NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – Organization
Liberty
Star Uranium & Metals Corp. (the “Company”, “we”, “our”, or “Liberty Star”)
was formerly Liberty Star Gold Corp. and formerly Titanium Intelligence, Inc. (“Titanium”). Titanium was incorporated
on August 20, 2001 under the laws of the State of Nevada. On February 5, 2004, we commenced operations in the acquisition and
exploration of mineral properties business. Big Chunk Corp. (“Big Chunk”) was our wholly owned subsidiary and
was incorporated on December 14, 2003 in the State of Alaska. Until 2016 Big Chunk was engaged in the acquisition and exploration
of mineral properties business in the State of Alaska. until its dissolution on July 26, 2019. Redwall Drilling Inc. (“Redwall”)
was our wholly owned subsidiary and was incorporated on August 31, 2007 in the State of Arizona. Redwall performed drilling services
on the Company’s mineral properties. Redwall ceased drilling activities in July 2008 and was dissolved on March 30, 2010.
We formed the wholly owned subsidiary, Hay Mountain Super Project LLC (“HMSP”) incorporated on October 24, 2014, to
serve as the primary holding company for development of the potential ore bodies encompassed in the Hay Mountain area of interest
in Arizona. We renamed HMSP to Hay Mountain Holdings LLC (“HMH”) on March 5, 2019. In April 2007, we changed our name
to Liberty Star Uranium & Metals Corp. On February 22, 2019, the Company registered the tradename ‘Liberty Star Minerals’
with the state of Arizona to be recognized as ‘doing business as’, or ‘d/b/a’ Liberty Star Minerals. We
have not generated any revenues from operations. On April 11, 2019 we formed a new subsidiary named Earp Ridge Mines LLC (“Earp
Ridge”) wholly owned by HMH.
NOTE
2 – Summary of significant accounting policies
The
summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated
financial statements. Such consolidated financial statements and accompanying notes are the representations of the Company’s
management, who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles
generally accepted in the United States of America in all material respects and have been consistently applied in preparing the
accompanying consolidated financial statements. The significant accounting policies adopted by the Company are as follows:
Use
of estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The
valuation of stock-based compensation, classification and valuation of common stock purchase warrants, classification and value
of embedded conversion options, value of beneficial conversion features, valuation allowance on deferred tax assets, the determination
of useful lives and recoverability of depreciable assets, accruals, and contingencies are significant estimates made by management.
It is at least reasonably possible that a change in these estimates may occur in the near term.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary HMH and the HMH wholly-owned
subsidiary Earp Ridge. All significant intercompany accounts and transactions have been eliminated upon consolidation.
Cash
and cash equivalents
We
consider cash held at banks and all highly liquid investments with original maturities of three months or less to be cash and
cash equivalents. We maintain our cash in bank deposit accounts which, for periods of time, may exceed federally insured limits.
At January 31, 2020 and 2019, we had no cash balances in bank deposit accounts that exceeded federally insured limits.
Mineral
claim costs
We
account for costs incurred to acquire, maintain and explore mineral properties as a charge to expense in the period incurred until
the time that a proven mineral resource is established, at which point development of the mineral property would be capitalized.
Currently, we do not have any proven mineral resources on any of our mineral properties.
Long-lived
assets and impairment of long-lived assets
Property
and equipment is stated at cost. We capitalize all purchased equipment over $500 with a useful life of more than one year. Depreciation
is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are stated
at cost and are amortized over their estimated useful lives or the lease term, whichever is shorter. Maintenance and repairs are
expensed as incurred while betterments or renewals are capitalized. Property and equipment is reviewed periodically for impairment.
The estimated useful lives range from 3 to 7 years.
We
review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not
be recoverable. Recoverability of a long-lived asset group to be held and used in operations is measured by a comparison of the
carrying amount to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset
group. If such asset group is considered to be impaired, the impairment loss is measured as the amount by which the carrying amount
of the asset group exceeds its fair value. Long-lived assets to be disposed of are carried at the lower of cost or fair value
less the costs of disposal.
Convertible
promissory notes
We
report convertible promissory notes as liabilities at their carrying value less unamortized discounts, which approximates fair
value. We bifurcate conversion options and detachable common stock purchase warrants and report them as liabilities at fair value
at each reporting period when required in accordance with the applicable accounting guidance. When convertible promissory notes
are converted into shares of our common stock in accordance with the debt’s terms, no gain or loss is recognized. We account
for inducements to convert as an expense in the period incurred, included in debt conversion expense.
Derivative
liabilities
The
valuation of the derivative liability of our warrants is determined through the use of a Monte Carlo options model that values
the liability of the warrants based on a risk-neutral valuation where the price of the option is its discounted expected value.
The technique applied generates a large number of possible (but random) price paths for the underlying common stock via simulation,
and then calculates the associated exercise value (i.e. “payoff”) of the option for each path. These payoffs are then
averaged and discounted to a current valuation date resulting in the fair value of the option.
The
valuation of the derivative liability attached to the convertible debt is arrived at through the use of a Monte Carlo model that
values the derivative liability within the notes. The technique applied generates a large number of possible (but random) price
paths for the underlying (or underlyings) via simulation, and then calculates the associated payment value (cash, stock, or warrants)
of the derivative features. The price of the underlying common stock is modeled such that it follows a geometric Brownian motion
with constant drift, and elastic volatility (increasing as stock price decreases). The stock price is determined by a random sampling
from a normal distribution. Since the underlying random process is the same, for enough price paths, the value of the derivative
is derived from path dependent scenarios and outcomes. The features in the notes are analyzed and incorporated into the model
included the conversion features with the reset provisions, the call/redemption/prepayment options, and the default provisions.
Based on these features, there are six primary events that can occur; payments are made in cash; payments are made with stock;
the note holder converts upon receiving a redemption notice; the note holder converts the note; the issuer redeems the note; or
the Company defaults on the note. The model simulates the underlying economic factors that influenced which of these events would
occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. stock price, conversion
price, etc.). Probabilities are assigned to each variable such as redemption likelihood, default likelihood, and timing and pricing
of reset events over the remaining term of the notes based on management projections. This leads to a cash flow simulation over
the life of the note. A discounted cash flow for each simulation is completed and is compared to the discounted cash flow of the
note without the embedded features, thus determining a value for the derivative liability.
Common
stock purchase warrants
We
report common stock purchase warrants as equity unless a condition exists which requires reporting as a derivative liability at
fair market value.
Stock
based compensation
The
Company recognizes stock-based compensation for all share-based payment awards made to employees based on the estimated fair values,
using the Black-Scholes option pricing model.
Non-employee
stock-based compensation is accounted for based on the fair value of the related stock or options. The
fair value of options to be granted are estimated on the date of each grant using the Black-Scholes option pricing model and
amortized ratably over the option’s vesting periods, which approximates the service period.
Environmental
expenditures
Our
operations have been and may in the future be affected from time to time in varying degree by changes in environmental regulations,
including those for future removal and site restoration costs. The likelihood of new regulations and their overall effect upon
us are not predictable. We provide for any reclamation costs in accordance with the accounting standards codification section
410-30. It is management’s opinion that we are not currently exposed to significant environmental and reclamation liabilities
and have recorded no reserve for environmental and reclamation expenditures as of January 31, 2020 or 2019.
Fair
Value of Financial Assets and Liabilities
The
Company measures and discloses certain financial assets and liabilities at fair value. Authoritative guidance defines fair value
as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
Authoritative guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs
and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may
be used to measure fair value:
Level
1 - Quoted prices in active markets for identical assets or liabilities.
Level
2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the assets or liabilities.
Level
3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
Income
taxes
Income
taxes are recorded using the asset and liability method. Under the asset and liability method, tax assets and liabilities are
recognized for the tax consequences attributable to differences between financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Future tax assets and liabilities are measured using the enacted tax rates expected
to apply when the asset is realized or the liability settled. The effect on future tax assets and liabilities of a change in tax
rates is recognized in income in the period that enactment occurs. To the extent that the Company does not consider it more likely
than not that a future tax asset will be recovered, it provides a valuation allowance against the excess. Interest and penalties
associated with unrecognized tax benefits, if any, are classified as additional income taxes in the statement of operations. With
few exceptions, we are no longer subject to U.S. federal, state and local examinations by tax authorities for the tax year ended
January 31, 2016 and prior.
Net
income (loss) per share
Basic
net income (loss) per share is computed by dividing net loss attributable to common shareholders by the weighted average number
of shares of common stock outstanding during the period. Diluted net income (loss) per share takes into consideration shares of
common stock outstanding (computed under basic income or loss per share) and potentially dilutive shares of common stock that
are not anti-dilutive. For the years ended January 31, 2020 and 2019, the following number of potentially dilutive shares have
been excluded from diluted net income (loss) since such inclusion would be anti-dilutive:
|
|
Year
Ended January 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Stock
options outstanding
|
|
|
88,500,000
|
|
|
|
90,379,950
|
|
Warrants
|
|
|
181,707,809
|
|
|
|
154,414,489
|
|
Shares
to be issued upon conversion of notes payable
|
|
|
301,904,879
|
|
|
|
132,441,607
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
572,112,688
|
|
|
|
377,236,046
|
|
Newly
Issued Accounting Pronouncements
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes the existing guidance for lease accounting, Leases
(Topic 840). ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged.
The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal
years. Early application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases
existing at, or entered into after, the date of initial application, with an option to elect to use certain transition relief.
The Company adopted this standard on February 1, 2019 and determined that the adoption had no significant impact on the Company’s
consolidated financial position or results of operations.
NOTE
3 – Going concern
These
consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”) with the on-going assumption that we will be able to realize our assets and discharge our
liabilities in the normal course of business. However, certain conditions noted below currently exist which raise substantial
doubt about our ability to continue as a going concern. These consolidated financial statements do not include any adjustments
to the amounts and classifications of assets and liabilities that might be necessary should we be unable to continue as a going
concern. Our operations have primarily been funded by the issuance of common stock and debt. Continued operations are dependent
on our ability to complete equity financings or generate profitable operations in the future. Management’s plan in this
regard is to secure additional funds through future equity financings, joint venture agreements or debt. Such financings may not
be available or may not be available on reasonable terms.
The
Company has incurred losses from operations, has a working capital deficit and requires additional funds for further exploratory
activity and to maintain its claims prior to attaining a revenue generating status. There are no assurances that a commercially
viable mineral deposit exists on any of our properties. In addition, the Company may not find sufficient ore reserves to be commercially
mined. As such, there is substantial doubt about the Company’s ability to continue as a going concern.
Management
is working to secure additional funds through the exercise of stock warrants already outstanding, equity financings, debt financings
or joint venture agreements. The consolidated financial statements do not include any adjustments that might result from the outcome
of these uncertainties.
NOTE
4 – Mineral claims
At
January 31, 2020, we held a 100% interest in 66 standard federal lode mining claims located in the Tombstone region of Arizona.
At
January 31, 2020, we held 28 Arizona State Land Department Mineral Exploration Permits covering 12,557.77 acres in the Tombstone
region of Arizona.
Title
to mineral claims involves certain inherent risks due to difficulties of determining the validity of certain claims as well as
potential for problems arising from the frequently ambiguous conveyance history characteristic of many mineral properties.
All
of the Company’s claims for mineral properties are in good standing as of January 31, 2020.
NOTE
5 – Property and equipment
The
balances of our major classes of depreciable assets and useful lives are:
|
|
January
31, 2020
|
|
|
January
31, 2019
|
|
Geology
Equipment (3 to 7 years)
|
|
$
|
315,052
|
|
|
$
|
274,215
|
|
Vehicles
and transportation equipment (5 years)
|
|
|
48,592
|
|
|
|
48,592
|
|
Office
furniture and equipment (3 to 7 years)
|
|
|
71,584
|
|
|
|
71,584
|
|
|
|
|
435,228
|
|
|
|
394,391
|
|
Less:
accumulated depreciation
|
|
|
(395,336
|
)
|
|
|
(392,652
|
)
|
|
|
$
|
39,892
|
|
|
$
|
1,739
|
|
Depreciation
expense was $2,684 and $2,360 for the years ended January 31, 2020 and 2019, respectively.
NOTE
6 – Long-term debt and convertible promissory notes
Following
is a summary of convertible promissory notes:
|
|
January
31, 2020
|
|
|
January
31, 2019
|
|
|
|
|
|
|
|
|
12%
convertible note payable issued July 2018, due July 2019
|
|
$
|
-
|
|
|
$
|
21,641
|
|
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
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
167,868
|
|
|
|
21,641
|
|
Less
debt discount
|
|
|
(15,364
|
)
|
|
|
(20,584
|
)
|
Less
current portion of convertible notes
|
|
|
(152,504
|
)
|
|
|
(1,057
|
)
|
Long-term
convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
On
July 23, 2018, we received net proceeds of $48,000 under a convertible note dated July 19, 2018 (the “July 2018 Note”).
The total principal under the note is $50,000, bears interest at 12% per annum, includes OID of $2,000, is due on July 19, 2019,
and is convertible in shares of the Company’s common stock after 180 days at a conversion price with a 45% discount to the
lowest weighted average market price during the previous 20 trading days to the date of conversion. During the year ended January
31, 2020, the noteholder converted an aggregate of $21,714 of the remaining balance of this note for 197,400,727shares of the
Company’s common stock, leaving a balance of $0 as of January 31, 2020.
On
April 12, 2019, we received net proceeds of $50,000 from the issuance of a convertible note dated April 10, 2019 (the
“April 2019 Note”). The note bears interest at 8%, includes OID of $3,000, matures on February 28, 2020, and is
convertible after 180 days into shares of the Company’s common stock at a price of 65% of the average of the lowest 5
weighted average market price of the Company’s common stock during the 10 trading days prior to conversion. During the
year ended January 31, 2020, the noteholder converted the note in full (an aggregate of $55,120) for 73,670,329 shares of the
Company’s common stock, leaving a balance of $0 as of January 31, 2020.
On
May 21, 2019, we received net proceeds of $50,000 from the issuance of a convertible note dated May 17, 2019 (the “May
2019 Note”). The note bears interest at 8%, includes OID of $3,000, matures on March 17, 2020, and is convertible after
180 days into shares of the Company’s common stock at a price of 65% of the average of the lowest 5 weighted average
market price of the Company’s common stock during the 10 trading days prior to conversion. During the year ended
January 31, 2020, the noteholder converted a total of $55,120 of the note in for 119,740,027 shares of the Company’s
common stock, leaving a balance of $0 as of January 31, 2020.
On
August 15, 2019, we received net proceeds of $67,000 from the issuance of a convertible note dated August 13, 2019 (the “August
2019 Note”). The note bears interest at 8%, includes OID of $10,000, matures on May 30, 2020, and is convertible after 180
days into shares of the Company’s common stock at a price of 75% of the average of the lowest 5 weighted average market
price of the Company’s common stock during the 10 trading days prior to conversion.
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.
During
the years ended January 31, 2020 and 2019, the Company recorded debt discounts of $100,000 and $461,589, respectively, due to
the derivative liabilities, and original issue debt discounts of $29,900 and $14,000, respectively, due to the convertible notes.
The Company recorded amortization of these discounts of $134,821 and $467,133 for the years ended January 31, 2020 and 2019, respectively.
Note
payable:
In March 2019, the Company received proceeds
of $10,000 from a third-party under a promissory note due in March 2020, with interest at 10%. On
November 19, 2019, the Company sold 21,121,429 shares of the Company’s common stock to this noteholder for $20,699, or $0.00098
per unit, in a private placement. The consideration received included $10,000 in cash plus the settlement
of this note payable of $10,000 and accrued interest of $699, leaving a balance of $0 as of January 31, 2020.
NOTE
7 – Derivative Liabilities
The
embedded conversion feature in the convertible debt instruments that the Company issued (See Note 6), that became convertible
during the years ended January 31, 2020 and 2019, qualified it as a derivative instrument since the number of shares issuable
under the note is indeterminate based on guidance in FASB ASC 815, Derivatives and Hedging. This convertible note tainted all
other equity linked instruments including outstanding warrants and fixed rate convertible debt on the date that the instrument
became convertible.
The
valuation of the derivative liability of the warrants was determined through the use of a Monte Carlo options model that values
the liability of the warrants based on a risk-neutral valuation where the price of the option is its discounted expected value.
The technique applied generates a large number of possible (but random) price paths for the underlying common stock via simulation,
and then calculates the associated exercise value (i.e. “payoff”) of the option for each path. These payoffs are then
averaged and discounted to a current valuation date resulting in the fair value of the option.
The
valuation of the derivative liability attached to the convertible debt was arrived at through the use of a Monte Carlo model that
values the derivative liability within the notes. The technique applied generates a large number of possible (but random) price
paths for the underlying (or underlyings) via simulation, and then calculates the associated payment value (cash, stock, or warrants)
of the derivative features. The price of the underlying common stock is modeled such that it follows a geometric Brownian motion
with constant drift, and elastic volatility (increasing as stock price decreases). The stock price is determined by a random sampling
from a normal distribution. Since the underlying random process is the same, for enough price paths, the value of the derivative
is derived from path dependent scenarios and outcomes. The features in the notes that were analyzed and incorporated into the
model included the conversion features with the reset provisions, the call/redemption/prepayment options, and the default provisions.
Based on these features, there are six primary events that can occur; payments are made in cash; payments are made with stock;
the note holder converts upon receiving a redemption notice; the note holder converts the note; the issuer redeems the note; or
the Company defaults on the note. The model simulates the underlying economic factors that influenced which of these events would
occur, when they were likely to occur, and the specific terms that would be in effect at the time (i.e. stock price, conversion
price, etc.). Probabilities were assigned to each variable such as redemption likelihood, default likelihood, and timing and pricing
of reset events over the remaining term of the notes based on management projections. This led to a cash flow simulation over
the life of the note. A discounted cash flow for each simulation was completed, and it was compared to the discounted cash flow
of the note without the embedded features, thus determining a value for the derivative liability.
Key
inputs and assumptions used to value the convertible notes and warrants upon issuance or tainting and also as of January 31, 2020:
|
●
|
The
stock projections are based on the historical volatilities for each date. These ranged in the 166% to 271% range. The
stock price projection was modeled such that it follows a geometric Brownian motion with constant drift and a constant volatility,
starting with the market stock price at each valuation date;
|
|
|
|
|
●
|
An
event of default would not occur during the remaining term of the note;
|
|
|
|
|
●
|
Conversion
of the notes to stock would be completed monthly after any holding period and would be limited based on: 5% of the last 6
months average trading volume and the ownership limit identified in the contract assuming the underlying number of common
shares increases at 1% per month.
|
|
●
|
The
effective discount was determined based on the historical trading history of the Company based on the specific pricing mechanism
in each note;
|
|
|
|
|
●
|
The
Company would not have funds available to redeem the notes during the remaining term of the convertible notes;
|
|
|
|
|
●
|
Discount
rates were based on risk free rates in effect based on the remaining term and date of each valuation and instrument.
|
|
|
|
|
●
|
The
Holder would exercise the warrant at maturity if the stock price was above the exercise price;
|
|
|
|
|
●
|
The
Holder would exercise the warrant after any holding period prior to maturity at target prices starting at 2 times the exercise
price for the Warrants or higher subject to monthly limits of: 5% of the last 6 months average trading volume increasing by
1% per month and the ownership limit identified in the contract assuming the underlying number of common shares increases
at 1% per month.
|
Using
the results from the model, the Company recorded a derivative liability during the year ended January 31, 2020 of $322,006 for
newly granted and existing warrants (see Note 10) that were tainted and a derivative liability of $123,057 for the fair
value of the convertible feature included in the Company’s convertible debt instruments. The derivative liability recorded
for the convertible feature created a “day 1” derivative loss of $23,057 and a debt discount of $100,000 that
was amortized over the remaining term of the note using the effective interest rate method. Interest expense related to the amortization
of this debt discount for the year ended January 31, 2020, was $100,000. The remaining unamortized debt discount related
to the derivative liability was $0 as the note was fully converted by January 31, 2020.
During
the year ended January 31, 2020, the Company recorded a reclassification from derivative liability to equity of $234,650 for warrants
becoming untainted and $137,469 due to the conversions of a portion of the Company’s convertible notes. The Company also
recorded the change in the fair value of the derivative liability as a gain of $108,543 to reflect the value of the derivative
liability for warrants and convertible notes as of January 31, 2020. The Company did not have a derivative liability as of January
31, 2020 since none of the outstanding notes remained convertible 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:
|
|
Year
Ended January 31,
|
|
|
|
2020
|
|
|
2019
|
|
Beginning
balance
|
|
$
|
58,656
|
|
|
$
|
168,686
|
|
Total
gains
|
|
|
(108,543
|
)
|
|
|
(52,578
|
)
|
Settlements
|
|
|
(372,119
|
)
|
|
|
(519,041
|
)
|
Additions
recognized as debt discount
|
|
|
100,000
|
|
|
|
461,589
|
|
Additions
due to tainted warrants
|
|
|
322,006
|
|
|
|
-
|
|
Ending
balance
|
|
$
|
-
|
|
|
$
|
58,656
|
|
|
|
|
|
|
|
|
|
|
Change
in unrealized gains included in earnings relating to derivatives as of January 31, 2020 and 2019
|
|
$
|
(108,543
|
)
|
|
$
|
(52,578
|
)
|
NOTE
8 – Common stock
Our
common shares are all of the same class, are voting and entitle stockholders to receive dividends as defined. Upon liquidation
or wind-up, stockholders are entitled to participate equally with respect to any distribution of net assets or any dividends that
may be declared.
On
July 15, 2015, the Company’s shareholders approved an amendment to the Company’s articles of incorporation to increase
the number of authorized common shares from 1,250,000,000 to 6,250,000,000.
Common
Stock Issued During the Year Ended January 31, 2020
During
the year ended January 31, 2020, the Company issued a total of 390,811,083 shares of our common stock for conversions of $131,954
of convertible notes payable at an exercise prices ranging from of $0.00011 to $0.00078.
In
July 2019, the Company issued 30,000,000 shares of its common stock to satisfy $213,000 owed for services due an investor relations
consultant for services provided in prior years which was previously included in accounts payable and accrued liabilities, resulting
in a gain on settlement of accounts payable of $177,000.
In
July 2019, the Company issued 43,215,212 shares of its common stock and 21,607,606 warrants to an investor, who also subsequently
became a director, for proceeds of $50,000, or $0.001157 per unit. The warrants have a three-year term and are exercisable
at any time at an exercise price of $0.00162.
On November
19, 2019, the Company sold 21,121,429 shares of the Company’s common stock to a noteholder for $20,699, or $0.00098 per
unit, in a private placement. The consideration received included $10,000 cash plus the settlement of a note
payable of $10,000 and accrued interest of $699.
On
January 8, 2020, a consultant returned to the Company a total of 24,242,424 shares of common stock issued for accounts payable
for services totaling $44,000. The exchange resulted in an increase in accounts payable of $44,000 which the Company has agreed
to repay in installments of $600 for twelve months, $1,500 for the following 12 months, and $2,500 per month thereafter until
paid in full. The consultant has agreed to waive the final $4,000 if all payments are made timely. A total of $44,000 remains
outstanding as of January 31, 2020, of which $37,400 is classified as long-term accounts payable.
Common
Stock Issued During the Year Ended January 31, 2019
Between
February 2014 and July 2014, pursuant to the investment agreement with KVM, KVM purchased 34,214,226 shares for $456,924, of which
$55,673 is still owed to the Company and is reflected as a stock subscription receivable as of January 31, 2018. During the year
ended January 31, 2019 the Company determined that this receivable was impaired and reduced the balance to $0, resulting in a
loss of $55,673.
During
the year ended January 31, 2019, the Company issued a total of 1,625,031,411 shares of our common stock for conversions of $518,552
of convertible notes payable at exercise prices ranging from $0.0002 to $0.0007.
During
the year ended January 31, 2019, the Company issued 26,000,000 units to investors for total proceeds of $13,000. Each unit consists
of one share of the Company’s common stock and one-half warrant to purchase one-half equivalent share each of the Company’s
common stock. The warrants have an exercise price of $0.0007 and have a three-year term.
NOTE
9 – Share-based compensation
The
2010 Stock Option Plan was approved and adopted by the Board of Directors on August 10, 2010. The plan allows for up to 95,500,000
shares to be granted to key employees and non-employee consultants after specific objectives are met. The 2007 Stock Option Plan
was approved and adopted by the Board of Directors on December 10, 2007. The plan allows for up to 2,500,000 shares to be granted
to key employees and non-employee consultants after specific objectives are met. The 2004 Stock Option Plan was approved and adopted
by the Board of Directors on December 27, 2004. The plan allows for up to 962,500 shares to be granted to key employees and non-employee
consultants after specific objectives are met. Employees can receive incentive stock options and non-qualified stock options while
non-employee consultants can receive only non-qualified stock options. The options granted vest under various provisions using
graded vesting, not to exceed four years. The options granted have a term not to exceed ten years from the date of grant or five
years for options granted to more than 10% stockholders. The option price set by the Plan Administration shall not be less than
the fair market value per share of the common stock on the grant date or 110% of the fair market value per share of the common
stock on the grant date for options granted to greater than 10% stockholders. Options remaining available for grant under the
2010 Stock Option Plan at January 31, 2020 and 2019 are 10,208,750 and 8,328,800, respectively. Options remaining available for
grant under the 2007 Stock Option Plan at January 31, 2020 and 2019 are 212,500 and 212,500, respectively. Options remaining available
for grant under the 2004 Stock Option Plan at January 31, 2020 and 2019 are 41,250 and 41,250.
The Company
granted 15,000,000 stock options each to four directors (60,000,000 total) during the year ended January 31, 2020 and recognized
$80,421 of compensation expense using the Black-Scholes valuation method with the following assumptions: stock prices of $0.0014
to $0.0015, exercise price of $0.003, expected term of 5 years, volatility of 180.7% to 181.3%, annual rate of dividends of 0%,
and discount rates of 1.59% to 1.85%.
No
stock options were granted during the year ended January 31, 2019.
The
following tables summarize the Company’s stock option activity during the years ended January 31, 2020 and 2019:
|
|
Number
of options
|
|
|
Weighted
average exercise
price
|
|
|
Weighted
average
remaining life
(years)
|
|
|
Aggregate
intrinsic value
|
|
Outstanding,
January 31, 2018
|
|
|
91,308,750
|
|
|
$
|
0.033
|
|
|
|
3.53
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Cancelled and/or
forfeited
|
|
|
(928,800
|
)
|
|
|
0.097
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2019
|
|
|
90,379,950
|
|
|
$
|
0.033
|
|
|
|
2.56
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
60,000,000
|
|
|
|
0.003
|
|
|
|
|
|
|
|
|
|
Cancelled
and/or forfeited
|
|
|
(61,879,950
|
)
|
|
|
0.034
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2020
|
|
|
88,500,000
|
|
|
$
|
0.012
|
|
|
|
7.20
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
January 31, 2020
|
|
|
88,500,000
|
|
|
$
|
0.012
|
|
|
|
7.20
|
|
|
$
|
-
|
|
The
aggregate intrinsic value is calculated based on the stock price of $0.0011 and $0.0003 per share as of January 31, 2020 and 2019,
respectively.
During
the years ended January 31, 2020 and 2019, we recognized $80,421 and $0 of compensation expense related to incentive and non-qualified
stock options previously granted to officers, employees and consultants.
Share-based
compensation expense is reported in our consolidated statements of operations as follows:
|
|
January
31, 2020
|
|
|
January
31, 2019
|
|
Geological
and geophysical costs
|
|
$
|
-
|
|
|
$
|
-
|
|
Salaries
and benefits
|
|
|
80,421
|
|
|
|
-
|
|
Investor
relations
|
|
|
-
|
|
|
|
-
|
|
General
and administrative
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
80,421
|
|
|
$
|
-
|
|
At
January 31, 2020, there was $0 of unrecognized share-based compensation for all share-based awards outstanding.
NOTE
10 – Warrants
As
of January 31, 2020, there were 181,707,809 whole share purchase warrants outstanding and exercisable. The warrants have a three-year
term, a weighted average remaining life of 1.86 years and a weighted average exercise price of $0.005 per whole warrant for one
common share. Whole share purchase warrants outstanding at January 31, 2020 and 2019 are as follows:
|
|
Number
of whole share purchase warrants
|
|
|
Weighted
average
exercise price
per share
|
|
|
|
|
|
|
|
|
Outstanding,
January 31, 2018
|
|
|
141,414,489
|
|
|
$
|
0.006
|
|
Issued
|
|
|
13,000,000
|
|
|
|
0.0007
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding,
January 31, 2019
|
|
|
154,414,489
|
|
|
$
|
0.005
|
|
Issued
|
|
|
32,168,320
|
|
|
|
0.0015
|
|
Expired
|
|
|
(4,875,000
|
)
|
|
|
0.003
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding,
January 31, 2020
|
|
|
181,707,809
|
|
|
|
0.005
|
|
|
|
|
|
|
|
|
|
|
Exercisable,
January 31, 2020
|
|
|
181,707,809
|
|
|
|
0.005
|
|
The
weighted average intrinsic value for warrants outstanding was $5,200 and $0 as of January 31, 2020 and 2019, respectively.
On
July 12, 2019, the Company issued 21,607,606 warrants to an investor, who also subsequently became a director of the Company,
as part of their purchase of common stock during the year ended January 31, 2020. The warrants have a three-year term and are
exercisable at any time at an exercise price of $0.00162.
On
November 19, 2019, the Company issued 10,560,714 warrants to an investor, as part of their purchase of common stock during the
year ended January 31, 2020. The warrants have a three-year term and are exercisable at any time at an exercise price of $0.00137.
Effective
May 1, 2019, the Company extended the due date of all warrants expiring during the three months ended July 31, 2019, totaling
33,001,166 warrants, for an additional three years. There was no expense related to the extension of these warrants since these
were held by investors.
Effective
December 5, 2019, the Company extended the due date of all warrants expiring during the five months ending December 31,
2019, totaling 19,499,882 warrants, for an additional three years. There was no expense related to the extension of these warrants
since these were held by investors.
NOTE
11 – Income taxes
As
of January 31, our deferred tax asset is as follows:
|
|
January
31, 2020
|
|
|
January
31, 2019
|
|
Deferred
Tax Assets
|
|
$
|
6,641,000
|
|
|
$
|
6,535,000
|
|
Less
Valuation Allowance
|
|
|
(6,641,000
|
)
|
|
|
(6,535,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Management
has elected to provide a deferred tax asset valuation allowance equal to the potential benefit due to our history of losses. If
we demonstrate the ability to generate future taxable income, management will re-evaluate the allowance. The increase of $106,000
during the year ended January 31, 2020 primarily represents the increase in net operating loss carry-forwards during the period
offset against the valuation allowance. As of January 31, 2020, our estimated net operating loss carry-forward is approximately
$32 million and expires beginning in 2026 through 2038, with no expiration date for our 2019 and 2020 net operating losses under
the Tax Cuts and Jobs Act.
We
have identified our federal and Arizona state tax returns as “major” tax jurisdictions. The periods our income tax
returns are subject to examination for these jurisdictions are the tax years ended January 31, 2017 through January 31,
2020. We believe our income tax filing positions and deductions will be sustained on audit, and we do not anticipate any adjustments
that would result in a material change to our financial position. Therefore, no liabilities for uncertain income tax positions
have been recorded.
Internal
Revenue Code Section 382 limits the ability to utilize net operating losses if a 50% change in ownership occurs over a three-year
period. Such limitation of the net operating losses may have occurred but we have not analyzed it at this time as the deferred
tax asset is fully reserved. We have federal and state net operating loss carry-forwards that are available to offset future taxable
income.
The
Tax Cuts and Jobs Act (the Act) was enacted on December 22, 2017. The Act reduces the US federal corporate tax rate from 35% to
21% and requires the Company to re-measure certain deferred tax assets and liabilities based on the rates at which they are anticipated
to reverse in the future, which is generally 21%. The Company adopted the new rate as it relates to the calculations of deferred
tax amounts as of January 31, 2018.
NOTE
12 – Related party transactions
We
were a party to the following transactions with related parties during the year ended January 31, 2020:
Our CEO, Brett Gross, was elected as President
and Chief Executive Officer on December 7, 2018 and received no compensation for these services during the years ended January
31, 2020 and 2019.
At
January 31, 2020 and 2019, we had a balance of accrued unpaid wages of $759,949 to James Briscoe, our former Chairman of the Board,
CEO, CFO and President. Additionally, we had a balance of accrued unpaid wages of $15,625 to a former President. We had a balance
of accrued unpaid wages of $36,137 and $31,137 to Patricia Madaris, CFO, as of January 31, 2020 and 2019, respectively.
At
January 31, 2020 and 2019, we had accounts payable to JABA (controlled by James Briscoe) of $34,798, which is reflected as accounts
payable to related party on the accompanying consolidated balance sheets.
At
January 31, 2020 and 2019, we had a balance of $13,325 due to the spouse of James Briscoe.
At January 31, 2020 and 2019, 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.
During the year
ended January 31, 2020, the Company received advances of $48,500 from two directors under two promissory notes with interest at
10%. Total principal maturities under these two notes are $106,302 due October 31, 2020 (extended from October 31, 2019) and $35,430
due October 31, 2020 (extended from January 31, 2020). Additionally, the Company has a note payable of $10,000 from James Briscoe,
under a promissory note dated September 17, 2018, due September 17, 2019 with interest at 10% and is currently past due.
As of January 31, 2020, the total balance of all related party notes was $166,560, which includes accrued interest of $14,828.
During
the year ended January 31, 2020, our CEO, Brett Gross, made various payments on behalf of the Company totaling $101,631, reflected
as advances from related party on the accompanying consolidated balance sheet. The advances bear no interest and have no specified
repayment date.
In
July 2019, the Company issued 43,215,212 shares of its common stock and 21,607,606 warrants to an investor, who also subsequently
became a director, for proceeds of $50,000, or $0.001157 per unit. The warrants have a three-year term and are exercisable
at any time at an exercise price of $0.00162.
In
July and October 2019, the Company issued an aggregate of 60,000,000 non-qualified stock options to four new directors
for services. The options vest immediately, have a 10-year term, an exercise price of $0.003, and resulted in share-based compensation
expense of $80,421 during the year ended January 31, 2020.
We
had an option to explore 1 standard federal lode mining claim at the East Silverbell project and 29 standard federal lode mining
claims at the Walnut Creek project from JABA. We were required to pay annual rentals to maintain the claims in good standing.
We paid $4,650 in rental fees to maintain these mineral claims during the year ended January 31, 2019 until September 1, 2019.
The original option agreement was for the period from April 11, 2008 through January 1, 2011 and was extended through June 1,
2013, June 1, 2015 and then to June 1, 2021, The Company did not renew this option and it expired on September 1, 2019.
We
were a party to the following transactions with related parties during the year ended January 31, 2019:
We
rented an office from James Briscoe on a month-to-month basis for $522 per month through December 2018. The total rent expense
related to this office was approximately $0 and $6,264 for the years ended January 31, 2020 and 2019. A total of $2,996 was due
as of January 31, 2020 and 2019.
During
the year ended January 31, 2019, the Company received advances of $73,193 from a director under a promissory note dated October
31, 2018, due October 31, 2020, with interest at 10%. We also received advances of $22,700 from another director under a promissory
note dated December 20, 2018, due October 31, 2020 (extended from January 31, 2020), with interest at 10%. We also
received an advance of $10,000 from James Briscoe under a promissory note dated September 17, 2018, due September 17, 2019 with
interest at 10%. As of January 31, 2019, the total balance of these notes was $106,943, which includes accrued interest of $1,050.
NOTE
13 – Commitments and Contingencies
We
currently rent a storage space for $45 per month in Tombstone, Arizona on a month-to-month basis.
We
are required to pay annual rentals for Liberty Star’s federal lode mining claims for the Tombstone project in the State
of Arizona. The rental period begins at noon on September 1st through the following September 1st and rental payments are due
by the first day of the rental period. The annual rentals are $165 per claim. The rentals due by September 1, 2020 for the period
from September 1, 2020 through September 1, 2021 of $10,890 have not been paid yet, but we plan to pay when due.
We
are required to pay annual rentals for our Arizona State Land Department Mineral Exploration Permits (“AZ MEP”) at
our Tombstone Hay Mountain project in the State of Arizona. AZ MEP permits cost $500 per permit per year in non-refundable filing
fees and are valid for 1 year and renewable for up to 5 years. The rental fee is $2.00 per acre for the first year, which includes
the second year, and $1.00 per acre per year for years three through five. The minimum work expenditure requirements are $10 per
acre per year for years one and two and $20 per acre per year for years three through five. If the minimum work expenditure requirement
is not met the applicant can pay the equal amount in fees to the Arizona State Land Department to keep the AZ MEP permits current.
The rental period begins on the date of acceptance for each permit. Rental payments are due by the first day of the rental period.
We hold AZ MEP permits for 12,557.77 acres at our Tombstone project. We paid filing and rental fees for our AZ MEP’s before
their respective due dates in the amount of $30,764.
Legal
Matter
On
August 22, 2019 (and amended on December 23, 2019), the Company filed a complaint with the Superior Court of Arizona (Case No.
C20194139), demanding the titles and possession of certain vehicles and equipment of the Company from our former CEO, as well
as seeking recovery of damages from the former CEO in an amount of not less than $50,000. None of the vehicles and equipment,
individually or in total, have any material net book value (being fully depreciated) as of January 31, 2020. The matter is ongoing
as of the date of this filing.
On
February 18, 2020, our former CEO and his spouse (the “Counterclaimants”) filed a First Amended Answer: First
Amended Complaint and Counterclaim with the Superior Court of Arizona seeking dismissal of the Company’s complaint and reimbursement
of Counterclaimants’ attorney fees incurred related to the matter. Additionally,
the counterclaim alleges breach of contract by the Company and requests reimbursement of amounts loaned to the Company by our
former CEO and his spouse, along with reimbursement of attorney fees. The Company believes these counterclaims are without
merit and will aggressively defend them, and believes no unfavorable outcome or material effect on our consolidated financial
statements will result.
NOTE
14 – Fair value of financial instruments
|
|
|
|
|
Fair
value measurements at reporting date using:
|
|
Description
|
|
Fair
Value
|
|
|
Quoted
prices in
active markets
for identical
liabilities
(Level 1)
|
|
|
Significant
other
observable
inputs
(Level 2)
|
|
|
Significant
unobservable inputs
(Level 3)
|
|
Warrant
and convertible note derivative liability at January 31, 2020
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Warrant
and convertible note derivative liability at January 31, 2019
|
|
$
|
58,656
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
58,656
|
|
Our
financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities, convertible
notes payable, notes payable, and derivative liability. It is management’s opinion that we are not exposed to significant
interest, currency or credit risks arising from these financial instruments. With the exception of the derivative liability, the
fair value of these financial instruments approximates their carrying values based on their short maturities or for long-term
debt based on borrowing rates currently available to us for loans with similar terms and maturities. Gains and losses recognized
on changes in estimated fair value of the warrant liability are reported in other income (expense) as gain (loss) on change in
fair value.
NOTE
15 – Subsequent events
In March and April 2020, we received aggregate
proceeds of $55,000 under the promissory note with Pete O’Heeron, a director. The note bears interest at 10%
and matures on October 31, 2020.
On April 27, 2020, we received an advance
from our CEO of $10,000. The advance bears no interest and has no specified repayment date.
In March 2020, our CEO made payments on
behalf of the Company totaling approximately $25,000. These payments will be recorded as advances to the Company, bearing no interest
with no specified repayment date.
In
March 2020, the Company issued 22,000,000 shares of its common stock and 11,000,000 warrants to an investor for proceeds of $17,600,
or $0.0008 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $0.0011.
In February,
March and April 2020, we issued a total of 161,906,986 shares of our common stock for conversions of convertible debt totaling
$91,800, at prices ranging from $0.0047 to $0.0072.