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. Until 2016 Big Chunk was 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.
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, 2018 and 2017, 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, 2018 or 2017.
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, 2014 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 years ended January 31, 2018 and 2017, the following number of potentially dilutive shares have
been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:
|
|
Year
Ended January 31,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Stock
options outstanding
|
|
|
91,308,750
|
|
|
|
98,846,250
|
|
Warrants
|
|
|
141,414,489
|
|
|
|
130,682,120
|
|
Shares
to be issued upon conversion of notes payable
|
|
|
36,041,322
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
268,764,561
|
|
|
|
229,528,370
|
|
Newly
Issued Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09)
“Revenue from Contracts with Customers.” ASU 2014-09 will supersede most current revenue recognition guidance, including
industry-specific guidance. The underlying principle is that an entity will recognize revenue upon the transfer of goods or services
to customers in an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides
a five- step analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization
of certain contract costs, consideration of the time value of money in the transaction price and allowing estimates of variable
consideration to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced
disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts
with customers. The guidance is effective for the interim and annual periods beginning on or after December 15, 2016 (early adoption
is not permitted). The guidance permits the use of either a retrospective or cumulative effect transition method. On July 9, 2015,
the FASB decided to delay the effective date of the new revenue standard by one year. The FASB also agreed to allow entities to
choose to adopt the standard as of the original effective date. The Company is currently evaluating the impact of this standard.
In
January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets
and Financial Liabilities. The pronouncement requires equity investments (except those accounted for under the equity method of
accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized
in net income. ASU 2016-01requires public business entities to use the exit price notion when measuring the fair value of financial
instruments for disclosure purposes, requires separate presentation of financial assets and financial liabilities by measurement
category and form of financial asset, and eliminates the requirement for public business entities to disclose the method(s) and
significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at
amortized cost. These changes become effective for the Company’s fiscal year beginning January 1, 2018. The expected adoption
method of ASU 2016-01 is being evaluated by the Company and the adoption is not expected to have a significant impact on the Company’s
consolidated financial position or results of operations.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases
(Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal
years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases
existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief.
The Company is currently evaluating the impact of this new standard on its consolidated financial statements.
In
March 2016, FASB issued (“ASU”) 2016-09,
Compensation – Stock Compensation – Improvements to Employee
Shared-Based Payment Accounting
(“ASU 2016-09”)
.
This guidance is intended to simplify the accounting for
share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities
and classification on the statement of cash flows. The amendments in this update are effective for public business entities for
financial statements issued for annual periods beginning after December 15, 2016, including interim periods within those annual
periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim
periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or
annual periods. The Company is currently assessing the impact of this ASU on its financial statements.
In
August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows – Classification of Certain Cash Receipts and Cash
Payments (Topic
230
)
(“ASU 2016-15”), which addresses eight specific cash flow issues with the objective
of reducing the existing diversity in practice. This update applies to all entities that are required to present a statement of
cash flows under Topic 230. This guidance is effective for financial statements issued for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. The Company does not currently expect ASU 2016-15 to have a material
effect on its consolidated financial statements and disclosures upon adoption.
In
January 2017, the FASB issued ASU No. 2017-04, “
Intangibles—Goodwill and Other (Topic 350)
: Simplifying the
Test for Goodwill Impairment” (ASU 2017-04)”. Under the amendments, an entity should perform its annual or interim
goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized
should not exceed the total amount of goodwill allocated to that reporting unit. The FASB also eliminated the requirements for
any reporting unit with a zero or negative carrying amount to perform a qualitative assessment, and if it fails that qualitative
test, to perform Step 2 of the goodwill impairment test. The same impairment test will therefore apply to all reporting units,
and an entity will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying
amount of net assets. SEC filers are required to adopt the new standard for annual or any interim goodwill impairment tests in
fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed
on testing dates on or after January 1, 2017. The Company does not currently expect ASU 2017-04 to have a material effect on its
consolidated financial statements and disclosures upon adoption.
In
May 2017, the FASB issued ASU 2017-09,
Compensation – Stock Compensation (Topic
718
) – Scope of Modification
Accounting
(“ASU 2017-09”), which provides guidance about which changes to the terms or conditions of a stock-based
payment award require an entity to apply modification accounting in Topic 718. This update applies to any entity that changes
the terms or conditions of a stock-based payment award. This guidance is effective for financial statements issued for fiscal
years beginning after December 15, 2017, and interim periods within those fiscal years. The Company does not currently expect
ASU 2017-09 to have a material effect on its consolidated financial statements and disclosures upon adoption.
In
July 2017, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2017-11,
Earnings
Per Share (Topic
260
), Distinguishing Liabilities from Equity (Topic
480
), Derivatives and Hedging (Topic
815
)
– I. Accounting for Certain Financial Instruments with Down Round Features and II. Replacement of the Indefinite Deferral
for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling
Interests with a Scope Exception
(“ASU 2017-11”), which addresses the complexity of accounting for certain financial
instruments with down round features and addresses the difficulty of navigating Topic 480 because of the existence of extensive
pending content in the ASC as a result of the indefinite deferral of accounting requirements about mandatorily redeemable financial
instruments of certain nonpublic entities and certain mandatorily redeemable noncontrolling interests. This update applies to
all entities that issue financial instruments that include down round features and entities that present earnings per share in
accordance with Topic 260. This guidance is effective for financial statements issued for fiscal years beginning after December
15, 2018, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.
If early adopted in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes
that interim period. The Company does not currently expect ASU 2017-11 to have a material effect on its consolidated financial
statements and disclosures upon adoption.
NOTE
3 – Going concern
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.
The
Company has incurred losses from operations, has a working capital deficit 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, 2018, 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, 2018, 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 one of our
directors, James A. Briscoe, the Company’s Chief Executive Officer, Chief Financial Officer, President and Chairman
of the Board, controls JABA (US) Inc., and the estate of Dr. J. M. Guilbert (deceased), a former director of the Company,
holds a small stock position, as well and 66 federal lode mining claims belong to Liberty Star Uranium & Metals
Corp. At January 31, 2018, we held Arizona State Land Department Mineral Exploration Permits covering 2,966.88 acres in the
Tombstone region of Arizona.
At January
31, 2018, we held an option to explore 26 standard federal lode mining claims located in the East Silverbell region of northwest
Tucson, Arizona. The mineral claims are owned by JABA (US) Inc., an Arizona Corporation in which one of our directors,
James A. Briscoe, the Company’s Chief Executive Officer, Chief Financial Officer, President and Chairman of the Board,
is an owner. The additional owner Dr. John Guilbert is now deceased and his ownership is part of his estate.
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, 2018.
NOTE
5 – Property and equipment
The
balances of our major classes of depreciable assets and useful lives are:
|
|
January
31, 2018
|
|
|
January
31, 2017
|
|
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
|
|
|
|
85,363
|
|
|
|
|
394,381
|
|
|
|
394,381
|
|
Less:
accumulated depreciation and amortization
|
|
|
(390,292
|
)
|
|
|
(385,915
|
)
|
|
|
$
|
4,089
|
|
|
$
|
8,466
|
|
Depreciation
expense was $4,377 and $5,666 for the years ended January 31, 2018 and 2017, respectively.
NOTE
6 – Long-term debt and convertible promissory notes
Following
is a summary of convertible promissory notes:
|
|
January
31, 2018
|
|
|
January
31, 2017
|
|
|
|
|
|
|
|
|
12%
convertible note payable issued December 2016, due December 2017
|
|
$
|
-
|
|
|
$
|
33,467
|
|
12%
convertible note payable issued July 2017, due April 2018
|
|
|
23,090
|
|
|
|
-
|
|
8%
convertible note payable issued September 2017, due September 2018
|
|
|
44,906
|
|
|
|
-
|
|
12%
convertible note payable issued October 2017, due October 2018
|
|
|
51,693
|
|
|
|
-
|
|
12%
convertible note payable issued November 2017, due November 2018
|
|
|
51,184
|
|
|
|
-
|
|
12%
convertible note payable issued December 2017, due December 2018
|
|
|
50,691
|
|
|
|
-
|
|
12%
convertible note payable issued January 2018, due January 2019
|
|
|
50,148
|
|
|
|
-
|
|
|
|
|
271,712
|
|
|
|
33,467
|
|
Less
debt discount
|
|
|
(9,716
|
)
|
|
|
(2,646
|
)
|
Less
current portion of convertible notes
|
|
|
(261,996
|
)
|
|
|
(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
$33,467 of principal and interest outstanding for the December 2016 Note. On June 16, 2017, Tangiers converted this note in full
for 34,222,222 shares of the Company’s common stock. As of January 31, 2018, we had $0 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 3, 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. During the year ended January 31, 2018, Tangiers
converted an aggregate of $86,240 of this note for 98,128,686 shares of the Company’s common stock. As of January 31, 2018,
we had $0 of principal and interest outstanding under this note.
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.
During the year ended January 31, 2018, the noteholder converted an aggregate of $53,242 of this note for 66,340,374 shares of
the Company’s common stock. As of January 31, 2018, we had $0 of principal and interest outstanding under this note.
On
June 20, 2017, we received proceeds of $50,000, net of a $3,000 fee, under a convertible note dated June 20, 2017 (the “June
2017 Note”). The total principal under the June 2017 Note is $53,000, bears interest at 8% per annum, is due on June 20,
2018, and is convertible in shares of the Company’s common stock after 180 days at a conversion price of 65% of the lowest
weighted average market price during the previous 10 trading days to the date of conversion. During the year ended January 31,
2018, the noteholder converted an aggregate of $55,184 of this note for 53,869,646 shares of the Company’s common
stock. As of January 31, 2018, we had $0 of principal and interest outstanding under this note.
On
July 27, 2017, we received proceeds of $48,000, net of a $2,000 fee, under a convertible note dated July 26, 2017 (the “July
2017 Note”). The total principal under the July 2017 Note is $50,000, bears interest at 12% per annum, is due on April 26,
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. During the year ended
January 31, 2018, the noteholder converted an aggregate of $30,000 of this note for 45,454,544 shares of the Company’s
common stock. As of January 31, 2018, we had $23,090 of principal and interest outstanding under this note.
On
September 15, 2017, we received proceeds of $40,000, net of a $3,000 fee, under a convertible note dated September 15, 2017 (the
“September 2017 Note”). The total principal under the September 2017 Note is $43,000, bears interest at 8% per annum,
is due on September 13, 2018, and is convertible in shares of the Company’s common stock after 180 days at a conversion
price of 65% of the lowest weighted average market price during the previous 10 trading days to the date of conversion. As of
January 31, 2018, we had $44,906 of principal and interest outstanding.
On
October 18, 2017, we received proceeds of $48,000, net of a $2,000 fee, under a convertible note dated October 18, 2017 (the “October
2017 Note”). The total principal under the October 2017 Note is $50,000, bears interest at 12% per annum, is due on October
18, 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 January 31, 2018,
we had $51,693 of principal and interest outstanding.
On
November 22, 2017, we received proceeds of $48,000, net of a $2,000 fee, under a convertible note dated November 20, 2017 (the
“November 2017 Note”). The total principal under the note is $50,000, bears interest at 12% per annum, is due on November
20, 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 January 31, 2018,
we had $51,184 of principal and interest outstanding.
On
December 21, 2017, we received proceeds of $48,000, net of a $2,000 fee, under a convertible note dated December 20, 2017 (the
“December 2017 Note”). The total principal under the note is $50,000, bears interest at 12% per annum, is due on December
20, 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 January 31, 2018,
we had $50,691 of principal and interest outstanding.
On
January 25, 2018, we received proceeds of $48,000, net of a $2,000 fee, under a convertible note dated January 22, 2018 (the “January
2018 Note”). The total principal under the note is $50,000, bears interest at 12% per annum, is due on January 22, 2019,
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 January 31, 2018, we
had $50,148 of principal and interest outstanding.
During
the years ended January 31, 2018 and 2017, the Company recorded debt discounts of $247,299 and $259,813, respectively,
due to the derivative liabilities, and original issue debt discounts of $25,000 and $10,800, respectively, due to the convertible
notes. The Company recorded amortization of these discounts of $265,229 and $276,437 for the years ended January 31, 2018 and
2017, respectively.
NOTE
7 – Derivative Liabilities
The
embedded conversion feature in the convertible debt instruments that the Company issued (See Note 6), that became convertible
during the years ended January 31, 2018 and 2017, 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, 2018:
|
●
|
The
stock projections are based on the historical volatilities for each date. These ranged in the 139-140% 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 during the year ended January 31, 2018 of $387,864
for newly granted and existing warrants (see note 10) that were tainted and a derivative liability of $355,057
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 “day 1” derivative loss of $107,758 and a debt discount of $247,299
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, 2018,
was $246,842. Additionally, $18,387 of original issuance cost was charged to interest expense as a result of the conversion of
a portion of the underlying debt instrument (See Note 6). The remaining unamortized debt discount related to the derivative
liability was $457 as of January 31, 2018. The Company recorded the change in the fair value of the derivative liability as a
gain of $144,351 to reflect the value of the derivative liability for warrants and convertible notes as of January 31,
2018. The Company also recorded a reclassification from derivative liability to equity of $136,866 for warrants becoming untainted
and $293,018 due to the conversions of a portion of the Company’s convertible notes.
Since
no convertible note was convertible as of January 31, 2017, no derivative liability remained as of that date.
The
following table sets forth a reconciliation of changes in the fair value of the Company’s derivative liability:
|
|
Year
Ended January 31,
|
|
|
|
2018
|
|
|
2017
|
|
Beginning
balance
|
|
$
|
-
|
|
|
$
|
3,293
|
|
Total
(gains) losses
|
|
|
(36,593
|
)
|
|
|
288,643
|
|
Settlements
|
|
|
(293,018
|
)
|
|
|
(551,749
|
)
|
Additions
|
|
|
498,297
|
|
|
|
259,813
|
|
Ending
balance
|
|
$
|
168,686
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized (gains) losses included in earnings relating to derivatives as of January 31, 2018 and 2017
|
|
$
|
(36,593
|
)
|
|
$
|
288,643
|
|
NOTE
8 – 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
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 January 31, 2018.
Common
Stock Issued During the Year Ended January 31, 2017
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.
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 year ended January 31, 2017, $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 year ended January 31, 2017, the Company issued 76,220,079 units to investors for total proceeds of $223,677. Each unit consists
of one share of the Company’s common stock and one or one-half warrant to purchase one share or one-half equivalent share
each of the Company’s common stock. The warrants have an exercise price of $0.0027, $0.0028, or $0.0040 and have a three-year
term.
During
the year ended January 31, 2017, $159,289 of the November 2015 Note was converted into 122,373,003 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00098 to $0.00149.
During
the year ended January 31, 2017, $55,000 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 year ended January 31, 2017, the Company issued 32,519,915 shares to third-parties for services with an aggregate fair value
of approximately $67,296. These shares include 30,644,915 shares issued to a service provider for services pursuant to a subscription
agreement that allows for additional shares to be issued in the event the service provider receives aggregate proceeds less than
$40,000 from their sale of this stock.
Common
Stock Issued During the Year Ended January 31, 2018
During
the year ended January 31, 2018, the Company issued 24,964,736 units to investors for total proceeds of $58,000. 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 prices ranging from of $0.0028 to $0.0053 and have a three-year term.
During
the year ended January 31, 2018, a total of $261,626 of convertible notes were converted into 298,015,472 shares of the Company’s
common stock. The conversions occurred on multiple dates with conversion prices ranging from $0.00066 to $0.00113.
During
the year ended January 31, 2018, the Company issued an aggregate of 92,609,558 shares of common stock for total proceeds of $170,334
to Tangiers Investment Group, LLC under the Investment Agreement.
During
the year ended January 31, 2018, the Company issued 25,241,904 shares to third-parties for services with an aggregate fair value
of approximately $57,081, including 24,242,424 shares issued to settle accounts payable of $44,000, resulting in a loss
on settlement of $9,333.
During
the year ended January 31, 2018, the Company issued 1,750,000 shares for the exercise of warrants with aggregate proceeds of $4,900.
NOTE
9 – 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, 2018 and 2017 are 7,500,000 and 0, respectively. Options remaining available for
grant under the 2007 Stock Option Plan at January 31, 2018 and 2017 are 112,500 and 75,000, respectively. Options remaining
available for grant under the 2004 Stock Option Plan at January 31, 2018 and 2017 are 41,250 and 41,250.
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 $0 as of January 31, 2018.
During
the year ended January 31, 2017, 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. The Company did not issue incentive stock options during the year ended January 31, 2018.
The
following tables summarize the Company’s stock option activity during the years ended January 31, 2018 and 2016. Incentive
stock options to employees and directors outstanding at January 31, 2018 are as follows:
|
|
Number
of options
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
life
(years)
|
|
|
Aggregate
intrinsic
value
|
|
Outstanding,
January 31, 2016
|
|
|
85,421,374
|
|
|
$
|
0.042
|
|
|
|
4.81
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
12,081,326
|
|
|
|
0.007
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(110,250
|
)
|
|
|
2.872
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2017
|
|
|
97,392,450
|
|
|
$
|
0.034
|
|
|
|
4.48
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled
and/or forfeited
|
|
|
(7,537,500
|
)
|
|
|
0.042
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2018
|
|
|
89,854,950
|
|
|
$
|
0.034
|
|
|
|
3.56
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
January 31, 2018
|
|
|
89,854,950
|
|
|
$
|
0.034
|
|
|
|
3.56
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated based on the stock price of $0.0020 and $0.0016 per share as of January 31, 2018 and 2017,
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
|
|
June
10, 2016
|
|
|
142
|
%
|
|
|
0
|
%
|
|
|
5
years
|
|
|
|
0.87
|
%
|
|
|
0
|
%
|
August
11, 2016
|
|
|
143
|
%
|
|
|
0
|
%
|
|
|
5
years
|
|
|
|
1.30
|
%
|
|
|
0
|
%
|
Share-based
compensation expense is reported in our consolidated statements of operations as follows:
|
|
January
31, 2018
|
|
|
January
31, 2017
|
|
Geological
and geophysical costs
|
|
$
|
2,947
|
|
|
$
|
4,882
|
|
Salaries
and benefits
|
|
|
2,947
|
|
|
|
66,964
|
|
Investor
relations
|
|
|
1,097
|
|
|
|
1,834
|
|
General
and administrative
|
|
|
-
|
|
|
|
1,128
|
|
|
|
$
|
6,991
|
|
|
$
|
74,808
|
|
At
January 31, 2018, there was $0 of unrecognized share-based compensation for all share-based awards outstanding.
Non-qualified
stock options to non-employee consultants and vendors outstanding as of January 31, 2018 are as follows:
|
|
Number
of options
|
|
|
Weighted
average
exercise price
|
|
|
Weighted
average
remaining life
(years)
|
|
|
Aggregate
intrinsic value
|
|
Outstanding,
January 31, 2016
|
|
|
863,500
|
|
|
$
|
0.316
|
|
|
|
2.23
|
|
|
$
|
-
|
|
Granted
|
|
|
1,421,300
|
|
|
|
0.003
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(831,000
|
)
|
|
|
0.304
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2017
|
|
|
1,453,800
|
|
|
$
|
0.017
|
|
|
|
2.66
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2018
|
|
|
1,453,800
|
|
|
$
|
0.017
|
|
|
|
1.66
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
January 31, 2018
|
|
|
1,453,800
|
|
|
$
|
0.017
|
|
|
|
1.66
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated based on the stock price of $0.0020 and $0.0016 per share for the years ended January
31, 2018 and 2016, respectively.
During
the years ended January 31, 2018 and 2017, we recognized $6,991 and $74,808 of compensation expense related to incentive and non-qualified
stock options previously granted to officers, employees and consultants.
NOTE
10 – Warrants
As
of January 31, 2018, there were 141,414,489 whole share purchase warrants outstanding and exercisable. The warrants have a three-year
term, a weighted average remaining life of 2.52 years and a weighted average exercise price of $0.006 per whole warrant for one
common share. Whole share purchase warrants outstanding at January 31, 2018 and 2017 are as follows:
|
|
Number
of whole share purchase warrants
|
|
|
Weighted
average
exercise
price
per
share
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2016
|
|
|
98,731,285
|
|
|
$
|
0.008
|
|
Issued
|
|
|
39,425,829
|
|
|
|
0.003
|
|
Expired
|
|
|
(7,474,994
|
)
|
|
|
0.020
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2017
|
|
|
130,682,120
|
|
|
$
|
0.006
|
|
Issued
|
|
|
12,482,369
|
|
|
|
0.003
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(1,750,000
|
)
|
|
|
0.003
|
|
Outstanding,
January 31, 2018
|
|
|
141,414,489
|
|
|
|
0.006
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
January 31, 2018
|
|
|
141,414,489
|
|
|
|
0.006
|
|
The
weighted average intrinsic value for warrants outstanding was $0 as of January 31, 2018 and 2017.
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.
NOTE
11 – Income taxes
As
of January 31, our deferred tax asset is as follows:
|
|
January
31, 2018
|
|
|
January
31, 2017
|
|
Deferred
Tax Assets
|
|
$
|
6,258,000
|
|
|
$
|
9,883,000
|
|
Less
Valuation Allowance
|
|
|
(
6,258,000
|
)
|
|
|
(9,883,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 $3,625,000 is primarily the result of the change in corporate tax rate from 35% to 21% (see below) for the
year ended January 31, 2018. The increase of $492,000 during the year ended January 31, 2017 primarily represents the increase
in net operating loss carry-forwards during the period offset against the valuation allowance. As of January 31, 2018, our estimated
net operating loss carry-forward is approximately $30 million and expires beginning in 2026 through 2038.
We
have identified our federal and Arizona state tax returns as “major” tax jurisdictions. The periods our income tax
returns are subject to examination for these jurisdictions are the tax years ended January 31, 2015 through January 31, 2018.
We believe our income tax filing positions and deductions will be sustained on audit, and we do not anticipate any adjustments
that would result in a material change to our financial position. Therefore, no liabilities for uncertain income tax positions
have been recorded.
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.
The
Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to
21% and requires the Company to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated
to reverse in the future, which is generally 21%. The Company adopted the new rate as it relates to the calculations of deferred
tax amounts as of January 31, 2018.
NOTE
12 – Related party transactions
We were a party to the following transactions
with related parties during the year ended January 31, 2018:
We rented an office from Jim Briscoe, our
Chairman of the Board, CEO, CFO and President, on a month-to-month basis for $522 per month. The total rent expense related to
this office was $6,264 for the year ended January 31, 2018. No amount was due as of January 31, 2018.
At January 31, 2018, we had a balance of accrued unpaid wages of $668,949 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. James A. Briscoe, the Company’s
Chief Executive Officer, Chief Financial Officer, President and Chairman of the Board, controls JABA and the estate of Dr. J.
M. Guilbert (deceased), a former director of the Company, holds a small stock position, as well. We are required to pay annual
rentals to maintain the claims in good standing.
We
paid $8,525 in rental fees to maintain these mineral claims during the year ended January 31, 2018. 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
January 31, 2018, we had accounts payable to JABA of $34,798, which is reflected as accounts payable to related party on the accompanying
consolidated balance sheets.
We
were a party to the following transactions with related parties during the year ended January 31, 2017:
We rented
an office from Jim Briscoe, our Chairman of the Board, CEO and CFO, & President on a month-to-month basis for $522
per month. The total rent expense related to this office was $6,264 for the year ended January 31, 2018. No amount was due as
of January 31, 2017.
At
January 31, 2017, we had a balance of accrued unpaid wages of $595,070 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.
On October
11, 2016, the Company issued 6,879,950 stock options to Jim Briscoe, our Chairman of the Board, CEO ,CFO & President,
at an exercise price of $0.003. The options vested immediately and have a 10-year term.
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., an Arizona corporation in which one
of our directors is an owner, and the estate of a former director now deceased has a small holding. 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 year ended January 31, 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 (US) Inc. director.
At
January 31, 2017, we had accounts payable to JABA (US) Inc. of $34,798, which is reflected as accounts payable to related
party on the accompanying consolidated balance sheets.
NOTE
13 – Commitments and Contingencies
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, 2017 to September
1, 2018 have been paid. The rentals due by September 1, 2018 for the period from September 1, 2018 through September 1, 2019 of
$1,705 have not been paid.
We
are required to pay annual rentals for our federal lode mining claims for our East Silverbell 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, 2017 to
September 1, 2018 have been paid. The annual rentals due by September 1, 2018 of $4,030 are required to maintain the East Silverbell
claims are for the period from September 1, 2018 through September 1, 2019 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, 2018 for the period from September 1, 2018
through September 1, 2019 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 Hay Mountain permits. Rental payments are due by the first day of the rental period. We hold
AZ MEP permits for 2,966.88 acres at our Tombstone project. We plan to pay rental fees for our AZ MEP’s before September
29, 2018 in the amount of $3,500. Required minimum work expenditures for the period ending September 29, 2018 is $29,668.
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
14 – 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, 2018
|
|
$
|
168,686
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
168,686
|
|
Warrant
and convertible note derivative liability at January 31, 2017
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
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
15 – Subsequent events
On
February 23, 2018, we received proceeds of $50,000 from the issuance of a convertible note. The note bears interest at 8%, includes
OID of $3,000, matures on November 30, 2018, and is convertible after 180 days into shares of the Company’s common
stock at a price of 65% of the market price of the Company’s common stock during the 10 trading days prior to conversion.
On
March 26, 2018, we received proceeds of $50,000 from the issuance of a convertible note. The note bears interest at 8%, includes
OID of $3,000, matures on January 15, 2019, and is convertible after 180 days into shares of the Company’s common
stock at a price of 65% of the market price of the Company’s common stock during the 10 trading days prior to conversion.
On
April 25, 2018, we received proceeds of $40,000 from the issuance of a convertible note. The note bears interest at 8%, includes
OID of $3,000, matures on February 15, 2019, and is convertible after 180 days into shares of the Company’s common stock
at a price of 65% of the market price of the Company’s common stock during the 10 trading days prior to conversion.
In
March and April 2018, we issued a total of 136,765,605 shares of our common stock for conversions of convertible debt totaling
$88,059.