NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – Organization
Liberty
Star Uranium & Metals Corp. (the “Company”, “we”, “our”, or “Liberty Star”) was formerly
Liberty Star Gold Corp. and formerly Titanium Intelligence, Inc. (“Titanium”). Titanium was incorporated on August 20, 2001
under the laws of the State of Nevada. On February 5, 2004, we commenced operations in the acquisition and exploration of mineral properties
business. Big Chunk Corp. (“Big Chunk”) was our wholly owned subsidiary and was incorporated on December 14, 2003 in the
State of Alaska. Until 2016 Big Chunk was engaged in the acquisition and exploration of mineral properties business in the State of Alaska
until its dissolution on July 26, 2019. Redwall Drilling Inc. (“Redwall”) was our wholly owned subsidiary and was incorporated
on August 31, 2007 in the State of Arizona. Redwall performed drilling services on the Company’s mineral properties. Redwall ceased
drilling activities in July 2008 and was dissolved on March 30, 2010. We formed the wholly owned subsidiary, Hay Mountain Super Project
LLC (“HMSP”) incorporated on October 24, 2014, to serve as the primary holding company for development of the potential ore
bodies encompassed in the Hay Mountain area of interest in Arizona. We renamed HMSP to Hay Mountain Holdings LLC (“HMH”)
on March 5, 2019. In April 2007, we changed our name to Liberty Star Uranium & Metals Corp. On February 22, 2019, the Company registered
the tradename ‘Liberty Star Minerals’ with the state of Arizona to be recognized as ‘doing business as’, or ‘d/b/a’
Liberty Star Minerals. We have not generated any revenues from operations. On April 11, 2019 we formed a new subsidiary named Earp Ridge
Mines LLC (“Earp Ridge”) wholly owned by HMH. On August 13, 2020, the Company formed Red Rock Mines, LLC (“Red Rock”),
an Arizona corporation, as a wholly-owned subsidiary of Hay Mountain Holdings, LLC.
NOTE
2 – Summary of significant accounting policies
The
summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated
financial statements. Such consolidated financial statements and accompanying notes are the representations of the Company’s
management, who is responsible for their integrity and objectivity. These accounting policies conform to accounting principles
generally accepted in the United States of America (“GAAP”) 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 GAAP requires
management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
The
valuation of stock-based compensation, classification and valuation of common stock purchase warrants, classification and value of embedded
conversion options, value of beneficial conversion features, valuation allowance on deferred tax assets, the determination of useful
lives and recoverability of depreciable assets, accruals, and contingencies are significant estimates made by management. It is at least
reasonably possible that a change in these estimates may occur in the near term.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary HMH and the HMH wholly-owned subsidiaries
Earp Ridge and Red Rock. All significant intercompany accounts and transactions have been eliminated upon consolidation.
Cash
and cash equivalents
We
consider cash held at banks and all highly liquid investments with original maturities of three months or less to be cash and cash equivalents.
We maintain our cash in bank deposit accounts which, for periods of time, may exceed federally insured limits. At January 31, 2023 and
2022, we had no cash balances in bank deposit accounts that exceeded federally insured limits.
Mineral
claim costs
We
account for costs incurred to acquire, maintain and explore mineral properties as a charge to expense in the period incurred until the
time that a proven mineral resource is established, at which point development of the mineral property would be capitalized. Currently,
we do not have any proven mineral resources on any of our mineral properties.
Long-lived
assets and impairment of long-lived assets
Property
and equipment are stated at cost. We capitalize all purchased equipment over $500 with a useful life of more than one year. Depreciation
is calculated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are stated at cost
and are amortized over their estimated useful lives or the lease term, whichever is shorter. Maintenance and repairs are expensed as
incurred while betterments or renewals are capitalized. Property and equipment are reviewed periodically for impairment. The estimated
useful lives range from 3 to 7 years.
We
review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
Recoverability of a long-lived asset group to be held and used in operations is measured by a comparison of the carrying amount to the
sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset group. If such asset group is
considered to be impaired, the impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its
fair value. Long-lived assets to be disposed of are carried at the lower of cost or fair value less the costs of disposal.
Convertible
promissory notes
We
report convertible promissory notes as liabilities at their carrying value less unamortized discounts, which approximates fair
value. We bifurcate conversion options and detachable common stock purchase warrants and report them as liabilities at fair value at
each reporting period when required in accordance with the applicable accounting guidance. When convertible promissory notes are
converted into shares of our common stock in accordance with the debt 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
value. The valuation of the derivative liability of the 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.
Stock
based compensation
The
Company recognizes stock-based compensation for all share-based payment awards made to employees and non-employees based on the estimated
fair values of the stock or options. The fair value of options to be granted are estimated on the date of each grant using the Black-Scholes
option pricing model and amortized ratably over the option’s vesting periods, which approximates the service period.
Environmental
expenditures
Our
operations have been and may in the future be affected from time to time in varying degree by changes in environmental regulations, including
those for future removal and site restoration costs. The likelihood of new regulations and their overall effect upon us are not predictable.
We provide for any reclamation costs in accordance with the Accounting Standards Codification (“ASC”) Topic 410-30 “Asset
Retirement and Environmental Obligations”. 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,
2023 or 2022.
Fair
value of financial instruments
Our
financial instruments consist of cash and cash equivalents, prepaid expenses, accounts payable, accrued liabilities, convertible notes
payable, notes payable, and derivative liability. It is management’s opinion that we are not exposed to significant interest, currency
or credit risks arising from these financial instruments. With the exception of the derivative liability, the fair value of these financial
instruments approximates their carrying values based on their short maturities or for long-term debt based on borrowing rates currently
available to us for loans with similar terms and maturities. Gains and losses recognized on changes in estimated fair value of the warrant
liability are reported in other income (expense) as gain (loss) on change in fair value.
The
Company measures and discloses certain financial assets and liabilities at fair value. Authoritative guidance defines fair value as the
exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date. Authoritative guidance
also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable
inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level
1 – Quoted prices in active markets for identical assets or liabilities.
Level
2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets
that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full
term of the assets or liabilities.
Level
3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
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, 2018 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 year
ended January 31, 2023, there were 357,905 shares issuable from convertible debt that were considered for their dilutive effects. For
the years ended January 31, 2022, the following number of potentially dilutive shares have been excluded from diluted net income (loss)
since such inclusion would be anti-dilutive.
A reconciliation of the weighted average shares outstanding used in basic
and diluted earnings per share computation is as follows:
Schedule of Anti-dilutive Securities Excluded from Computation of Earning Per Shares
| |
2023 | | |
2022 | |
| |
For the Years Ended | |
| |
January 31, | |
| |
2023 | | |
2022 | |
Basic (loss) earnings per common share | |
| | | |
| | |
Numerator: | |
| | | |
| | |
Net income (loss) available to common shareholders | |
$ | 565,595 | | |
$ | (438,681 | ) |
Denominator: | |
| | | |
| | |
Weighted average common shares outstanding | |
| 15,558,746 | | |
| 10,647,908 | |
| |
| | | |
| | |
Basic earnings (loss) per common share | |
$ | 0.04 | | |
$ | (0.04 | ) |
Diluted earnings per common share | |
| | | |
| | |
Numerator: | |
| | | |
| | |
Net income (loss) available to common shareholders | |
$ | 565,595 | | |
$ | (438,681 | |
Remove derivative loss | |
| 4,440 | | |
| - | |
Remove convertible debt interest | |
| 229,968 | | |
| - | |
Net income (loss) available to common shareholders | |
$ | 799,333 | | |
$ | (438,681 | ) |
Denominator: | |
| | | |
| | |
Weighted average common shares outstanding | |
| 15,558,746 | | |
| 10,647,908 | |
Convertible debt | |
| 357,905 | | |
| - | |
Adjusted weighted average common shares outstanding | |
| 15,916,651 | | |
| 10,647,908 | |
| |
| | | |
| | |
Diluted earnings (loss) per common share | |
$ | 0.04 | | |
$ | (0.04 | ) |
Reclassification
Certain
reclassifications have been made to our prior year’s financial statements to conform to our current year presentation. These reclassifications
had no effect on our previously reported results of operations or accumulated deficit.
Newly
Issued Accounting Pronouncements
There
were various accounting standards and interpretations issued recently, none of which are expected to have a material impact on the Company’s
financial position, operations or cash flows. Management has evaluated these new pronouncements through May 15, 2023.
All
other accounting standards updates that have been issued or proposed by the FASB that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements upon adoption.
NOTE
3 – Going concern
These
consolidated financial statements have been prepared in conformity with 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, 2023, we held a 100% interest in 93 standard federal lode mining claims located in the Tombstone region of Arizona.
At
January 31, 2023, we held 31 Arizona State Land Department Mineral Exploration Permits covering 12,878.18 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, 2023.
NOTE
5 – Property and equipment
The
balances of our major classes of depreciable assets and useful lives are:
Schedule of Property and Equipment
| |
January
31,
2023 | | |
January
31,
2022 | |
Geology equipment (3 to 7 years) | |
$ | 89,420 | | |
$ | 315,052 | |
Vehicles and transportation equipment (5 years) | |
| 37,592 | | |
| 48,592 | |
Office furniture and equipment (3 to 7 years) | |
| 2,140 | | |
| 71,584 | |
Property and equipment,
gross | |
| 129,152 | | |
| 435,228 | |
Less: accumulated depreciation | |
| (107,264 | ) | |
| (407,506 | ) |
Property
and equipment, net | |
$ | 21,888 | | |
$ | 27,722 | |
During
the year ended January 31, 2023, the Company wrote off $265,403 of property and equipment and sold $40,673 of equipment. The Company
recognized a gain of $5,000 on the sale of property. Depreciation expense was $5,834 for the years ended January 31, 2023 and 2022.
NOTE
6 – Long-term debt and convertible promissory notes
Following
is a summary of convertible promissory notes:
Summary of Convertible Promissory Notes
| |
January 31,
2023 | | |
January 31,
2022 | |
| |
| | |
| |
8% convertible note payable issued October 2021, due October 2022 | |
$ | – | | |
$ | 69,300 | |
8% convertible note payable issued November 2021, due November 2022 | |
| – | | |
| 69,000 | |
8% convertible note payable issued December 2021, due December 2022 | |
| – | | |
| 63,000 | |
8% convertible note payable issued February 2022, due February 2023 | |
| – | | |
| – | |
8% convertible note payable issued July 2022, due July 2023 | |
| 30,138 | | |
| – | |
8% convertible note payable issued October 2022, due October 2023 | |
| 45,138 | | |
| - | |
8% convertible note payable issued November 2022, due November 2023 | |
| 51,108 | | |
| – | |
Convertible note payable | |
| 126,384 | | |
| 201,300 | |
Less debt discount | |
| (33,760 | ) | |
| (20,178 | ) |
Less current portion of convertible notes | |
| (92,624 | ) | |
| (181,122 | ) |
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 year ended
January 31, 2022, the noteholder converted a total of $96,900 of the note for 132,353 shares of the Company’s common stock, leaving
a balance of $0 as of January 31, 2022.
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 year ended January 31, 2022, the
noteholder converted a total of $65,520 of the note for 161,190 shares of the Company’s common stock, leaving a balance of $0 as
of January 31, 2022.
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%, includes legal and due diligence fees of $3,000, 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. During the year ended January 31, 2022, the noteholder converted a total
of $55,120 of the note for 242,025 shares of the Company’s common stock, leaving a balance of $0 as of January 31, 2022.
On
October 8, 2021, we issued a convertible promissory note in the aggregate principal amount of $69,300 (the “October 2021 Note”).
The note bears interest at 8%, includes legal and due diligence fees of $3,000, with a 10% Original Issue Discount, matures on October
8, 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 year ended
January 31, 2023, the noteholder converted a total of $69,300 of the note for 242,690 shares of the Company’s common stock, leaving
a balance of $0 as of January 31, 2023.
On
November 15, 2021, the Company entered into a convertible promissory note with Sixth Street Lending LLC. (“Sixth
Street”) in the aggregate principal amount of $60,500
(the “November 2021 Note”). The note bears interest at 8%,
with an Original Issue Discount of $8,500,
matures on November
15, 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 year ended January 31, 2023, the noteholder converted a total of $69,000
of the note for 261,437
shares of the Company’s common stock, leaving a balance of $0
as of January 31, 2023.
On
December 21, 2021, the Company entered into a convertible promissory note with Sixth Street in the aggregate principal amount of $55,000
(the “December 2021 Note”). The note bears interest at 8%, with an Original Issue Discount of $8,000, matures on December
21, 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 year ended
January 31, 2023, the noteholder converted a total of $63,000 of the note for 317,530 shares of the Company’s common stock, leaving
a balance of $0 as of January 31, 2023.
On
February 7, 2022, the Company entered into a convertible promissory note with 1800 Diagonal Lending (formerly known as Sixth Street Lending
LLC) in the aggregate principal amount of $74,800 (the “February 2022 Note”). The note bears interest at 8%, with an Original
Issue Discount of $9,800, matures on February 7, 2023, 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 prices of the Company’s common stock during the 10 trading
days prior to conversion. During the year ended January 31, 2023, the noteholder converted a total of $74,800 of the note for 639,517
shares of the Company’s common stock, leaving a balance of $0 as of January 31, 2023.
On
April 25, 2022, the Company entered into a convertible promissory note with 1800 Diagonal Lending (formerly known as Sixth Street
Lending LLC) in the aggregate principal amount of $71,500
(the “April 2022 Note”). The note bears interest at 8%,
with an Original Issue Discount of $9,500,
matures on April
25, 2023, 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 prices of the Company’s common stock during the 10
trading days prior to conversion. During the year ended January 31, 2023, the noteholder converted a total of $71,500
of the note for 758,524
shares of the Company’s common stock, leaving a balance of $0
as of January 31, 2023.
On
July 14, 2022, the Company entered into a convertible promissory note with 1800 Diagonal Lending LLC in the aggregate principal amount
of $45,138 (the “July 2022 Note”). The note bears interest at 8%, with an Original Issue Discount of $10,138, matures on
July 14, 2023, 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 prices of the Company’s common stock during the 10 trading days prior to conversion. During
the year ended January 31, 2023, the noteholder converted a total of $15,000 of the note for 205,198 shares of the Company’s common
stock, leaving a balance of $30,138 as of January 31, 2023.
On
October 3, 2022, the Company entered into a convertible promissory note with 1800 Diagonal Lending LLC in the aggregate principal amount
of $45,138 (the “October 2022 Note”). The note bears interest at 8%, with an Original Issue Discount of $10,138, matures
on October 3, 2023, 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 prices of the Company’s common stock during the 10 trading days prior to conversion.
On
November 23, 2022, the Company entered into a convertible promissory note with 1800 Diagonal Lending LLC in the aggregate principal amount
of $51,108 (the “November 2022 Note”). The note bears interest at 8%, with an Original Issue Discount of $11,219, matures
on November 23, 2023, 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 prices of the Company’s common stock during the 10 trading days prior to conversion.
Notes
Payable – SBA
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 (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 (extended to June 16, 2022).
This loan was forgiven in full in March 2022. In March 2022, the Company’s SBA PPP loan was forgiven in full resulting in a gain
on forgiveness of debt of $32,497 of principal and $354 of interest.
The
note principal balance of totaled $32,400, with accrued interest of $2,833 and is included in long-term debt as of January 31, 2023.
Notes
Payable
In
April 2022, the Company entered into a Premium Finance Agreement related to an insurance policy. The policy premiums total $33,400 for
a one year policy period. The Company financed $24,750 of the policy over a nine month period. The monthly payments under the agreement
are due in nine installments of $2,871, at an annual interest rate of 10.45%. As of January 31, 2023, the note balance was $2,754.
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, 2023 and 2022, qualified it as a derivative instrument since the number of shares issuable under the note
is indeterminate based on guidance in ASC 815, “Derivatives and Hedging”. This convertible note tainted all other
equity linked instruments including outstanding warrants and fixed rate convertible debt on the date that the instrument became convertible.
The
valuation of the derivative liability of the warrants was determined through the use of a Monte Carlo options model that values the liability
of the warrants based on a risk-neutral valuation where the price of the option is its discounted expected value. The technique applied
generates a large number of possible (but random) price paths for the underlying common stock via simulation, and then calculates the
associated exercise value (i.e. “payoff”) of the option for each path. These payoffs are then averaged and discounted to
a current valuation date resulting in the fair value of the option.
The
valuation of the derivative liability attached to the convertible debt was arrived at through the use of a Monte Carlo model that values
the derivative liability within the notes. The technique applied generates a large number of possible (but random) price paths for the
underlying (or underlyings) via simulation, and then calculates the associated payment value (cash, stock, or warrants) of the derivative
features. The price of the underlying common stock is modeled such that it follows a geometric Brownian motion with constant drift, and
elastic volatility (increasing as stock price decreases). The stock price is determined by a random sampling from a normal distribution.
Since the underlying random process is the same, for enough price paths, the value of the derivative is derived from path dependent scenarios
and outcomes. The features in the notes that were analyzed and incorporated into the model included the conversion features with the
reset provisions, the call/redemption/prepayment options, and the default provisions. Based on these features, there are six primary
events that can occur; payments are made in cash; payments are made with stock; the note holder converts upon receiving a redemption
notice; the note holder converts the note; the issuer redeems the note; or the Company defaults on the note. The model simulates the
underlying economic factors that influenced which of these events would occur, when they were likely to occur, and the specific terms
that would be in effect at the time (i.e. stock price, conversion price, etc.). Probabilities were assigned to each variable such as
redemption likelihood, default likelihood, and timing and pricing of reset events over the remaining term of the notes based on management
projections. This led to a cash flow simulation over the life of the note. A discounted cash flow for each simulation was completed,
and it was compared to the discounted cash flow of the note without the embedded features, thus determining a value for the derivative
liability.
Key
inputs and assumptions used to value the convertible note when it became convertible and upon settlement, and warrants upon tainting,
were as follows:
|
● |
The stock projections are
based on the historical volatilities for each date. These volatilities were in the 80.8% to 164.0% 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, 2023 of $734,294 for newly
granted and existing warrants (see Note 10) that were tainted and a derivative liability of $172,393 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 $192,482 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,
2023, was $229,698. The remaining unamortized debt discount related to the derivative liability was $13,439 as of January 31, 2023.
During
the year ended January 31, 2023, the Company recorded a reclassification from derivative liabilities to equity of $734,294 for warrants
becoming untainted and $144,464 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 liabilities as a gain of $609,622 to reflect the value of the derivative liabilities for
warrants and convertible notes as of January 31, 2023.
Using
the results from the model, the Company recorded a derivative liability during the year ended January 31, 2022 of $734,070 for newly
granted and existing warrants that were tainted and a derivative liability of $78,165 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 $78,165 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, 2022 was $78,165.
The remaining unamortized debt discount related to the derivative liability was $0 as the notes were fully converted by January 31, 2022.
During
the year ended January 31, 2022, the Company recorded a reclassification from derivative liability to equity of $734,070 for warrants
becoming untainted and $585,957 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 $609,622 and $226,278, respectively, to reflect
the value of the derivative liability for warrants and convertible notes as of January 31, 2023 and 2022, respectively. The Company did
not have a derivative liability as of January 31, 2022 since none of the outstanding notes remained convertible at the end of the periods
and consequently the outstanding warrants were no longer tainted.
The
following table sets forth a reconciliation of changes in the fair value of the Company’s derivative liability:
Schedule of Changes in Fair Value of Derivative Liabilities
| |
Year Ended January 31, | |
| |
2023 | | |
2022 | |
Beginning balance | |
$ | - | | |
$ | - | |
Total gains | |
| (609,622 | ) | |
| (226,278 | ) |
Settlements | |
| (144,764 | ) | |
| (585,957 | ) |
Additions recognized as debt discount | |
| 192,485 | | |
| 78,165 | |
Additions due to tainted warrants | |
| 734,294 | | |
| 734,070 | |
Ending balance | |
$ | 172,393 | | |
$ | - | |
| |
| | | |
| | |
Change in unrealized gains included in earnings relating to derivatives | |
$ | (609,622 | ) | |
$ | (226,278 | ) |
NOTE
8 – Common stock
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.
Class A Common Stock has super majority voting rights
with the holder of each outstanding share of Class A Common Stock being entitled to 200 votes per share on all such matters, including,
but not limited to, election of the Board of Directors.
On
October 27, 2022, the registrant amended its articles of incorporation. The articles of incorporation were amended for the purposes of
increasing the authorized shares of the registrant from 25,000,000 shares to 75,000,000 shares consisting of 74,800,000 shares of $0.00001
par value Common Stock and 200,000 shares of $0.00001 par value Class A Common Stock.
Common
Stock Issued During the Year Ended January 31, 2023
During
the year ended January 31, 2023, the Company issued a total of 2,424,896 shares of our common stock for conversions of $362,600 in principal
and $12,040 of interest on convertible notes payable at exercise prices ranging from $0.018 to $0.3207.
On
May 19, 2022, the Company sold 13,298
units at a price of $0.376
per unit to an accredited investor for proceeds of $5,000. Each
unit consists of 1 share of our common stock and 0.50 warrants. The warrants have a relative fair value of $1,372.
Each warrant allows the holder to purchase one share of our common stock at a price of $0.376
per share at any time on or before May 16, 2025.
On
July 1, 2022, the Company entered into a stock compensation and subscription agreement with Dutchess Group LLC. Per the agreement, Dutchess
Group will provide services to the Company and will be issued 500,000 shares of the Company’s common stock. During the nine months
ended October 31, 2022, the Company issued 500,000 shares of common stock valued at $160,000.
Common
Stock Issued During the Year Ended January 31, 2022
During
the year ended January 31, 2022, the Company issued a total of 535,568 shares of our common stock for conversions of $217,540 of convertible
notes payable and accrued interest at exercise prices ranging from $0.202 to $0.797.
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 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.
In
October 2021, the Company issued 60,887 shares of its common stock and 30,444 warrants to a director for gross proceeds of $35,000, for
$0.575 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $0.805.
In
October 2021, the Company issued 25,986 shares of its common stock and 12,993 warrants to a director for gross proceeds of $15,000, for
$0.577 per unit. The warrants have a three-year term and are exercisable at any time at an exercise price of $0.808.
Purchase
Agreement with Triton Funds LP
On
August 20, 2021, the Company executed a $1,000,000
common stock purchase agreement (the “Purchase Agreement”) and a $1,000,000
warrant agreement (the “Warrant Agreement,” together “the Agreements”) with Triton Funds LP
(“Triton”) of San Diego, California. Under the Common Stock Purchase Agreement, the Company has a “put”
right pursuant to which it may require Triton to purchase a total of up to $1,000,000
of its common stock. The Company may exercise its put at any time after the Registration Statement to be filed with the U.S.
Securities and Exchange Commission is declared effective and prior to December 31, 2022. It
may require Triton to purchase not less than $25,000 or more than $250,000 per month of its common stock at a purchase price equal
to 75% of the lowest daily volume-weighted average price of the Company’s common stock during the 5 business days immediately
prior to the date of closing of each separate purchase installment. Under the Common Stock Purchase Warrant, Triton has the
right for a period of 5
years to elect to purchase up to an additional $1,000,000
of shares of the Company’s common stock at a purchase price per share based upon an assumed $20,000,000
market capitalization of the Company’s outstanding shares from time to time.
The
Registration Statement was declared effective by the Securities and Exchange Commission on September 13, 2021. On September 14, 2021,
the Company issued a total of 490,196 shares of its common stock under the Purchase Agreement at an aggregate price of $132,374 received
in November 2021, or approximately $0.27 per share (adjusted from original estimate of $0.51 per share due to change in market price
at closing).
On
July 7, 2022, the Company issued 1,109,804 shares of its common stock under the Purchase Agreement and recorded a subscription receivable
of $187,030, or $0.1685 per share. The subscription receivable was collected in full on August 3, 2022.
On
January 31, 2023, the Company issued 320,000 shares of its common stock under the Purchase Agreement and recorded a subscription receivable
of $16,368, or $0.0512 per share. The subscription receivable was collected in full on February 22, 2023.
NOTE
9 – Share-based compensation
The
2010 Stock Option Plan was approved and adopted by the Board of Directors on August 10, 2010. The plan allows for up to 191,000 shares
to be granted to key employees and non-employee consultants after specific objectives are met. The 2007 Stock Option Plan was approved
and adopted by the Board of Directors on December 10, 2007. The plan allows for up to 5,000 shares to be granted to key employees and
non-employee consultants after specific objectives are met. The 2004 Stock Option Plan was approved and adopted by the Board of Directors
on December 27, 2004. The plan allows for up to 1,925 shares to be granted to key employees and non-employee consultants after specific
objectives are met. Employees can receive incentive stock options and non-qualified stock options while non-employee consultants can
receive only non-qualified stock options. The options granted vest under various provisions using graded vesting, not to exceed four
years. The options granted have a term not to exceed ten years from the date of grant or five years for options granted to more than
10% stockholders. The option price set by the Plan Administration shall not be less than the fair market value per share of the common
stock on the grant date or 110% of the fair market value per share of the common stock on the grant date for options granted to greater
than 10% stockholders. Options remaining available for grant under the 2010. The following tables summarize the Company’s stock
option activity during the years ended January 31, 2023 and 2022:
Schedule of Stock Options Activity
| |
Number of options | | |
Weighted average exercise price | | |
Weighted average remaining life (years) | | |
Aggregate intrinsic value | |
Outstanding, January 31, 2021 | |
| 146,000 | | |
$ | 3.019 | | |
| 7.61 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Granted | |
| - | | |
| - | | |
| | | |
| | |
Cancelled and/or forfeited | |
| (750 | ) | |
| 13.500 | | |
| | | |
| | |
Exercised | |
| - | | |
| - | | |
| | | |
| | |
Outstanding, January 31, 2022 | |
| 145,250 | | |
$ | 2.965 | | |
| 6.65 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Granted | |
| 987,760 | | |
| 2.18 | | |
| | | |
| | |
Cancelled and/or forfeited | |
| (145,250 | ) | |
| 2.97 | | |
| | | |
| | |
Exercised | |
| (674,000 | ) | |
| 0.15 | | |
| | | |
| | |
Outstanding, January 31, 2023 | |
| 313,760 | | |
$ | 6.53 | | |
| 13.69 | | |
$ | - | |
| |
| | | |
| | | |
| | | |
| | |
Exercisable, January 31, 2023 | |
| 313,760 | | |
$ | 6.53 | | |
| 13.69 | | |
$ | - | |
The
aggregate intrinsic value is calculated based on the stock price of $0.119 and $0.385 per share as of January 31, 2023 and 2022, respectively.
During
the years ended January 31, 2023 and 2022, we recognized $100,482 and $0 of compensation expense related to incentive and non-qualified
stock options previously granted to officers, employees and consultants.
At
January 31, 2022, there was $0 of unrecognized share-based compensation for all share-based awards outstanding.
On
April 22, 2022, the Company reached terms of settlement of the litigation Case No. C20194139, involving our former CEO, James Briscoe
(see Note 13). As part of the terms of settlement, the Company will reinstate Mr. Briscoe’s stock options that expired following
his resignation from the Board. This reinstatement will be on the same terms as originally issued, as evidenced in the August 10, 2010,
Stock Option Agreement and October 11, 2016, Stock Option Agreement, each as adjusted for the February 25, 2021, reverse stock split,
and pursuant to the Company’s 2010 Stock Option Plan, except for the option exercise window, which will be expanded to 30 years.
A total of 118,760 stock options were reinstated for Mr. Briscoe, which is comprised of 105,000 options with an exercise price of $19.00
and 13,760 options with an exercise price of $1.50. The total fair value of these option grants at issuance was $44,706.
On
June 21, 2022, the Company entered into an agreement with an advisor to advise its executive management on strategic partnerships, investments,
and other undertakings of material value to the Company. As compensation, the Company will grant the advisor monthly stock options of
20,000 for a term of three months. The options have a strike price equal to the closing price per share on the day the options are issued
and expire in one year. During the year ended January 31, 2023, the Company granted 120,000 options to consultants. The exercise price
of the options ranges from $0.1069 to $0.30. The total fair value of these option grants at issuance was $11,317. During the year ended
January 31, 2023, the Company recognized $9,036 of expenses related to these options. At January 31, 2023, the Company had $2,281 of
unrecognized expenses related to outstanding options.
NOTE
10 – Warrants
As
of January 31, 2023, there were 2,256,070 warrants outstanding and 1,748,538 warrants exercisable. The warrants have a weighted average
remaining life of 2.47 years and a weighted average exercise price of $0.82 per warrant for one common share. Warrants outstanding at
January 31, 2023 and 2022 are as follows:
Schedule of Stock Warrants Outstanding
| |
Number
of
warrants | | |
Weighted average exercise price per share | |
| |
| | |
| |
Outstanding, January 31, 2021 | |
| 400,166 | | |
| 2.155 | |
Issued | |
| 1,770,051 | | |
| 0.522 | |
Expired | |
| - | | |
| - | |
Exercised | |
| (6,000 | ) | |
| 2.100 | |
Outstanding, January 31, 2022 | |
| 2,164,217 | | |
| 1.177 | |
Issued | |
| 91,853 | | |
| 0.20 | |
Expired | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | |
Outstanding, January 31, 2023 | |
| 2,256,070 | | |
| 1.08 | |
| |
| | | |
| | |
Exercisable, January 31, 2023 | |
| 1,748,538 | | |
| 0.82 | |
The
weighted average intrinsic value for warrants outstanding was $0 and $10,012 as of January 31, 2023 and 2022, respectively.
During
the year ended January 31, 2023, the Company issued 6,649 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 of $0.53.
During
the year ended January 31, 2022, the Company issued 98,552 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 $0.805 to $1.646. Additionally, on August 20,
2021, the Company issued 507,532 five-year warrants to purchase up to $1,000,000 of common stock under a Common Stock Purchase Warrant
with Triton Funds LP (see Note 8).
Extension
of Expiration Date
Effective
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.
As
of May 18, 2022, the Company extended all warrants issued by the Company which expired or will expire during the year 2022. These warrants
are extended for an additional three years. All other terms of the warrants remain unchanged, fully considering the reverse split effective
on February 25, 2021, which applied equivalently to price and number of shares for all warrants.
NOTE
11 – Income taxes
As
of January 31, our deferred tax asset is as follows:
Schedule of Deferred Tax Asset
| |
January
31,
2023 | | |
January
31,
2022 | |
Deferred Tax Assets | |
$ | 6,712,000 | | |
$ | 6,872,000 | |
Less Valuation Allowance | |
| (6,712,000 | ) | |
| (6,872,000 | ) |
Deferred
Tax Assets, Net | |
$ | - | | |
$ | - | |
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 decrease of $160,000
during the year ended January 31, 2023, primarily represents the increase in net operating loss
carry-forwards during the period offset against the valuation allowance. As of January 31, 2023, our estimated net operating loss
carry-forward is approximately $32
million and expires beginning
in 2026 through 2038, with no expiration date for our 2019 through 2023 net operating losses under the Tax Cuts and Jobs
Act.
Deferred
tax assets were calculated using the Company’s effective tax rate, which it estimated to be 21%. The effective rate is reduced
to 0% for 2023 and 2022 due to the full valuation allowance on its net deferred tax assets.
We
have identified our federal and Arizona state tax returns as “major” tax jurisdictions. The periods our income tax returns
are subject to examination for these jurisdictions are the tax years ended January 31, 2019 through January 31, 2022. We believe our
income tax filing positions and deductions will be sustained on audit, and we do not anticipate any adjustments that would result in
a material change to our financial position. Therefore, no liabilities for uncertain income tax positions have been recorded.
Internal
Revenue Code Section 382 limits the ability to utilize net operating losses if a 50% change in ownership occurs over a three-year period.
Such limitation of the net operating losses may have occurred but we have not analyzed it at this time as the deferred tax asset is fully
reserved. We have federal and state net operating loss carry-forwards that are available to offset future taxable income.
NOTE
12 – Related party transactions
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, 2023 and 2022.
Accrued
Wages and Vacation
As of January 31, 2023, and 2022, we had a balance of accrued unpaid wages and vacation of $66,205 and $65,807 to
Patricia Madaris, VP Finance & CFO, respectively.
Note
payable
On
January 31, 2023, the Company entered into a promissory note with Brett Gross for $50,000 and received cash proceeds. The note bears
interest at 10% and matures on January 31, 2024.
Advances
During
the year ended January 31, 2023, CEO, Brett Gross advanced the Company $12,500 in cash and paid $4,446 of expenses on the Company’s
behalf and was repaid $16,946. Additionally, during the year ended January 31, 2023, board members advanced $7,050 to the Company and
the Company repaid $2,050 of advances and issued shares to settle the remaining $5,000 of related party advances. The advances are unsecured,
non-interest bearing and payable on demand. As of January 31, 2023 and 2022, there were $5,000 and $0 outstanding advances from related
parties, respectively.
During
the year ended January 31, 2023, the Chairman of the Board, Pete O’Heeron advanced the Company $5,000
and paid $13,650
of expense on the Company behalf. The Company settled a $5,000
advance and $13,650
of expenses paid on the Company’s behalf from a related party for the issuance of 85,204
units at a price range of $0.103
to $0.187
per unit. Each unit consists of 1
share of our common stock and 0.50
warrants. The warrants have a fair value of $9,167 and each warrant allows the holder to purchase one share of our common stock at a
price range of $0.144
to $0.262
per share. The warrants expire three years from the date of issuance.
On
January 30, 2023, the Company issued 23,812 units to the Chairman of the Board for $3,000 in cash proceeds. Each unit consists of 1 share
of our common stock and 0.50 warrants. Each warrant allows the holder to purchase one share of our common stock at a price of $0.176
per share. The warrants expire three years from the date of issuance.
Other
On September 26, 2022, the Company granted 75,000 options to a board member. The options expire ten years following issuance and have
an exercise price of $0.15. The options vested monthly over a one-year service period and have a total fair value of $6,302.
On
September 29, 2022, the Company granted 674,000 options to employees. The options expire ten years following issuance and have an exercise
price of $0.15. The options vested upon issuance and have a total fair value of $104,226. On the same day, the Company issued note agreements
to the employees totaling $101,100 and the employees exercised the 674,000 options. The notes bear interest of 3.15% per annum, are due
on September 30, 2027 and were recorded as a subscription receivable. As of January 31, 2023, the subscription receivable was $101,100,
with interest of $708.
Effective
January 5, 2022, the Company entered into Debt Conversion Agreements with Brett Gross, President & CEO, and Peter O’Heeron,
Chairman of the Board, pursuant to which each of them agreed to convert their outstanding shareholder advances and loans to the Company
into Company securities consisting of shares of common stock and warrants. Mr. Gross converted shareholder advances and loans to the
Company totaling $375,357 and Mr. O’Heeron converted shareholder advances and loans totaling $250,830. Upon conversion, the Company
debts represented by such shareholder advances and loans were deemed to be satisfied and paid in full.
The
debt conversions described above were completed pursuant to, and in accordance with the terms of the Company’s current private
placement offering. Accordingly, the Company issued units consisting of one share of common stock and ½ warrant to complete the
conversion. The shares were issued at a price of $0.269 per share, which is the Volume Weighted Average Price (“VWAP”) for
the 4 days immediately preceding the effective date of the conversion. The warrants are exercisable for up to three years at a price
of $0.377 per share, which is 140% higher than the price at which the shares were issued. A total of 1,395,379 shares and 697,690 warrants
were issued to Mr. Gross and a total of 932,454 shares and 466,227 warrants were issued to Mr. O’Heeron. The shares and warrants
issued to Mr. Gross and Mr. O’Heeron are restricted securities as defined in Rule 144.
NOTE
13 – Commitments and Contingencies
We
currently rent a storage space for $105 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, 2023
for the period from September 1, 2023 through September 1, 2024 of $15,345 have not been paid yet, but we plan to pay when due.
We
are required to pay annual rentals for our Arizona State Land Department Mineral Exploration Permits (“AZ MEP”) at our Tombstone
Hay Mountain project in the State of Arizona. AZ MEP permits cost $500 per permit per year in non-refundable filing fees and are valid
for 1 year and renewable for up to 5 years. The rental fee is $2.00 per acre for the first year, which includes the second year, and
$1.00 per acre per year for years three through five. The minimum work expenditure requirements are $10 per acre per year for years one
and two and $20 per acre per year for years three through five. If the minimum work expenditure requirement is not met the applicant
can pay the equal amount in fees to the Arizona State Land Department to keep the AZ MEP permits current. The rental period begins on
the date of acceptance for each permit. Rental payments are due by the first day of the rental period. We hold AZ MEP permits for 12,878.18
acres at our Tombstone project. We paid filing and rental fees for our AZ MEP’s before their respective due dates in the amount
of $29,308.49.
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, 2023 and 2022.
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.
On
April 22, 2022, the Company reached terms of settlement of the litigation Case No. C20194139, involving J. Briscoe, previously filed
in the Superior Court of Arizona. Effective April 22, 2022, the Company’s board of directors voted on, accepted and the settlement
is now hereby approved, ratified, and confirmed.
A
summary of the terms of that settlement is as follows:
|
● |
Mr. Briscoe dropped his
demand for “accrued wages” (see Note 12). |
|
● |
Mr. Briscoe dropped his
claim for payment of his credit card debt (see Note 4). These balances were included in accounts payable and accrued liabilities
on the consolidated balance sheet in prior period. |
|
● |
Mr. Briscoe dropped all
other claims and waived and releases all claims, known or unknown. |
|
● |
Mr. Briscoe returned title
and possession of all the vehicles that he previously transferred to his name. Mr. Briscoe to also return to the Company all Company
property identified in our First Amended Complaint. |
|
● |
The Company reinstated
Mr. Briscoe’s stock options that expired following his resignation from the Board. This reinstatement was on the same terms
as originally issued, as evidenced in the August 10, 2010, Stock Option Agreement and October 11, 2016, Stock Option Agreement, each
as adjusted for the February 25, 2021, reverse stock split, and pursuant to the Company’s 2010 Stock Option Plan, except for
the option exercise window, which was expanded to 30 years (see Note 9). |
|
● |
The Company is paying Mr.
Briscoe a sum of $29,627 in 15 equal monthly installments reflected in accounts payable and accrued liabilities on the accompanying
consolidated balance sheets. |
|
● |
Both parties agreed to
a non-disparagement clause that expressly establishes prior consent to the Pima County Court’s jurisdiction for issuance of
mandatory injunctive relief if an aggrieved Party reasonably believes this clause has been violated by the other Party whether such
violation is done directly by the violating Party or via proxy. |
In
connection with the settlement, we wrote off $1,072,667 of liabilities in exchange for $29,677 of new debt and the issuance of options
with a fair value of $44,707, resulting in a gain of $998,284.
NOTE
14 – Subsequent events
Amendments to Articles of Incorporation
On February 6, 2023, the Company, filed a Certificate of Amendment with
the Secretary of State of Nevada for the purpose of amending its Articles of Incorporation to increase authorized number of the Company’s
Class A Common Stock, par value $0.00001 per share (the “Class A Shares”) by 300,000.
Extension
of Expiration Date
Effective
February 6, 2023, the Company extended all warrants issued by the Company which expired or will expire during the year 2023. These warrants
are extended for an additional three years.
Securities
Purchase Agreements
On
February 3, 2023, the Company entered into a Securities Purchase Agreement (the “February 2023 Securities Purchase Agreement”)
with 1800 Diagonal Lending LLC. (“1800 Diagonal”). Pursuant to the terms of the February 2023 Securities Purchase Agreement,
the Company agreed to issue a convertible promissory note (the “February 2023 Note”) to 1800 Diagonal in the aggregate principal
amount of $48,675. Effective February 2, 2023, the Company issued the February 2023 Note to 1800 Diagonal consistent with the terms of
the February 2023 Securities Purchase Agreement. The February 2023 Note bears interest at 8%, with a 10% Original Issue Discount and
matures on February 2, 2024. Pursuant to the terms of the February 2023 Note, the outstanding principal and accrued interest on the note
shall be convertible into shares of the Company’s common stock as set forth therein.
On
March 27, 2023, the Company entered into a Securities Purchase Agreement (the “March 2023 Securities Purchase Agreement”)
with 1800 Diagonal. Pursuant to the terms of the March 2023 Securities Purchase Agreement, the Company agreed to issue a convertible
promissory note (the “March 2023Note”) to 1800 Diagonal in the aggregate principal amount of $48,625. Effective March 24,
2023, the Company issued the March 2023 Note to 1800 Diagonal consistent with the terms of the March 2023 Securities Purchase Agreement.
The March 2023 Note bears interest at 8%, with a 9% Original Issue Discount and matures on March 24, 2023. Pursuant to the terms of the
March 2023 Note, the outstanding principal and accrued interest on the note shall be convertible into shares of the Company’s common
stock as set forth therein.
Loan
agreement with related party
On
March 14, 2023, the Company entered into a secured note in the principal amount of $16,750, with the Company’s CEO. The notes bear
interest at 3.15% and matures on March 15, 2028. The Company issued 250,000 shares of common stock as collateral on the note.
Shares
Issued for Conversion of Notes
On
February 7, 2023, the Company issued a total of 169,875 shares of our common stock for conversions of $15,000 in principal for the July
2022 Note at the exercise price of $0.0883.
On
February 13, 2023, the Company issued a total of 190,800 shares of our common stock for conversions of $15,138 in principal and $1,806
of accrued interest for the July 2022 Note at the exercise price of $0.0888.
On
April 3, 2023, the Company issued a total of 272,109 shares of our common stock for conversions of $12,000 in principal for the September
2022 Note at the exercise price of $0.0441.
On
April 17, 2023, the Company issued a total of 252,632 shares of our common stock for conversions of $12,000 in principal for the September
2022 Note at the exercise price of $0.0475.
On April 28, 2023, the Company issued a total of 365,854
shares of our common stock for conversions of $15,000 in principal for the September 2022 Note at the exercise price of $0.0410.
Other
On May 8, 2023, the Company
entered into a one year service agreement with a multimedia news organization and events management firm. Per the agreement, the Company
will compensate the multimedia news organization and events management firm $45,000 for their services.