Form 10-Q for LIBERTY STAR URANIUM & METALS CORP.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Much of the information included in this quarterly report includes or is based upon estimates, projections or other "forward looking statements". Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.
Such estimates, projections or other "forward looking statements" involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other "forward looking statements".
The following Management's Discussion and Analysis is intended to help the reader understand the results of operations and financial condition of Liberty Star Uranium & Metals Corp. Management's Discussion and Analysis is provided as a supplement to, and should be read in conjunction with, our condensed consolidated financial statements and the accompanying notes to the condensed consolidated financial statements.
Liberty Star Uranium & Metals Corp. (the "Company" or "We") is in the acquisition and exploration of mineral properties business. Big Chunk Corp. ("Big Chunk") is our wholly owned subsidiary and is engaged in the acquisition and exploration of mineral properties business in the State of Alaska. Redwall Drilling Inc. ("Redwall") is our wholly owned subsidiary and is a drilling contractor. We are an exploration stage company, as we have not generated revenues from operations. The Company's significant projects are:
North Pipes Super Project ("NPSP"): Located in Northern Arizona on the Arizona Strip, we plan to ascertain whether the North Pipes Super Project claims possess commercially viable deposits of uranium. We have approximately 300 potential breccia pipe targets. We have not identified any ore reserves to date.
Big Chunk Super Project ("Big Chunk"): Located in the Iliamna region of Southwestern Alaska, we plan to ascertain whether the Big Chunk claims possess commercially viable deposits of copper, gold, molybdenum, silver and zinc. We have not identified any ore reserves to date.
Bonanza Hills Project ("Bonanza Hills"): Located in the Iliamna region of Southwestern Alaska, we plan to ascertain whether the Bonanza Hills claims possess commercially viable deposits of gold and silver. We have not identified any ore reserves to date.
On September 11, 2008, we announced that we and XState Resources have agreed that XState will maintain a 50% interest in three uranium exploration targets at North Pipes. The three areas can be chosen from all the targets over which exploration has been conducted by the joint venture in the last 18 months.
Both parties agree to enter into a formal 50/50 contributing joint venture in relation to the three targets chosen by XState. The previous "earn-in" agreement is terminated. The Company retains former JV funds to complete minor rehabilitation on exploration sites and conclude administrative tasks.
There is no assurance that a commercially viable mineral deposit exists on any of our properties, and further exploration is required before we can evaluate whether any exist and, if so, whether it would be economically feasible to develop or exploit those resources. Even if we complete our current exploration program and we are successful in identifying a mineral deposit, we would be required to spend substantial funds on further drilling and engineering studies before we could know whether that mineral deposit will constitute a reserve (a reserve is a commercially viable mineral deposit). Please refer to the section entitled "Risk Factors" for additional information about the risks of mineral exploration.
To date, we have not generated any revenues and we remain in the exploration stage. Our ability to pursue our business plan and generate revenues is subject to our ability to obtain additional financing, and we cannot give any assurance that we will be able to do so.
Material Changes in Financial Condition from January 31, 2008 to October 31, 2008
We had cash and cash equivalents in the amount of $279,995 as of October 31, 2008 compared to $1,265,187 as of January 31, 2008. We had negative working capital of $(1,829,975) as of October 31, 2008 compared to $(505,662) as of January 31, 2008. The reduction in our cash and working capital balances resulted from payment of annual rentals on mineral claims in Arizona, operating expenses and repayments on the May 2007 Convertible Notes. During the nine months ended October 31, 2008 we paid approximately $400,000 cash and issued 96,029,679 shares of our common stock to the holders of the May 2007 Convertible Notes for the monthly payment of principal and accrued interest. During the nine months ended October 31, 2008 we paid approximately $220,000 for annual rentals on mineral claims in Arizona, purchased equipment costing approximately $75,000 and made approximately $80,000 in debt service payments on debt obtained to purchase equipment in prior years. The remaining change in our cash balance is due to outflows for operations in excess of the cash inflow from the sale of the August 2008 Convertible Promissory Notes.
We will require additional funds to implement our exploration operations. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. The May 2007 Convertible Notes and August 2008 Convertible Notes contained restrictions on raising new capital from the sale of registered stock to other investors. We are also limited to raising up to $7,000,000 in private placement funds during the 2 year term of the May 2007 Convertible Notes. We are also required to pay up to $3,000,000 of the unpaid principal and interest on the May 2007 Convertible Promissory Notes and the August 2008 Convertible Promissory Notes before paying any other expenses if we are successful in raising capital. Another factor making it difficult for us to raise capital is that currently, we have only 6,053,294 common shares that are not issued of our 200,000,000 total authorized shares of common stock. We would need to increase our authorized capital in order to do an equity financing. These restrictions may make it difficult for us to raise the cash required to proceed with our planned exploration activities.
Material Changes in Results of Operations from October 31, 2008 to October 31, 2007
We had a net loss of $(3,363,766) for the nine months ended October 31, 2008 compared to a net loss of $(3,979,256) for the nine months ended October 31, 2007 resulting in a decrease in net loss of $615,490. Our results of operations can vary greatly from period to period depending on the type and location of exploration activities being performed. The decrease in net loss was largely due to these factors:
1) A decrease in net loss from operations of approximately $890,000 is largely due the reduction of geological and geophysical exploration costs. Our ability to perform exploration activities during the nine months ended October 31, 2008 was limited due to the lack of cash available. During the current year we did not perform any significant exploration project on our North Pipes claims, while last year we had the cash resources available to perform exploratory drilling, geochemical sampling, and geological mapping at our North Pipes project.
2) We earned $300,000 during the nine months ended October 31, 2008 as income from the Elle Venture for agreeing to enter into another modification to the joint venture agreement and canceling the subcontracting agreement. This is a not a recurring transaction, has not been earned in the past, and is not expected to be earned again in the future.
Critical Accounting Policies
The condensed consolidated financial statements of Liberty Star Uranium & Metals Corp. (formerly Liberty Star Gold Corp.) have been prepared in conformity with accounting principles generally accepted in the United States of America. Our significant accounting policies are described in Note 3 to the condensed consolidated financial statements included in Item 1 in this Form 10-Q. The critical accounting policies adopted by our company are as follows:
Since we have not generated any revenue, we have negative cash flows from operations, and negative working capital we have included a reference to our ability to continue as a going concern in connection with our consolidated financial statements for the period ended January 31, 2008. Our total stockholders' deficit at October 31, 2008 was $(690,461). All exploration costs are expensed as incurred.
These condensed consolidated financial statements have been prepared on the going concern basis, which assumes that adequate sources of financing will be obtained as required and that our assets will be realized, and liabilities settled in the ordinary course of business. Accordingly, these condensed consolidated financial statements do not include any adjustments related to the recoverability of assets and classification of assets and liabilities that might be necessary should we be unable to continue as a going concern.
The Company accounts for costs incurred to acquire, maintain and explore mineral properties as charged to expense in the period incurred until the time that a proven mineral resource is established at which point development of the mineral property would be capitalized. Currently, the company does not have any proven mineral resources on any of its mineral properties.
Convertible promissory notes
The Company accounts for convertible promissory notes in accordance with Statement of Financial Accounting Standards No. 150 ("SFAS 150"). The Company reviewed the convertible promissory notes and the related subscription agreement to determine the appropriate reporting within the financial statements. The notes are reported as liabilities stated at fair value. The Company determined that reporting the notes as equity would not be appropriate as the conversion of the notes into common stock was not guaranteed. No gain or loss is reported when the notes are converted into shares of the Company's common stock in accordance with the note's original terms.