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, 2017 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
April 30, 2017 and the results of our operations and cash flows for the periods presented.
Interim
results are subject to significant seasonal variations and the results of operations for the three months ended April 30, 2017
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 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.
Our
financial instruments consist of cash and cash equivalents, accounts payable, accrued liabilities and convertible 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 derivative liability are reported in other income (expense) as gain (loss) on change in fair value.
During
the three months ended April 30, 2017, none of the convertible promissory notes had become convertible under their terms, thus
no derivative liability existed during the period.
NOTE
4 – Related party transactions
We
entered into the following transactions with related parties during the three months ended April 30, 2017:
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 $1,566 for the three months ended April 30, 2017. No amount was due as of April 30, 2017,
At
April 30, 2017, we had a balance of accrued unpaid wages of $623,570 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.
We
have an option to explore 26 standard federal lode mining claims at the East Silverbell 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 $0 in rental fees to maintain
the mineral claims during the three months ended April 30, 2017. 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.
At
April 30, 2017, we had accounts payable to JABA of $34,798 and to Jim Briscoe of $1,213, which is reflected as accounts payable
to related party on the accompanying consolidated balance sheet.
NOTE
5 – Stock options
Qualified
and Non-qualified incentive stock options to employees and directors outstanding at April 30, 2017 are as follows:
|
|
|
|
|
Weighted average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
|
options
|
|
|
price
per share
|
|
Outstanding, January 31,
2017
|
|
|
97,392,450
|
|
|
$
|
0.034
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Outstanding, April 30, 2017
|
|
|
97,392,450
|
|
|
$
|
0.034
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 30, 2017
|
|
|
96,798,700
|
|
|
$
|
0.034
|
|
These
options had a weighted average remaining life of 4.23 years and an aggregate intrinsic value of $8,104 as of April 30, 2017.
Non-qualified
stock options to non-employee consultants and vendors outstanding at April 30, 2017 are as follows:
|
|
|
|
|
Weighted average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
|
options
|
|
|
price
per share
|
|
Outstanding, January 31,
2017
|
|
|
1,453,800
|
|
|
$
|
0.017
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Outstanding, April 30, 2017
|
|
|
1,453,800
|
|
|
$
|
0.017
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 30, 2017
|
|
|
1,453,800
|
|
|
$
|
0.017
|
|
These
options had a weighted average remaining life of 6.93 years and an aggregate intrinsic value of $663 as of April 30, 2017.
During
the three months ended April 30, 2017, we recognized $2,808 of compensation expense related to incentive and non-qualified stock
options granted to officers, employees and consultants.
NOTE
6 – Warrants
As
of April 30, 2017, there were 138,419,886 whole share purchase warrants outstanding and exercisable. The warrants have a weighted
average remaining life of 3.28 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 $108,956 as of April 30, 2017.
Whole
share purchase warrants outstanding at April 30, 2017 are as follows:
|
|
Number of
|
|
|
Weighted average
|
|
|
|
whole share
|
|
|
exercise
|
|
|
|
purchase
warrants
|
|
|
price
per share
|
|
Outstanding, January 31,
2017
|
|
|
130,682,120
|
|
|
$
|
0.006
|
|
Issued
|
|
|
7,737,766
|
|
|
|
0.003
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Outstanding, April 30, 2017
|
|
|
138,419,886
|
|
|
$
|
0.006
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 30, 2017
|
|
|
138,419,886
|
|
|
$
|
0.006
|
|
During
the three months ended April 30, 2017, the Company issued 7,737,766 warrants to investors at exercise prices ranging from $0.0028
to $0.0036 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.
During
the three months ended April 30, 2017, none of the convertible promissory notes had become convertible under their terms, thus
no derivative liability existed during the period.
The
following table sets forth a reconciliation of changes in the fair value of the Company’s derivative liability:
|
|
Three
months ended
April 30,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning balance
|
|
$
|
—
|
|
|
$
|
3,293
|
|
Total losses
|
|
|
—
|
|
|
|
5,512
|
|
Settlements
|
|
|
—
|
|
|
|
(64,379
|
)
|
Additions
|
|
|
—
|
|
|
|
62,160
|
|
Ending balance
|
|
$
|
—
|
|
|
$
|
6,586
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized losses included
in earnings relating to derivatives still held as of April 30, 2017 and 2016
|
|
$
|
—
|
|
|
$
|
(5,512
|
)
|
NOTE
8 – Convertible promissory notes
Following
is a summary of convertible promissory notes:
|
|
April
30, 2017
|
|
|
January
31, 2017
|
|
|
|
|
|
|
|
|
12% convertible note payable
issued December 2016, due December 2017
|
|
$
|
34,457
|
|
|
$
|
33,467
|
|
12% convertible note payable issued
February 2017, due February 2018
|
|
|
79,177
|
|
|
|
—
|
|
12% convertible note payable issued
April 2017, due January 2018
|
|
|
50,312
|
|
|
|
—
|
|
|
|
|
163,946
|
|
|
|
33,467
|
|
Less debt discount
|
|
|
(9,119
|
)
|
|
|
(2,646
|
)
|
Less current portion of convertible
notes
|
|
|
(154,827
|
)
|
|
|
(30,821
|
)
|
Long-term convertible notes payable
|
|
$
|
—
|
|
|
$
|
—
|
|
On
December 14, 2016, we entered into a convertible promissory note (the “December 2016 Note”) to Tangiers Investment
Group, LLC (“Tangiers”) for a principal sum of up to $110,000, bearing interest at 12% per annum. The consideration
is up to $100,000, which would produce an original issue discount of $10,000 if all the consideration is received. The lender
paid $30,000 pursuant to the terms of the December 2016 Note on December 19, 2016, which resulted in the Company recording a $3,000
original issue discount. The maturity date is one year from the effective date of each payment, as well as any unpaid interest
and other fees. The December 2016 Note may be convertible into shares of common stock of our company after 180 days of funding
at a conversion price of 62.5% of the volume weighted average price of the Company’s common stock during the five trading
days previous to the conversion. We may repay the December 2016 Note at any time before 150 days from the effective date of the
December 2016 Note, or prepay at 130% of the principal from 151 to 180 days, after which we may not make any further payments
on the December 2016 Note prior to the maturity date without written approval from the lender. As of January 31, 2017, we had
of $33,467 of principal and interest outstanding for the December 2016 Note. As of April 30, 2017, we had of $34,457 of principal
and interest outstanding for the December 2016 Note.
On
February 2, 2017, the Company and Tangiers entered into Amendment #1 to the December 2016 Note (“Amendment #1”). Amendment
#1 provides that, on or before February 2, 2017, Tangiers would make a payment to the Company of $77,000, which includes a 10%
OID. The net proceeds of $70,000 were received on February 2, 2017. The maturity date is February of 2018.
Also
on February 2, 2017, the Company and Tangiers entered into Amendment #2 to the December 2016 Note (“Amendment #2”).
Amendment #2 provides that the conversion price under the Note is equal to 60% of the lowest trading price of the Company’s
common stock during the 20 consecutive trading days prior to Tangier’s conversion election. The default percentages of 5%
and 10% of the discount of conversion price point remained the same other than reflecting the amended discount price. In addition,
the provision in the Note relating to a right of first refusal was removed by Amendment #2. As of April 30, 2017, we had of $79,177
of principal and interest outstanding
On
April 11, 2017, we received proceeds of $48,000, net of a $2,000 fee, under a convertible promissory note dated April 10, 2017
(the “April 2017 Note”). The total principal under the April 2017 Note is $50,000, bears interest at 12% per annum,
is due on January 10, 2018, and is convertible in shares of the Company’s common stock after 180 days at a conversion price
with a 45% discount to the lowest weighted average market price during the previous 20 trading days to the date of conversion.
As of April 30, 2017, we had of $50,312 of principal and interest outstanding
During
the three months ended April 30, 2017 and 2016, the Company recorded debt discounts of $0 and $62,160, respectively, due to the
derivative liabilities, and original issue debt discounts of $9,000 and $5,000, respectively, due to the convertible notes. The
Company recorded amortization of these discounts of $2,527 and $66,605 for the three months ended April 30, 2017 and 2016,
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 April 30, 2017.
During
the three months ended April 30, 2017, the Company received aggregate proceeds of $32,000 from investors to purchase a total of
15,475,531 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 exercise prices ranging from $0.0028 to $0.0036 with
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.
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 year ended January 31, 2017, the Company issued an aggregate of 110,098,238 shares of common stock for total
proceeds of $179,291 to Tangiers Investment Group, LLC under the Investment Agreement. During the three months ended April 30,
2017, the Company issued an aggregate of 24,410,828 shares of common stock for total proceeds of $31,950 to Tangiers Investment
Group, LLC under the Investment Agreement.
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
May and June of 2017, the Company issued an aggregate of 27,676,767 shares of common stock for total proceeds of $69,870
to Tangiers Investment Group, LLC under the Investment Agreement.
In
May and June of 2017, the Company issued an aggregate of 4,715,935 units to investors for aggregate proceeds of $16,000. 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.
In
May 2017, the Company issued 999,480 shares for services with a fair value of approximately $3,748.
Subsequent
to April 30, 2017, the Company agreed to issue 24,242,424 shares to a third-party with an aggregate fair value of approximately
$44,000 to settle unpaid services which is reflected in accounts payable as of April 30, 2017. These shares have not yet been
issued as of the date of this filing.