UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2014
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to __________
Commission file number 000-50071
LIBERTY STAR URANIUM & METALS
CORP.
(Exact name of registrant as specified in its
charter)
Nevada |
90-0175540 |
(State or other jurisdiction of incorporation or
organization) |
(IRS Employer Identification No.)
|
5610 E Sutler Lane, Tucson, Arizona 85712
(Address of principal executive offices)
520.731.8786
(Registrants telephone
number, including area code)
Not Applicable
(Former name, former address
and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the preceding12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files)
Yes [ X ] No [ ]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
(Check one):
Large accelerated filer [ ] |
Accelerated filer [ ] |
Non-accelerated filer [ ] |
Smaller reporting company [X]
|
Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ]
No [ X ]
The number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date: 906,826,829 as of
December 12, 2014.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This quarterly report contains forward-looking statements.
These statements relate to future events or our future financial performance. In
some cases, you can identify forward-looking statements by terminology such as
may, should, expects, plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of these terms or other
comparable terminology.
These statements are only predictions and involve known and
unknown risks, uncertainties and other factors that may cause our or our industrys actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. While
these forward-looking statements, and any assumptions upon which they are based,
are made in good faith and reflect our current judgment regarding the direction
of our business, actual results will almost always vary, sometimes materially,
from any estimates, predictions, projections, assumptions or other future
performance suggested herein. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Except as
required by applicable law, including the securities laws of the United States
we do not intend to update any of the forward-looking statements to conform
these statements to actual results.
Our condensed consolidated financial statements are stated in
United States Dollars (US$) and are prepared in conformity with accounting
principles generally accepted in the United States of America (GAAP) for
interim financial statements. The following discussion should be read in
conjunction with our condensed consolidated financial statements and the related
notes that appear elsewhere in this quarterly report. As used in this quarterly
report, the terms we, us, the Company, and Liberty Star mean Liberty
Star Uranium & Metals Corp. and our subsidiary Big Chunk Corp., unless
otherwise indicated. All dollar amounts refer to U.S. dollars unless otherwise
indicated.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
LIBERTY STAR URANIUM & METALS CORP.
CONDENSED
CONSOLIDATED BALANCE SHEETS
(Unaudited)
|
|
October 31, |
|
|
January 31, |
|
|
|
2014 |
|
|
2014 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
Cash and cash equivalents
|
$ |
145,458 |
|
$ |
55,089 |
|
Advances
|
|
1,052 |
|
|
1,000 |
|
Deferred financing costs,
net |
|
3,805 |
|
|
38,052 |
|
Prepaid
expenses and supplies |
|
83,062 |
|
|
9,109 |
|
Total current assets |
|
233,377 |
|
|
103,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
38,684 |
|
|
49,792 |
|
Total assets |
$ |
272,061 |
|
$ |
153,042 |
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current: |
|
|
|
|
|
|
Current
portion of long-term debt |
$ |
6,005 |
|
$ |
5,594 |
|
Convertible
promissory note, net of debt discount of $40,479 and $34,584 |
|
644,755 |
|
|
4,193,090 |
|
Accounts
payable and accrued liabilities |
|
257,617 |
|
|
254,261 |
|
Accrued wages to related
parties |
|
388,992 |
|
|
340,992 |
|
Accrued
interest |
|
- |
|
|
1,465,059 |
|
Derivative liability |
|
332,847 |
|
|
46,985 |
|
Total
current liabilities |
|
1,630,216 |
|
|
6,305,981 |
|
|
|
|
|
|
|
|
Long-term debt, net of
current portion |
|
2,153 |
|
|
6,710 |
|
|
|
|
|
|
|
|
Total
liabilities |
|
1,632,369 |
|
|
6,312,691 |
|
|
|
|
|
|
|
|
Stockholders' deficit |
|
|
|
|
|
|
Common stock - $.00001 par value;
1,250,000,000 shares
authorized; 902,308,486 and
830,236,231 shares issued and outstanding |
|
9,023 |
|
|
8,302 |
|
Stock
subscription receivable |
|
(55,673 |
) |
|
- |
|
Additional paid-in
capital |
|
49,563,912 |
|
|
49,026,144 |
|
Accumulated deficit |
|
(50,877,570 |
) |
|
(55,194,095 |
) |
Total stockholders'
deficit |
|
(1,360,308 |
) |
|
(6,159,649 |
) |
|
|
|
|
|
|
|
Total liabilities and
shareholders' deficit |
$ |
272,061 |
|
$ |
153,042 |
|
The Accompanying Notes are an Integral Part of the Condensed
Consolidated Unaudited Financial Statements
LIBERTY STAR URANIUM & METALS CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended |
|
|
Nine Months
Ended |
|
|
|
October 31, |
|
|
October 31, |
|
|
|
2014 |
|
|
2013 |
|
|
2014 |
|
|
2013 |
|
Revenues |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Geological and geophysical costs |
|
57,951 |
|
|
214,667 |
|
|
152,577 |
|
|
399,203 |
|
Salaries and benefits |
|
74,480 |
|
|
236,356 |
|
|
216,697 |
|
|
397,487 |
|
Public
relations |
|
74,684 |
|
|
80,488 |
|
|
130,287 |
|
|
193,141 |
|
Depreciation |
|
6,489 |
|
|
8,260 |
|
|
20,978 |
|
|
24,714 |
|
Legal |
|
6,218 |
|
|
43,143 |
|
|
55,155 |
|
|
131,248 |
|
Professional services |
|
18,498 |
|
|
(2,910 |
) |
|
74,143 |
|
|
37,143 |
|
General
and administrative |
|
62,809 |
|
|
47,590 |
|
|
173,921 |
|
|
194,158 |
|
Travel |
|
2,842 |
|
|
4,942 |
|
|
20,039 |
|
|
22,646 |
|
Net operating expenses |
|
303,971 |
|
|
632,536 |
|
|
843,797 |
|
|
1,399,740 |
|
Loss from operations |
|
(303,971 |
) |
|
(632,536 |
) |
|
(843,797 |
) |
|
(1,399,740 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest
income |
|
2 |
|
|
4 |
|
|
5 |
|
|
12 |
|
Gain (Loss) on settlement
of debt |
|
- |
|
|
- |
|
|
5,322,943 |
|
|
- |
|
Interest
expense |
|
(144,622 |
) |
|
(126,388 |
) |
|
(559,312 |
) |
|
(367,686 |
) |
Gain (loss) on
change in fair value of derivative liability |
|
133,774 |
|
|
(11,506 |
) |
|
396,686 |
|
|
(30,728 |
) |
Total other income (expense)
|
|
(10,846 |
) |
|
(137,890 |
) |
|
5,160,322 |
|
|
(398,402 |
) |
Net income (loss) |
$ |
(314,817 |
) |
$ |
(770,426 |
) |
$ |
4,316,525 |
|
$ |
(1,798,142 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per share of common
stock |
$ |
(0.00 |
) |
$ |
(0.00 |
) |
$ |
0.00 |
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per share of common
stock |
$ |
(0.00 |
) |
$ |
(0.00 |
) |
$ |
0.00 |
|
$ |
(0.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares of
common stock outstanding |
|
901,574,375 |
|
|
828,103,194 |
|
|
876,232,276 |
|
|
794,214,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares of
common stock outstanding |
|
990,020,453 |
|
|
828,103,194 |
|
|
964,678,354 |
|
|
794,214,628 |
|
The Accompanying Notes are an Integral Part of the Condensed
Consolidated Unaudited Financial Statements
LIBERTY STAR URANIUM & METALS CORP.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Nine Months Ended
October 31, |
|
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Cash flows from operating
activities: |
|
|
|
|
|
|
Net income (loss) |
$ |
4,316,525
|
|
$ |
(1,798,142 |
)
|
Adjustments to
reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
Depreciation |
|
20,978 |
|
|
24,714 |
|
Amortization of deferred financing costs |
|
34,247 |
|
|
- |
|
Amortization of debt discount |
|
342,885 |
|
|
- |
|
(Gain) loss on settlement of debt |
|
(5,322,943 |
)
|
|
- |
|
(Gain)
loss on change in fair value of derivative |
|
(396,686 |
)
|
|
30,728 |
|
Share
based compensation |
|
8,424 |
|
|
281,868 |
|
Common
shares issued for third party services |
|
71,500 |
|
|
- |
|
Warrants
issued for third party services |
|
6,440 |
|
|
- |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
Prepaid expenses and supplies |
|
(74,005 |
)
|
|
(3,466 |
)
|
Accounts payable and accrued expenses
|
|
3,355 |
|
|
122,061 |
|
Accrued wages related parties |
|
48,000 |
|
|
55,000 |
|
Accrued interest |
|
171,415 |
|
|
363,664 |
|
Cash flows used in operating
activities: |
|
(769,865 |
)
|
|
(923,573 |
) |
|
|
|
|
|
|
|
Cash flows from investing
activities: |
|
|
|
|
|
|
Purchase
of equipment |
|
(9,870 |
)
|
|
(1,418 |
) |
Net cash used in investing activities |
|
(9,870 |
)
|
|
(1,418 |
) |
|
|
|
|
|
|
|
Cash flows from financing
activities: |
|
|
|
|
|
|
Payments on long-term debt |
|
(4,146 |
)
|
|
(3,772 |
)
|
Borrowings on convertible promissory notes |
|
400,000 |
|
|
- |
|
Proceeds from the issuance of common stock, net of expenses
|
|
474,250 |
|
|
752,043 |
|
Proceeds from long-term debt |
|
- |
|
|
150,000 |
|
Net cash provided by financing activities |
|
870,104 |
|
|
898,271 |
|
|
|
|
|
|
|
|
Increase (decrease) in cash
and cash equivalents |
|
90,369 |
|
|
(26,720 |
)
|
Cash and cash equivalents,
beginning of period |
|
55,089 |
|
|
117,716 |
|
Cash and cash equivalents,
end of period |
$ |
145,458 |
|
$ |
90,996 |
|
|
|
|
|
|
|
|
Income tax paid |
$ |
- |
|
$ |
- |
|
Interest paid |
$ |
7,970 |
|
$ |
1,120 |
|
|
|
|
|
|
|
|
Non-cash financing
activities: |
|
|
|
|
|
|
Exercise of common stock
purchase warrants |
$ |
- |
|
$ |
25 |
|
Stock subscription receivable
|
$ |
55,673 |
|
$ |
- |
|
Resolutions of derivative
liabilities due to debt conversions |
$ |
169,474
|
|
$ |
- |
|
Warrants reclassed to
derivative liabilities |
$ |
520,552
|
|
$ |
- |
|
Debt discounts due to
derivative liabilities |
$ |
325,030
|
|
$ |
- |
|
Derivative liability for
newly granted warrants |
$ |
6,440 |
|
|
- |
|
Common stock issued for
conversion of debt and interest |
$ |
279,720
|
|
$ |
- |
|
Original issue discount |
$ |
23,750 |
|
$ |
- |
|
The Accompanying Notes are an Integral Part of the Condensed
Consolidated Unaudited Financial Statements
LIBERTY STAR URANIUM & METALS CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(Unaudited)
NOTE 1 Interim financial statement disclosure
The condensed consolidated financial statements included herein
have been prepared by Liberty Star Uranium & Metals Corp. without audit,
pursuant to the rules and regulations of the United States Securities and
Exchange Commission (SEC) and should be read in conjunction with our annual
report on Form 10-K for the year ended January 31, 2014 as filed with the SEC
under the Securities and Exchange Act of 1934 (the Exchange Act). Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted, as permitted by the
SEC, although we believe the disclosures which are made are adequate to make the
information presented not misleading. The condensed consolidated financial
statements reflect, in the opinion of management, all normal recurring
adjustments necessary to present fairly our financial position at October 31,
2014 and the results of our operations and cash flows for the periods presented.
Interim results are subject to significant seasonal variations
and the results of operations for the three and nine months ended October 31,
2014 are not necessarily indicative of the results to be expected for the full
year.
Certain amounts in the prior-year financial statements have
been reclassified for comparative purposes to conform with the presentation in
the current-year financial statements In the quarter ended April 30, 2014, the
Company elected to early adopt Accounting Standards Update No. 2014-10,
Development Stage Entities (Topic 915): Elimination of Certain Financial
Reporting Requirements. The adoption of this ASU allows the Company to
remove the inception to date information and all references to exploration
stage.
NOTE 2 Going concern
The Company has incurred losses from operations, and requires
additional funds for further exploratory activity and to maintain its claims
prior to attaining a revenue generating status. There are no assurances that a
commercially viable mineral deposit exists on any of our properties. In
addition, the Company may not find sufficient ore reserves to be commercially
mined. As such, there is substantial doubt about the Companys ability to
continue as a going concern.
Management is working to secure additional funds through the
exercise of stock warrants already outstanding, equity financings, debt
financings or joint venture agreements. The condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
NOTE 3 Summary of Significant Accounting Policies
Fair Value
ASC 820 Fair Value Measurements and Disclosures (ASC 820),
defines fair value, establishes a framework for measuring fair value and
enhances disclosures about fair value measurements. It defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. ASC 820 also establishes a fair value hierarchy which requires
an entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes three
levels of inputs that may be used to measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable
for the asset or liability, either directly or indirectly. These include quoted
prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities that are not active; and model-driven
valuations whose inputs are observable or whose significant value drivers are
observable. Valuations may be obtained from, or corroborated by, third-party
pricing services.
Level 3: Unobservable inputs to measure fair value of assets
and liabilities for which there is little, if any market activity at the
measurement date, using reasonable inputs and assumptions based upon the best
information at the time, to the extent that inputs are available without undue
cost and effort.
As of October 31, 2014 the significant inputs to the Companys
derivative liability calculation were Level 3 inputs.
The following schedule summarizes the valuation of financial
instruments at fair value in the balance sheets as of October 31, 2014 and
January 31, 2014:
|
|
|
|
|
Fair value measurements at reporting
date using: |
|
|
|
|
|
|
Quoted prices in |
|
|
|
|
|
Significant |
|
|
|
|
|
|
active markets for |
|
|
Significant other |
|
|
unobservable |
|
|
|
|
|
|
identical |
|
|
|
|
|
|
|
|
|
|
|
|
liabilities |
|
|
observable inputs |
|
|
inputs |
|
Description |
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant and convertible note
derivative liability at October 31, 2014 |
$ |
332,847
|
|
|
- |
|
|
- |
|
$ |
332,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant and convertible note
derivative liability at January 31, 2014 |
$ |
46,985 |
|
|
- |
|
|
- |
|
$ |
46,985 |
|
Our financial instruments consist of cash and cash equivalents,
accounts payable, accrued liabilities, convertible notes payable, notes payable,
and warrant liability. It is managements opinion that we are not exposed to
significant interest, currency or credit risks arising from these financial
instruments. With the exception of the warrant liability, the fair value of
these financial instruments approximates their carrying values based on their
short maturities or for long-term debt based on borrowing rates currently
available to us for loans with similar terms and maturities. Gains and losses
recognized on changes in estimated fair value of the derivative liability are
reported in other income (expense) as gain (loss) on change in fair value.
NOTE 4 Related party transactions
We entered into the following transactions with related
parties during the nine months ended October 31, 2014:
We rented an office from Jim Briscoe, our Chairman of the
Board, CEO and CFO, on a month-to-month basis for $522 per month. The total rent
payments were $4,698 for the nine months ended October 31, 2014. No amount was
due as of October 31, 2014.
At October 31, 2014 we had a balance of accrued unpaid wages of
$373,367 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.
NOTE 5 Warrants
As of October 31, 2014, there were 65,366,708 whole share
purchase warrants outstanding and 65,366,708 exercisable. The warrants have a
weighted average remaining life of 1.26 years and a weighted average exercise
price of $0.025 per whole warrant for one common share. The warrants had an
aggregate intrinsic value of $7,251 as of October 31, 2014.
Warrants issued in private placement outstanding at October 31,
2014 is as follows:
|
|
|
|
|
Weighted |
|
|
|
Number of whole share
|
|
|
average exercise |
|
|
|
purchase warrants |
|
|
price per share |
|
Outstanding, January 31, 2014
|
|
58,441,729 |
|
$ |
0.026 |
|
Issued |
|
6,924,979 |
|
|
0.017 |
|
Expired |
|
- |
|
|
- |
|
Exercised |
|
- |
|
|
- |
|
Outstanding, October 31, 2014
|
|
65,366,708 |
|
$ |
0.025 |
|
Exercisable, October 31, 2014 |
|
65,366,708 |
|
$ |
0.025 |
|
In March 2014, the Company issued 500,000 warrants to a
designee of MBGS, LLC, pursuant to a settlement agreement with Northern Dynasty
which discharged the $3,730,174 principal balance and $1,592,769 of accrued
interest for the 2010 Convertible Note (See Note 7). The warrants were fully
vested upon issuance, have an exercise price of $0.028 and have a three year
term. The company expensed $6,440, the fair value of the warrant issued upon
issuance.
During the nine months ended October 31, 2014, the Company also
issued 6,424,979 warrants to three investors at exercise prices ranging from
$0.015 to $0.028 with a three year term.
NOTE 6 Derivative Liabilities
The embedded conversion feature in the convertible debt
instruments that the Company issued in August 2013 and November 2013 (See Note
7), that became convertible during the nine months ending October 31, 2014,
qualified it as a derivative instrument since the number of shares issuable
under the note is indeterminate based on guidance in FASB ASC 815, Derivatives
and Hedging. This convertible note tainted all other equity linked instruments
including outstanding warrants and fixed rate convertible debt on the date that
the instrument became convertible.
The valuation of the derivative liability of the warrants was
determined through the use of a Monte Carlo options model that values the
liability of the warrants based on a risk-neutral valuation where the price of
the option is its discounted expected value. The technique applied generates a
large number of possible (but random) price paths for the underlying common
stock via simulation, and then calculates the associated exercise value (i.e.
payoff) of the option for each path. These payoffs are then averaged and
discounted to a current valuation date resulting in the fair value of the
option.
The valuation of the derivative liability attached to the
convertible debt was arrived at through the use of a Monte Carlo model that
values the derivative liability within the notes. The technique applied
generates a large number of possible (but random) price paths for the underlying
(or underlyings) via simulation, and then calculates the associated payment
value (cash, stock, or warrants) of the derivative features. The price of the
underlying common stock is modeled such that it follows a geometric Brownian
motion with constant drift, and elastic volatility (increasing as stock price
decreases). The stock price is determined by a random sampling from a normal
distribution. Since the underlying random process is the same, for enough price
paths, the value of the derivative is derived from path dependent scenarios and
outcomes. The features in the notes that were analyzed and incorporated into the
model included the conversion features with the reset provisions, the
call/redemption/prepayment options, and the default provisions. Based on these
features, there are six primary events that can occur; payments are made in
cash; payments are made with stock; the note holder converts upon receiving a
redemption notice; the note holder converts the note; the issuer redeems the
note; or the Company defaults on the note. The model simulates the underlying
economic factors that influenced which of these events would occur, when they
were likely to occur, and the specific terms that would be in effect at the time
(i.e. stock price, conversion price, etc.). Probabilities were assigned to each
variable such as redemption likelihood, default likelihood, and timing and
pricing of reset events over the remaining term of the notes based on management
projections. This led to a cash flow simulation over the life of the note. A
discounted cash flow for each simulation was completed, and it was compared to
the discounted cash flow of the note without the embedded features, thus
determining a value for the derivative liability.
Key inputs and assumptions used to value the convertible notes
and warrants upon issuance or tainting and also as of October 31, 2014:
|
The stock projections are based on the historical
volatilities for each date. These ranged in the 124-139% 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: 25% 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: 25% of the
last 6 months average trading volume increasing by 1% per month and the
ownership limit identified in the contract assuming the underlying number
of common shares increases at 1% per month. |
|
For the warrants with reset features, the Company assumed
it would issue equity linked instruments in the quarters ended 10/31/14
through 10/31/15 at 70% of market. |
Using the results from the model, the Company recorded a
derivative liability of $483,781 for the fair value of the tainted warrants
previously classified in equity, a derivative liability of $6,440 for newly
granted warrants (see note 5) and a derivative liability of $325,030 for the
fair value of the convertible feature included in the Companys convertible debt
instruments. The derivative liability recorded for the convertible feature
created a debt discount of $325,030, 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 nine months ended October 31, 2014,
was $148,148. Additionally, $154,788 of debt discount was reclassified to
interest expense as a result of the conversion of a portion of the underlying
debt instrument (See Note 7). The remaining unamortized debt discount related to
the derivative liability was
$20,095 as of October 31, 2014. The Company recorded the change in the fair
value of the derivative liability as a gain of $396,686 to reflect the value of
the derivative liability for warrants and convertible notes as $332,847 as of
October 31, 2014. The Company also recorded a reclassification from derivative
liability to equity of $169,474 for the conversions of a portion of the
Companys convertible notes (See Note 8).
The following table sets forth a reconciliation of changes in
the fair value of the Companys derivative liability:
|
|
Nine months Ended October 31,
|
|
|
|
2014 |
|
|
2013 |
|
Beginning balance |
$ |
46,985 |
|
$ |
15,112 |
|
Total (gains) losses |
|
(396,686 |
) |
|
30,728 |
|
Settlements |
|
(169,474 |
)
|
|
- |
|
Additions |
|
852,022 |
|
|
- |
|
Ending balance |
$ |
332,847 |
|
$ |
45,840 |
|
|
|
|
|
|
|
|
Change in unrealized gains
(losses) included in
earnings relating to
derivatives still held as of
October 31, 2014 and 2013 |
$ |
(262,912 |
)
|
$ |
30,728 |
|
NOTE 7 Convertible promissory notes
Following is a summary of convertible promissory notes:
|
|
October
31, |
|
|
January
31, |
|
|
|
2014 |
|
|
2014 |
|
10% convertible note payable
with Northern Dynasty Minerals Ltd (Northern Dynasty)
issued July 15,
2010 |
$ |
- |
|
$ |
3,730,174
|
|
|
|
|
|
|
|
|
12% convertible note payable
issued August 2013 |
|
176,490 |
|
|
247,500 |
|
|
|
|
|
|
|
|
Convertible note payable
issued November 2013 |
|
250,000 |
|
|
250,000 |
|
|
|
|
|
|
|
|
12% convertible note payable
issued August 2014 |
|
153,255 |
|
|
- |
|
|
|
|
|
|
|
|
10% convertible note payable
issued October 2014 |
|
105,489 |
|
|
- |
|
|
|
685,234 |
|
|
4,227,674 |
|
|
|
|
|
|
|
|
Less debt discount |
|
(40,479 |
) |
|
(34,584 |
) |
Less current portion of
convertible notes |
|
(644,755 |
) |
|
(4,193,090 |
) |
Long-term convertible notes
payable |
$ |
- |
|
$ |
- |
|
We issued convertible promissory notes in private placements of
our securities to institutional investors pursuant to exemptions from
registration set out in Rule 506 of Regulation D under the Securities Act of
1933.
On July 15, 2010 we issued a secured convertible promissory
note bearing interest at a rate of 10% per annum compounded monthly (the 2010
Convertible Note) to Northern Dynasty Minerals Ltd (Northern Dynasty). During
the year ended January 31, 2012 the agreement with Northern Dynasty was amended
to issue additional secured convertible promissory notes totaling $730,174 to
reimburse Northern Dynasty for assessment work, rental fees, cash in lieu of
assessment work and filing fees on the mineral claims that was paid in fiscal
2011 and fiscal 2012 because we could not come to an agreement on the earn-in
option and joint venture agreement with Northern Dynasty.
As part of the transaction noted above, Northern Dynasty could
earn a 60% interest in our Big Chunk project in Alaska (the Joint Venture
Claims) by spending $10,000,000 on those properties over six years. The
borrowings from Northern Dynasty could be applied as part of Northern Dynastys
earn-in requirements. Northern Dynastys minimum annual expenditures under the
earn-in would be the minimum level necessary to keep the Joint Venture Claims in
good standing. Northern Dynasty could elect to abandon the earn-in at any time
on 30 days notice, so long as sufficient annual labor was performed, or a cash
payment in lieu of labor was made, in order to fulfill the annual labor
requirements for the Joint Venture Claims for a minimum of 12 months after
termination of the earn-in. No such notice by Northern Dynasty was received.
On November 14, 2012, we signed a loan settlement agreement
with Northern Dynasty which would have discharged the $3,730,174 principal
balance and $1,592,769 of accrued interest for the 2010 Convertible Note and
would have terminated Northern Dynastys earn-in rights. In exchange for the
settlement, we initiated the transfer of 199 Alaska mining claims to Northern
Dynastys subsidiary, U5 Resources. However, MBGS, LLC filed liens against the
claims before the transfer could be completed. In March 2014 Liberty Star and
Big Chunk entered into a settlement agreement with MBGS, LLC, following a
resolution conference conducted in Anchorage, Alaska whereby all Northern
Dynasty claims recorded by MBGS, LLC were released. As a result of the
settlement agreement with MBGS, LLC, the Company completed its loan settlement
agreement with Northern Dynasty and discharged the principal balance and accrued
interest for the 2010 Convertible Note and terminated Northern Dynastys
earn-in-rights. A gain of $5,322,943 for the settlement of the Northern Dynasty
debt and accrued interest was recorded in other income during the nine months
ended October 31, 2014. As of October 31, 2014, we had no principal or interest
outstanding for the 2010 Convertible Note.
In August 2013, we entered into a promissory note (the August
2013 Note) for a principal sum of $555,000 plus accrued and unpaid interest and
any other fees. The consideration is up to $500,000, which would produce an
original issue discount of $55,000 if all the consideration is received. The
lender paid $150,000 upon closing pursuant to the terms of the August 2013 Note.
The August 2013 Note has a maturity of one year from the delivery of each
payment. The August 2013 Note may be convertible into shares of common stock of
our company at any time from 180 days after the date of each payment of
consideration, at a conversion price which is 70% of the average of the three
lowest closing prices in the 20 trading days previous to the conversion. We may
repay the August 2013 Note at any time on or before 90 days from the effective
date of the August 2013 Note with an interest rate of 0%, after which we may not
make any further payments on the August 2013 Note prior to the maturity date
without written approval from the lender. If we elect not to repay the August
2013 Note on or before 90 days from the effective date of the August 2013 Note,
a one-time interest charge of 12% will be applied to the principal sum. We
elected not to pay the $150,000 portion of the August 2013 Note within 90 days
from the effective date. Additionally, after the $150,000 portion of the August
2013 Note became convertible, the note holder elected to convert $153,082 of
principal and interest into 13,900,000 shares of the companys common stock
during the nine months ended October 31, 2014. During May 2014 the note holder
converted the remaining principal and interest of $33,397 portion of the
$150,000 portion of the August 2013 Note into 4,037,915 shares of the Companys
common stock. On December 9, 2013, we received additional consideration of
$75,000 pursuant to the terms of the August 2013 Note. We elected not to pay the
$75,000 portion of the August 2013 Note within 90 days from the effective date.
During May, June, and July of 2014 the note holder converted $56,438 of
principal and interest into 6,000,000 shares of the Companys common stock.
During August of 2014 the note holder converted $36,762 of principal and
interest into 3,983,507 shares of the Companys common stock. On June 24, 2014
and September 3, 2014, we received additional consideration of $75,000 and
$75,000, respectively, pursuant to the terms of the August 2013 Note. As of
October 31, 2014, we had $176,490 principal outstanding for the August 2013
Note.
On November 18, 2013, we entered into a securities purchase
agreement, whereby we agreed to issue a convertible note to one lender in the
principal amount of $250,000. The proceeds from the note was $225,000, which
created an original issue discount of $25,000. The Note is payable in full on
November 18, 2014 and bears no interest except in an event of default. The
lender may, at its option, after the 183 rd day (after May 20, 2014)
following the closing date, convert the principal amount or any portion of such
principal amount of the Note into shares of common stock of our company at the
price equal to the lesser of (a) 100% of the volume weighted average price
(VWAP), as reported on the closing date (November 18, 2013), and (b) 70% of the
average of the 5 day VWAP immediately prior to the day of conversion. As of
October 31, 2014, we had $250,000 principal outstanding for the August 2013
Note. As of October 31, 2014, no repayments had been made on this convertible
note and the note had not been converted. In November 2014, the lender sold this
note to a third party, who agreed to extend the maturity date to November 18,
2015 under the terms of the assignment agreement dated November 18, 2014.
In August 2014, we received $150,000 pursuant to the terms of a
convertible promissory note dated August 26, 2014. The Note bears interest at
12%, is due on August 26, 2015, and is convertible after 180 days at a 45%
discount to the average of the daily VWAP prices for the previous 10 trading
days before the date of conversion.
On October 14, 2014, we entered into a securities purchase
agreement, whereby we agreed to issue a convertible note to one lender in the
principal amount of $105,000. The Note is payable in full on October 14, 2015
and bears interest at the rate of 10% per annum. There is a $5,000 original
issuance discount on the Note. The Note may be convertible into shares of common
stock of our company at any time from 180 days after the execution date of the
Note at a price per share of 40% discount to the average of the daily VWAP for
the previous five trading days before the date of conversion.
During the nine months ending October 31, 2014, the Company
recorded debt discounts of $325,030 due to the derivative liabilities, and
original issue debt discounts of $23,750 due to the convertible notes.
In November of 2013, the Company recorded $45,663 of deferred
financing costs related to the November 18, 2013 convertible note. During the
nine months ended October 31, 2014, the Company recorded amortization of these
deferred financing costs of $34,247.
NOTE 8 Stockholders deficit
Our common shares are all of the same class, are voting and
entitle stockholders to receive dividends as defined. Upon liquidation or
wind-up, stockholders are entitled to participate equally with respect to any
distribution of net assets or any dividends that may be declared.
In August 2013, the company entered into an agreement with an
investor relations firm to issue 5,023,256 common shares in exchange for
investor relations services, with 50% (2,511,628) of the shares to be held by
the Company until the Company chose to continue with additional services. These
additional services were accepted by the Company during the nine months ended
October 31, 2014, and the 2,511,628 common shares held by the Company were
released and classified as issued and outstanding effective July 31, 2014, with
an expense of $54,000 recorded for their fair value.
In March 2014, the Company issued 1,000,000 units of common
stock to a designee of MBGS, LLC, pursuant to a settlement agreement with
Northern Dynasty which discharged the $3,730,174 principal balance and
$1,592,769 of accrued interest for the 2010 Convertible Note (See Note 7). Each
unit consists of one share of the Companys common stock and a warrant to
purchase one-half share of the Companys common stock. The fair value of the
common stock issued was $17,500, which was recorded as an expense upon issuance
of the units. The 500,000 warrants, which have an exercise price of $0.028 and
have a three year term (See Note 5), had a fair value of $6,440. The fair value
was expensed and a derivative liability was recorded for the fair value of the
warrant on the date of issuance of the units. The change in the fair value of
the derivative liability between the date of issuance and the balance sheet date
of October 31, 2014 was recorded in other income and expense.
Between February 2014 and July 2014, pursuant to the investment
agreement with KVM, KVM purchased 34,214,226 shares for $456,923, of which
$55,673 is still owed to the Company and is reflected as a stock subscription
receivable as of October 31, 2014.
During the nine months ending October 31, 2014, $279,720 of the
August 2013 Note were converted into 27,921,422 shares of the Companys common
stock. The conversions occurred on multiple dates with conversion prices ranging
from $0.008 to $0.012.
During the nine months ended October 31, 2014, the Company
issued 6,424,979 units to three investors for total proceeds of $73,000. Each
unit consists of one share of the Companys common stock and a warrant to
purchase one share of the Companys common stock. The warrants have exercise
prices ranging from $0.015 to $0.021 and have a three year term.
At October 31, 2014 there were 903,500 non-qualified stock
options outstanding with a weighted average exercise price of $0.376 per option;
of those options 903,500 are exercisable. At October 31, 2014 there were
85,476,124 incentive stock options outstanding with a weighted average exercise
price of $0.046 per option; of those options 83,595,473 are exercisable with a
weighted average exercise price of $0.047.
During the nine months ended October 31, 2014 we recognized $8,424 of compensation expense related to incentive and non-qualified stock options previously granted to officers, employees and consultants.
NOTE 9 Subsequent events
In November 2014, the holder of the $250,000 convertible note dated November 18,
2013 sold the note to a third party who agreed to extend the maturity date to
November 18, 2015 under the terms of the assignment agreement dated November 13,
2014. On November 17, 2014, the new holder of this note elected to convert
$25,000 of this note into 2,280,606 shares of the Company's common stock at a
conversion price of $0.010962 per share. On December 3, 2014, the new noteholder
elected to convert $25,000 of this note into 2,237,737 shares of the Company's
common stock at a conversion price of $0.011172 per share.
On November 14, 2014, the Company filed a Post-Effective Amendment to the
Registration Statement on Form S-1 No. 333-192141 (the "Registration Statement")
and declared effective by the Securities and Exchange Commission on January 27,
2014, to deregister all its unsold securities thereunder. The Registration
Statement filed with the Securities and Exchange Commission on January 21, 2014,
registered the Registrant's sale of 244,500,000 shares of its common stock, par
value $0.00001 per share, issuable pursuant to the KVM Investment Agreement. Of
the 244,500,000 shares of common stock registered, 210,285,774 have not been
sold. Accordingly, pursuant to this Post-Effective Amendment, these remaining
shares were deregistered.
On December 4, 2014, the Company received proceeds of
$100,000 related to a $210,000 convertible promissory note dated December 3,
2014. The loan amount of $105,000 includes $5,000 retained by the lender as
original issue discount. The loan bears interest at 10% per annum and is due
December 3, 2016. An additional $105,000 is available under the loan, of which
$5,000 would be retained by the lender as original issue discount.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
Much of the information included in this quarterly report includes or is based upon estimates, projections or other forward looking statements. Such forward looking statements include any projections or estimates made by us and our
management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual
results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Although we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking
statements to conform these statements to actual results.
Such estimates, projections or other forward looking statements involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially
affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other forward looking statements.
Business Development
The following Managements Discussion and Analysis is intended to help the reader understand the results of operations and financial condition of our company. Managements Discussion and Analysis is provided as a supplement to, and should
be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements.
Liberty Star Uranium & Metals Corp. was formerly Liberty Star Gold Corp. and formerly Titanium Intelligence, Inc. (Titanium). Titanium was incorporated on August 20, 2001 under the laws of the State of Nevada. On February 5, 2004 we
commenced operations in the acquisition and exploration of mineral properties business. Big Chunk Corp. (Big Chunk) is our wholly owned subsidiary and was incorporated on December 14, 2003 in the State of Alaska. Big Chunk is engaged in
the acquisition and exploration of mineral properties business in the State of Alaska. Redwall Drilling Inc. (Redwall) was our wholly owned subsidiary and was incorporated on August 31, 2007 in the State of Arizona. Redwall performed
drilling services on our mineral properties. Redwall ceased drilling activities in July 2008 and was dissolved on March 30, 2010. In April 2007, we changed our name to Liberty Star Uranium & Metals Corp (Liberty Star) to reflect our
current general exploration for base and precious metals. We are in the exploration phase of operations and have not generated any revenues from operations.
We formed the wholly owned subsidiary, Hay Mountain Super Project LLC (HMSP LLC) 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.
Our Current Business
We are an exploration company and are engaged in the acquisition and exploration of mineral properties in the States of Arizona and Alaska. Claims in the State of Alaska are held in the name of our wholly-owned subsidiary, Big Chunk. Claims in the
State of Arizona are held in the name of Liberty Star. We use the term Super Project to indicate a project in which numerous mineral targets have been identified, any one or more of which could potentially contain commercially viable
quantities of minerals. Our significant projects are described below.
North Pipes Super Project (North Pipes and NPSP): Located in Northern Arizona on the Arizona Strip, we plan to ascertain whether the NPSP claims possess commercially viable deposits of uranium and associated co-product
metals. We have not identified any ore reserves to date.
Negotiations have been ongoing with Genesis Group International Inc. to option the North Pipes Super Project (uranium). Genesis has developed a unique, proprietary type of equipment and process to mining breccia pipe type vertical mineral ore
bodies. This would involve an exchange of Liberty Star's real property and intellectual property pertaining to the North Pipes / Arizona Strip properties. In exchange Liberty Star would receive a monthly payment toward retirement of its expenditures
on the North Pipes Project. It would also receive a gross royalty on production that would result from all metal commodities coming from any mining of the pipes.
Big Chunk Super Project (Big Chunk): Located in the Iliamna region of Southwestern Alaska, we plan to ascertain whether the Big Chunk claims possess commercially viable deposits of copper, gold, molybdenum, silver, palladium
rhenium and zinc. We have not identified any ore reserves to date.
Tombstone Super Project (Tombstone) (formerly referred to as Tombstone Porphyry Precious Metals Project): Tombstone is located in Cochise County, Arizona and the Super Project covers the Tombstone caldera and its
environs. Within the Tombstone Caldera is the Hay Mountain target where we are concentrating our work at this time. We plan to ascertain whether the Tombstone, Hay Mountain claims possess commercially viable deposits of copper, molybdenum, gold,
silver, lead, zinc, manganese and other metals including Rare Earth Elements, and are developing plans to finance the initial exploration drilling program. We have not identified any ore reserves to date.
East Silver Bell Porphyry Copper Project (East Silver Bell): Located northwest of Tucson, Arizona, we plan to ascertain whether the East Silver Bell claims possess commercially viable deposits of copper. We have not identified any
ore reserves to date.
Title to mineral claims involves certain inherent risks due to difficulties of determining the validity of certain claims as well as potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral
properties. We have investigated title to all the Companys mineral properties and, to the best of its knowledge, title to all properties are in good standing.
The mineral resource business generally consists of three
stages: exploration, development and production. Mineral resource companies that
are in the exploration stage phase of operations have not yet found mineral
resources in commercially exploitable quantities, and are engaged in exploring
land in an effort to discover them. Mineral resource companies that have located
a mineral resource in commercially exploitable quantities and are preparing to
extract that resource are in the development stage, while those engaged in the
extraction of a known mineral resource are in the production stage. We are in
the exploration phase of operations and have not found any mineral resources in
commercially exploitable quantities.
There is no assurance that a commercially viable mineral
deposit exists on any of our properties, and further exploration is required
before we can evaluate whether any exist and, if so, whether it would be
economically feasible to develop or exploit those resources. Even if we complete
our current exploration program and we are successful in identifying a mineral
deposit, we would be required to spend substantial funds on further drilling and
engineering studies before we could know whether that mineral deposit will
constitute an ore reserve (an ore reserve is a commercially viable mineral
deposit).
To date, we have not generated any revenues as we are an
exploration stage company in the exploration phase of operations. Our ability to
pursue our business plan and generate revenues is subject to our ability to
obtain additional financing, and we cannot give any assurance that we will be
able to do so.
Letter Agreement and Secured Convertible Notes with
Northern Dynasty Minerals Ltd
On July 15, 2010, we issued a secured convertible promissory
note bearing interest at a rate of 10% per annum compounded monthly (the 2010
Convertible Note) to Northern Dynasty Minerals Ltd (Northern Dynasty). During
the year ended January 31, 2012, the agreement with Northern Dynasty was amended
to issue additional secured convertible promissory notes totaling $730,174 to
reimburse Northern Dynasty for assessment work, rental fees, cash in lieu of
assessment work and filing fees on the mineral claims that were paid in fiscal
2011 and fiscal 2012 because we could not come to an agreement on the earn-in
option and joint venture agreement with Northern Dynasty.
As part of the transaction noted above, Northern Dynasty could
earn a 60% interest in our Big Chunk project in Alaska (the Joint Venture
Claims) by spending $10,000,000 on those properties over six years. The
borrowings from Northern Dynasty could be applied as part of Northern Dynastys
earn-in requirements. Northern Dynastys minimum annual expenditures under the
earn-in would be the minimum level necessary to keep the Joint Venture Claims in
good standing. Northern Dynasty could elect to abandon the earn-in at any time
on 30 days notice, so long as sufficient annual labor was performed, or a cash
payment in lieu of labor was made, in order to fulfill the annual labor
requirements for the Joint Venture Claims for a minimum of 12 months after
termination of the earn-in. No such notice by Northern Dynasty was received.
On November 14, 2012, we signed a loan settlement agreement
with Northern Dynasty which would have discharged the $3,730,174 principal
balance and $1,592,769 of accrued interest for the 2010 Convertible Note and
would have terminated Northern Dynastys earn-in rights. In exchange for the
settlement, we initiated the transfer of 199 Alaska mining claims to Northern
Dynastys subsidiary, U5 Resources. However, MBGS, LLC filed liens against the
claims before the transfer could be completed. In March 2014, Liberty Star and
Big Chunk entered into a settlement agreement with MBGS, LLC, following a
resolution conference conducted in Anchorage, Alaska whereby all Northern
Dynasty claims recorded by MBGS, LLC were released. As a result of the
settlement agreement with MBGS, LLC, the Company completed its loan settlement
agreement with Northern Dynasty and discharged the principal balance and accrued
interest for the 2010 Convertible Note and terminated Northern Dynastys
earn-in-rights. A gain of $5,322,943 for the settlement of the Northern Dynasty
debt and accrued interest was recorded in other income during the nine months
ended October 31, 2014.
Results of Operations
Material Changes in Financial Condition for the Nine Month
Period Ended October 31, 2014
We had cash and cash equivalents in the amount of $145,458 as
of October 31, 2014 compared to $55,089 as of January 31, 2014. We had negative
working capital of $1,396,839 as of October 31, 2014 compared to $6,202,731 as
of January 31, 2014. We used $769,865 net cash in operating activities during
the nine months ended October 31, 2014 which was utilized for working capital.
We also utilized our cash funds to continue exploration activities at our Hay
Mountain mineral lands by working on geochemical soil, rock chip and vegetation
sampling. We purchased $9,870 in new equipment during the nine months ended
October 31, 2014. We have been raising capital from selling equity by way of
private placements. We intend to continue to raise capital from such sources. In
addition to seeking sources of funding through the sale of equity, we may seek
to enter into joint venture agreements, or other types of agreements with other
companies to finance our projects for the long term. In addition, we may choose
to sell a portion of our assets to finance our projects. Should our properties
prove to be commercially viable, we may be in a position to seek debt financing
to help build infrastructure, and eventually we may obtain revenues from
commercial mining of our properties.
Material Changes in Results of Operations for the Three and
Nine Month Periods Ended October 31, 2014 and October 31, 2013
We had a net loss of $314,817 and net income of $4,316,525 for
the three and nine months ended October 31, 2014, respectively, compared to a
net loss of $770,426 and 1,798,142 for the three and nine months ended October
31, 2013, respectively. We incurred a one-time non-recurring gain of $5,322,943
during the nine months ended October 31, 2014 due to our settlement of the
Northern Dynasty Note. Under the terms of the settlement agreement, signed in
November, 2012, our Alaska incorporated subsidiary Big Chunk Corp. transferred
to a subsidiary of Northern Dynasty a number of Alaska State mineral claims in
exchange for the forgiveness of the $3,730,174 principal balance and $1,592,769
of accrued interest that our company owed Northern Dynasty under the 2010
Convertible Note. The settlement agreement also terminated other contractual
rights of Northern Dynasty. The settlement agreement was considered completed by
our company in 2012 but Northern Dynasty did not acknowledge its completion
until March 2014. During the period of over one year that the dispute continued
as to whether the settlement agreement had been completed, our company continued
to accrue the principal and interest that was claimed by Northern Dynasty and
reported that amount as a liability in our financial statements. The gain in
the first quarter of fiscal 2015 of our company recognizes that the debt and
interest under the 2010 Convertible Note are now settled and no longer claimed
by Northern Dynasty.
During the three and nine months ended October 31, 2014 we had
a decrease of approximately $156,716 and $246,626, respectively, in geological
and geophysical costs compared to the three months and nine months ended October
31, 2013, due to a decrease in geochemical reports ordered by the Company. We
had decrease in salaries and benefits expense of approximately $161,876 and
$180,790 during the three and nine months ended October 31, 2014, respectively,
as compared to the three and nine months ended October 31, 2013, due to a
decrease in stock option expense related to options issued to employees and
directors. We had decrease in public relations expenses of approximately $5,804
and $62,854 during the three and nine months ended October 31, 2014,
respectively, as compared to the three and nine months ended October 31, 2013,
due to decreased seminar and conference activity. We had a decrease in legal
expenses of approximately $36,925 and $76,093 during the three and nine months
ended October 31, 2014, respectively, as compared to the three and nine months
ended October 31, 2013, due primarily to the costs associated with defending a
lien claim by a former associate during the three and nine months ended October
31, 2013. We incurred a non-cash gain on the change in fair value of our
derivative liabilities of $133,774 and $396,686 during the three and nine months
ended October 31, 2014, respectively, as compared to a loss of $11,506 and
$30,728 during the three and nine months ended October 31, 2013, respectively,
due to the embedded conversion features in our debt instruments that require us
to record our equity linked instruments including outstanding warrants and fixed
rate convertible debt at fair value during the three and nine months ended
October 31, 2014.
Liquidity and Capital Resources
Convertible promissory notes
We have issued the following convertible promissory notes in
private placements of our securities to institutional investors pursuant to
exemptions from registration set out in Rule 506 of Regulation D under the
Securities Act of 1933.
On July 15, 2010, we issued a secured convertible promissory
note bearing interest at a rate of 10% per annum compounded monthly (the 2010
Convertible Note) to Northern Dynasty Minerals Ltd (Northern Dynasty). During
the year ended January 31, 2012, the agreement with Northern Dynasty was amended
to issue additional secured convertible promissory notes totaling $730,174 to
reimburse Northern Dynasty for assessment work, rental fees, cash in lieu of
assessment work and filing fees on the mineral claims that were paid in fiscal
2011 and fiscal 2012 because we could not come to an agreement on the earn-in
option and joint venture agreement with Northern Dynasty.
As part of the transaction noted above, Northern Dynasty could
earn a 60% interest in our Big Chunk project in Alaska (the Joint Venture
Claims) by spending $10,000,000 on those properties over six years. The
borrowings from Northern Dynasty could be applied as part of Northern Dynastys
earn-in requirements. Northern Dynastys minimum annual expenditures under the
earn-in would be the minimum level necessary to keep the Joint Venture Claims in
good standing. Northern Dynasty could elect to abandon the earn-in at any time
on 30 days notice, so long as sufficient annual labor was performed, or a cash
payment in lieu of labor was made, in order to fulfill the annual labor
requirements for the Joint Venture Claims for a minimum of 12 months after
termination of the earn-in. No such notice by Northern Dynasty was received.
On November 14, 2012, we signed a loan settlement agreement
with Northern Dynasty which would have discharged the $3,730,174 principal
balance and $1,592,769 of accrued interest for the 2010 Convertible Note and
would have terminated Northern Dynastys earn-in rights. In exchange for the
settlement, we initiated the transfer of 199 Alaska mining claims to Northern
Dynastys subsidiary, U5 Resources. However, MBGS, LLC filed liens against the
claims before the transfer could be completed. In March 2014 Liberty Star and
Big Chunk entered into a settlement agreement with MBGS, LLC, following a
resolution conference conducted in Anchorage, Alaska whereby all Northern
Dynasty claims recorded by MBGS, LLC were released. As a result of the
settlement agreement with MBGS, LLC, the Company completed its loan settlement
agreement with Northern Dynasty and discharged the principal balance and accrued
interest for the 2010 Convertible Note and terminated Northern Dynastys
earn-in-rights. A gain of $5,322,943 for the settlement of the Northern Dynasty
debt and accrued interest was recorded in other income during the nine months
ended October 31, 2014.
In August, 2013, we entered into a promissory note (the August
2013 Note) for a principal sum of $555,000 plus accrued and unpaid interest and
any other fees. The consideration is up to $500,000, which would produce an
original issue discount of $55,000 if all the consideration is received. The
lender paid $150,000 upon closing pursuant to the terms of the August 2013 Note.
The August 2013 Note has a maturity of one year from the delivery of each
payment. The August 2013 Note may be convertible into shares of common stock of
our company at any time from 180 days after the date of each payment of
consideration, at a conversion price which is 70% of the average of the three
lowest closing prices in the 20 trading days previous to the conversion. We may
repay the August 2013 Note at any time on or before 90 days from the effective
date of the August 2013 Note with an interest rate of 0%, after which we may not
make any further payments on the August 2013 Note prior to the maturity date
without written approval from the lender. If we elect not to repay the August
2013 Note on or before 90 days from the effective date of the August 2013 Note,
a one-time interest charge of 12% will be applied to the principal sum. We
elected not to pay the $150,000 portion of the August 2013 Note within 90 days
from the effective date. Additionally, after the $150,000 portion of the August
2013 Note became convertible, the note holder elected to convert $153,082 of
principal and interest into 13,900,000 shares of the companys common stock
during the nine months ended October 31, 2014. During May 2014 the note holder
converted the remaining principal and interest of $33,398 portion of the
$150,000 portion of the August 2013 Note into 4,037,195 shares of the Companys
common stock. On December 10, 2013, we received additional consideration of
$75,000 pursuant to the terms of the August 2013 Note. We elected not to pay the
$75,000 portion of the August 2013 Note within 90 days from the effective date.
During May, June, and July of 2014 the note holder converted $56,438 of
principal and interest into 6,000,000 shares of the Companys common stock.
During August of 2014 the note holder converted $36,762 of principal and
interest into 3,983,507 shares of the Companys common stock. On June 24, 2014
and September 3, 2014, we received additional consideration of $75,000 and
$75,000, respectively pursuant to the terms of the August 2013 Note. As of
October 31, 2014, we had $176,490 principal outstanding for the August 2013
Note.
On the date the August 2014 Note became convertible, the
variable conversion feature of the note qualifies it as a derivative instrument
since the number of shares issuable under the note is indeterminate.
On November 18, 2013, we entered into a securities purchase
agreement, whereby we agreed to issue a convertible note to one lender in the
principal amount of $250,000. The note is payable in full on November 18, 2014
and bears no interest except in an event of default. The lender may, at its
option, after the 183 rd day following the closing date (after May
20, 2014), convert the principal amount or any portion of such principal amount
of the note into shares of common stock of our company at the price equal to the
lesser of (a) 100% of the volume weighted average price (VWAP), as reported on
the closing date (November 18, 2013), and (b) 70% of the average of the 5 day
VWAP immediately prior to the day of conversion. As of October 31, 2014, we have
not made any repayments on this convertible note and the note has not been
converted. In November 2014, the lender sold this note to a third party, who
agreed to extend the maturity date to November 18, 2015 under the terms of the
assignment agreement dated November 18, 2014.
In August 2014, we received $150,000 pursuant to the terms of a
convertible promissory note dated August 26, 2014. The Note bears interest at
12%, is due on August 26, 2015, and is convertible after 180 days at a 45%
discount to the average of the daily VWAP prices for the previous 10 trading
days before the date of conversion.
On October 14, 2014, we entered into a securities purchase
agreement, whereby we agreed to issue a convertible note to one lender in the
principal amount of $105,000. The Note is payable in full on October 14, 2015
and bears interest at the rate of 10% per annum. There is a $5,000 original
issuance discount on the Note. The Note may be convertible into shares of common
stock of our company at any time from 180 days after the execution date of the
Note at a price per share of 40% discount to the average of the daily VWAP for
the previous five trading days before the date of conversion.
Critical Accounting Policies
The condensed consolidated financial statements of Liberty Star
have been prepared in conformity with accounting principles generally accepted
in the United States of America. Our significant accounting policies are
described in Note 2 to the consolidated financial statements included in Item 8
in our Form 10-K for the year ended January 31, 2014. The critical accounting
policies adopted by our company are as follows:
Going Concern
Since we have not generated any revenue, we have negative cash
flows from operations and negative working capital, we have included a reference
to the substantial doubt about our ability to continue as a going concern in
connection with our condensed consolidated financial statements as of October
31, 2014. Our total stockholders deficit at October 31, 2014 was $1,360,308.
These condensed consolidated financial statements have been
prepared on the going concern basis, which assumes that adequate sources of
financing will be obtained as required and that our assets will be realized, and
liabilities settled in the ordinary course of business. Accordingly, these
condensed consolidated financial statements do not include any adjustments
related to the recoverability of assets and classification of assets and
liabilities that might be necessary should we be unable to continue as a going
concern.
Mineral claims
We account for costs incurred to acquire, maintain and explore
mineral properties as charged to expense in the period incurred until the time
that a proven mineral resource is established at which point development of the
mineral property would be capitalized. Currently, we do not have any proven
mineral resources on any of our mineral properties.
Convertible promissory notes
We reviewed the convertible promissory notes and the related
subscription agreements to determine the appropriate reporting within the
condensed consolidated financial statements. We report convertible promissory
notes as liabilities at their carrying value less unamortized discounts in
accordance with the applicable accounting guidance. We record conversion options
and detachable common stock purchase warrants and report them as liabilities at
fair value at each reporting period when required in accordance with the
applicable accounting guidance. No gain or loss is reported when the notes are
converted into shares of our common stock in accordance with the notes
terms.
Common stock purchase warrants
We report common stock purchase warrants as equity unless a
condition exists which requires reporting as a derivative liability at fair
market value. For common stock purchase warrants reported as a derivative
liability, as well as new and modified warrants reported as equity, we utilize a
Monte Carlo options model in order to determine fair value.
Item 3. Quantitative and Qualitative Disclosures About
Market Risk.
Not applicable.
Item 4. Controls and Procedures.
As required by Rule 13a-15 under the Exchange Act, our
management has evaluated the effectiveness of the design and operation of our
disclosure controls and procedures at October 31, 2014, which is the end of the
fiscal quarter covered by this report. This evaluation was carried out by Mr.
James Briscoe, our principal executive officer and principal financial officer.
Based on this evaluation, Mr. Briscoe has concluded that our disclosure controls and procedures
were effective as at the end
of the period covered by this report. Disclosure controls and procedures are
controls and other procedures that are designed to ensure that information
required to be disclosed by our company in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within
the time periods specified in the SECs rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by our company in the reports
that we file or submit under the Exchange Act is accumulated and communicated to
our management, including our principal executive officer and principal
financial officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
During the quarter ended October 31, 2014 there were no changes
in our internal control over financial reporting that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We currently have no outstanding litigation.
Item 1A. RISK FACTORS
Not applicable
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds
In March 2014, the Company issued 1,000,000 units of common
stock to a designee of MBGS, LLC, pursuant to a settlement agreement (See Note 6
of the financial statements contained in this report). Each unit consists of one
share of the Companys common stock and a warrant to purchase one-half share of
the Companys common stock. The value of the shares issued is $17,500. The
500,000 warrants have an exercise price of $0.028 and have a two year term (See
Note 5 of the financial statements contained in this report). In issuing these
securities we relied on the registration exemption provided for in Section
4(a)(2) of the Securities Act of 1933, as amended.
During the nine months ended October 31, 2014, the Company
issued 6,424,979 units to three investors for total proceeds of $73,000. Each
unit consists of one share of the Companys common stock and a warrant to
purchase one share of the Companys common stock. The warrants have exercise
prices ranging from $0.015 to $0.021 and have a three year term. In issuing
these securities we relied on the registration exemption provided for in Section
4(a)(2) of the Securities Act of 1933, as amended.
In August, 2013, we entered into a promissory note (the August
2013 Note) for a principal sum of $555,000 plus accrued and unpaid interest and
any other fees. The consideration is up to $500,000, which would produce an
original issue discount of $55,000 if all the consideration is received. The
lender paid $150,000 upon closing pursuant to the terms of the August 2013 Note.
On December 10, 2013 and June 24, 2014 and September 3, 2014, we received
additional consideration of $75,000, $75,000 and $75,000, respectively, pursuant
to the terms of the August 2013 Note. During the nine months ended October 31,
2014, $279,720 of the August 2013 Note were converted into 27,921,422 shares of
the Companys common stock. The conversions happened on multiple dates with
conversion prices ranging from $0.008 to $0.012. In issuing these securities we
relied on the registration exemption provided for in Rule 506 of Regulation D
and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
On August 26, 2014, we issued a convertible promissory note to
one lender in the principal amount of $150,000 plus accrued and unpaid interest
and any other fees. The convertible promissory note is payable in full on August
26, 2015 and bears interest at the rate of 12% per annum. The Holder will be
entitled to convert any unpaid principal plus accrued interest into our shares
of common stock at a price per share of 45% discount to the average of the daily
VWAP for the previous ten trading days before the date of conversion. We issued
the security to one U.S. person who is an accredited investor (as that term is
defined in Rule 501 of Regulation D, promulgated by the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, and in
issuing these securities to this investor we relied on the registration
exemption provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the
Securities Act of 1933, as amended.
On October 14, 2014, we entered into a securities purchase
agreement, whereby we agreed to issue a convertible note to one lender in the
principal amount of $105,000. The Note is payable in full on October 14, 2015
and bears interest at the rate of 10% per annum. There is a $5,000 original
issuance discount on the Note. The Note may be convertible into shares of common
stock of our company at any time from 180 days after the execution date of the
Note at a price per share of 40% discount to the average of the daily VWAP for
the previous five trading days before the date of conversion. We issued the
security to one U.S. person who is an accredited investor (as that term is
defined in Rule 501 of Regulation D, promulgated by the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended, and in issuing
these securities to this investor we relied on the registration exemption
provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the
Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Under Section 1503(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act and under the SECs recently adopted Item 104 of
Regulation S-K, each operator of a coal or other mine is required to include
disclosures regarding certain mine safety results in its periodic reports filed
with the SEC. The operation of our mine(s) that may be developed in the future
would be subject to regulation by the federal Mine Safety and Health
Administration (MSHA) under the Federal Mine Safety and Health Act of 1977. We
do not own any mines in the United States and as a result, this information is
not required.
Item 5. Other Information.
None.
Item 6. Exhibits
Exhibit |
|
Number |
Description of Exhibit |
3.1 |
Articles of Incorporation
(1) |
3.2 |
Bylaws (2) |
3.3 |
Certificate of Change to
Authorized Capital (3) |
3.4 |
Articles of Merger (3) |
10.1 |
Letter Agreement dated November
14, 2011 with Northern Dynasty (4) |
10.2 |
Form of Stock Option Agreement (5)
|
10.3 |
Form of Warrant Certificate
(6) |
10.4 |
Settlement Agreement dated November 13, 2012
with Northern Dynasty Minerals Ltd. (7) |
10.5 |
Convertible Note issued to JSJ
Investments Inc. (8)
|
10.6 |
Securities Purchase Agreement dated October 15,
2014 (9) |
10.7 |
Convertible Note dated October
15, 2014 (9) |
14.1 |
Code of Ethics (3)
|
21.1 |
Subsidiaries: |
|
Big Chunk Corp., incorporated in Alaska |
|
Hay Mountain Super Project LLC,
organized in Arizona |
31.1* |
Section 302 Certification
under Sarbanes-Oxley Act of 2002 of James Briscoe |
32.1* |
Section 906 Certification under
Sarbanes-Oxley Act of 2002 of James Briscoe |
101.INS* |
XBRL INSTANCE DOCUMENT
|
101.SCH* |
XBRL TAXONOMY EXTENSION SCHEMA |
101.CAL* |
XBRL TAXONOMY EXTENSION
CALCULATION LINKBASE |
101.DEF* |
XBRL TAXONOMY EXTENSION DEFINITION
LINKBASE |
101.LAB* |
XBRL TAXONOMY EXTENSION
LABEL LINKBASE |
101.PRE* |
XBRL TAXONOMY EXTENSION PRESENTATION
LINKBASE |
(1) |
Filed as an exhibit to our Registration Statement on Form
SB-2, filed with the SEC on May 14, 2002. |
(2) |
Filed as an exhibit to our Quarterly Report on Form
10-QSB, filed with the SEC on December 14, 2007. |
(3) |
Filed as an exhibit to our Current Report on Form 8-K,
filed with the SEC on September 1, 2009. |
(4) |
Filed as an exhibit to our Current Report on Form 8-K,
filed with the SEC on November 25, 2011. |
(5) |
Filed as an exhibit to our Current Report on Form 8-K,
filed with the SEC on January 24, 2012. |
(6) |
Filed as an exhibit to our Current Report on Form 8-K,
filed with the SEC on July 30, 2012. |
(7) |
Filed as an exhibit to our Current Report on Form 8-K,
filed with the SEC on November 15, 2012. |
(8) |
Filed as an exhibit to our Current Report on Form 8-K, filed with the SEC
on September 2, 2014. |
(9) |
Filed as an exhibit to our Current Report on Form 8-K, filed with the SEC
on October 20, 2014. |
* Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
LIBERTY STAR URANIUM & METALS CORP.
By: /s/ James Briscoe
James Briscoe, Chairman
Chief Executive Officer,
Chief Financial Officer, and
Director
(Principal Executive Officer, Principal Financial Officer
and Principal
Accounting Officer)
Date: December 15, 2014
Exhibit 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, James Briscoe, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of
Liberty Star Uranium & Metals Corp. |
|
|
|
2. |
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; |
|
|
|
3. |
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report; |
|
|
|
4. |
I am responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in the Exchange Act Rule 13a-15(f) and 15d-15(f)) for the
registrant and have: |
|
|
|
|
(a) |
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under my
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to me
by others within those entities, particularly during the period in which
this report is being prepared; |
|
|
|
|
(b) |
designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under my supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financials
statements for external purposes in accordance with generally accepted
accounting principles; |
|
|
|
|
(c) |
evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
(d) |
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the
registrants most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the registrants internal
control over financial reporting; and |
|
|
|
5. |
I have disclosed, based on my most recent evaluation of
internal control over financial reporting, to the registrant s auditors
and the audit committee of the registrants board of directors: |
|
|
|
|
(a) |
all significant deficiencies and material weaknesses in
the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrants ability
to record, process, summarize and report financial information;
and |
|
|
|
|
(b) |
any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal controls over financial
reporting. |
December 15, 2014
/s/ James Briscoe
James Briscoe, Chairman,
Chief
Executive Officer, Chief Financial Officer, and Director
(Principal
Executive Officer, Principal Financial Officer and Principal Accounting Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
The undersigned, James Briscoe, hereby certifies, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
|
(1) |
the quarterly report on Form 10-Q of Liberty Star Uranium
& Metals Corp. for the period ended October 31, 2014 (the Report
) fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and |
|
|
|
|
(2) |
the information contained in the Report fairly presents,
in all material respects, the financial condition and results of
operations of Liberty Star Uranium & Metals
Corp. |
Dated: December 15, 2014
/s/ James Briscoe
James Briscoe, Chairman,
Chief
Executive Officer, Chief Financial Officer, and Director
(Principal
Executive Officer, Principal Financial Officer and Principal Accounting Officer)
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