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, 2021
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 April 30, 2021 and the results of our operations and cash
flows for the periods presented.
Interim
results are subject to significant seasonal variations and the results of operations for the three months ended April 30,2021 are not
necessarily indicative of the results to be expected for the full year.
Reverse
Stock Split
On
November 24, 2020, the Company filed a Certificate of Change with the Secretary of the State of Nevada to affect a 1-for-500 reverse
stock split (the “Reverse Stock Split”). The Reverse Stock Split was formally processed by FINRA effective on February 25,
2021 and the Company’s common stock began trading on a split-adjusted basis on February 25, 2021.
Prior
to the effective date of the Certificate of Change, the Company was authorized to issue 6,150,000,000 shares of common stock. As a result
of the Reverse Stock Split, the Company is authorized to issue 12,300,000 shares of common stock. The Reverse Stock Split did not have
any effect on the stated par value of the common stock.
Prior
to the effective date of the Certificate of Change, the Company was authorized to issue 100,000,000 shares of Class A common stock. As
a result of the Reverse Stock Split, the Company is authorized to issue 200,000 shares of Class A common stock. As of February 24, 2021
(immediately prior to the effective date of the Reverse Stock Split), there were 51,000,000 shares of Class A common stock outstanding.
As a result of the Reverse Stock Split, there are approximately adjustment due to the effect of rounding fractional shares into whole
shares). The Reverse Stock Split did not have any effect on the stated par value of the Class A common stock.
All
references to common shares and common share data in these consolidated financial statements and elsewhere in this Form 10-Q reflect
the Reverse Stock Split.
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.
|
|
|
|
|
|
|
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 April 30, 2021
|
|
$
|
290,293
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
290,293
|
|
Warrant and convertible note derivative liability at January 31, 2021
|
|
$
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
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.
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 three months ended April 30,2021 and 2020.
From
October 2019 through April 30, 2021, our CEO, Brett Gross, made various payments on behalf of the Company totaling $161,977, and advanced
the Company $62,000 in cash, all of which are reflected as advances from related party on the accompanying consolidated balance sheets.
The total advances were $314,742 and $301,077 as of April 30, 2021 and January 31, 2021, respectively, bear no interest and have no specified
repayment date.
During the three months ended April 30, 2021, the note principal increased $5,000 for a payment by the director
to a consultant on behalf of the Company. Total maturities of principal and accrued interest under all notes to two directors as of April
30, 2021 are $285,448 due July 31, 2021.
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 on September 17, 2019 with interest at 10%.
As
of April 30 and January 31, 2021, the total balance of all related party notes was $298,064 and $283,271, respectively, which includes
accrued interest of $42,152 and $36,070, respectively.
As
of April 30 and January 31, 2021, 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.
As
of April 30 and January 31, 2021, 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.
As
of April 30 and January 31, 2021, 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.
As
of April 30 and January 31, 2021, we had a balance of $16,321 due to the spouse of James Briscoe.
NOTE
5 – Stock options
Qualified
and Non-qualified incentive stock options outstanding at April 30, 2021 are as follows:
|
|
|
|
|
Weighted
average
|
|
|
|
Number of
|
|
|
exercise
|
|
|
|
options
|
|
|
price per share
|
|
Outstanding, January 31, 2021
|
|
|
146,000
|
|
|
$
|
3.019
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Outstanding, April 30, 2021
|
|
|
146,000
|
|
|
$
|
3.019
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 30, 2021
|
|
|
146,000
|
|
|
$
|
3.019
|
|
These
options had a weighted average remaining life of 7.37 years and an aggregate intrinsic value of $0 as of April 30, 2021.
During
the three months ended April 30, 2021 and 2020, we recognized $0 and $0, respectively, of compensation expense related to stock options.
NOTE
6 – Warrants
As
of April 30, 2021, there were 449,281 purchase warrants outstanding and exercisable. The warrants
have a weighted average remaining life of 2.1 years and a weighted average exercise price of $2.101 per warrant
for one common share. The warrants had an aggregate intrinsic value of $40,764 as of April 30, 2021.
Stock
warrants outstanding at April 30, 2021 are as follows:
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
average
|
|
|
|
Number of warrants
|
|
|
exercise
price per share
|
|
Outstanding, January 31, 2021
|
|
|
400,166
|
|
|
$
|
2.155
|
|
Issued
|
|
|
55,115
|
|
|
|
1.524
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(6,000
|
)
|
|
|
0.350
|
|
Outstanding, April 30, 2021
|
|
|
449,281
|
|
|
$
|
2.101
|
|
|
|
|
|
|
|
|
|
|
Exercisable, April 30, 2021
|
|
|
449,281
|
|
|
$
|
2.101
|
|
During
the three months ended April 30, 2021, the Company issued 55,115 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 $1.426 to
$1.646.
As of June 17, 2021, the Company extended
all warrants issued by the Company which expired or will expire during the year 2021. These warrants are extended for an additional
three years. All other terms of the warrants remain unchanged, including application of the reverse split effective on February
25, 2021.
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 three months ended April 30,2021, 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.
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 197.3% to 211.4% 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 three months ended April 30,2021 of $293,528
for newly granted and existing warrants (see Note 6) that were tainted and a derivative liability of $64,823 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 $0 and a debt discount of $64,823 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 three
months ended April 30,2021, was $21,725. The remaining unamortized debt discount related to the derivative liability was $43,098 as of
April 30, 2021.
During
the three months ended April 30,2021, the Company recorded a reclassification from derivative liability to equity of $0 for warrants
becoming untainted and $17,406 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 $50,652 to reflect the value of the derivative liability for warrants
and convertible notes as of April 30, 2021.
During
the three months ended April 30, 2020, the Company recorded a reclassification from derivative liability to equity of $0 for warrants
becoming untainted and $106,514 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 $55,036 to reflect the value of the derivative liability for warrants
and convertible notes as of April 30, 2020.
The
Company did not have a derivative liability as of January 31, 2021 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:
|
|
Three months ended April 30,
|
|
|
|
2021
|
|
|
2020
|
|
Beginning balance
|
|
$
|
-
|
|
|
$
|
-
|
|
Total gains
|
|
|
(50,652
|
)
|
|
|
(55,036
|
)
|
Settlements
|
|
|
(17,406
|
)
|
|
|
(106,514
|
)
|
Additions recognized as debt discount
|
|
|
64,823
|
|
|
|
107,000
|
|
Additions due to tainted warrants
|
|
|
293,528
|
|
|
|
189,472
|
|
Ending balance
|
|
$
|
290,293
|
|
|
$
|
134,922
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gain included in earnings relating to derivatives
|
|
$
|
(50,652
|
)
|
|
$
|
(55,036
|
)
|
NOTE
8 – Long-term debt and convertible promissory notes
Following
is a summary of convertible promissory notes:
|
|
April 30, 2021
|
|
|
January 31, 2021
|
|
|
|
|
|
|
|
|
8% convertible note payable issued October 2020, due September 2021
|
|
$
|
72,546
|
|
|
$
|
95,611
|
|
8% convertible note payable issued April 2021, due April 2022
|
|
|
63,055
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,601
|
|
|
|
95,611
|
|
Less debt discount
|
|
|
(51,425
|
)
|
|
|
(7,642
|
)
|
Less current portion of convertible notes
|
|
|
(84,176
|
)
|
|
|
(87,969
|
)
|
Long-term convertible notes payable
|
|
$
|
-
|
|
|
$
|
-
|
|
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 three months ended April 30, 2021, the noteholder converted a total of $27,000 of the note for 33,881 shares of the Company’s
common stock, leaving a balance of $72,546 as of April 30, 2021.
On
April 26, 2021, we received net proceeds of $60,000 from the issuance of a convertible note dated April 23, 2021 (the “April 2021
Note”). The note bears interest at 8%, includes legal and due diligence fees of $3,000, matures on April 23, 2022, and is convertible
after 180 days into shares of the Company’s common stock at a price of 75% of the average of the lowest 5 weighted average market
price of the Company’s common stock during the 10 trading days prior to conversion.
During
the three months ended April 30, 2021 and 2020, the Company recorded debt discounts of $64,823 and 107,000, respectively, due to the
derivative liabilities, and original issue debt discounts of $3,000 and $0, respectively, due to the convertible notes. The Company recorded
amortization of these discounts of $23,306 and $98,568 for the three months ended April 30, 2021 and 2020, respectively.
Notes
Payable
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 18, 2021 (extended to June 18, 2023).
On
February 16, 2021, the Company received loan proceeds of $32,497 under the Payroll Protection Program (“PPP”). The PPP loan
bears interest at 1%, has a 5-year term, and is due in equal monthly installments beginning December 16, 2021.
The
balance of these two notes total $66,020, including accrued interest of $1,123, and is included in long-term debt as of April 30, 2021.
NOTE
9 – Stockholders’ deficit
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.
On
March 5, 2021, the Company issued 6,000 shares of its common stock to an accredited investor for the exercise of warrants for proceeds
of $2,100, or $0.35 per common share.
On
March 26, 2021, the Company issued 17,006 shares of its common stock and 8,503 warrants to our CEO for gross proceeds of $20,000,
for $1.176 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $1.646.
In
March 2021, the Company issued 49,412 shares of its common stock and 24,706 warrants to our CEO for gross proceeds of $55,000 for $1.113
per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $1.558.
On
April 2, 2021, the Company issued 9,818 shares of its common stock and 4,909 warrants to an accredited investor for gross proceeds of
$10,000, or $1.019 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $1.426.
On
April 23, 2021, the Company issued 15,049 of its common stock to a noteholder for the conversion of $12,000 of principal under the October
2020 Note, or $0.797 per share.
On
April 27, 2021, the Company issued 18,832 of its common stock to a noteholder for the conversion of $15,000 of principal under the October
2020 Note, or $0.797 per share.
On
April 30, 2021, the Company received proceeds of $20,000 from an investor for the purchase of 19,268 shares of its common stock and 9,634
warrants, at a price of $1.038 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of
$1.453.
Reverse
Stock Split
On
November 24, 2020, the Company filed a Certificate of Change with the Secretary of the State of Nevada to affect a 1-for-500 reverse
stock split (the “Reverse Stock Split”). The Reverse Stock Split was formally processed by FINRA effective on February 25,
2021 and the Company’s common stock began trading on a split-adjusted basis on February 25, 2021.
Prior
to the effective date of the Certificate of Change, the Company was authorized to issue 6,150,000,000 shares of common stock. As a result
of the Reverse Stock Split, the Company is authorized to issue 12,300,000 shares of common stock. The Reverse Stock Split did not have
any effect on the stated par value of the common stock.
Prior
to the effective date of the Certificate of Change, the Company was authorized to issue 100,000,000 shares of Class A common stock. As
a result of the Reverse Stock Split, the Company is authorized to issue 200,000 shares of Class A common stock, with 102,000 shares of
Class A common stock outstanding. As a result of the Reverse Stock Split, there was an adjustment of approximately 2,408 common shares
due to the effect of rounding fractional shares into whole shares. The Reverse Stock Split did not have any effect on the stated par
value of the Class A common stock.
All references to common shares and common share data in these unaudited
consolidated financial statements and elsewhere in this Form 10-Q as of April 30, 2021, and for the three months ended April 30, 2021
and 2020, reflect the Reverse Stock Split.
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 April 30, 2021 or January 31, 2021. 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
In
May 2021, the Company issued a total of 98,472 shares of its comm stock to a noteholder for the conversion of an aggregate of $69,900
of principal and accrued interest under the October 2020 Note, at prices ranging from $0.699 to $0.743 per share.
On May 11, 2021, we issued a convertible note
in the aggregate principal amount of $53,000 (the “May 2021 Note”). The note bears interest at 8%, matures on May 11, 2022,
and is convertible after 180 days into shares of the Company’s common stock at a price of 75% of the average of the lowest 5 weighted
average market price of the Company’s common stock during the 10 trading days prior to conversion.
As of June 17, 2021, the Company extended all
warrants issued by the Company which expired or will expire during the year 2021. These warrants are extended for an additional three
years. All other terms of the warrants remain unchanged, including application of the reverse split effective on February 25, 2021.