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, 2020

 

[  ] 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.)

 

2 East Congress Street Ste. 900, Tucson, Arizona   85701
(Address of principal executive offices)   (Zip code)

 

520-425-1433

(Registrant’s 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 Securities Exchange Act of 1934 during the preceding 12 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 [X] Smaller reporting company [X]
    Emerging growth company [  ]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [  ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [  ] No [X]

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchanged on Which Registered
Common   LBSR   OTCPK

 

The number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 4,949,822,059  shares as of December 14, 2020.

 

 

 

     
     

 

TABLE OF CONTENTS

 

    Page
  PART I  
     
Item 1. Financial Statements 3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Item 4. Controls and Procedures 17
     
  PART II  
     
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Mine Safety Disclosures 18
Item 5. Other Information 18
Item 6. Exhibits 19
  Signatures 20

 

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 industry’s 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 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 subsidiaries, Hay Mountain Holdings, LLC, Earp Ridge Mines LLC and Red Rock Mines LLC, unless otherwise indicated. All dollar amounts refer to U.S. dollars unless otherwise indicated.

 

  2  
     

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

LIBERTY STAR URANIUM & METALS CORP.

CONSOLIDATED BALANCE SHEETS

 

    October 31,     January 31,  
    2020     2020  
    (Unaudited)        
Assets                
                 
Current:                
Cash and cash equivalents   $ 74,008     $ 25,024  
Prepaid expenses     15,402       8,311  
Total current assets     89,410       33,335  
                 
Property and equipment, net     35,014       39,892  
Total assets   $ 124,424     $ 73,227  
                 
Liabilities and Stockholders’ Deficit                
                 
Current:                
Accounts payable and accrued liabilities   $ 467,211     $ 458,350  
Accounts payable to related parties     51,119       51,119  
Accrued wages to related parties     811,711       811,711  
Advances from related party     277,798       101,631  
Notes payable to related parties     277,110       166,560  
Convertible promissory note, net of debt discount of $11,088 and $15,364     82,637       152,504  
Total current liabilities     1,967,586       1,741,875  
                 
Long-term:                
Long-term accounts payable, net of current portion     24,800       37,400  
Long-term debt     63,357       -  
Total long-term liabilities     88,157       37,400  
                 
Total liabilities     2,055,743       1,779,275  
                 
Commitments and Contingencies (Note 10)                
                 
Stockholders’ deficit                
Class A Common stock - $.00001 par value; 100,000,000 and 0 authorized; 51,000,000 and 0 shares issued and outstanding, respectively     510       -  
                 
Common stock - $.00001 par value; 6,150,000,000 and 6,250,000,000 authorized; 4,949,822,059 and 4,558,362,693 shares issued and outstanding, respectively     49,498       45,584  
Additional paid-in capital     55,493,492       55,028,764  
Accumulated deficit     (57,474,819 )     (56,780,396 )
Total stockholders’ deficit     (1,931,319 )     (1,706,048 )
                 
Total liabilities and stockholders’ deficit   $ 124,424     $ 73,227  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

  3  
     

 

LIBERTY STAR URANIUM & METALS CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

    For the Three Months Ended     For the Nine Months Ended  
    October 31,     October 31,  
    2020     2019     2020     2019  
Revenues   $ -     $ -     $ -     $ -  
Expenses:                                
Geological and geophysical costs     48,784       40,803       103,335       42,783  
Salaries and benefits     36,871       56,626       108,592       174,610  
Depreciation     1,531       241       4,878       1,011  
Legal     49,990       23,598       145,462       25,073  
Professional services     17,567       12,791       61,000       62,014  
General and administrative     17,424       18,553       51,089       46,679  
Travel     6,354       1,344       6,793       1,344  
Net operating expenses     178,521       153,956       481,149       353,514  
Loss from operations     (178,521 )     (153,956 )     (481,149 )     (353,514 )
                                 
Other income (expense):                                
Interest expense     (6,941 )     (58,508 )     (173,643 )     (98,111 )
Gain on settlement of accounts payable     -       -       -       177,000  
Gain (loss) on change in fair value of derivative liability     -       40,797       (39,631 )     36,335  
Total other income (expense)     (6,941 )     (17,711 )     (213,274 )     115,224  
Net loss   $ (185,462 )   $ (171,667 )   $ (694,423 )   $ (238,290 )
                                 
Net loss per share of common stock - basic and diluted   $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
                                 
Weighted average number of shares of common stock outstanding - basic and diluted     5,000,822,059       4,395,552,693       4,830,370,561       4,309,268,673  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

  4  
     

 

LIBERTY STAR URANIUM & METALS CORP.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Nine months ended October 31, 2020 and 2019

(Unaudited)

 

   

Class A Common

stock

    Common stock    

Additional

paid-in

    Accumulated    

Total

Stockholders’

 
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                           
Balance, January 31, 2020     -     $ -       4,558,362,693     $ 45,584     $ 55,028,764     $ (56,780,396 )   $ (1,706,048 )
Issuance of common stock and warrants in private placement     -       -       27,000,000       270       20,329       -       20,599  
Class A Shares issued to settle related party advances and notes payable     51,000,000       510       -       -       48,552       -       49,062  
Shares issued for conversion of notes     -       -       293,030,795       2,930       166,930       -       169,860  
Shares issued for services     -       -       71,428,571       714       49,286       -       50,000  
Reclass of APIC to derivative liabilities for tainted warrants     -       -       -       -       (189,472 )     -       (189,472 )
Resolution of derivative liabilities due to debt conversions and untainted warrants     -       -       -       -       369,103       -       369,103  
Net loss for the nine months ended October 31, 2020     -       -       -       -       -       (694,423 )     (694,423 )
Balance, October 31, 2020       51,000,000     $ 510         4,949,822,059     $   49,498     $   55,493,492     $   (57,474,819 )   $ (1,931,319 )
                                                         
Balance, July 31, 2020     51,000,000     $ 510       4,949,822,059     $ 49,498     $ 55,493,492     $ (57,289,357 )     (1,745,857 )
Net loss for the three months ended October 31, 2020     -       -       -       -       -       (185,462 )     (185,462 )
Balance, October 31, 2020     51,000,000     $ 510       4,949,822,059     $ 49,498     $ 55,493,492     $ (57,474,819 )   $ (1,931,319 )

 

    Class A Common stock     Common stock    

Additional

paid-in

    Accumulated    

Total

Stockholders’

 
    Shares     Amount     Shares     Amount     Capital     Deficit     Deficit  
                                           
Balance, January 31, 2019        -     $      -       4,097,457,393     $ 40,975     $ 54,708,186     $ (56,442,927 )   $ (1,693,766 )
Issuance of common stock and warrants in private placement     -       -       43,215,212       432       49,568       -       50,000  
Shares issued for conversion of notes     -       -       271,071,056       2,711       74,123       -       76,834  
Settlement of accounts payable through issuance of common stock     -       -       30,000,000       300       35,700       -       36,000  
Resolution of derivative liabilities due to debt conversions and untainted warrants     -       -       -       -       218,951       -       218,951  
Reclass of APIC to derivative liabilities for tainted warrants     -       -       -       -       (146,630 )     -       (146,630 )
Stock based compensation     -       -       -       -       80,421       -       80,421  
Net loss for the nine months ended October 31, 2019     -       -       -       -       -       (238,290 )     (238,290 )
Balance, October 31, 2019     -     $ -       4,441,743,661     $ 44,418     $ 55,020,319     $ (56,681,217 )   $ (1,616,480 )
                                                         
Balance, July 31, 2019     -     $ -       4,368,073,332     $ 43,681     $ 54,936,982     $ (56,509,550 )   $ (1,528,887 )
Shares issued for conversion of notes     -       -       73,670,329       737       54,383       -       55,120  
Resolution of derivative liabilities due to debt conversions and untainted warrants     -       -       -       -       155,833       -       155,833  
Reclass of APIC to derivative liabilities for tainted warrants     -       -       -       -       (146,630 )     -       (146,630 )
Stock based compensation     -       -       -       -       19,751       -       19,751  
Net loss for the three months ended October 31, 2019     -       -       -       -       -       (171,667 )     (171,667 )
Balance, October 31, 2019     -     $ -         4,441,743,661     $   44,418     $   55,020,319     $   (56,681,217 )   $ (1,616,480 )

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

  5  
     

 

LIBERTY STAR URANIUM & METALS CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

    For the Nine Months Ended  
    October 31  
    2020     2019  
             
Cash flows from operating activities:                
Net loss   $ (694,423 )   $ (238,290 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation     4,878       1,011  
Amortization of debt discounts     155,776       78,221  
(Gain) on settlement of accounts payable     -       (177,000 )
Loss (gain) on change in fair value of derivative liabilities     39,631       (36,335 )
Stock-based compensation     -       80,421  
Common shares issued for third party services     50,000       -  
Changes in assets and liabilities:                
Prepaid expenses     (7,091 )     2,099  
Accounts payable and accrued expenses     144,959       (51,941 )
Accounts payable to related parties     -       (1,213 )
Accrued wages related parties     -       36,137  
Changes in advances from related party     -       38,585  
Accrued interest     17,681       13,930  
Cash flows used in operating activities:     (288,589 )     (254,375 )
                 
Cash flows from financing activities:                
Proceeds from notes payable     62,974       10,000  
Cash advance from related party     52,000       -  
Proceeds from notes payable, related parties     120,000       28,500  
Proceeds from convertible promissory notes     82,000       207,000  
Proceeds from the issuance of common stock     20,599       50,000  
Net cash provided by financing activities     337,573       295,500  
                 
Increase in cash and cash equivalents     48,984       41,125  
Cash and cash equivalents, beginning of period     25,024       890  
Cash and cash equivalents, end of period   $ 74,008     $ 42,015  
                 
Supplemental disclosure of cash flow information:                
Income tax paid   $ -     $ -  
Interest paid   $ -     $ 5,961  
Supplemental disclosure of non-cash items:                
Settlement of accounts payable through issuance of common stock   $ -     $ 36,000  
Resolution of derivative liabilities due to debt conversions and untainted warrants   $ 369,103     $ 218,951  
Reclass of APIC to derivative liabilities for tainted warrants   $ 189,472     $ 146,630  
Debt discounts due to derivative liabilities   $ 140,000     $ 50,000  
Common stock issued for conversion of debt and interest   $ 169,860     $ 76,834  
Class A Common Stock issued for conversion of related party advances and notes payable   $ 49,062     $ -  
Expenses paid by related party on behalf of the Company   $ 148,698     $ 40,837  

 

The accompanying notes are an integral part of the unaudited consolidated financial statements

 

  6  
     

 

LIBERTY STAR URANIUM & METALS CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – Basis of Presentation

 

The consolidated financial statements included herein have been prepared by Liberty Star Uranium & Metals Corp. (the “Company”, “we”, “our”) without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”) and should be read in conjunction with our annual report on Form 10-K for the year ended January 31, 2020 as filed with the SEC under the Securities and Exchange Act of 1934 (the “Exchange Act”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted, as permitted by the SEC, although we believe the disclosures which are made are adequate to make the information presented not misleading. The consolidated financial statements reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly our financial position at October 31, 2020 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 nine months ended October 31, 2020 are not necessarily indicative of the results to be expected for the full year.

 

On August 13, 2020, the Company formed Red Rock Mines, LLC, an Arizona corporation, as a wholly-owned subsidiary of Hay Mountain Holdings, LLC.

 

NOTE 2 – Going concern

 

The Company has incurred losses from operations and requires additional funds for further exploratory activity and to maintain its claims prior to attaining a revenue generating status. There are no assurances that a commercially viable mineral deposit exists on any of our properties. In addition, the Company may not find sufficient ore reserves to be commercially mined. As such, there is substantial doubt about the Company’s ability to continue as a going concern.

 

Management is working to secure additional funds through the exercise of stock warrants already outstanding, equity financings, debt financings or joint venture agreements. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

 

NOTE 3 – Summary of Significant Accounting Policies

 

Fair Value

 

ASC 820 Fair Value Measurements and Disclosures (“ASC 820”), defines fair value, establishes a framework for measuring fair value and enhances disclosures about fair value measurements. It defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

 

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2: Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities that are not active; and model-driven valuations whose inputs are observable or whose significant value drivers are observable. Valuations may be obtained from, or corroborated by, third-party pricing services.

 

Level 3: Unobservable inputs to measure fair value of assets and liabilities for which there is little, if any market activity at the measurement date, using reasonable inputs and assumptions based upon the best information at the time, to the extent that inputs are available without undue cost and effort.

 

Our financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities, notes payable, convertible notes payable, and derivative liability. It is management’s opinion that we are not exposed to significant interest, currency or credit risks arising from these financial instruments. With the exception of the derivative liability, the fair value of these financial instruments approximates their carrying values based on their short maturities or for long-term debt based on borrowing rates currently available to us for loans with similar terms and maturities. Gains and losses recognized on changes in estimated fair value of the derivative liability are reported in other income (expense) as gain (loss) on change in fair value of derivative liability.

 

  7  
     

 

 

NOTE 4 – Related party transactions

 

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 nine months ended October 31, 2020.

 

At October 31 and January 31, 2020, we had accounts payable to JABA (controlled by James Briscoe) of $34,798, which is reflected as accounts payable to related parties on the accompanying consolidated balance sheets.

 

At October 31 and January 31, 2020, we had a balance of $13,325 due to the spouse of James Briscoe.

 

At October 31 and January 31, 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 October 31 and January 31, 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.

 

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 October 31 and January 31, 2020.

 

During the nine months ended October 31, 2020, our CEO, Brett Gross, made various payments on behalf of the Company totaling $148,698, and advanced the Company $52,000 in cash, all of which are reflected as advances from related party on the accompanying consolidated balance sheets. The total advances were $277,798 and $101,631 as of October 31 and January 31, 2020, respectively, bear no interest and have no specified repayment date. On June 30, 2020 the Company issued 25,500,000 shares of its “Class A Common Stock” to our CEO for repayment of $24,531 of advances ($0.000962 per share).

 

During the nine months ended October 31, 2020, 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 $264,989   due October 31, 2020   (extended to July 31, 2021). Additionally, 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 October 31 and January 31, 2020, the total balance of all related party notes was $277,110 and $166,560, respectively, which includes accrued interest of $29,909  and $14,828, respectively. On June 30, 2020 the Company issued 25,500,000 shares of its “Class A Common Stock” to one of the directors for repayment of $24,531 of their promissory note ($0.000962 per share).

 

NOTE 5 – Stock options

 

Qualified and Non-qualified incentive stock options outstanding at October 31, 2020 are as follows:

 

          Weighted
average
 
    Number of     exercise  
    options     price per share  
Outstanding, January 31, 2020     88,500,000     $ 0.012  
Granted     -       -  
Expired     (15,500,000 )     0.038  
Exercised     -       -  
Outstanding, October 31, 2020     73,000,000     $ 0.006  
                 
Exercisable, October 31, 2020     73,000,000     $ 0.006  

 

These options had a weighted average remaining life of 7.87 years and an aggregate intrinsic value of $0 as of October 31, 2020.

 

During the nine months ended October 31, 2020 and 2019, we recognized $0 and $80,421, respectively, of compensation expense related to stock options.

 

  8  
     

 

NOTE 6 – Warrants

 

As of October 31, 2020, there were 200,082,809 whole share purchase warrants outstanding and exercisable. The warrants have a weighted average remaining life of 1.5 years and a weighted average exercise price of $0.004 per whole warrant for one common share. The warrants had an aggregate intrinsic value of $2,850 as of October 31, 2020.

 

Stock warrants outstanding at October 31, 2020 are as follows:

 

    Number of     Weighted  
    whole share     average  
    purchase
warrants
    exercise
price per share
 
Outstanding, January 31, 2020     186,582,809     $ 0.005  
Issued     13,500,000       0.001  
Expired            
Exercised            
Outstanding, October 31, 2020     200,082,809     $ 0.004  
                 
Exercisable, October 31, 2020     200,082,809     $ 0.004  

 

During the nine months ended October 31, 2020, the Company issued 13,500,000 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 $0.0008 to $0.0011.

 

Effective May 27, 2020, the Company extended the due date of all warrants expiring during the 12 months ending December 31, 2020, totaling 22,532,348 warrants, for an additional three years, including 4,875,000 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 7 – Derivative Liabilities

 

The embedded conversion feature in the convertible debt instruments that the Company issued (See Note 8), that became convertible during the nine months ended October 31, 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. These convertible notes 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.

 

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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 nine months ended October 31, 2020 of $189,472 for newly granted and existing warrants (see Note 6) that were tainted and a derivative liability of $204,343 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 $64,343 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 nine months ended October 31, 2020, was $140,000. The remaining unamortized debt discount related to the derivative liability was $0 as of October 31, 2020.

 

During the nine months ended October 31, 2020, the Company recorded a reclassification from derivative liability to equity of $189,518 for warrants becoming untainted and $179,585 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 loss of $39,631 to reflect the value of the derivative liability for warrants and convertible notes as of October 31, 2020. During the nine months ended October 31, 2019, the Company recorded a reclassification from derivative liability to equity of $136,513 for warrants becoming untainted and $82,438 due to the conversions of a portion of the Company’s convertible notes. The Company recorded the change in the fair value of the derivative liability as a gain of $36,335 to reflect the value of the derivative liability for warrants and convertible notes as of October 31, 2019.   The Company did not have a derivative liability as of October 31, 2020 and 2019 since outstanding convertible notes were not convertible at period end or were fully converted during the period 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:

 

    Nine months ended October 31,  
    2020     2019  
Beginning balance   $ -     $ 58,656  
Total (gain) loss     39,631       (36,335 )
Settlements     (369,103 )     (218,951 )
Additions recognized as debt discount     140,000       50,000  
Additions due to tainted warrants     189,472       146,630  
Ending balance   $ -     $ -  
                 
Change in unrealized (gain) loss included in earnings relating to derivatives as of October 31, 2020 and 2019   $ 39,631     $ (36,335 )

 

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NOTE 8 – Convertible promissory notes and notes payable

 

Following is a summary of convertible promissory notes:

 

    October 31, 2020     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     93,725       -  
                 
      93,725       167,868  
Less debt discount     (11,088 )     (15,364 )
Less current portion of convertible notes     (82,637 )     (152,504 )
Long-term convertible notes payable   $ -     $ -  

 

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 nine months ended October 31, 2020, the noteholder converted a total of $79,800 of the note in for 136,375,071 shares of the Company’s common stock, leaving a balance of $0 as of October 31, 2020.

 

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 nine months ended October 31, 2020, the noteholder converted a total of $49,020 of the note in for 107,798,581 shares of the Company’s common stock, leaving a balance of $0 as of October 31, 2020.

 

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 nine months ended October 31, 2020, the noteholder converted a total of $41,040 of the note in for 48,857,143 shares of the Company’s common stock, leaving a balance of $0 as of October 31, 2020.

 

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.

 

During the nine months ended October 31, 2020 and 2019, the Company recorded debt discounts of $140,000 and $50,000 respectively, due to the derivative liabilities, and original issue debt discounts of $11,500 and $23,300, respectively, due to the convertible notes. The Company recorded amortization of these discounts of $155,776 and $78,221 for the nine months ended October 31, 2020 and 2019, respectively.

 

Notes Payable

 

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 nine months ended October 31, 2020. In November 2020, the Company was approved for forgiveness in full for the entire amount including principal and interest under the PPP loan but the $3,000 was counted in the amount forgiven. Consequently, approximately $3,000 remains payable to our bank related to the PPP loan.

 

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 these two notes total $63,357, including interest of $570, and is included in long-term debt as of October 31, 2020.

 

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NOTE 9 – Stockholders’ deficit

 

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, 100,000,000 shares authorized. The terms of the Class A Shares include 200-1 voting rights in addition to the rights held by common stock holders. 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 51,000,000 shares of its Class A Shares to two directors of the Company. The aggregate consideration paid for the Class A Shares was $49,062 ($0.000962 per share). The consideration was paid by offsetting the purchase price against Company advances and notes held by the two directors (see Note 4).

 

Common Stock

 

Our undesignated 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.

 

During the nine months ended October 31, 2020, the Company issued a total of 293,030,795 shares of our common stock for conversions of $169,860 of convertible notes payable and accrued interest at an exercise prices ranging from of $0.00045 to $0.00084.

 

During the nine months ended October 31, 2020, the Company issued a total of 27,000,000 shares of its common stock and 13,500,000 warrants to two investors for proceeds of $20,599, or $0.0006 to $0.0008 per share. The warrants have a three-year term and are exercisable at any time at an exercise price of $0.0008 to $0.0011 per share.

 

During the nine months ended October 31, 2020, the Company issued 71,428,571 shares of its common stock to a consultant for services at an aggregate price of $50,000, or $0.0007 per share.

 

NOTE 10 – Commitments and contingencies

 

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 October 31 or January 31, 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 is aggressively defending them, and believes no unfavorable outcome or material effect on our consolidated financial statements will result.

 

NOTE 11 – Subsequent events

 

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 nine months ended October 31, 2020. In November 2020, the Company was approved for forgiveness in full for the entire amount including principal and interest under the PPP loan but the $3,000 was counted in the amount forgiven. Consequently, approximately $3,000 remains payable to our bank related to the PPP loan.

 

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Item 2. Management’s 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of our company. Management’s Discussion and Analysis of Financial Condition and Results of Operations is provided as a supplement to, and should be read in conjunction with, our consolidated financial statements and the accompanying notes to the 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”) was 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. Big Chunk was dissolved on June 3, 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 our mineral properties. Redwall ceased drilling activities in July 2008 and was dissolved on March 30, 2010. In April 2007, we changed our name to Liberty Star Uranium & Metals Corp (“Liberty Star”) to reflect our current general exploration for base and precious metals. We are in the exploration phase of operations and have not generated any revenues from operations.

 

In October 2014, we formed our wholly owned subsidiary, Hay Mountain Holdings LLC (“HMH”)(formerly known as Hay Mountain Super Project LLC), to serve as the primary holding company for development of the potential ore bodies encompassed in the Hay Mountain area of interest in Arizona. On April 11, 2019 we formed a new subsidiary named Earp Ridge Mines LLC, wholly owned by Hay Mountain Holdings LLC, intended for engagement with future venture partners.

 

On August 13, 2020, the Company formed Red Rock Mines, LLC, an Arizona corporation, as a wholly-owned subsidiary of Hay Mountain Holdings, LLC.

 

Our Current Business

 

We are engaged in the acquisition and exploration of mineral properties in the state of Arizona and the Southwest USA. 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.

 

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Tombstone Super Project (“Tombstone”): Tombstone is located in Cochise County, Arizona and covers the Tombstone caldera and its environs. Within the Tombstone caldera is the Hay Mountain target where we are concentrating our work at this time. We plan to ascertain whether the Tombstone, Hay Mountain claims possess commercially viable deposits of copper, molybdenum, gold, silver, lead, zinc, manganese and other metals including Rare Earth Elements (REE’s). We have not identified any ore reserves to date.

 

On June 16, 2020, the company acquired 2 Mineral Exploration Permits (MEP) covering 240 acres at Robbers Roost. Which is located 5.89 miles west of the Hay Mountain Project. While the Robbers Roost MEP area is new to the Company, it has been explored previously by several exploration companies, in the 1970’s and 1990’s, and recently has received significant interest by others operating in the area. Drilling by ASARCO indicates “the presence of a granodioritic porphyry intrusive at depth below the alteration zone. The intrusive is characterized by porphyry copper style alteration and mineralization.” (JB Nelson, “Robbers’ Roost Summary Report,” 1995, p. 2 http://docs.azgs.az.gov/SpecColl/2008-01/2008-01-0103.pdf)

 

From July 14th to August 5th 2020, field mapping was conducted in the Hay Mountain Project area, located 7 km southeast of Tombstone, in Cochise County, Arizona. The purpose of mapping was to identify alteration and veining associated with an inferred porphyry copper system at depth, determine the extent of hydrothermal alteration, and comment on the possible the timing of mineralization. Mapping was conducted at 1:10,000 scale and a total of 183 carbonate vein samples were taken for pXRF analysis and UV fluorescence response.

 

On November 11, 2020, the company announced the identification of potentially exploitable gold mineralization on its recently acquired Arizona State Land Department Mineral Exploration Permits. Preliminary surface exploration on the Red Rock MEPs advances the Company’s knowledge of the porphyry system signature associated with magnetic highs at, and adjacent to the north of, Target 1, and represent the expansion of biogeochemical, surface rock sampling, and x-ray fluorescence (XRF) work continuing at Target 1 and on the anticipated gold halo likely associated with the indicated porphyry center. The Company discovered multiple outcrops of intensely silicified rock in the initial observational field work. These outcrops generally occur in linear features several feet in thickness with multiple features oriented en echelon with interstitial host country rock of varying horizontal dimension. These outcrops contain densely distributed jasperoids, which, when sampled yield what the Company believes are potentially economically exploitable concentrations of gold. There was a total of 23 representative (1 to 2 kg) rock sample assays. These assays demonstrate gold concentrations ranging from below detection limits of 0.05 ppm in country rock surrounding certain outcrops to a high of 13.55 ppm in direct outcrop samples. Of the 23 assayed samples, nine (9) show gold concentrations of 0.95 ppm or more.

 

On November 25, 2020, the company received approval from the Arizona State Land Department for 5 additional MEP’s covering 2,369.15 acres for a total of 16,662.10 acres or 26.03 sq miles at our Hay Mountain Project.Title to mineral claims involves certain inherent risks due to difficulties in determining the validity of certain claims, as well as potential for problems arising from the frequently ambiguous conveyancing history characteristic of many mineral properties. We have investigated title to all the Company’s mineral properties and, to the best of its knowledge, title to all properties retained are in good standing.

 

The mineral resource business generally consists of three stages: exploration, development and production. Mineral resource companies that are in the exploration stage have not yet found mineral resources in commercially exploitable quantities and are engaged in exploring land in an effort to discover them. Mineral resource companies that have located a mineral resource in commercially exploitable quantities and are preparing to extract that resource are in the development stage, while those engaged in the extraction of a known mineral resource are in the production stage. We have not found any mineral resources in commercially exploitable quantities.

 

There is no assurance that a commercially viable mineral deposit exists on any of our properties, and further exploration is required before we can evaluate whether any exist and, if so, whether it would be economically feasible to develop or exploit those resources. Even if we complete our current exploration program and we are successful in identifying a mineral deposit, we would be required to spend substantial funds on further drilling and engineering studies before we could know whether that mineral deposit will constitute a commercially viable mineral deposit, known as an “ore reserve.”

 

To date, we have not generated any revenues. Our ability to pursue our business plan and generate revenues is subject to our ability to obtain additional financing, and we cannot give any assurance that we will be able to do so.

 

The extent to which the coronavirus disease (“COVID-19”) impacts our businesses will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions posed by COVID-19 or other matters of global concern continue for an extensive period of time, our operations may be materially adversely affected. Currently, the Company has not experienced a significant impact on its businesses related to COVID-19. However, COVID-19 did, and continues to, impact us significantly with delays in acquiring a JV to begin our primary drilling project.

 

Results of Operations

 

Material Changes in Financial Condition for the Nine-Month Period Ended October 31, 2020

 

We had cash and cash equivalents in the amount of $74,008 as of October 31, 2020 compared to $25,024 as of January 31, 2020. We had negative working capital of $1,878,176 as of October 31, 2020 compared to $1,708,540 as of January 31, 2020. We used $288,589 of net cash in operating activities during the nine months ended October 31, 2020 which was utilized for working capital. We also utilized our cash funds to continue exploration activities at our Hay Mountain mineral lands by working on geochemical interpretation of the soil, rock chip and vegetation sampling and ZTEM (aeromagnetics and aero electromagnetics). We purchased no new equipment during the nine months ended October 31, 2020. We have been raising capital primarily by issuing convertible promissory notes, related party notes and the sale of common stock. 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.

 

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Material Changes in Results of Operations for the Three- and Nine-Month Periods Ended October 31, 2020 and 2019

 

We had a net loss of $185,462 and $694,423 for the three and nine months ended October 31, 2020, respectively, compared to net loss of $171,667 and $238,290 for the three months and nine months ended October 31, 2019 respectively.

 

During the three and nine months ended October 31, 2020, we had an increase of $7,981 and $60,552, respectively, in geological and geophysical expense compared to the three and nine months ended October 31, 2019, due primarily to an increase in land rental fees for mineral claims, and stock issued for services of $50,000 in July 2020. During the three and nine months ended October 31, 2020, we had a decrease of $19,755 and $66,018, respectively, in salaries and benefit expense compared to the three and nine months ended October 31, 2019, due primarily to stock-based compensation of $60,670 incurred in July 2019   and $19,751 incurred in October 2019. During the three and nine months ended October 31, 2020, we had an increase of $26,392 and $120,389, respectively, in legal expense compared to the three and nine months ended October 31, 2019, due primarily to an increase in the use of outside legal services for operations, organizational and litigation matters. During the three and nine months ended October 31, 2020, we had an increase in professional services expense of $4,776 and a decrease of $1,014, compared to the three and nine months ended October 31, 2019, due primarily to the timing in the use of outside public relations services. We had a decrease in general and administrative expenses of $1,129 and an increase of $4,410 during the three and nine months ended October 31, 2020, respectively, as compared to the three and nine months ended October 31, 2019, respectively, which was materially consistent between periods. We had a decrease in interest expense of $51,567 and an increase of $75,532 during the three and nine months ended October 31, 2020, respectively as compared to the three and nine months ended October 31, 2019, respectively, due primarily to an increase in related party notes payable, variances in the timing of convertible debt conversions and the related interest expense from the write-off of derivative liability debt discount. We had a gain on settlement of accounts payable of $177,000 during the  nine months ended October 31, 2019 related to the settlement of accounts payable with the issuance of common stock.

 

Liquidity and Capital Resources

 

We had cash and cash equivalents in the amount of $74,008 as of October 31, 2020. We had negative working capital of $1,878,176 as of October 31, 2020. We used cash in operating activities of $288,589 for the nine months ended October 31, 2020. We will need additional funds in order to proceed with our planned exploration program.

 

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 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.

 

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.

 

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.

 

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.

 

Proceeds from issuance of common stock

 

During the nine months ended October 31, 2020, the Company issued 27,000,000 shares of its common stock and 13,500,000 warrants to investors for proceeds of $20,599, or $0.0006 to $0.0008 per share. The warrants have a three-year term and are exercisable at any time at an exercise prices of $0.0008 to $0.0011.

 

Proceeds from long-term notes payable

 

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. In November 2020, the Company was approved for forgiveness in full for the entire amount including principal and interest under the PPP loan.

 

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.

 

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Critical Accounting Policies

 

The unaudited 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, 2020. 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 and we have included a reference to the substantial doubt about our ability to continue as a going concern in connection with our unaudited consolidated financial statements as of October 31, 2020. Our total stockholders’ deficit at October 31, 2020 was approximately $1.9 million.

 

These unaudited consolidated financial statements have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that our assets will be realized, and liabilities settled in the ordinary course of business. Accordingly, these consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.

 

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 consolidated financial statements. We report convertible promissory notes as liabilities at their carrying value less unamortized discounts in accordance with the applicable accounting guidance. We record conversion options and detachable common stock purchase warrants and report them as derivative liabilities at fair value at each reporting period when required in accordance with the applicable accounting guidance. No gain or loss is reported when the notes are converted into shares of our common stock in accordance with the note’s terms.

 

Common stock purchase warrants

 

We report common stock purchase warrants as equity unless a condition exists which requires reporting as a derivative liability at fair market value. For common stock purchase warrants reported as a derivative liability, as well as new and modified warrants reported as equity, we utilize a Monte Carlo options model in order to determine fair value.

 

  16  
     

 

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, 2020, which is the end of the fiscal quarter covered by this report. This evaluation was carried out by Mr. Brett Gross, our principal executive officer and Ms. Patricia Madaris, our principal financial officer. Based on this evaluation, Mr. Brett Gross and Ms. Patricia Madaris have concluded that our disclosure controls and procedures were not effective as at the end of the period covered by this report. Given the size of our current operation and existing personnel, the opportunity to implement internal control procedures that segregate accounting duties and responsibilities is limited. Until the organization can increase in size to warrant an increase in personnel, formal internal control procedures will not be implemented until they can be effectively executed and monitored. 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 SEC’s 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.

 

Management believes that despite our material weaknesses set forth above, our financial statements for the quarter ended October 31, 2020 are fairly stated, in all material respects, in accordance with U.S. GAAP.

 

Changes in Internal Control over Financial Reporting

 

During the quarter ended October 31, 2020 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.

 

  17  
     

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

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 October 31 or January 31, 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 is aggressively defending them, and believes no unfavorable outcome or material effect on our consolidated financial statements will result.

 

Item 1A. Risk Factors

 

Not applicable

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

During the nine months ended October 31, 2020, the Company issued a total of 293,030,795 shares of our common stock for conversions of $169,860 of convertible notes payable and accrued interest at an exercise prices ranging from of $0.00045 to $0.00084.

 

During the nine months ended October 31, 2020, the Company issued a total of 27,000,000 shares of its common stock and 13,500,000 warrants to two investors for proceeds of $20,599, or $0.0006 to $0.0008 per share. The warrants have a three-year term and are exercisable at any time at an exercise price of $0.0008 to $0.0011 per share.

 

On June 30, 2020, the Company entered into an agreement to issue a total of 51,000,000 shares of its “Class A Common Stock” to two directors of the Company. The aggregate consideration paid for the Class A Common Stock was $49,062 ($0.000962 per share). The consideration was paid by offsetting the purchase price against Company advances and notes held by the two directors.

 

In issuing the securities set forth above, 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 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.

 

Changes in Control of Registrant

 

On June 30, 2020, the Company had a change of control as a result of issuance of 51,000,000 shares of Class A Common Stock, as described in Item 2 above. The Class A Common Stock was issued to two directors, Brett Gross (25,500,000 shares) and Pete O’Heeron (25,500,000 shares). Prior to issuance of the Class A Common Stock, the Company had 4,829,536,345 shares of its common stock issued and outstanding and each such share of common stock has one vote on all matters submitted to the shareholders for a vote. Each of the issued and outstanding shares of Class A Common Stock has 200 votes per share, and the holders of such shares vote with the holders of outstanding common stock for election of directors and on all matters submitted to the shareholders for a vote. Accordingly, the 51,000,000 shares of Class A Common Stock have a total of 10,200,000,000 votes on all matters submitted to the shareholders for a vote, which represents 67.9% of the total number of votes eligible to be cast and may be deemed to represent control of the Company.

 

  18  
     

 

Item 6. Exhibits

 

Exhibit
Number
  Description of Exhibit
     
3.1   Articles of Incorporation (incorporated by reference to Exhibit 3.1 to our registration statement on Form SB-2, filed with the SEC on May 14, 2002).
3.2   Bylaws (incorporated by reference to Exhibit 3.2 to our quarterly report on Form 10-QSB, filed with the SEC on December 14, 2007).
3.3   Certificate of Change to Authorized Capital (incorporated by reference to Exhibit 3.1 to our current report on Form 8-K, filed with the SEC on September 2, 2009).
3.4   Articles of Merger (incorporated by reference to Exhibit 3.4 to our annual report on Form 10-KSB, filed with the SEC on March 31, 2004).
3.5   Amendments to Articles of Incorporation and Bylaws (incorporated by reference to Exhibit 3.8 and 3.9 to our current report on Form 8-K/A, filed with the SEC on August 10, 2020).
10.1   Convertible Promissory Note issued to Power Up Lending Group Ltd. dated October 20, 2020 (incorporated by reference to Exhibit 3.11 to our current report on Form 8-K, filed with the SEC on October 27, 2020).
14.1   Code of Ethics (Filed as an exhibit to our Annual Report on Form 10-KSB, filed with the SEC on March 31, 2004).
31.1*   Section 302 Certification under Sarbanes-Oxley Act of 2002 of Chief Executive Officer
31.2*   Section 302 Certification under Sarbanes-Oxley Act of 2002 of Chief Financial Officer
32.1*   Section 906 Certification under Sarbanes-Oxley Act of 2002 of Chief Executive Officer and Chief Financial Officer
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

 

* Filed herewith.

 

  19  
     

 

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/ Brett Gross  
  Brett Gross,  
  Chief Executive Officer  
  (Principal Executive Officer)  

 

By: /s/ Patricia Madaris  
  Patricia Madaris,  
  Chief Financial Officer  
  (Principal Financial Officer and Principal Accounting Officer)  

 

Date: December 14, 2020

 

  20  
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