarization (IP) lines were run and interpreted by Zonge engineering, to show a sulfide response at 900 to
1,000 feet below the surface. All of this data was plotted in 3D images showing overlapping and mutually reinforcing geochemical,
ground magnetic and IP geophysics, and geologic- alteration mapped anomalies. Half of this responsive area lies on the adjacent
ASARCO ground and half lies on JABA (US) ground. Subsequent to these studies, the ground was lease-optioned to Valarie Gold Exploration
Inc., (Valarie) a Canadian exploration company. They drilled 6 holes to a predetermined depth of 600 feet, using a rotary drill
and recovered drill chips, sampled at 5 foot intervals. The drilling penetrated and recovered classic chalcocite leached capping
typical of that material occurring over ore bodies in the Silver Bell mines of North Silver Bell, El Tiro and Oxide open pit mines.
Geochemical assays of the cuttings showed three to four relict ghost copper enriched zones to the final arbitrary depth of six
hundred feet. These holes did not penetrate the leached chalcocite capping rock and did not enter sulfides. Valarie relinquished
their lease. Latter Kennecott Copper Corp. optioned the claims and drilled three rotary drill holes. Of these holes two twisted
off the drill bits at shallow depth and had to be abandoned while in the leached chalcocite capping. One hole penetrated to a
depth of 1,000 feet but poor sampling procedures negated any meaningful data from this hole, when primary samples were irretrievably
lost. These two drill attempts were predictably not successful but geochemistry from the Valarie drill holes did show shadow geochemical
copper enrichment indicating chalcocite enrichment in the sulfide blanket below and the Kennecott effort did recover some chalcocite
(enriched copper sulfide) circa 1998 the Ironwood National Monument was created over JABA’s valid mining claims. The surface
of these claims cannot be used to extract the copper mineral body below by the open pit mining method. Since half of the geophysically,
geochemically, geologically, alteration indicated mineral body is located on ASARCO patented land and because the ASARCO SXEW
plant is only five miles to the west, it is believed that this mineral body can be extracted from the ASARCO property by underground
– in situ leach technology at some point in the future. To date we have not identified any ore reserves on the East Silver
Bell Project.
We
have not found any mineral resources on any of our claims.
Sampling
Protocols for all projects
Liberty
Star trains all employees/contractors conducting sample collection to use a handheld digital mobile device to record all aspects
of each individual sample. The handheld mobile device leads the sampler through a series of dropdown menu windows with various
description capabilities and the ability to record a GPS coordinate. Data from the device is uploaded to our database daily. Liberty
Star also uses professionally created video training to teach samplers the proper techniques of obtaining a proper sample whether
it is soil, rock or vegetation and instruction on avoiding contamination. After samples are collected they are stored in a secure
location under lock and key until they are shipped via FedEx or UPS using chain of custody guidelines to a professional sample
prep lab in Washoe Valley, Nevada run by Shea Clark Smith, MSc/ Geochemist. Mr. Smith prepares the samples by crushing, mixing,
pulverizing and homogenizing. Then a 200 gram sample is scientifically split for shipment to a Certified Assay Laboratory of each
original sample. Standards, blanks and duplicates are added to the sample stream, including such Quality Assurance Quality Control
(QA/QC) every 10th assay sample. Before being sent to a certified assay lab using ICP-MS analysis the samples are randomized.
Once Liberty Star gets the analysis data back from the laboratory, checks for quality assurance and control are made using data
from the blanks, standards and duplicates. The results are sent to Liberty Star by email and a paper copy mailed for verification
and as a permanent record. The data are then de- randomized and processed for interpretation by various software programs designed
for the purpose.
Legal
Proceedings
We
know of no material pending legal proceedings to which our company or any of our subsidiaries is a party or of which any of our
properties, or the properties of any of our subsidiaries, is the subject. In addition, we do not know of any such proceedings
contemplated by any governmental authorities.
We
know of no material proceedings in which any of our directors, officers or affiliates, or any registered or beneficial stockholder
is a party adverse to our company or any of our subsidiaries or has a material interest adverse to our company or any of our subsidiaries.
Market
Price of and Dividends on Our Common Equity
and Related Stockholder Matters
Market
information
Our
common stock is currently quoted on the OTC Pink market tier of the OTC Markets Group and on the OTCBB under the symbol, “LBSR.”
The OTC Markets Group is a network of security dealers who buy and sell stock. The dealers are connected by a computer network
that provides information on current “bids” and “asks”, as well as volume information. Trading in stocks
quoted on the OTC Pink tier is often thin and is characterized by wide fluctuations in trading prices due to many factors that
may be unrelated or have little to do with a company’s operations or business prospects. Prior to January 14, 2016, our
common stock was quoted on the OTCQB market tier of the OTC Markets Group.
The
following table sets forth the range of high and low closing bid quotations for our common stock for each of the periods indicated
as reported by the OTC Markets Group. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Quarter
Ended
|
|
High
|
|
|
Low
|
|
October 31, 2016
|
|
$
|
0.0024
|
|
|
$
|
0.0017
|
|
July 31, 2016
|
|
$
|
0.0025
|
|
|
$
|
0.0022
|
|
April 30, 2016
|
|
$
|
0.0024
|
|
|
$
|
0.0028
|
|
January 31, 2016
|
|
$
|
0.0019
|
|
|
$
|
0.0017
|
|
October 31, 2015
|
|
$
|
0.0021
|
|
|
$
|
0.0011
|
|
July 31, 2015
|
|
$
|
0.0035
|
|
|
$
|
0.0015
|
|
April 30, 2015
|
|
$
|
0.0087
|
|
|
$
|
0.0024
|
|
January 31, 2015
|
|
$
|
0.0199
|
|
|
$
|
0.0084
|
|
October 31, 2014
|
|
$
|
0.0146
|
|
|
$
|
0.0114
|
|
July 31, 2014
|
|
$
|
0.0210
|
|
|
$
|
0.0115
|
|
April 30, 2014
|
|
$
|
0.0235
|
|
|
$
|
0.0120
|
|
The
closing sale price for our common stock on December 29, 2016, as reported on the OTC Pink market tier was $0.0014 per share.
Transfer
Agent
The
Nevada Agency and Transfer Company, of Suite 880 Bank of America, 50 West Liberty Street, Reno, Nevada 89501 USA (telephone: 775.322.0626;
facsimile 775.322.5632) is the registrar and transfer agent for our common stock.
Holders
of Common Stock
As
of December 29, 2016, we had 1,974,284,132 shares of our common stock issued and outstanding, with 132 record stockholders. The
number of record holders does not include beneficial owners of common stock whose shares are held in the names of banks, brokers,
nominees or other fiduciaries.
Dividends
We
have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to
increase our working capital and do not anticipate paying any cash dividends in the foreseeable future.
There
are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes,
however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:
|
1.
|
We
would not be able to pay our debts as they become due in the usual course of business; or
|
|
|
|
|
2.
|
Our
total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights
of stockholders who have preferential rights superior to those receiving the distribution.
|
Financial Statements
Financial Statements for the Years Ended
January 31, 2016 and 2015
Report
of Independent Registered Public Accounting Firm
Board
of Directors and Stockholders of
Liberty
Star Uranium & Metals Corp.
Tucson,
Arizona
We
have audited the accompanying consolidated balance sheets of Liberty Star Uranium & Metals Corp. and its subsidiaries
(collectively, the “Company”) as of January 31, 2016 and 2015, and the related consolidated statements of
operations, stockholders’ equity (deficit), and cash flows for each of the years then ended. These consolidated
financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of internal control
over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing
audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness
of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position
of Star Uranium & Metals Corp. and its subsidiaries as of January 31, 2016 and 2015, and the results of their operations and
their cash flows for each of the years then ended in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 3 to the consolidated financial statements, the Company has suffered recurring losses from operations, and
requires additional funds for further exploratory activity prior to attaining a revenue generating status. In addition, the Company
may not find sufficient ore reserves to be commercially mined. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 3. The
consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/
MaloneBailey, LLP
Houston,
Texas
May
17, 2016
LIBERTY
STAR URANIUM & METALS CORP.
CONSOLIDATED
BALANCE SHEETS
|
|
January 31,
|
|
|
January 31,
|
|
|
|
2016
|
|
|
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
536
|
|
|
$
|
53,517
|
|
Advances
|
|
|
1,152
|
|
|
|
1,052
|
|
Prepaid expenses
|
|
|
77,113
|
|
|
|
88,288
|
|
Total current assets
|
|
|
78,801
|
|
|
|
142,857
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
14,132
|
|
|
|
32,338
|
|
Total assets
|
|
$
|
92,933
|
|
|
$
|
175,195
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
561
|
|
|
$
|
6,149
|
|
Convertible promissory note, net of debt discount of $8,470 and $41,928
|
|
|
108,670
|
|
|
|
516,018
|
|
Accounts payable and accrued liabilities
|
|
|
421,462
|
|
|
|
250,932
|
|
Accrued wages to related parties
|
|
|
488,578
|
|
|
|
404,992
|
|
Derivative liability
|
|
|
3,293
|
|
|
|
216,705
|
|
Total current liabilities
|
|
|
1,022,564
|
|
|
|
1,394,796
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
-
|
|
|
|
561
|
|
Long-term convertible note payable
|
|
|
50,562
|
|
|
|
106,697
|
|
Total long-term liabilities
|
|
|
50,562
|
|
|
|
107,258
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,073,126
|
|
|
|
1,502,054
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
Common stock - $.00001 par value; 6,250,000,000 and 1,250,000,000 shares authorized; 1,568,937,905 and 920,001,430 shares issued and outstanding
|
|
|
15,689
|
|
|
|
9,200
|
|
Stock subscription receivable
|
|
|
(55,673
|
)
|
|
|
(55,673
|
)
|
Additional paid-in capital
|
|
|
51,708,117
|
|
|
|
49,798,278
|
|
Accumulated deficit
|
|
|
(52,648,326
|
)
|
|
|
(51,078,664
|
)
|
Total stockholders' deficit
|
|
|
(980,193
|
)
|
|
|
(1,326,859
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders' deficit
|
|
$
|
92,933
|
|
|
$
|
175,195
|
|
The
Accompanying Notes are an Integral Part of the Consolidated Financial Statements
LIBERTY
STAR URANIUM & METALS CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
For the Years Ended
|
|
|
|
January 31,
|
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Geological and geophysical costs
|
|
|
134,511
|
|
|
|
173,057
|
|
Salaries and benefits
|
|
|
318,426
|
|
|
|
293,096
|
|
Public relations
|
|
|
43,787
|
|
|
|
136,453
|
|
Depreciation
|
|
|
22,509
|
|
|
|
27,324
|
|
Legal
|
|
|
80,521
|
|
|
|
79,117
|
|
Professional services
|
|
|
74,329
|
|
|
|
89,785
|
|
General and administrative
|
|
|
178,464
|
|
|
|
223,128
|
|
Travel
|
|
|
10,485
|
|
|
|
24,824
|
|
Net operating expenses
|
|
|
863,032
|
|
|
|
1,046,784
|
|
Loss from operations
|
|
|
(863,032
|
)
|
|
|
(1,046,784
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1
|
|
|
|
5
|
|
Interest expense
|
|
|
(676,495
|
)
|
|
|
(643,430
|
)
|
Gain (Loss) on settlement of debt
|
|
|
72,308
|
|
|
|
5,322,943
|
|
Gain (loss) on change in fair value of derivative liability
|
|
|
(102,444
|
)
|
|
|
482,697
|
|
Total other income (expense)
|
|
|
(706,630
|
)
|
|
|
5,162,215
|
|
Net income (loss)
|
|
|
(1,569,662
|
)
|
|
|
4,115,431
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share of common stock
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share of common stock
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares of common stock outstanding
|
|
|
1,262,841,472
|
|
|
|
884,138,341
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares of common stock outstanding
|
|
|
1,262,841,472
|
|
|
|
1,004,926,936
|
|
The
Accompanying Notes are an Integral Part of the Consolidated Financial Statements
LIBERTY
STAR URANIUM & METALS CORP.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common stock
|
|
|
subscription
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
receivable
|
|
|
capital
|
|
|
deficit
|
|
|
equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2014
|
|
|
830,236,231
|
|
|
|
8,302
|
|
|
|
-
|
|
|
|
49,026,144
|
|
|
|
(55,194,095
|
)
|
|
|
(6,159,649
|
)
|
Issuance of common stock and warrants private placement, net
|
|
|
6,424,979
|
|
|
|
64
|
|
|
|
-
|
|
|
|
72,936
|
|
|
|
-
|
|
|
|
73,000
|
|
Issuance of common shares for cash pursuant to investment agreement
|
|
|
34,214,226
|
|
|
|
343
|
|
|
|
(55,673
|
)
|
|
|
456,581
|
|
|
|
-
|
|
|
|
401,251
|
|
Issuance of common shares pursuant to legal settlement
|
|
|
1,000,000
|
|
|
|
10
|
|
|
|
-
|
|
|
|
17,490
|
|
|
|
-
|
|
|
|
17,500
|
|
Shares issued in exchange for services
|
|
|
2,511,628
|
|
|
|
25
|
|
|
|
-
|
|
|
|
53,975
|
|
|
|
-
|
|
|
|
54,000
|
|
Shares issued for conversion of notes
|
|
|
45,614,366
|
|
|
|
456
|
|
|
|
-
|
|
|
|
423,724
|
|
|
|
-
|
|
|
|
424,180
|
|
Resolution of derivative liabilities due to debt conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
256,748
|
|
|
|
-
|
|
|
|
256,748
|
|
Warrants reclassified to derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(520,552
|
)
|
|
|
-
|
|
|
|
(520,552
|
)
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,232
|
|
|
|
-
|
|
|
|
11,232
|
|
Net income for the year ended January 31, 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,115,431
|
|
|
|
4,115,431
|
|
Balance, January 31, 2015
|
|
|
920,001,430
|
|
|
|
9,200
|
|
|
|
(55,673
|
)
|
|
|
49,798,278
|
|
|
|
(51,078,664
|
)
|
|
|
(1,326,859
|
)
|
Issuance of common stock and warrants private placement, net
|
|
|
27,194,893
|
|
|
|
272
|
|
|
|
-
|
|
|
|
50,028
|
|
|
|
-
|
|
|
|
50,300
|
|
Issuance of common shares for cash pursuant to investment agreement
|
|
|
100,000,000
|
|
|
|
1,000
|
|
|
|
-
|
|
|
|
128,751
|
|
|
|
-
|
|
|
|
129,751
|
|
Shares issued in exchange for services
|
|
|
5,733,000
|
|
|
|
57
|
|
|
|
-
|
|
|
|
10,263
|
|
|
|
-
|
|
|
|
10,320
|
|
Shares issued for conversion of notes
|
|
|
516,008,582
|
|
|
|
5,160
|
|
|
|
-
|
|
|
|
887,419
|
|
|
|
-
|
|
|
|
892,579
|
|
APIC reclassified to gain on debt extinguishment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(72,308
|
)
|
|
|
-
|
|
|
|
(72,308
|
)
|
Resolution of derivative liabilities due to debt conversions
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
833,583
|
|
|
|
-
|
|
|
|
833,583
|
|
Warrants reclassified to derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,804
|
|
|
|
-
|
|
|
|
31,804
|
|
Stock based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
40,299
|
|
|
|
-
|
|
|
|
40,299
|
|
Net loss for the year ended January 31, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,569,662
|
)
|
|
|
(1,569,662
|
)
|
Balance, January 31, 2016
|
|
|
1,568,937,905
|
|
|
|
15,689
|
|
|
|
(55,673
|
)
|
|
|
51,708,117.00
|
|
|
|
(52,648,326
|
)
|
|
|
(980,193
|
)
|
The
Accompanying Notes are an Integral Part of the Consolidated Financial Statements
LIBERTY
STAR URANIUM & METALS CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
For the Years Ended
January 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,569,662
|
)
|
|
$
|
4,115,431
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
22,509
|
|
|
|
27,324
|
|
Amortization of deferred financing charges
|
|
|
-
|
|
|
|
38,052
|
|
Amortization of debt discount
|
|
|
606,270
|
|
|
|
403,579
|
|
(Gain) loss on settlement of debt
|
|
|
(72,308
|
)
|
|
|
(5,322,943
|
)
|
(Gain) loss on change in fair value of derivative liabilities
|
|
|
102,444
|
|
|
|
(482,697
|
)
|
Share based compensation
|
|
|
40,299
|
|
|
|
11,232
|
|
Common shares issued for third party services
|
|
|
10,320
|
|
|
|
54,000
|
|
Warrants issued for third party services
|
|
|
-
|
|
|
|
17,500
|
|
Warrants issued pursuant to legal settlement
|
|
|
|
|
|
|
6,440
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
11,175
|
|
|
|
(79,179
|
)
|
Other current assets
|
|
|
(100
|
)
|
|
|
(52
|
)
|
Accounts payable and accrued expenses
|
|
|
170,530
|
|
|
|
(3,329
|
)
|
Accrued wages related parties
|
|
|
83,586
|
|
|
|
64,000
|
|
Accrued interest
|
|
|
44,357
|
|
|
|
190,283
|
|
Cash flows used in operating activities:
|
|
|
(550,580
|
)
|
|
|
(960,359
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(4,303
|
)
|
|
|
(9,870
|
)
|
Net cash used in investing activities
|
|
|
(4,303
|
)
|
|
|
(9,870
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(6,149
|
)
|
|
|
(5,594
|
)
|
Principal activity on convertible promissory notes
|
|
|
328,000
|
|
|
|
500,000
|
|
Proceeds from the issuance of common stock, net of expenses
|
|
|
180,051
|
|
|
|
474,251
|
|
Net cash provided by financing activities
|
|
|
501,902
|
|
|
|
968,657
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
(52,981
|
)
|
|
|
(1,572
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
53,517
|
|
|
|
55,089
|
|
Cash and cash equivalents, end of period
|
|
$
|
536
|
|
|
$
|
53,517
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
12,271
|
|
|
$
|
10,587
|
|
Supplemental disclosure of non-cash items:
|
|
|
|
|
|
|
|
|
Stock subscription receivable
|
|
$
|
-
|
|
|
$
|
55,673
|
|
Resolutions of derivative liabilities due to debt conversions
|
|
$
|
833,583
|
|
|
$
|
256,748
|
|
Warrants reclassed to derivative liabilities
|
|
$
|
31,804
|
|
|
$
|
520,552
|
|
Debt discounts due to derivative liabilities
|
|
$
|
549,531
|
|
|
$
|
382,173
|
|
Common stock issued for conversion of debt and interest
|
|
$
|
892,579
|
|
|
$
|
242,180
|
|
Original issue discount
|
|
$
|
22,000
|
|
|
$
|
28,750
|
|
The
Accompanying Notes are an Integral Part of the Consolidated Financial Statements
LIBERTY
STAR URANIUM & METALS CORP.
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
LIBERTY
STAR URANIUM & METALS CORP.
CONSOLIDATED
BALANCE SHEETS
|
|
October 31, 2016
|
|
|
January 31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,909
|
|
|
$
|
536
|
|
Advances
|
|
|
-
|
|
|
|
1,152
|
|
Prepaid expenses
|
|
|
73,565
|
|
|
|
77,113
|
|
Total current assets
|
|
|
83,474
|
|
|
|
78,801
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
9,712
|
|
|
|
14,132
|
|
Total assets
|
|
$
|
93,186
|
|
|
$
|
92,933
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
$
|
-
|
|
|
$
|
561
|
|
Convertible promissory note, net
|
|
|
-
|
|
|
|
108,670
|
|
Accounts payable and accrued liabilities
|
|
|
493,560
|
|
|
|
421,462
|
|
Accrued wages to related parties
|
|
|
581,030
|
|
|
|
488,578
|
|
Derivative liability
|
|
|
-
|
|
|
|
3,293
|
|
Total current liabilities
|
|
|
1,074,590
|
|
|
|
1,022,564
|
|
|
|
|
|
|
|
|
|
|
Long-term:
|
|
|
|
|
|
|
|
|
Long-term convertible note payable, net
|
|
|
32,307
|
|
|
|
50,562
|
|
Total long-term liabilities
|
|
|
32,307
|
|
|
|
50,562
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,106,897
|
|
|
|
1,073,126
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
|
|
|
|
|
Common stock - $.00001 par value; 6,250,000,000 authorized; 1,885,102,161 and 1,568,937,905 shares issued and outstanding
|
|
|
18,851
|
|
|
|
15,689
|
|
Stock subscription receivable
|
|
|
(55,673
|
)
|
|
|
(55,673
|
)
|
Additional paid-in capital
|
|
|
52,798,384
|
|
|
|
51,708,117
|
|
Accumulated deficit
|
|
|
(53,775,273
|
)
|
|
|
(52,648,326
|
)
|
Total stockholders’ deficit
|
|
|
(1,013,711
|
)
|
|
|
(980,193
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
93,186
|
|
|
$
|
92,933
|
|
The
Accompanying Notes are an Integral Part of the Unaudited Consolidated Financial Statements
LIBERTY
STAR URANIUM & METALS CORP.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geological and geophysical costs
|
|
|
25,707
|
|
|
|
44,377
|
|
|
|
70,489
|
|
|
|
80,006
|
|
Salaries and benefits
|
|
|
89,715
|
|
|
|
101,215
|
|
|
|
262,268
|
|
|
|
247,242
|
|
Public relations
|
|
|
3,353
|
|
|
|
29,076
|
|
|
|
19,931
|
|
|
|
36,913
|
|
Depreciation
|
|
|
1,277
|
|
|
|
6,416
|
|
|
|
4,420
|
|
|
|
19,012
|
|
Legal
|
|
|
-
|
|
|
|
23,525
|
|
|
|
47,154
|
|
|
|
70,026
|
|
Professional services
|
|
|
22,750
|
|
|
|
27,104
|
|
|
|
75,094
|
|
|
|
57,798
|
|
General and administrative
|
|
|
64,740
|
|
|
|
48,274
|
|
|
|
175,318
|
|
|
|
139,079
|
|
Travel
|
|
|
1,598
|
|
|
|
3,735
|
|
|
|
6,027
|
|
|
|
7,284
|
|
Net operating expenses
|
|
|
209,140
|
|
|
|
283,722
|
|
|
|
660,701
|
|
|
|
657,360
|
|
Loss from operations
|
|
|
(209,140
|
)
|
|
|
(283,722
|
)
|
|
|
(660,701
|
)
|
|
|
(657,360
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
Interest expense
|
|
|
(76,544
|
)
|
|
|
(110,888
|
)
|
|
|
(281,453
|
)
|
|
|
(703,346
|
)
|
Gain on settlement of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72,308
|
|
Gain (loss) on change in fair value of derivative liability
|
|
|
17,408
|
|
|
|
(13,233
|
)
|
|
|
(184,793
|
)
|
|
|
70,766
|
|
Total other expense
|
|
|
(59,136
|
)
|
|
|
(124,121
|
)
|
|
|
(466,246
|
)
|
|
|
(560,271
|
)
|
Net loss
|
|
|
(268,276
|
)
|
|
|
(407,843
|
)
|
|
|
(1,126,947
|
)
|
|
|
(1,217,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share of common stock
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share of common stock
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares of common
stock outstanding
|
|
|
1,841,867,754
|
|
|
|
1,382,733,547
|
|
|
|
1,713,653,064
|
|
|
|
1,166,824,752
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares of common
stock outstanding
|
|
|
1,841,867,754
|
|
|
|
1,382,733,547
|
|
|
|
1,713,653,064
|
|
|
|
1,166,824,752
|
|
The
Accompanying Notes are an Integral Part of the Unaudited Consolidated Financial Statements
LIBERTY
STAR URANIUM & METALS CORP.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended
|
|
|
|
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,126,947
|
)
|
|
$
|
(1,217,631
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
4,420
|
|
|
|
19,012
|
|
Amortization of debt discount
|
|
|
240,050
|
|
|
|
668,835
|
|
(Gain) loss on settlement of debt
|
|
|
-
|
|
|
|
(72,308
|
)
|
(Gain) loss on change in fair value of derivative liabilities
|
|
|
184,793
|
|
|
|
(70,766
|
)
|
Share-based compensation
|
|
|
72,000
|
|
|
|
37,491
|
|
Common shares issued for third party services
|
|
|
47,500
|
|
|
|
10,320
|
|
Warrants issued for third party services
|
|
|
540
|
|
|
|
-
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
3,548
|
|
|
|
12,072
|
|
Other current assets
|
|
|
1,152
|
|
|
|
(100
|
)
|
Accounts payable and accrued expenses
|
|
|
72,098
|
|
|
|
86,855
|
|
Accrued wages related parties
|
|
|
92,452
|
|
|
|
69,000
|
|
Accrued interest
|
|
|
22,600
|
|
|
|
32,691
|
|
Cash flows used in operating activities:
|
|
|
(385,794
|
)
|
|
|
(424,529
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
-
|
|
|
|
(4,303
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(4,303
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Payments on long-term debt
|
|
|
(562
|
)
|
|
|
(4,434
|
)
|
Principal activity on convertible promissory notes
|
|
|
78,000
|
|
|
|
200,000
|
|
Proceeds from the issuance of common stock, net of expenses
|
|
|
317,729
|
|
|
|
184,126
|
|
Net cash provided by financing activities
|
|
|
395,167
|
|
|
|
379,692
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
9,373
|
|
|
|
(49,140
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
536
|
|
|
|
53,517
|
|
Cash and cash equivalents, end of period
|
|
$
|
9,909
|
|
|
$
|
4,377
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Income tax paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest paid
|
|
$
|
18,805
|
|
|
$
|
7,169
|
|
Supplemental disclosure of non-cash items:
|
|
|
|
|
|
|
|
|
Resolutions of derivative liabilities due to debt conversions
|
|
$
|
237,997
|
|
|
$
|
750,615
|
|
Warrants reclassed to derivative liabilities
|
|
$
|
176,058
|
|
|
$
|
-
|
|
Debt discounts due to derivative liabilities
|
|
$
|
225,969
|
|
|
$
|
497,031
|
|
Derivative liability for newly granted warrants
|
|
|
|
|
|
$
|
49,553
|
|
Common stock issued for conversion of debt and interest
|
|
$
|
241,604
|
|
|
$
|
778,459
|
|
Original issue discount
|
|
$
|
7,800
|
|
|
$
|
16,000
|
|
The
Accompanying Notes are an Integral Part of the Unaudited Consolidated Financial Statements
LIBERTY
STAR URANIUM & METALS CORP.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 – Interim financial statement disclosure
The
consolidated financial statements included herein have been prepared by Liberty Star Uranium & Metals Corp. (the “Company”,
“we”, “our”) 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, 2016 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 consolidated financial statements
reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at
October 31, 2016 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 and nine months ended
October 31, 2016 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.
NOTE
2– 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 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 October 31, 2016, the significant inputs to the Company’s 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 October 31, 2016
and January 31, 2016:
|
|
|
|
|
Fair
value measurements at reporting date using:
|
|
|
|
|
|
Quoted
prices
|
|
|
|
|
|
|
|
|
|
|
|
in
active
|
|
Significant
|
|
|
|
|
|
|
|
|
|
markets
for
|
|
other
|
|
|
Significant
|
|
|
|
|
|
|
identical
|
|
observable
|
|
|
unobservable
|
|
|
|
|
|
|
liabilities
|
|
inputs
|
|
|
inputs
|
|
Description
|
|
Fair
Value
|
|
|
(Level
1)
|
|
(Level
2)
|
|
|
(Level
3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
and convertible note derivative liability at October 31, 2016
|
|
$
|
-
|
|
|
-
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant
and convertible note derivative liability at January 31, 2016
|
|
$
|
3,293
|
|
|
|
-
|
|
-
|
|
|
$
|
3,293
|
|
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 nine months ended October 31, 2016:
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. The total rent expense related to this office
was $4,697 for the nine months ended October 31, 2016. No amount was due as of October 31, 2016,
At
October 31, 2016, we had a balance of accrued unpaid wages of $565,405 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 a former President.
On
May 31, 2016, the Company extended the expiration date of all 93,887,870 warrants issued between May 1, 2013 and May 1, 2016 for
an additional three years at their original exercise prices ranging from $0.0021 to $0.0324. These warrants included 43,156,160
warrants purchased by officers and directors at their original exercise prices ranging from $0.0021 to $0.0207.
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., (“JABA”) 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. We paid $27,494 in rental fees to maintain
the mineral claims during the nine months ended October 31, 2016. 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 then to June 1, 2021. This may be further
extended in five year periods or increments in the future by any JABA director.
On
October 11, 2016, the Company issued 6,879,950 stock options to Jim Briscoe, our Chairman of the Board, CEO and CFO, at an exercise
price of $0.003. The options vested immediately and have a 10 year term.
NOTE
5 – Stock options
Qualified
and Non-qualified incentive stock options to employees and directors outstanding at October 31, 2016 are as follows:
|
|
|
|
|
Weighted average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
|
options
|
|
|
price per share
|
|
Outstanding, January 31, 2016
|
|
|
85,421,374
|
|
|
$
|
0.042
|
|
Granted
|
|
|
12,081,326
|
|
|
|
0.007
|
|
Cancelled
|
|
|
(110,250
|
)
|
|
|
2.872
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, October 31, 2016
|
|
|
97,392,450
|
|
|
$
|
0.034
|
|
|
|
|
|
|
|
|
|
|
Exercisable, October 31, 2016
|
|
|
97,392,450
|
|
|
$
|
0.034
|
|
During
the nine months ended October 31, 2016 the Company granted 1,951,376 incentive stock options to employees and directors previously
reserved under the Company’s stock option plans with an exercise price of $0.0257. The options all fully vested by September
2016 and expire in September 2023.
In October 2016, the Company issued 10,129,950
non-qualified stock options to employees for services at an exercise price of $0.003. These options vested immediately and
have a 10 year term.
Non-qualified
stock options to non-employee consultants and vendors outstanding at October 31, 2016 are as follows:
|
|
|
|
|
Weighted average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
|
options
|
|
|
price per share
|
|
Outstanding, January 31, 2016
|
|
|
863,500
|
|
|
$
|
0.316
|
|
Granted
|
|
|
1,421,300
|
|
|
|
0.003
|
|
Expired
|
|
|
(201,000
|
)
|
|
|
1.110
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, October 31, 2016
|
|
|
2,083,800
|
|
|
$
|
0.026
|
|
|
|
|
|
|
|
|
|
|
Exercisable, October 31, 2016
|
|
|
2,083,800
|
|
|
$
|
0.026
|
|
In
June 2016, the Company issued 592,500 non-qualified stock options to a third-party for services at an exercise price of $0.004.
These options vested immediately and have a 10 year term.
In October 2016, the Company issued 828,800
non-qualified stock options to a third-party for services at an exercise price of $0.003. These options vested immediately and
have a 10 year term.
During the nine months ended October 31, 2016,
we recognized $72,000 of compensation expense related to incentive and non-qualified stock options granted to officers, employees
and consultants.
NOTE
6 – Warrants
As
of October 31, 2016, there were 111,762,870 whole share purchase warrants outstanding and exercisable. The warrants have a weighted
average remaining life of 3.92 years and a weighted average exercise price of $0.006 per whole warrant for one common share. The
warrants had an aggregate intrinsic value of $0 as of October 31, 2016.
Whole
share purchase warrants outstanding at October 31, 2016 are as follows:
|
|
Number of
|
|
|
Weighted average
|
|
|
|
whole share
|
|
|
exercise
|
|
|
|
purchase warrants
|
|
|
price per share
|
|
Outstanding, January 31, 2016
|
|
|
98,731,285
|
|
|
$
|
0.008
|
|
Issued
|
|
|
20,506,579
|
|
|
|
0.004
|
|
Expired
|
|
|
(7,474,994
|
)
|
|
|
0.020
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, October 31, 2016
|
|
|
111,762,870
|
|
|
$
|
0.006
|
|
|
|
|
|
|
|
|
|
|
Exercisable, October 31, 2016
|
|
|
111,762,870
|
|
|
$
|
0.006
|
|
On
May 31, 2016, the Company extended the expiration date of all 93,887,870 warrants issued between May 1, 2013 and May 1, 2016 for
an additional three years, at their original exercise prices ranging from $0.0021 to $0.0324. These warrants are held by investors,
including officers and directors of the Company, and third-party service providers. On April 30, 2016, the Company recognized
a total of $540 of expense related to the extension of warrants held by third-party service providers. The extension to warrants
held by investors did not result in additional expense.
During
the three months ended April 30, 2016, the Company issued 2,631,579 warrants to an investor at an exercise price of $0.0027 with
a three year term. The warrants were issued with common stock (one warrant for each common share purchased) and there is no additional
accounting for these investor warrants.
During
the three months ended July 31, 2016, the Company issued 15,000,000 warrants to investors at an exercise price of $0.0040 with
a three year term. The warrants were issued with common stock (one-half warrant for each common share purchased) and there is
no additional accounting for these investor warrants.
During
the three months ended October 31, 2016, the Company issued 2,875,000 warrants to investors at an exercise price of $0.0040 with
a three year term. The warrants were issued with common stock (one-half warrant for each common share purchased) and there is
no additional accounting for these investor warrants.
NOTE
7 – Derivative Liabilities
The
embedded conversion feature in the convertible debt instruments that the Company issued beginning in August 2013 (See Note 8),
and became convertible beginning in February 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 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 October 31, 2016:
|
●
|
The
stock projections are based on the historical volatilities for each date. These ranged in the 170% - 176% 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.
|
Using the results from the model, the Company
recorded a derivative liability of $764,826 for outstanding warrants and a derivative liability of $246,143 for the fair
value of the convertible feature included in the Company’s convertible debt instruments for the nine months ended October
31, 2016. The derivative liability recorded for the convertible feature created a debt discount of $225,969 which was amortized
over the remaining term of the note using the effective interest rate method, or charged to interest expense upon conversion of
the underlying debt instrument. Interest expense related to the amortization of this debt discount for the three months ended
October 31, 2016, was $557. Additionally, $61,043 of debt discount was charged to interest expense as a result of the conversion
of a portion of the underlying debt instrument. The remaining unamortized debt discount related to the derivative liability
was $0 as of October 31, 2016. The Company recorded the change in the fair value of the derivative liability as a loss of $184,793
to reflect the value of the derivative liability for warrants and convertible notes as $0 as of October 31, 2016. The Company
also recorded a reclassification from derivative liability to equity of $237,997 for the conversions of a portion of the
Company’s convertible notes, and $940,884 for outstanding warrants becoming untainted during the nine months ended October
31, 2016.
The
following table sets forth a reconciliation of changes in the fair value of the Company’s derivative liability:
|
|
Nine months ended
October 31,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
|
$
|
3,293
|
|
|
$
|
216,705
|
|
Total (gains) losses
|
|
|
184,793
|
|
|
|
(70,766
|
)
|
Settlements
|
|
|
(1,178,881
|
)
|
|
|
(750,615
|
)
|
Additions
|
|
|
990,795
|
|
|
|
682,953
|
|
Ending balance
|
|
$
|
-
|
|
|
$
|
78,277
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains (losses) included in earnings relating to derivatives still held as of October 31, 2016 and 2015
|
|
$
|
184,793
|
|
|
$
|
(70,766
|
)
|
NOTE
8 – Convertible promissory notes
Following
is a summary of convertible promissory notes:
|
|
October 31, 2016
|
|
|
January 31, 2016
|
|
|
|
|
|
|
|
|
12% convertible note payable issued August 2013, due in August 2016
|
|
$
|
-
|
|
|
$
|
62,160
|
|
12% convertible note payable issued November 2015, due November 2017
|
|
|
34,496
|
|
|
|
55,000
|
|
12% convertible note payable issued December 2015, due September 2016
|
|
|
-
|
|
|
|
50,542
|
|
|
|
|
34,496
|
|
|
|
167,702
|
|
Less debt discount
|
|
|
(2,189
|
)
|
|
|
(8,470
|
)
|
Less current portion of convertible notes
|
|
|
-
|
|
|
|
(108,670
|
)
|
Long-term convertible notes payable
|
|
$
|
32,307
|
|
|
$
|
50,562
|
|
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, October 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. During the nine months ended October 31, 2016, the note holder converted
principal and interest totaling $62,160 into 46,526,995 shares of the Company’s common stock. As of October 31, 2016, we
had $0 of principal and interest outstanding for the August 2013 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. On March 10, 2016, we received an additional $50,000 under the November
2015 Note, with a $5,000 original issue discount. On May 25, 2016, we received an additional $28,000 under the November 2015 Note,
with a $2,800 original issue discount. During the nine months ended October 31, 2016, the note holder converted principal and
interest totaling $124,444 into 88,333,167 shares of the Company’s common stock. As of October 31, 2016, we had of $34,496
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. During the nine months ended October 31, 2016, the note holder
converted principal and interest totaling $53,100 into 47,168,177 shares of the Company’s common stock. As of October 31,
2016, we had of $0 of principal and interest outstanding for the December 2015 Note.
During
the nine months ended October 31, 2016 and 2015, the Company recorded debt discounts of $225,969 and $497,031, respectively, due
to the derivative liabilities, and original issue debt discounts of $7,800 and $16,000, respectively, due to the convertible notes.
The Company recorded amortization of these discounts of $240,050 and $668,835 for the nine months ended October 31, 2016 and 2015,
respectively.
NOTE
9 – 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.
On
July 15 , 2015 the Company’s shareholders approved an amendment to the Company’s articles of incorporation to
increase the number of authorized common shares from 1,250,000,000 to 6,250,000,000.
Between
February 2014 and July 2014, pursuant to the investment agreement with KVM, 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 October 31, 2016.
During
the three months ended April 30, 2016, $62,160 of the August 2013 Note was converted into 46,526,995 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00117 to $0.00152.
During
the three months ended April 30, 2016, the Company issued 2,631,579 units to an investor for total proceeds of $5,000. 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 $0.0027 and have a three year term.
During
the three months ended July 31, 2016, $62,222 of the November 2015 Note was converted into 43,998,977 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00140 to $0.00145.
During
the three months ended July 31, 2016, $53,100 of the December 2015 Note was converted into 47,168,177 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00105 to $0.00116.
During
the three months ended July 31, 2016, the Company issued 30,000,000 units to investors for total proceeds of $120,000. Each unit
consists of one share of the Company’s common stock and one-half warrant to purchase one-half equivalent share each of the
Company’s common stock. The warrants have an exercise price of $0.004 and have a three year term.
During
the three months ended October 31, 2016, $62,222 of the November 2015 Note was converted into 44,334,190 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00124 to $0.00149.
During
the three months ended October 31, 2016, the Company issued 5,750,000 units to investors for total proceeds of $23,000. Each unit
consists of one share of the Company’s common stock and one-half warrant to purchase one-half equivalent share each of the
Company’s common stock. The warrants have an exercise price of $0.004 and have a three year term.
During
the three months ended October 31, 2016, the Company received aggregate proceeds of $34,000 from investors to purchase a total
of 17,000,000 units. Each unit consists of one share of the Company’s common stock and one-half warrant to purchase one-half
equivalent share each of the Company’s common stock. The warrants have an exercise price of 40% above the share price, calculated
using the average 4 day look-back period from the date of deposit of investment funds, with a floor of $0.002, and have a three
year term. The shares were issued subsequent to October 31, 2016 and are reflected as common stock to be issued on the Company’s
balance sheet as of October 31, 2016.
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.
The
Company 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. During the nine months ended October 31, 2016, the Company issued an aggregate of 76,258,193 shares of common stock for
total proceeds of $135,731 to Tangiers Investment Group, LLC under the Investment Agreement.
During
the nine months ended October 31, 2016, the Company issued 19,496,145 shares to third-parties for services with an aggregate fair
value of approximately $47,500.
NOTE
10 – Commitments and contingencies
The
Company entered into a 24 month office lease at 5232 E Pima Street, Suite D, Tucson, Arizona, effective October 1, 2016 through
September 30, 2018, with a base rent of $2,100 per month through September 30, 2017 and then $2,163 per month through September
30, 2018.
NOTE
11 – Subsequent events
In November and December of 2016, the Company
issued an aggregate of 27,053,635 shares of common stock for total proceeds of $35,082 to Tangiers Investment Group, LLC under
the Investment Agreement.
In November and December of 2016, the Company
issued an aggregate of 23,088,500 units to investors for aggregate proceeds of $46,177, including $34,000 which
was received prior to October 31, 2016. Each unit consists of one share of the Company’s common stock and one-half
warrant to purchase one-half equivalent share each of the Company’s common stock. The warrants have an exercise price of
40% above the share price, calculated using the average 4 day look-back period from the date of deposit of investment funds, with
a floor of $0.002, and have a three year term.
In November and December of 2016, a total of
$34,844 of the November 2015 Note was converted into 34,039,836 shares of the Company’s common stock at conversion prices
ranging from $0.00098 to $0.00107.
On December 14, 2016, the Company entered
into a convertible promissory note (the “December 2016 Note”) for $110,000, which includes a 10% original issue discount
(“OID”) on any consideration paid. Initial consideration of $30,000 was received under the December 2016 Note resulting
in an initial principal sum due of $33,000, which included a $3,000 OID. The December 2016 Note bears interest at 12% and matures
one year from the effective date of each payment, with each payment convertible by the holder after 180 days at a price equal
to 62.5% of the average volume weighted average prices of the Company’s common stock during the 5 trading days prior to
the conversion date.
On December 22, 2016, the Company issued 5,000,000 units to an accredited investor for total proceeds of $10,000. Each unit
consists of one share of the Company’s common stock and one-half warrant to purchase one-half equivalent share each
of the Company’s common stock. The warrants have an exercise price of 40% above the share price, calculated using the
average 4-day look-back period from the date of deposit of investment funds, with a floor of $0.002, and have a three year
term.
Management’s
Discussion and Analysis of Financial Condition
and Results of Operations
Our
management’s discussion and analysis provides a narrative about our financial performance and condition that should be read
in conjunction with the audited and unaudited consolidated financial statements and related notes thereto included in this prospectus.
This discussion contains forward looking statements reflecting our current expectations and estimates and assumptions about events
and trends that may affect our future operating results or financial position. Our actual results and the timing of certain events
could differ materially from those discussed in these forward-looking statements due to a number of factors, including, but not
limited to, those set forth in the sections of this prospectus titled “Risk Factors” beginning at page 2 above and
“Forward-Looking Statements” beginning at page 7 above.
Overview
Business
Development
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.
In
October 2014, we formed our wholly owned subsidiary, Hay Mountain Super Project LLC (“HMSP LLC”), to serve as the
primary holding company for development of the potential ore bodies encompassed in the Hay Mountain area of interest in Arizona.
Our
Current Business
We
are engaged in the acquisition and exploration of mineral properties in the States of Arizona, Alaska and Southwest USA. Claims
in the State of Alaska have been held in the name of 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”):
The NPSP is 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:
The Big Chunk Super Project located in the Iliamna region of Southwestern Alaska: After much caution
and thought, we have decided to no longer put any funds into Big Chunk due to the current decision making of the Environmental
Protection Agency. If the situation becomes clarified next year, we believe we will have the opportunity to reacquire strategic
claims within the area.
Tombstone
Super Project (“Tombstone”) (formerly referred to as Tombstone Porphyry Precious Metals Project):
Tombstone is
located in Cochise County, Arizona and 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 (REE’s). We have not identified any ore reserves to date.
East
Silver Bell Porphyry Copper Project (“East Silver Bell”):
East Silver Bell is 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 in 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 Company’s mineral properties and, to the best of its knowledge, title to all properties
retained 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 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 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 a commercially viable mineral deposit, known as an “ore reserve.”
To
date, we have not generated any revenues. 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 were 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 Dynasty’s earn-in requirements. Northern Dynasty’s 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 $1,592,769 of accrued interest for the 2010 Convertible Note and would have terminated Northern Dynasty’s earn-in
rights. In exchange for the settlement, we initiated the transfer of 199 Alaska mining claims to Northern Dynasty’s 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 Dynasty’s 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 six months ended July 31, 2014.
Results
of Operations
Years
Ended January 31, 2016 and 2015
We
had a net loss of $1,569,662 for the fiscal year ended January 31, 2016 compared to net income of $4,115,431 for the fiscal year
ended January 31, 2015. Net income decreased by $5,685,093 due to the $5,322,943 gain on the debt settlement of debt with Northern
Dynasty in the fiscal year ended January 31, 2014, a decrease in public relations expense of $92,666 due to a decreased investor
relations activity, a decrease in geological and geophysical costs of $38,546 due to decreased survey and land research, and a
decrease in general and administrative expenses of $44,664 due to a decrease in the use of contract labor.
Three
and Nine Month Periods Ended October 31, 2016 and 2015
We
had net losses of $268,276 and $1,126,947 for the three and nine months ended October 31, 2016, respectively, compared to a net
loss of $407,843 and $1,217,631 for the three and nine months ended October 31, 2015, respectively
During
the three and nine months ended October 31, 2016, we had a decrease of approximately $18,669 and $9,517, respectively, in geological
and geophysical costs compared to the three and nine months ended October 31, 2015, due primarily to a decrease in mineral claim
rental fees paid by the Company. During the three and nine months ended October 31, 2016, we had a decrease of approximately $25,723
and $16,982, respectively, in public relations costs compared to the three and nine months ended October 31, 2015, due primarily
to a decrease in investor prospecting and news release activity services engaged by the Company. During the three and nine months
ended October 31, 2016, we had a decrease in legal expenses of approximately $23,525 and $22,872, respectively, compared to the
three and nine months ended October 31, 2015, due primarily to the reduced costs associated with land inquiry work. We had an
increase in professional services of approximately $17,296 during the nine months ended October 31, 2016, as compared to the nine
months ended October 31, 2015, due primarily to increased accounting and reporting costs. We incurred a non-cash gain on the change
in fair value of our derivative liabilities of $17,408 and a loss of $13,233, respectively, during the three and nine months ended
October 31, 2016, as compared to a loss of $13,233 and a gain of $70,766 during the three and nine months ended October 31, 2015,
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 and nine months ended October 2016 and 2015.
We recognized a gain of $72,308 during the nine months ended October 31, 2015 as a result of convertible note conversions during
the three months ended October 31, 2015.
Liquidity
and Capital Resources
We
had cash and cash equivalents in the amount of $9,909 as of October 31, 2016 compared to $536 as of January 31, 2016. We had negative
working capital of $991,116 as of October 31, 2016 compared to $943,763 as of January 31, 2016. We had net cash inflows from financing
activities of $395,167 for the nine months ended October 31, 2016 compared to $501,902 for the fiscal year ended January 31, 2016.
We used $385,794 net cash in operating activities during the nine months ended October 31, 2016 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
interpretation of the soil, rock chip and vegetation sampling and ztem (aeormagnetics and aero electromagnetics). We purchased
no new equipment during the nine months ended October 31, 2016. We have been raising capital by issuing convertible promissory
notes and selling equity by way of private placements and the Investment Agreement with Tangiers Investment Group, LLC. 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 eventually we may obtain revenues from
commercial mining of our properties.
Convertible
promissory notes
We
have issued the following 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.
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, October 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. During the nine months ended October 31, 2016, the note holder converted
principal and interest totaling $62,160 into 46,526,995 shares of the Company’s common stock. As of October 31, 2016, we
had $0 of principal and interest outstanding for the August 2013 Note.
On
November 18, 2013, we entered into a securities purchase agreement, pursuant to which we agreed to issue a convertible note to
one lender in the principal amount of $250,000 (the “November 2013 Note”). The proceeds from the November 2013 Note
were $225,000, which created an original issue discount of $25,000. The November 2013 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 183
rd
day (after
May 20, 2014) following the closing date, convert the principal amount or any portion of such principal amount of the November
2013 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, pursuant
to which we consented to an assignment of the November 2013 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
fiscal 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 October 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 August 2014 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 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 the August 2014 Note.
On
October 14, 2014, we entered into a securities purchase agreement, pursuant to which we agreed to issue a convertible note (the
“October 2014 Note”) to one lender in the principal amount of $105,000. The October 2014 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 October 2014
Note may be convertible into shares of common stock of our company at any time from 180 days after the execution date of the October
2014 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 fiscal 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 October 2014 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 Tangiers Capital, LLC (the “Lender”) in the principal amount of $210,000 and to pay interest
on the principal balance hereof (which principal balance shall be increased by the Lender’s payment of additional consideration
as set forth in the December 2014 Note and which increase shall also include the prorated amount of the original issue discount
in connection with Lender’s payment of additional consideration) at the rate of 10%, all of which interest shall be deemed
earned as of the date of each such payment of additional consideration by the Lender on December 3, 2016 (the “Maturity
Date”), to the extent such principal amount and interest have been repaid or converted into our company’s common stock,
in accordance with the terms of the December 2014 Note. The December 2014 Note is payable in full on the Maturity Date and bears
interest at the rate of 10% per annum. There is a $10,000 original issuance discount on the December 2014 Note. The initial purchase
price was $105,000 of consideration of which $100,000 was received by our company and $5,000 was retained through the original
issue discount. The December 2014 Note may be prepaid according to the following schedule: between 1 and 90 days from the date
of execution, the December 2014 Note may be prepaid for 110% of face value plus accrued interest; between 91 and 180 days from
the date of execution, the December 2014 Note may be prepaid for 130% of face value plus accrued interest; after 180 days from
the date of execution until the Maturity Date, the December 2014 Note may not be prepaid without written consent from the Lender.
The December 2014 Note may be convertible into shares of common stock of our company at a price per share of 62.5% discount to
the average of the daily volume weighted average price for the previous five trading days before the date of conversion. The chart
below lists each amendment increasing the consideration paid for the December 2014 Note, as well as each conversion of the Note’s
balance into equity by the Lender.
December 3, 2014 Note with Tangiers Capital, LLC
|
|
DATE
|
|
AMOUNT OF CONVERSION
|
|
|
NUMBER OF SHARES ISSUED
|
|
|
REMAINING PRINCIPAL
|
|
December 3,2014
|
|
Original Purchase Price: $105,000 (includes OID)
|
|
February 27, 2015
|
|
Amendment, Additional Consideration: $52,500 (includes OID)
|
|
June 4, 2015
|
|
$
|
15,000
|
|
|
|
12,371,134
|
|
|
$
|
142,500.00
|
|
June 9, 2015
|
|
Amendment, Additional Consideration: $31,500 (includes OID)
|
|
June 23, 2015
|
|
$
|
14,356.75
|
|
|
|
13,837,831
|
|
|
$
|
159,643.25
|
|
July 6, 2015
|
|
Amendment, Additional Consideration: $21,000 (includes OID)
|
|
July 23, 2015
|
|
$
|
20,000
|
|
|
|
16,842,105
|
|
|
$
|
160,643.25
|
|
July 29, 2015
|
|
$
|
20,000
|
|
|
|
17,977,528
|
|
|
$
|
140,643.25
|
|
August 5, 2015
|
|
$
|
25,000
|
|
|
|
23,809,524
|
|
|
$
|
115,643.25
|
|
September 21, 2015
|
|
$
|
21,143.25
|
|
|
|
18,385,435
|
|
|
$
|
105,000.00
|
|
October 2, 2015
|
|
$
|
31,500
|
|
|
|
35,000,000
|
|
|
$
|
78,750.00
|
|
November 2, 2015
|
|
$
|
26,250
|
|
|
|
26,582,278
|
|
|
$
|
52,500.00
|
|
December 9, 2015
|
|
$
|
34,650
|
|
|
|
17,544,304
|
|
|
$
|
21,000.00
|
|
January 12, 2016
|
|
$
|
23,100
|
|
|
|
13,894,737
|
|
|
$
|
0.00
|
|
*All
issuances of securities pursuant to the December 2014 Note were made in reliance upon registration exemption provided for in Rule
506 of Regulation D and/or Section 4(a)(2) of the Securities Act of 1933
There
is no balance left on the December 14 Note. Additionally, the Company entered into an investment agreement and registration rights
agreement with Tangiers Capital, LLC for an equity line of credit. The Company has the ability to repay the indebtedness to Tangiers
Capital, LLC without recourse to the monies received or to be received under the equity line. Additionally, the amount of indebtedness
may not be reduced or relieved by the issuance of shares under the equity line.
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. On March 10, 2016, we received an additional $50,000 under the November
2015 Note, with a $5,000 original issue discount. On May 25, 2016, we received an additional $28,000 under the November 2015 Note,
with a $2,800 original issue discount. During the nine months ended October 31, 2016, the note holder converted principal and
interest totaling $124,444 into 88,333,167 shares of the Company’s common stock. As of October 31, 2016, we had of $34,496
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. During the nine months ended October 31, 2016, the note holder
converted principal and interest totaling $53,100 into 47,168,177 shares of the Company’s common stock. As of October 31,
2016, we had of $0 of principal and interest outstanding for the December 2015 Note.
Proceeds
from issuance of common stock
During
the fiscal years ended January 31, 2016 and 2015, we also entered into certain private investment agreements pursuant to which
we received a total of $210,051 and $474,251 in net proceeds, respectively.
During
the nine months ended October 31, 2016, we entered into certain private investment agreements pursuant to which we received a
total of $148,000 in net proceeds.
Investment
agreement with Tangiers Investment Group, LLC
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.
Thereafter,
the Company 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. During the nine months ended October 31, 2016, the Company issued an aggregate of 76,258,193 shares of common stock
for total proceeds of $135,731 to Tangiers Investment Group, LLC under the Investment Agreement.
Warrants
As
of October 31, 2016, there were 111,762,870 whole share purchase warrants outstanding and exercisable. The warrants have a weighted
average remaining life of 3.92 years and a weighted average exercise price of $0.006 per whole warrant for one common share. The
warrants had an aggregate intrinsic value of $0 as of October 31, 2016.
Whole
share purchase warrants outstanding at October 31, 2016 are as follows:
|
|
Number of
|
|
|
Weighted average
|
|
|
|
whole share
|
|
|
exercise
|
|
|
|
purchase warrants
|
|
|
price per share
|
|
Outstanding, January 31, 2016
|
|
|
98,731,285
|
|
|
$
|
0.008
|
|
Issued
|
|
|
20,506,579
|
|
|
|
0.004
|
|
Expired
|
|
|
(7,474,994
|
)
|
|
|
0.020
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, October 31, 2016
|
|
|
111,762,870
|
|
|
$
|
0.006
|
|
|
|
|
|
|
|
|
|
|
Exercisable, October 31, 2016
|
|
|
111,762,870
|
|
|
$
|
0.006
|
|
On
May 31, 2016, the Company extended the expiration date of all 93,887,870 warrants issued between May 1, 2013 and May 1, 2016 for
an additional three years, at their original exercise prices ranging from $0.0021 to $0.0324. These warrants are held by investors,
including officers and directors of the Company, and third-party service providers. On April 30, 2016, the Company recognized
a total of $540 of expense related to the extension of warrants held by third-party service providers. The extension to warrants
held by investors did not result in additional expense.
During
the three months ended April 30, 2016, the Company issued 2,631,579 warrants to an investor at an exercise price of $0.0027 with
a three year term. The warrants were issued with common stock (one warrant for each common share purchased) and there is no additional
accounting for these investor warrants.
During
the three months ended July 31, 2016, the Company issued 15,000,000 warrants to investors at an exercise price of $0.0040 with
a three year term. The warrants were issued with common stock (one-half warrant for each common share purchased) and there is
no additional accounting for these investor warrants.
During
the three months ended October 31, 2016, the Company issued 2,875,000 warrants to investors at an exercise price of $0.0040 with
a three year term. The warrants were issued with common stock (one-half warrant for each common share purchased) and there is
no additional accounting for these investor warrants.
Off-Balance
Sheet Arrangements
We
have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital
resources that are material to stockholders.
Presentation
of Financial Information
Our
consolidated financial statements for the fiscal year ended January 31, 2016 reflect financial information for the fiscal years
ended January 31, 2016 and 2015.
Since
we have not generated any revenue, we have included a reference to our ability to continue as a going concern in connection with
our consolidated financial statements for the fiscal years ended January 31, 2016 and 2015. Our accumulated deficit at January
31, 2016, was $52,648,326 and the net loss from operations for the fiscal year ended January 31, 2016 was $863,032. All of our
exploration costs are expensed as incurred.
These
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 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.
In
order to continue as a going concern, we require additional financing. There can be no assurance that additional financing will
be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able
to continue as a going concern, we would likely be unable to realize the carrying value of our assets reflected in the balances
set out in the preparation of the consolidated financial statements.
Critical
Accounting Policies
Our
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America. 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 as of October 31, 2016. Our total stockholders’ deficit at October 31, 2016 was $1,013,711.
These
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 derivative 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 note’s terms.
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. 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.
Directors
and Executive Officers
Directors
and Executive Officers
All
directors of our company hold office until the next annual meeting of the stockholders or until their successors have been elected
and qualified. The officers of our company are appointed by our board of directors and hold office until their death, resignation
or removal from office. Our directors and executive officers, their ages, positions held, and duration as such, are as follows:
Name
|
|
Position(s)
Held with the Company
|
|
Age
|
|
Date
First Elected or Appointed
|
James
A. Briscoe
|
|
Chief
Executive Officer, Chief Financial Officer, President and Chairman of the Board
|
|
75
|
|
February
3, 2004
|
Gary
Musil
|
|
Secretary
and Director
|
|
66
|
|
October
23, 2003
|
John
Guilbert
|
|
Director
|
|
85
|
|
February
5, 2004
|
Keith
Brill
|
|
Director
|
|
38
|
|
December
23, 2009
|
Peter
O’Heeron
|
|
Director
|
|
53
|
|
September
6, 2012
|
Brett
Gross
|
|
Director
|
|
57
|
|
October
20, 2014
|
Patricia
Madaris
|
|
VP
Finance
|
|
65
|
|
May
8, 2015
|
Business
Experience
The
following is a brief account of the education and business experience of directors and executive officers during at least the
past five years, indicating their principal occupation during the period, and the name and principal business of the organization
by which they were employed.
James
A. Briscoe.
Mr.
Briscoe was appointed as our Chief Executive Officer, President and Chairman of the Board in 2004 and Chief Financial Officer
in 2008. Mr. Briscoe is a Registered Professional Geologist in the states of Arizona and California. From 1996 to 2005, Mr. Briscoe
was the Vice President of Exploration, and Chairman of the Board of JABA Exploration Inc., a TSX Venture Exchange Canadian public
company. Mr. Briscoe was also the President, Chief Executive Officer and a Geologist of JABA (US) Inc. and President of Compania
Minera JABA, S.A. de C.V. in Mexico. Compania Minera JABA, S.A. de C.V. is no longer active and is in the process of dissolution.
We
believe Mr. Briscoe is qualified to serve on our board of directors because of his knowledge of our company’s history and
current operations, which he gained from working for our company as described above, in addition to his extensive experience in
the industry.
Gary
Musil.
Mr.
Musil was appointed as one our directors in 2003 and as our corporate Secretary in 2003. Mr. Musil was our Chief Executive Officer
and Chief Financial Officer from 2003 to 2004. Mr. Musil has more than 30 years of management and financial consulting experience.
Mr. Musil has served as an officer and director on numerous public mining companies since 1988. This experience has resulted in
his overseeing exploration projects in Peru, Chile, Eastern Europe (Slovak Republic), British Columbia, Ontario, Quebec and New
Brunswick (Canada). Prior to this, he was employed for 15 years with Dickenson Mines Ltd. and Kam-Kotia Mines Ltd. as a controller
for the producing silver/lead/zinc mine in the interior of British Columbia, Canada. Mr. Musil currently serves as an officer/director
of four TSX Venture Exchange public companies in Canada. Mr. Musil has been the President, Chief Executive Officer, Chief Financial
Officer and a director of International Montoro Resources Inc., a TSX Venture company and a reporting issuer in Canada, since
1999. Mr. Musil has been the chief financial officer and secretary and a director of Belmont Resources Inc., a TSX Venture company
and a reporting issuer in Canada, since 1992. Mr. Musil has been the chief financial officer and a director of Megastar Development
Corp, a TSX Venture company and a reporting issuer in Canada, since 2006. Mr. Musil has been the Chief Financial Officer and secretary
of Highbank Resources Ltd., a TSX Venture company and a reporting issuer in Canada, since 1988.
We
believe Mr. Musil is qualified to serve on our board of directors because of his knowledge of our company’s history and
current operations, which he gained from working for our company as described above, in addition to his education and business
experience as described above.
John
Guilbert.
Dr.
Guilbert was appointed as one of our directors in 2004. Dr. Guilbert is a Professor Emeritus at the University of Arizona and
is a world-renowned geologist and author of the book, The Geology of Ore Deposits, a popular 900 page text used throughout the
world and a co-developer of the Lowell-Guilbert porphyry copper model and recipient of two mining awards, the R.A.F. Penrose Medal
and the D.C. Jackling Award. These gold medal awards, the most coveted in American Mining, were awarded back-to-back in successive
years. Dr. Guilbert served as a director of Excellon Inc., a Vancouver Stock Exchange listed company from 1992 to 1996 and as
Board Chairman and director for JABA Inc., an Alberta Stock Exchange (later CDNX then TSX) listed company from 1996 to 2002.
We
believe Dr. Guilbert is qualified to serve on our board of directors because of his knowledge of our company’s history and
current operations, which he gained from working for our company as described above, in addition to his education and business
experience as described above.
Keith
Brill.
Mr.
Brill was appointed as one of our directors in, 2009. Mr. Brill received an International Master of Business Administration (IMBA)
from the Moore School of Business, University of South Carolina in 2005. He graduated from the South Carolina Honors College,
University of South Carolina in 2003 with a Bachelor of Science, magna cum laude, major in Economics and Finance, minor in Spanish.
Mr. Brill has been a management consultant with PA Consulting Group, Inc., a leading global consulting firm, since 2004. He has
provided multinational Fortune 500 companies with consulting advice on topics including cost reduction, operational efficiency,
and IT strategy. Mr. Brill has extensive experience in conducting ROI analysis, developing business cases, and providing strategic
financial advice on major business transformation programs.
We
believe Mr. Brill is qualified to serve on our board of directors because of his knowledge of our company’s history and
current operations, which he gained from working for our company as described above, in addition to his education and business
experience as described above.
Peter
O’Heeron.
Mr.
O’Heeron joined the board in 2012. Mr. O’Heeron leads an operational investment group which identifies early stage
opportunities in the medical field with strong intellectual property positions. Through his 20+ years of medical product development
experience, Mr. O’Heeron brings together the resources from strategic disciplines necessary to commercialize unique technologies.
Prior to founding Advanced Medical Technologies LLC, Mr. O’Heeron founded NeoSurg Technologies, Inc. to develop a minimally
invasive access system. As a result of his efforts, NeoSurg Technologies was successful in developing the T2000 Minimally Invasive
Access System, the world leader in reposable surgical instrumentation. Mr. O’Heeron completed the sale of NeoSurg Technologies
to CooperSurgical in 2005. Mr. O’Heeron graduated from Texas State University with a BS in Healthcare Administration and
a minor in Business Administration. He received his Masters in Healthcare Administration from the University of Houston. Mr. O’Heeron
currently holds 5 patents and has 4 patents pending.
We
believe Mr. O’Heeron is qualified to serve on our board of directors because of his knowledge of our company’s history
and current operations, which he gained from working with our company as described above, in addition to his education and business
experience as described above. He also catalyzed a negotiation with Northern Dynasty which benefited the company by millions of
dollars.
Brett
Gross.
Mr.
Gross joined the board in 2014. Mr. Gross has served as Vice President and Regional Managing Attorney for URS Energy& Construction,
Inc., an AECOM company, fka Washington Group International, Inc. since August 2005. Mr. Gross is a mining engineer (BS, Ohio State
University, 1982; MS, Virginia Polytechnic Institute, 1988; PE, Colorado and Alabama) and attorney (JD, University of Denver,
2001) with over 30 years of experience, both domestic and international. His work experience includes surface and underground
mining operations, engineering, and delivery of construction mega-projects across multiple industrial and commercial markets,
and the practice of law related to each of these sectors. Mr. Gross brings a combination of professional skills that benefits
every aspect of our business. Mr. Gross’ engineering career began at Virginia Tech, with research focused on rock mechanics
and the stability of underground openings, particularly the phenomenon of “coal bumps” and “rock bursts,”
and studying methods to monitor stress changes in the longwall barrier pillar during the onset of the active longwall face. The
ensuing years of his career have been intimately involved with a broad spectrum of engineering, operations, management and project
delivery. Since 2002, Mr. Gross has practiced law both in private practice and as in-house counsel, negotiating and closing complex
deals with what today is among the largest engineering and construction firms in the United States.
We
believe Mr. Gross is qualified to serve on our board of directors because of his education and business experience as described
above.
Patricia
Madaris.
Ms.
Madaris has served as our VP Finance since May 2015. Prior to that time, Ms. Madaris served as the Executive Assistant to our
CEO and Board of Directors since 2011. Since beginning her work at our company, she has proven to be beneficial in facilitating
many areas of our public company, working to engage, negotiate, and close financings, and overseeing and working actively in financial
reporting, and projected budgeting for ongoing operations. She has also worked as an accountant/manager for corporations in Arizona,
Florida, and California since 2005. Ms. Madaris has a Bachelor’s of Science Degree with Indiana Wesleyan University, graduating
Summa Cum Laude. Ms. Madaris is currently pursuing her MBA with an expected date of graduation in 2016.
Family
Relationships
There
are no family relationships between any director or executive officer.
Board
and Committee Meetings
The
board of directors of our company held three formal meetings during the fiscal year ended January 31, 2016.
There
have been no material changes to the procedures by which our shareholders may recommend nominees to our board of directors during
the fiscal year ended January 31, 2016. Shareholders may contact our President, James A. Briscoe, to recommend nominees to our
board of directors.
For
the fiscal year ended January 31, 2016 our only standing committee of the board of directors was our audit committee. We do not
have a nominating committee or a compensation committee.
Audit
Committee
Currently
our audit committee consists of our entire board of directors. We do not have a separately-designated standing audit committee
established in accordance with section 3(a)(58)(A) of the Exchange Act.
During
the fiscal year ended January 31, 2016, the audit committee did not hold any meetings. Rather, the business of the audit committee
was conducted by resolutions consented to in writing by all the members of the board and filed with the minutes of the proceedings
of the board.
Audit
Committee Financial Expert
Our
board of directors has determined that it does not have a member of its board of directors or audit committee that qualifies as
an “audit committee financial expert” as defined in Item 407(d)(5)(ii) of Regulation S-K.
We
believe that the members of our board of directors are collectively capable of analyzing and evaluating our consolidated financial
statements and understanding internal controls and procedures for financial reporting. In addition, we believe that retaining
an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome
and is not warranted in our circumstances given the early stages of our development and the fact that we have not generated any
material revenues to date.
Involvement
in Certain Legal Proceedings
None
of our directors and executive officers has been involved in any of the following events during the past ten years:
|
(a)
|
any
petition under the federal bankruptcy laws or any state insolvency laws filed by or against, or an appointment of a receiver,
fiscal agent or similar officer by a court for the business or property of such person, or any partnership in which such person
was a general partner at or within two years before the time of such filing, or any corporation or business association of
which such person was an executive officer at or within two years before the time of such filing;
|
|
|
|
|
(b)
|
any
conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other
minor offences);
|
|
|
|
|
(c)
|
being
subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining such person from, or otherwise limiting, the following activities: (i) acting as a futures
commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction
merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing,
or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee
of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct
or practice in connection with such activity; engaging in any type of business practice; or (iii) engaging in any activity
in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state
securities laws or federal commodities laws;
|
|
|
|
|
(d)
|
being
the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described
in paragraph (c)(i) above, or to be associated with persons engaged in any such activity;
|
|
|
|
|
(e)
|
being
found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission to have violated a
federal or state securities or commodities law, and the judgment in such civil action or finding by the Securities and Exchange
Commission has not been reversed, suspended, or vacated;
|
|
|
|
|
(f)
|
Being
found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated
any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission
has not been subsequently reversed, suspended or vacated;
|
|
|
|
|
(g)
|
being
the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law
or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited
to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent
cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or
fraud in connection with any business entity; or
|
|
|
|
|
(h)
|
being
the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory
organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934), any registered entity (as defined in
Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has
disciplinary authority over its members or persons associated with a member.
|
Code
of Ethics
Effective
March 15, 2004, our company’s board of directors adopted a Code of Business Conduct and Ethics that applies to all employees,
including our company’s Chief Executive Officer, Chief Financial Officer and VP Finance. As adopted, our Code of Business
Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:
1.
|
honest
and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional
relationships;
|
|
|
2.
|
full,
fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the SEC and
in other public communications made by us;
|
|
|
3.
|
compliance
with applicable governmental laws, rules and regulations;
|
|
|
4.
|
the
prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified
in the Code of Business Conduct and Ethics; and
|
|
|
5.
|
accountability
for adherence to the Code of Business Conduct and Ethics. Our Code of Business Conduct and Ethics requires, among other things,
that all of our company’s Senior Officers commit to timely, accurate and consistent disclosure of information; that
they maintain confidential information; and that they act with honesty and integrity.
|
In
addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly senior officers, have a responsibility
for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal
and state securities laws. Any senior officer who becomes aware of any incidents involving financial or accounting manipulation
or other irregularities, whether by witnessing the incident or being told of it, must report it to our company. Any failure to
report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company
policy to retaliate against any individual who reports in good faith the violation or potential violation of our company’s
Code of Business Conduct and Ethics by another.
Our
Code of Business Conduct and Ethics was filed with the SEC on March 13, 2004 as Exhibit 14.1 to our annual report on Form 10-KSB
for the fiscal year ended December 31, 2003. We will provide a copy of the Code of Business Conduct and Ethics to any person without
charge, upon request. Requests can be sent to: Liberty Star Uranium & Metals Corp., 5610 E. Sutler Lane, Tucson, Arizona 85712.