8-K: Liberty Star Secures $73,700 Convertible Note for Working Capital

Liberty Star Uranium & Metals Corp. has entered into a Securities Purchase Agreement to issue a $73,700 convertible promissory note to 1800 Diagonal Lending LLC.

Summary

• Liberty Star Uranium & Metals Corp. (the Company) entered into a Securities Purchase Agreement with 1800 Diagonal Lending LLC on January 12, 2026.
• The Company issued a convertible promissory note (the Note) with a principal amount of $73,700 to 1800 Diagonal Lending LLC, effective January 8, 2026.
• The Note includes a 10% Original Issue Discount (OID) of $6,700, meaning the Company received $67,000 in cash.
• The Note bears interest at 8% per annum and matures on October 15, 2026.
• Outstanding principal and accrued interest are convertible into shares of the Company's common stock.
• The conversion price is 75% of the average of the three lowest closing bid prices for the common stock during the ten trading days prior to the conversion date (a 25% discount).
• The holder's beneficial ownership upon conversion is limited to 4.99% of the outstanding common stock.
• The Company is required to reserve three and a half times the number of shares issuable upon full conversion of the Note.
• The Company will use the proceeds for general working capital purposes.
• The Company is obligated to reimburse 1800 Diagonal Lending LLC $7,000 for legal fees and due diligence fees.

Sentiment

Score: 4

Explanation: While securing financing is a necessary step for ongoing operations, the terms of this convertible note, including a significant Original Issue Discount and a 25% conversion discount, indicate a relatively high cost of capital. This suggests the company may face challenges in securing more favorable financing or has a higher perceived risk profile. The potential for future dilution and high default penalties are notable concerns.

Positives

• Secured $67,000 in financing (before fees) to support general working capital needs, providing immediate liquidity.
• The convertible note structure offers flexibility, allowing the company to defer immediate equity dilution while accessing capital.

Negatives

• The Note carries a 10% Original Issue Discount ($6,700), reducing the net cash received by the Company to $67,000 from the $73,700 principal amount.
• The Company is required to reimburse the lender $7,000 for legal and due diligence fees, further reducing the net proceeds available for working capital.
• The conversion price is set at a 25% discount to the market price, which will result in greater dilution for existing shareholders upon conversion.
• A high default interest rate of 22% per annum applies to unpaid amounts, and certain events of default can trigger penalties of 150% or 200% of the outstanding debt.

Risks

• Potential significant dilution for existing shareholders if the convertible note is fully converted into common stock, especially given the 25% conversion discount.
• Risk of incurring substantial penalties, including a 22% default interest rate and potential payments of 150% to 200% of the outstanding debt, upon an Event of Default.
• Operational risk if the Company fails to maintain sufficient authorized and unissued common stock (Reserved Amount) for conversions, which constitutes an Event of Default.
• Risk of financial penalties ($2,000 per day) if the Company fails to deliver common stock upon conversion within three business days of receiving a conversion notice.
• Risk of an Event of Default if the Company's transfer agent delays or fails to transfer shares or remove restrictive legends, or if the Company owes a balance to its transfer agent.
• General business risks that could lead to a 'Material Adverse Effect' on the Company's business, operations, assets, financial condition, or prospects.
• Risk of delisting of the Common Stock from the OTCQB or an equivalent exchange, which is an Event of Default.
• Risk of failing to comply with the reporting requirements of the Securities Exchange Act of 1934, which is an Event of Default.
• Risk of liquidation, dissolution, winding up, or cessation of operations, which are Events of Default.
• Cross-default provisions mean a breach in other agreements with the Holder or its affiliates could trigger a default on this Note.

Future Outlook

The Company intends to utilize the proceeds from this financing for general working capital purposes. It is committed to maintaining its corporate existence and complying with all reporting requirements under the Securities Exchange Act of 1934. The convertible note matures on October 15, 2026, by which time it will either be repaid or converted into common stock.

Management Comments

• Patricia Madaris, VP Finance & CFO, signed the report on behalf of Liberty Star Uranium & Metals Corp., indicating management's authorization of the transaction.

Industry Context

This financing event reflects a common strategy for smaller public companies, particularly in resource-intensive sectors like uranium and metals, to raise capital. Convertible notes offer a way to secure funding without immediate equity dilution, often when traditional bank financing is unavailable or less attractive. The terms, including an Original Issue Discount and a conversion price discount, are typical for companies seeking capital in a higher-risk environment or with limited access to cheaper funding sources.

Comparison to Industry Standards

• The 8% interest rate on the convertible note is within a reasonable range for non-investment grade corporate debt, but the 10% Original Issue Discount (OID) and 25% conversion discount represent a higher effective cost of capital compared to prime lending rates or equity raises for more established companies.
• The 22% default interest rate is significantly higher than standard corporate debt, reflecting the elevated risk profile often associated with smaller, development-stage companies or those in volatile sectors.
• The 4.99% beneficial ownership limitation for the noteholder upon conversion is a standard provision designed to prevent the investor from triggering Schedule 13D filing requirements, which would necessitate more extensive public disclosure of their holdings and intentions.
• The requirement for the Company to reserve 3.5 times the number of shares issuable upon full conversion is a protective measure for the noteholder, ensuring sufficient shares are available, a common practice in convertible debt agreements.

Legal Proceedings

• The Company represents that there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or threatened against or affecting the Company or its subsidiaries that could have a Material Adverse Effect, except as disclosed in SEC Documents.

Stakeholder Impact

• **Shareholders**: Face potential dilution from the conversion of the note into common stock, exacerbated by the 25% conversion discount. The high cost of capital (OID, fees, discount) also impacts shareholder value.
• **Creditors (1800 Diagonal Lending LLC)**: Benefit from favorable terms including an 8% interest rate, a 25% conversion discount, and robust default provisions with significant penalties, providing a strong position for repayment or equity upside.
• **Company Operations**: Receive an influx of capital ($60,000 net after fees) for general working capital, which can support ongoing business activities and operational stability.

Next Steps

• The Company will deploy the $67,000 (less $7,000 in fees) for general working capital purposes.
• The Company must ensure it maintains the required reserve of authorized and unissued common stock for potential conversions.
• The Company is obligated to continue complying with all reporting requirements under the Securities Exchange Act of 1934.
• The Company will need to manage the repayment or conversion of the note by its maturity date of October 15, 2026.

Key Dates

Recommendation

This filing details a debt financing event rather than operational performance. While securing capital is essential for the company's continuity, the terms of the convertible note, including a 10% Original Issue Discount and a 25% conversion discount, indicate a relatively high cost of capital. This suggests potential challenges in securing more favorable financing or a higher perceived risk by lenders. The significant potential for future dilution upon conversion and the stringent default penalties warrant caution. Without further operational or financial performance updates, a 'hold' recommendation is prudent to allow investors to assess how this capital is deployed and its impact on future results and existing shareholder value.

Keywords

Convertible Promissory Note, Debt Financing, Capital Raise, SEC Filing, 8-K, Liberty Star Uranium & Metals Corp., LBSR, Working Capital, Dilution Risk, Original Issue Discount