NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – Organization
Liberty
Star Uranium & Metals Corp. (the “Company”, “we”, “our”, 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”) was 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. until its dissolution on July 26, 2019. 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. We renamed HMSP to Hay Mountain Holdings LLC (“HMH”) on March 5, 2019. In April 2007, we changed our name
to Liberty Star Uranium & Metals Corp. On February 22, 2019, the Company registered the tradename ‘Liberty Star Minerals’
with the state of Arizona to be recognized as ‘doing business as’, or ‘d/b/a’ Liberty Star Minerals. We
have not generated any revenues from operations. On April 11, 2019 we formed a new subsidiary named Earp Ridge Mines LLC (“Earp
Ridge”) wholly owned by HMH. On August 13, 2020, the Company formed Red Rock Mines, LLC (“Red Rock”), an Arizona
corporation, as a wholly-owned subsidiary of Hay Mountain Holdings, LLC.
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:
Reverse
Stock Split
On
November 24, 2020, the Company filed a Certificate of Change with the Secretary of the State of Nevada to affect a 1-for-500 reverse
stock split (the “Reverse Stock Split”). The Reverse Stock Split was formally processed by FINRA effective on February
25, 2021 and the Company’s common stock began trading on a split-adjusted basis on February 25, 2021.
Prior
to the effective date of the Certificate of Change, the Company was authorized to issue 6,150,000,000 shares of common stock.
As a result of the Reverse Stock Split, the Company is authorized to issue 12,300,000 shares of common stock. The Reverse Stock
Split did not have any effect on the stated par value of the common stock.
Prior
to the effective date of the Certificate of Change, the Company was authorized to issue 100,000,000 shares of Class A common stock.
As a result of the Reverse Stock Split, the Company is authorized to issue 200,000 shares of Class A common stock, with 102,000
shares of Class A common stock outstanding. As a result of the Reverse Stock Split, there was an adjustment of approximately 2,408
common shares due to the effect of rounding fractional shares into whole shares. The Reverse Stock Split did not have any effect
on the stated par value of the Class A common stock.
All
references to common shares and common share data in these consolidated financial statements and elsewhere in this Form 10-K as
of January 31, 2021 and 2020, and for the years then ended, reflect the Reverse Stock Split.
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 subsidiary HMH and the HMH wholly-owned
subsidiaries Earp Ridge and Red Rock. 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, 2021 and 2020, 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 are 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 are 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 and non-employees based on the estimated fair values of the stock
or options. 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, 2021 or 2020.
Fair
value of financial instruments
Our financial
instruments consist of cash and cash equivalents, prepaid expenses, 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.
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.
|
|
|
|
|
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, 2021
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Warrant
and convertible note derivative liability at January 31, 2020
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
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, 2017 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, 2021 and 2020, 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,
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
|
|
Stock
options outstanding
|
|
|
146,000
|
|
|
|
177,000
|
|
Warrants
|
|
|
400,166
|
|
|
|
363,416
|
|
Shares
to be issued upon conversion of notes payable
|
|
|
113,034
|
|
|
|
603,810
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
659,200
|
|
|
|
1,144,226
|
|
Newly
Issued Accounting Pronouncements
There were various accounting standards
and interpretations issued recently, none of which are expected to have a material impact on the Company’s financial position,
operations or cash flows. Management has evaluated these new pronouncements through January 31, 2021.
All other accounting standards updates
that have been issued or proposed by the FASB that do not require adoption until a future date are not expected to have a material
impact on the consolidated financial statements 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, 2021, we held a 100% interest in 93 standard federal lode mining claims located in the Tombstone region of Arizona.
At
January 31, 2021, we held 35 Arizona State Land Department Mineral Exploration Permits covering 15,793.24 acres in the Tombstone
region of Arizona.
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, 2021.
NOTE
5 – Property and equipment
The
balances of our major classes of depreciable assets and useful lives are:
|
|
January
31, 2021
|
|
|
January
31, 2020
|
|
Geology
Equipment (3 to 7 years)
|
|
$
|
315,052
|
|
|
$
|
315,052
|
|
Vehicles
and transportation equipment (5 years)
|
|
|
48,592
|
|
|
|
48,592
|
|
Office
furniture and equipment (3 to 7 years)
|
|
|
71,584
|
|
|
|
71,584
|
|
|
|
|
435,228
|
|
|
|
435,228
|
|
Less:
accumulated depreciation
|
|
|
(401,672
|
)
|
|
|
(395,336
|
)
|
|
|
$
|
33,556
|
|
|
$
|
39,892
|
|
Depreciation
expense was $6,336 and $2,684 for the years ended January 31, 2021 and 2020, respectively.
NOTE
6 – Long-term debt and convertible promissory notes
Following
is a summary of convertible promissory notes:
|
|
January
31, 2021
|
|
|
January
31, 2020
|
|
|
|
|
|
|
|
|
8%
convertible note payable issued August 2019, due May 2020
|
|
$
|
-
|
|
|
$
|
79,886
|
|
8%
convertible note payable issued October 2019, due August 2020
|
|
|
-
|
|
|
|
48,347
|
|
8%
convertible note payable issued January 2020, due November 2020
|
|
|
-
|
|
|
|
39,635
|
|
8%
convertible note payable issued October 2020, due September 2021
|
|
|
95,611
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
95,611
|
|
|
|
167,868
|
|
Less
debt discount
|
|
|
(7,642
|
)
|
|
|
(15,364
|
)
|
Less
current portion of convertible notes
|
|
|
(87,969
|
)
|
|
|
(152,504
|
)
|
Long-term
convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
On
July 23, 2018, we received net proceeds of $48,000 under a convertible note dated July 19, 2018 (the “July 2018 Note”).
The total principal under the note is $50,000, bears interest at 12% per annum, includes OID of $2,000, is due on July 19, 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. During the year ended January
31, 2020, the noteholder converted an aggregate of $21,714 of the remaining balance of this note for 394,801 shares of the Company’s
common stock, leaving a balance of $0 as of January 31, 2020.
On
April 12, 2019, we received net proceeds of $50,000 from the issuance of a convertible note dated April 10, 2019 (the “April
2019 Note”). The note bears interest at 8%, includes OID of $3,000, matures on February 28, 2020, and is convertible after
180 days into shares of the Company’s common stock at a price of 65% of the average of the lowest 5 weighted average market
price of the Company’s common stock during the 10 trading days prior to conversion. During the year ended January 31, 2020,
the noteholder converted the note in full (an aggregate of $55,120) for 147,341 shares of the Company’s common stock, leaving
a balance of $0 as of January 31, 2020.
On
May 21, 2019, we received net proceeds of $50,000 from the issuance of a convertible note dated May 17, 2019 (the “May 2019
Note”). The note bears interest at 8%, includes OID of $3,000, matures on March 17, 2020, and is convertible after 180 days
into shares of the Company’s common stock at a price of 65% of the average of the lowest 5 weighted average market price
of the Company’s common stock during the 10 trading days prior to conversion. During the year ended January 31, 2020, the
noteholder converted a total of $55,120 of the note in for 239,480 shares of the Company’s common stock, leaving a balance
of $0 as of January 31, 2020.
On
August 15, 2019, we received net proceeds of $67,000 from the issuance of a convertible note dated August 13, 2019 (the “August
2019 Note”). The note bears interest at 8%, includes OID of $10,000, matures on May 30, 2020, and is convertible after 180
days into shares of the Company’s common stock at a price of 75% of the average of the lowest 5 weighted average market
price of the Company’s common stock during the 10 trading days prior to conversion. During the year ended January 31, 2021,
the noteholder converted a total of $79,800 of the note in for 272,750 shares of the Company’s common stock, leaving a balance
of $0 as of January 31, 2021.
On
October 25, 2019, we received net proceeds of $40,000 from the issuance of a convertible note dated October 22, 2019 (the “October
2019 Note”). The note bears interest at 8%, includes OID of $7,300, matures on August 15, 2020, and is convertible after
180 days into shares of the Company’s common stock at a price of 75% of the average of the lowest 5 weighted average market
price of the Company’s common stock during the 10 trading days prior to conversion. During the year ended January 31, 2021,
the noteholder converted a total of $49,020 of the note in for 215,597 shares of the Company’s common stock, leaving a balance
of $0 as of January 31, 2021.
On
January 30, 2020, we received net proceeds of $33,000 from the issuance of a convertible note dated January 27, 2020 (the “January
2020 Note”). The note bears interest at 8%, includes OID of $3,600 and legal fees of $3,000, matures on November 15, 2020,
and is convertible after 180 days into shares of the Company’s common stock at a price of 75% of the average of the lowest
5 weighted average market price of the Company’s common stock during the 10 trading days prior to conversion. During the
year ended January 31, 2021, the noteholder converted a total of $41,040 of the note in for 97,714 shares of the Company’s
common stock, leaving a balance of $0 as of January 31, 2021.
On
October 28, 2020, we received net proceeds of $82,000 from the issuance of a convertible note dated October 20, 2020 (the “October
2020 Note”). The note bears interest at 8%, includes OID of $8,500 and legal and due diligence fees of $3,000, matures on
September 1, 2021, and is convertible after 180 days into shares of the Company’s common stock at a price of 75% of the
average of the lowest 5 weighted average market price of the Company’s common stock during the 10 trading days prior to
conversion. The net balance of this convertible note was $87,969 as of January 31, 2021.
During
the year ended January 31, 2021 and 2020, the Company recorded debt discounts of $140,000 and $100,000 respectively, due to the
derivative liabilities, and original issue debt discounts of $11,500 and $29,900, respectively, due to the convertible notes.
The Company recorded amortization of these discounts of $159,222 and $134,821 for the years ended January 31, 2021 and
2020, respectively.
Note
payable
In
March 2019, the Company received proceeds of $10,000 from a third-party under a promissory note due in March 2020, with interest
at 10%. On November 19, 2019, the Company sold 42,243 shares of the Company’s common
stock to this noteholder for $20,699, or $0.49 per unit, in a private placement. The consideration received included $10,000 in
cash plus the settlement of this note payable of $10,000 and accrued interest of $699, leaving a balance of $0 as of January 31,
2020.
Notes
Payable - SBA
On
May 5, 2020, the Company received loan proceeds of $30,387 under the SBA’s Paycheck Protection Program (“PPP”). The
PPP loan dated May 5, 2020 bears interest at 1% and is due in 18 monthly installments of $1,710 beginning December 1, 2020. On May 5,
2020, the Company also received grant proceeds of $3,000 under the EIDL program which is reflected as a credit to salaries and benefits
expense for the year ended January 31, 2021. In November 2020, the Company was approved for forgiveness in full for the entire amount
including principal and interest under the PPP loan, The grant proceeds of $3,000 was factored in the amount forgiven thus $3,000
remained payable to our bank related to the PPP until its repayment in February 2021.
On
June 22, 2020, the Company received loan proceeds of $32,300 (net of $100 loan fee) under the SBA’s Economic Injury Disaster
Loan program (“EIDL”). The EIDL loan, dated June 16, 2020, bears interest at 3.75%, has a 30-year term, is secured
by substantially all assets of the Company, and is due in monthly installments of $158 beginning June 16, 2021. The balance of
$33,162, including interest of $762, is included in long-term debt as of January 31, 2021.
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, 2021 and 2020, 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 note when it became convertible and upon settlement, and warrants upon tainting,
were as follows:
|
●
|
The
stock projections are based on the historical volatilities for each date. These volatilities were in the 193.9% to 257.8%
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.
|
Using
the results from the model, the Company recorded a derivative liability during the year ended January 31, 2021 of $189,472 for newly
granted and existing warrants that were tainted and a derivative liability of $159,375 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 $19,375 and a debt discount of $140,000 that was amortized over the remaining
term of the note using the effective interest rate method. Interest expense related to the amortization of this debt discount for the
year ended January 31, 2021 was $140,000. The remaining unamortized debt discount related to the derivative liability was $0 as the notes
were fully converted by January 31, 2021.
The
Company recorded a derivative liability during the year ended January 31, 2020 of $322,006 for newly granted and existing warrants
that were tainted and a derivative liability of $123,057 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 $23,057 and a debt discount of $100,000 that was amortized over the remaining term of the note using the effective interest
rate method. Interest expense related to the amortization of this debt discount for the year ended January 31, 2021 was $100,000.
The remaining unamortized debt discount related to the derivative liability was $0 as the notes were fully converted by January
31, 2020.
During
the year ended January 31, 2021, the Company recorded a reclassification from derivative liability to equity of $189,518 for warrants
becoming untainted and $139,749 due to conversions of the Company’s convertible notes. During
the year ended January 31, 2020, the Company recorded a reclassification from derivative liability to equity of $234,650 for warrants
becoming untainted and $137,469 due to the conversions of a portion of the Company’s convertible notes. The Company also
recorded the change in the fair value of the derivative liability as a gain of $205 and $108,543, respectively, to reflect
the value of the derivative liability for warrants and convertible notes as of January 31, 2021 and 2020, respectively.
The Company did not have a derivative liability as of January 31, 2021 and 2020 since none of the outstanding notes remained
convertible at the end of the periods and consequently the outstanding warrants were no longer tainted.
The
following table sets forth a reconciliation of changes in the fair value of the Company’s derivative liability:
|
|
Year
Ended January 31,
|
|
|
|
2021
|
|
|
2020
|
|
Beginning
balance
|
|
$
|
-
|
|
|
$
|
58,656
|
|
Total
gains
|
|
|
(205
|
)
|
|
|
(108,543
|
)
|
Settlements
|
|
|
(329,267
|
)
|
|
|
(372,119
|
)
|
Additions
recognized as debt discount
|
|
|
140,000
|
|
|
|
100,000
|
|
Additions
due to tainted warrants
|
|
|
189,472
|
|
|
|
322,006
|
|
Ending
balance
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains included in earnings relating to derivatives as of January 31, 2021 and 2020
|
|
$
|
(205
|
)
|
|
$
|
(108,543
|
)
|
NOTE
8 – Common stock
Class
A Common Stock
On June 22,
2020, the Company filed a Certificate of Designation with the Secretary of State of Nevada to establish the terms of the Company’s
Class A Common Stock (the “Class A Shares”), par value $0.00001 per share, 200,000 shares authorized. The terms of
the Class A Shares include 200-1 voting rights in addition to the rights held by common stockholders. Only persons who are current
members of the Company’s Board of Directors may own or hold Class A Shares.
On June 30,
2020, the Company entered into an agreement to issue a total of 102,000
shares of its Class A Shares to two directors of the Company. The aggregate consideration paid for
the Class A Shares was $49,062 ($0.481 per share). The consideration was paid by offsetting the purchase price against Company
advances and notes held by the two directors (see Note 12).
Common
Stock
Our
undesignated common shares are all of the same class, and are voting shares Upon liquidation or wind-up, stockholders
are entitled to participate equitably with respect to any distribution of net assets that may be declared.
Reverse
Stock Split
On
November 24, 2020, the Company filed a Certificate of Change with the Secretary of the State of Nevada to affect a 1-for-500 reverse
stock split (the “Reverse Stock Split”). The Reverse Stock Split was formally processed by FINRA effective on February
25, 2021 and the Company’s common stock began trading on a split-adjusted basis on February 25, 2021.
Prior
to the effective date of the Certificate of Change, the Company was authorized to issue 6,150,000,000 shares of common stock.
As a result of the Reverse Stock Split, the Company is authorized to issue 12,300,000 shares of common stock. The Reverse Stock
Split did not have any effect on the stated par value of the common stock.
Prior
to the effective date of the Certificate of Change, the Company was authorized to issue 100,000,000 shares of Class A common stock.
As a result of the Reverse Stock Split, the Company is authorized to issue 200,000 shares of Class A common stock, with 102,000
shares of Class A common stock outstanding. As a result of the Reverse Stock Split, there was an adjustment of approximately 2,408
common shares due to the effect of rounding fractional shares into whole shares. The Reverse Stock Split did not have any effect
on the stated par value of the Class A common stock.
All
references to common shares and common share data in these consolidated financial statements and elsewhere in this Form 10-K as
of January 31, 2021 and 2020, and for the years then ended, reflect the Reverse Stock Split.
Common
Stock Issued During the Year Ended January 31, 2021
During
the year ended January 31, 2021, the Company issued a total of 586,062 shares of our common stock for conversions of $169,860
of convertible notes payable and accrued interest at exercise prices ranging from $0.225 to $0.420.
During
the year ended January 31, 2021, the Company issued a total of 54,000 shares of its common stock and 27,000 warrants to two investors
for proceeds of $20,599, or $0.300 to $0.400 per share. The warrants have a three-year term and are exercisable at any time at
an exercise price of $0.400 to $0.550 per share.
During
the year ended January 31, 2021, the Company issued 142,857 shares of its common stock to a consultant for services at an aggregate
price of $50,000, or $0.350 per share.
In January
2021, the Company received proceeds of $15,000 from our chairman of the board for the purchase of 14,726 shares of the Company’s
common stock, at a price of $1.019 per share, and 7,363 warrants. The warrants have a three-year term and are exercisable at any time
at an exercise price of $1.426 per share. The shares were subsequently issued in April 2021, thus the proceeds of $15,000 were classified
as common stock to be issued as of January 31, 2021.
Common
Stock Issued During the Year Ended January 31, 2020
During
the year ended January 31, 2020, the Company issued a total of 781,622 shares of our common stock for conversions of $131,954
of convertible notes payable at an exercise prices ranging from of $0.055 to $0.390.
In
July 2019, the Company issued 60,000 shares of its common stock to satisfy $213,000 owed for services due an investor relations
consultant for services provided in prior years which was previously included in accounts payable and accrued liabilities, resulting
in a gain on settlement of accounts payable of $177,000.
In
July 2019, the Company issued 86,430 shares of its common stock and 43,215 warrants to an investor, who also subsequently became
a director, for proceeds of $50,000, or $0.579 per unit. The warrants have a three-year term and are exercisable at any time at
an exercise price of $0.810.
On
November 19, 2019, the Company sold 42,243 shares of the Company’s common stock to a noteholder for $20,699, or $0.490 per
unit, in a private placement. The consideration received included $10,000 cash plus the settlement of a note payable of $10,000
and accrued interest of $699.
On
January 8, 2020, a consultant returned to the Company a total of 48,485 shares of common stock issued for accounts payable for
services totaling $44,000. The exchange resulted in an increase in accounts payable of $44,000 which the Company has agreed to
repay in installments of $600 for twelve months, $1,500 for the following 12 months, and $2,500 per month thereafter until paid
in full. The consultant has agreed to waive the final $4,000 if all payments are made timely. A total of $36,400 remains outstanding
as of January 31, 2021, of which $20,300 is classified as long-term accounts payable.
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 191,000 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 5,000 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 1,925 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, 2021 and 2020 are 51,417
and 20,417, respectively. Options remaining available for grant under the 2007 Stock Option Plan at January 31, 2021 and 2020
are 425 and 425, respectively. Options remaining available for grant under the 2004 Stock Option Plan at January 31, 2021 and 2020 are
83 and 83, respectively.
The
Company granted 30,000 stock options each to four directors (120,000 total) during the year ended January 31, 2020 and recognized
$80,421 of compensation expense using the Black-Scholes valuation method with the following assumptions: stock prices of $0.70
to $0.75, exercise price of $1.50, expected term of 5 years, volatility of 180.7% to 181.3%, annual rate of dividends of 0%, and
discount rates of 1.59% to 1.85%.
No
stock options were granted during the year ended January 31, 2021.
The
following tables summarize the Company’s stock option activity during the years ended January 31, 2021 and 2020:
|
|
Number
of
options
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining life
(years)
|
|
|
Aggregate
intrinsic value
|
|
Outstanding,
January 31, 2019
|
|
|
180,760
|
|
|
$
|
16.378
|
|
|
|
2.56
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
120,000
|
|
|
|
1.500
|
|
|
|
|
|
|
|
|
|
Cancelled
and/or forfeited
|
|
|
(123,760
|
)
|
|
|
17.054
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2020
|
|
|
177,000
|
|
|
$
|
5.818
|
|
|
|
7.20
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled
and/or forfeited
|
|
|
(31,000
|
)
|
|
|
19.000
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2021
|
|
|
146,000
|
|
|
$
|
3.019
|
|
|
|
7.61
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
January 31, 2021
|
|
|
146,000
|
|
|
$
|
3.019
|
|
|
|
7.61
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated based on the stock price of $1.473 and $0.550 per share as of January 31, 2021 and 2020,
respectively.
During
the years ended January 31, 2021 and 2020, we recognized $0 and $80,421 of compensation expense related to incentive and non-qualified
stock options previously granted to officers, employees and consultants.
Share-based
compensation expense is reported in our consolidated statements of operations as follows:
|
|
January
31, 2021
|
|
|
January
31, 2020
|
|
Geological
and geophysical costs
|
|
$
|
-
|
|
|
$
|
-
|
|
Salaries
and benefits
|
|
|
-
|
|
|
|
80,421
|
|
Investor
relations
|
|
|
-
|
|
|
|
-
|
|
General
and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
-
|
|
|
$
|
80,421
|
|
At
January 31, 2021, there was $0 of unrecognized share-based compensation for all share-based awards outstanding.
NOTE
10 – Warrants
As of January
31, 2021, there were 400,166 warrants outstanding and exercisable. The warrants have a three-year term, a weighted average remaining
life of 1.23 years and a weighted average exercise price of $2.155 per warrant for one common share. Warrants outstanding
at January 31, 2021 and 2020 are as follows:
|
|
Number
of warrants
|
|
|
Weighted
average
exercise price
per share
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2019
|
|
|
308,829
|
|
|
|
2.586
|
|
Issued
|
|
|
64,337
|
|
|
|
0.769
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding,
January 31, 2020
|
|
|
373,166
|
|
|
|
2.273
|
|
Issued
|
|
|
27,000
|
|
|
|
0.522
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding,
January 31, 2021
|
|
|
400,166
|
|
|
|
2.155
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
January 31, 2021
|
|
|
400,166
|
|
|
|
2.155
|
|
The
weighted average intrinsic value for warrants outstanding was $136,217 and $5,200 as of January 31, 2021 and 2020, respectively.
On
July 12, 2019, the Company issued 43,215 warrants to an investor, who also subsequently became a director of the Company, as part
of their purchase of common stock during the year ended January 31, 2020. The warrants have a three-year term and are exercisable
at any time at an exercise price of $0.810.
On
November 19, 2019, the Company issued 21,122 warrants to an investor, as part of their purchase of common stock during
the year ended January 31, 2020. The warrants have a three-year term and are exercisable at any time at an exercise price of $0.6850.
During
the year ended January 31, 2021, the Company issued 27,000 warrants to investors as part of their purchase of common stock. The
warrants have a three-year term and are exercisable at any time at exercise prices ranging from $0.400 to $0.550.
Extension
of Expiration Date
Effective
May 1, 2019, the Company extended the due date of all warrants expiring during the three months ended July 31, 2019, totaling
66,002 warrants, for an additional three years. There was no expense related to the extension of these warrants since these were
held by investors.
Effective
December 5, 2019, the Company extended the due date of all warrants expiring during the five months ending December 31, 2019,
totaling 39,000 warrants, for an additional three years. There was no expense related to the extension of these warrants since
these were held by investors.
Effective
May 27, 2020, the Company extended the due date of all warrants expiring during the 12 months ending December 31, 2020, totaling
45,065 warrants, for an additional three years, including 9,750 warrants previously set to expire in January 2020. There was no
expense related to the extension of these warrants since these were held by investors.
NOTE
11 – Income taxes
As
of January 31, our deferred tax asset is as follows:
|
|
January
31, 2021
|
|
|
January
31, 2020
|
|
Deferred
Tax Assets
|
|
$
|
6,783,000
|
|
|
$
|
6,641,000
|
|
Less
Valuation Allowance
|
|
|
(6,783,000
|
)
|
|
|
(6,641,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
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 increase of $142,000
during the year ended January 31, 2021 primarily represents the increase in net operating loss carry-forwards during the period
offset against the valuation allowance. As of January 31, 2021, our estimated net operating loss carry-forward is approximately
$32 million and expires beginning in 2026 through 2038, with no expiration date for our 2019 through 2021 net operating
losses under the Tax Cuts and Jobs Act.
Deferred tax assets were
calculated using the Company’s effective tax rate, which it estimated to be 21%. The effective rate is reduced to 0%
for 2021 and 2020 due to the full valuation allowance on its net deferred tax assets.
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, 2018 through January 31,
2021. 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.
NOTE
12 – Related party transactions
We
were a party to the following transactions with related parties during the year ended January 31, 2021:
Our
CEO, Brett Gross, was elected as President and Chief Executive Officer on December 7, 2018 and received no compensation for these
services during the years ended January 31, 2021 and 2020.
During
the year ended January 31, 2021, our CEO, Brett Gross, made various payments on behalf of the Company totaling $161,977, and advanced
the Company $62,000 in cash, all of which are reflected as advances from related party on the accompanying consolidated balance sheets.
The total advances were $301,077 and $101,631 as of January 31, 2021 and 2020, respectively, bear no interest and have no specified repayment
date. On June 30, 2020, the Company issued 51,000 shares of its Class A Common Stock to our CEO for repayment of $24,531 of advances
($0.481 per share).
During
the year ended January 31, 2021, the Company received aggregate proceeds of $120,000 from a director under a promissory note extended
with interest at 10%. Total maturities of principal and accrued interest under all notes to two directors are $270,898 due October
31, 2020 (extended to July 31, 2021). On June 30, 2020, the Company issued 51,000 shares of its Class A Common Stock to the director
for repayment of $24,531 of their promissory note ($0.481 per share).
The
Company has a note payable of $10,000 from James Briscoe, under a promissory note dated September 17, 2018, which matured and
became past due at September 17, 2019 with interest at 10%.
As
of January 31, 2021 and 2020, the total balance of all related party notes was $283,271 and $166,560, respectively, which includes
accrued interest of $36,070 and $14,828, respectively.
At
January 31, 2021 and 2020, we had a balance of accrued unpaid wages of $759,949 to James Briscoe, our former Chairman of the Board,
CEO, Chief Geologist, Secretary, Treasurer, and President. Additionally, we had a balance of accrued unpaid wages of $15,625 to
a former President and $36,137 to Patricia Madaris, VP Finance & CFO.
At
January 31, 2021 and 2020, we had an aggregate balance due of approximately $167,000 on credit cards guaranteed by James Briscoe
reflected in accounts payable and accrued liabilities on the accompanying consolidated balance sheets.
At
January 31, 2021 and 2020, we had accounts payable to JABA (controlled by James Briscoe) of $34,798, which is reflected as accounts
payable to related party on the accompanying consolidated balance sheets.
At
January 31, 2021 and 2020, we had a balance of $16,321 due to the spouse of James Briscoe.
We
were a party to the following transactions with related parties during the year ended January 31, 2020:
During
the year ended January 31, 2020, the Company received advances of $48,500 from two directors under two promissory notes with interest
at 10%. Total principal maturities under these two notes are $106,302 due October 31, 2020 (extended from October 31, 2019) and
$35,430 due October 31, 2020 (extended from January 31, 2020). Additionally, the Company has a note payable of $10,000 from James
Briscoe, under a promissory note dated September 17, 2018, due September 17, 2019 with interest at 10% and is currently past due.
As of January 31, 2020, the total balance of all related party notes was $166,560, which includes accrued interest of $14,828.
During
the year ended January 31, 2020, our CEO, Brett Gross, made various payments on behalf of the Company totaling $101,631, reflected
as advances from related party on the accompanying consolidated balance sheet. The advances bear no interest and have no specified
repayment date.
In
July 2019, the Company issued 86,430 shares of its common stock and 43,215 warrants to an investor, who also subsequently became
a director, for proceeds of $50,000, or $0.579 per unit. The warrants have a three-year term and are exercisable at any
time at an exercise price of $0.810.
In
July and October 2019, the Company issued an aggregate of 120,000 non-qualified stock options to four new directors for services.
The options vest immediately, have a 10-year term, an exercise price of $1.500, and resulted in share-based compensation expense
of $80,421 during the year ended January 31, 2020.
We
had an option to explore 1 standard federal lode mining claim at the East Silverbell project and 29 standard federal lode mining
claims at the Walnut Creek project from JABA. We were required to pay annual rentals to maintain the claims in good standing.
We paid $4,650 in rental fees to maintain these mineral claims during the year ended January 31, 2019 until September 1, 2019.
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, The Company did not renew this option and it expired on September 1, 2019.
On
January 11, 2019, we discontinued renting an office month-to-month from James Briscoe, a director who resigned on September 23,
2019. An amount of $2,610 of rent was unpaid as of January 31, 2021 and 2020.
NOTE
13 – Commitments and Contingencies
We
currently rent a storage space for $45 per month in Tombstone, Arizona on a month-to-month basis.
We
are required to pay annual rentals for Liberty Star’s 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 $165 per claim. The rentals due by September 1, 2021 for the period
from September 1, 2021 through September 1, 2022 of $15,345 have not been paid yet, but we plan to pay when due.
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 cost $500 per permit per year in non-refundable filing
fees and 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 the date of acceptance for each permit. Rental payments are due by the first day of the rental period.
We hold AZ MEP permits for 15,793.24 acres at our Tombstone project. We paid filing and rental fees for our AZ MEP’s before
their respective due dates in the amount of $29,724.
Legal
Matter
On
August 22, 2019 (and amended on December 23, 2019), the Company filed a complaint with the Superior Court of Arizona (Case No.
C20194139), demanding the titles and possession of certain vehicles and equipment of the Company from our former CEO, as well
as seeking recovery of damages from the former CEO in an amount of not less than $50,000. None of the vehicles and equipment,
individually or in total, have any material net book value (being fully depreciated) as of January 31, 2021 and 2020. The matter
is ongoing as of the date of this filing.
On
February 18, 2020, our former CEO and his spouse (the “Counterclaimants”) filed a First
Amended Answer: First Amended Complaint and Counterclaim with the Superior Court of Arizona seeking dismissal of the Company’s
complaint and reimbursement of Counterclaimants’ attorney fees incurred related
to the matter. Additionally, the counterclaim alleges breach of contract by the Company and requests reimbursement of amounts
loaned to the Company by our former CEO and his spouse, along with reimbursement of attorney fees. The Company believes
these counterclaims are without merit and will aggressively defend them and believes no unfavorable outcome or material effect
on our consolidated financial statements will result.
NOTE
14 – Subsequent events
On
February 16, 2021, the Company received loan proceeds of $32,497 under the Payroll Protection Program (“PPP”).
The PPP loan bears interest at 1%, has a 5-year term, and is due in equal monthly installments
beginning December 16, 2021.
In
March 2021, the Company issued 6,000 shares of its common stock to an accredited investor for the exercise of warrants
for proceeds of $2,100, or $0.35 per common share.
In
March 2021, the Company issued 17,006 shares of its common stock and 8,503 warrants to our CEO for gross proceeds of $20,000,
for $1.176 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $1.646.
In
March 2021, the Company issued 49,412 shares of its common stock and 24,706 warrants to our CEO for gross proceeds of $55,000
for $1.113 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $1.558.
In
April 2021, the Company issued 9,818 shares of its common stock and 4,909 warrants to an accredited investor for gross proceeds
of $10,000, or $1.019 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $1.426.
In
April 2021, we received net proceeds of $60,000 from the issuance of a convertible note dated April 23, 2021 (the “April 2021 Note”).
The note bears interest at 8%, includes legal and due diligence fees of $3,000, matures on April 23, 2022, and is convertible after 180
days into shares of the Company’s common stock at a price of 75% of the average of the lowest 5 weighted average market price of
the Company’s common stock during the 10 trading days prior to conversion.
On April 23, 2021, the Company issued 15,049
of its common stock to a noteholder for the conversion of $12,000 of principal under the October 2020 Note, or $0.797 per share.
On April 27, 2021, the Company issued 18,832
of its common stock to a noteholder for the conversion of $15,000 of principal under the October 2020 Note, or $0.797 per share.
On April
30, 2021, the Company received proceeds of $20,000 from an investor for the purchase of 19,268 shares
of its common stock and 9,634 warrants, at a price of $1.038 per unit. The warrants have a three-year term and are exercisable
at any time at an exercise price of $1.453. These shares have not yet been issued as of the date of this filing.