Notes to the Consolidated Financial Statements
For the quarterly period ended March
31, 2016
(Unaudited)
NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Li3 Energy, Inc. (“Li3 Energy”
or the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2005. In 2009, the Company
established its business focus and strategy toward identifying and pursuing business opportunities in lithium and industrial minerals
mining in the Americas.
Part of our strategic plan is to ensure
that Minera Li (of which the Company owns a non-controlling interest) explores and develops the existing Maricunga Project in Chile
while simultaneously identifying other synergistic opportunities with new projects with production potential that could also be
advanced in an accelerated manner, with the goal of becoming a company with valuable lithium, potassium, nitrates and other industrial
minerals properties.
The Company’s three wholly owned
subsidiaries include: Li3 Energy Peru SRL (“Li3 Peru”), a subsidiary formed in Peru to explore mining opportunities
in Peru and in South America; Alfredo Holdings, Ltd. (“Alfredo”), an exempted limited company incorporated under the
laws of the Cayman Islands; and Li3 Energy Copiapó, SA (“Li3 Copiapó”), a Chilean corporation, which
is a subsidiary of Alfredo.
Since October 22, 2014, the Company holds
40% of the shares in Noto Energy SA (“Noto”, an Argentinean corporation and a previously 100% owned subsidiary).
On January 27, 2014, the Company entered
into a transaction with a third party, Minera Salar Blanco SpA (“MSB”, previously BBL SpA), subsequent to which MSB
became the majority holder of Minera Li, holding 51% of the ownership interest. The Company retains a 49% ownership of Minera Li.
Minera Li holds 60% ownership of Sociedades Legales Mineras Litio1 a 6 de la Sierra Hoyada de Maricunga (“SLM Litio 1-6”),
a group of six private companies (the “Maricunga Companies”), and the Cocina Mining Concessions (together with SLM
Litio 1-6, the “Maricunga Project”).
We have generated no revenues to date and
do not anticipate generating any revenues in the near term. Our activities have been limited to capital formation, organization,
acquisition of interests in mining properties and limited exploration on the Maricunga Project, of which we currently hold a minority
interest. The Company´s operations will be subject to all the risks inherent in the establishment of a developing enterprise
and the uncertainties arising from the absence of a significant operating history. We may be unable to locate exploitable quantities
of mineral resources or operate on a profitable basis, or we may fail to secure additional funding to support our operations.
The accompanying unaudited interim consolidated
financial statements of Li3 Energy, Inc. have been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction
with the audited financial statements and notes thereto contained in the Company’s latest Annual Report on Form 10-K filed
with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair
presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results
of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to
the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the
most recent fiscal year ended June 30, 2015, as reported in Form 10-K, have been omitted.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
a. Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries, Li3 Peru, Alfredo and Li3 Copiapó. As a result of the Company
disposing of its controlling interest in Minera Li on January 27, 2014, the Company deconsolidated Minera Li from its consolidated
financial statements and now accounts for its remaining 49% investment in Minera Li under the equity method. On October 22, 2014,
the Company sold 60% of its shares in Noto Energy SA and now accounts for its remaining 40% investment under the equity method.
All intercompany amounts have been eliminated in consolidation.
b. Use of Estimates and Assumptions
The preparation of financial statements
in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Management has made significant estimates related to the fair value of its mineral assets; the fair value of derivative liabilities;
stock-based payments; and contingencies.
c. Cash and Cash Equivalents
The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents
at March 31, 2016 and June 30, 2015. The Company has not experienced any losses on its deposits of cash and cash equivalents.
d. Investment in Minera Li
As of January 27, 2014, the Company’s
investment in Minera Li is accounted for under the equity method in accordance with ASC 323 –
Equity Investments and Joint
Ventures
. Under the equity method, the carrying value of the investment is adjusted for the Company’s share of Minera
Li earnings and losses, as well as any capital contributions to and distributions from associates. Distributions in excess of equity
method earnings are recognized as a return of investment and recorded as investing cash inflows in the accompanying consolidated
statements of cash flows. We classify operating income and losses as well as gains and impairments related to our equity investees
as a component of operating income or loss, as the Company’s equity investees is an extension of our core business.
We evaluate equity investments for impairment
whenever events or changes in circumstances indicate that the carrying value of the investment may have experienced an ‘‘other-than-temporary’’
decline in value. If such conditions exist, we compare the estimated fair value of the investment to its carrying value to determine
if an impairment is indicated and determines whether the impairment is ‘‘other-than-temporary’’ based on
an assessment of all relevant factors, including consideration of our intent and ability to retain the investment.
e. Foreign Currency
The Company has determined that the functional
currency of the parent company and each of its foreign subsidiaries is U.S. Dollars.
Foreign currency transaction gains and
losses are included in the statement of operations as other income (expense).
f. Income Taxes
A deferred tax asset or liability is recorded
for all temporary differences between financial and tax reporting and for net operating loss carry-forwards. Deferred tax
expense (benefit) results from the net change during the period of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will
not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the
date of enactment.
For financial statement purposes, we recognize
the impact of an uncertain income tax position on the income tax return at the largest amount that is more-likely-than-not to be
sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than
a 50% likelihood of being sustained.
The Company recognizes interest related
to income tax matters in income tax expense and penalties related to income tax matters in general and administrative expenses.
The Company did not have any uncertain income tax positions or accrued interest included in our consolidated balance sheets at
March 31, 2016, or June 30, 2015, and did not recognize any interest in its consolidated statements of operations during the nine
months ended March 31, 2016 or 2015.
g. Fair Value Measurements
As defined in FASB ASC Topic No. 820 -
10, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. FASB ASC Topic No. 820 - 10 requires disclosure that establishes a framework
for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be
classified and disclosed in one of the following categories:
Level
1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or
liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient
frequency and volume to provide pricing information on an ongoing basis.
Level
2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially
the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable
market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments,
can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.
Level
3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and
less observable from objective sources (i.e. supported by little or no market activity). The Company’s valuation models are
primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not
have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.
As required by FASB ASC Topic No. 820 -
10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may
affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The
fair value of the Company’s derivative liabilities are estimated using a modified lattice valuation model.
h. Earnings per Share
Basic net earnings per share amounts are
computed by dividing the net income available to Li3 Energy, Inc.’s shareholders by the weighted average number of common
shares outstanding over the reporting period. In periods in which the Company reports a net loss, dilutive securities are excluded
from the calculation of diluted earnings per share as the effect would be anti-dilutive.
For the three and nine months ended March
31, 2016 and 2015, the following convertible debt, stock options and warrants to purchase shares of common stock were excluded
from the computation of diluted net loss per share, as the inclusion of such shares would be anti-dilutive:
|
|
Three Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
|
916,666
|
|
|
|
1,450,000
|
|
Restricted stock units
|
|
|
800,000
|
|
|
|
-
|
|
Convertible debt
|
|
|
5,808,081
|
|
|
|
-
|
|
Stock warrants
|
|
|
3,955,950
|
|
|
|
98,590,015
|
|
|
|
|
11,480,697
|
|
|
|
100,040,015
|
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Stock options
|
|
|
916,666
|
|
|
|
1,450,000
|
|
Restricted stock units
|
|
|
800,000
|
|
|
|
-
|
|
Convertible debt
|
|
|
5,808,081
|
|
|
|
-
|
|
Stock warrants
|
|
|
3,955,950
|
|
|
|
98,590,015
|
|
|
|
|
11,480,697
|
|
|
|
100,040,015
|
|
i. Recent Accounting Pronouncements
There were various accounting standards and interpretations
issued recently, none of which are expected to a have a material impact on the Company´s consolidated financial position,
results of operations or cash flows.
j. Subsequent Events
The Company evaluated material events occurring
between March 31, 2016, and through the date when the consolidated financial statements were available to be issued for disclosure
consideration.
NOTE 3. GOING CONCERN
As of March 31, 2016, the Company had no
source of current revenue, a cash balance of $9,607 and negative working capital of $1,154,313.
The Company’s current negative working
capital position is not sufficient to maintain its basic operations for at least the next 12 months.
In the course of its development activities,
the Company has sustained and continues to sustain losses. The Company cannot predict if and when the Company may generate
profits. In the event we identify commercial reserves of lithium or other minerals, we will require substantial additional
capital to develop those reserves and certain governmental permits to exploit such resources. The Company expects to
finance its future operations primarily through future equity or debt financing. However, there exists substantial doubt about
the Company’s ability to continue as a going concern because there is no assurance that it will be able to obtain such capital,
through equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be
given that any such financing, if obtained, will be adequate to meet the Company’s ultimate capital needs and to support
its growth. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, then the Company’s operations
would be materially negatively impacted.
The Company’s ability to complete
additional offerings is dependent on the state of the debt and/or equity markets at the time of any proposed offering, and such
market’s reception of the Company and the offering terms. In addition, the Company’s ability to complete an offering
may be dependent on the status of its exploration activities, which cannot be predicted. There is no assurance that capital in
any form would be available to the Company, and if available, on terms and conditions that are acceptable.
These conditions raise substantial doubt
about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent
on its ability to obtain the necessary rights to exploit its mineral rights; meet its financial and operational obligations, to
obtain additional financing as may be required until such time as it can generate sources of recurring revenues and to ultimately
attain profitability. The consolidated financial statements do not include any adjustments that might result from the outcome
of these uncertainties.
NOTE 4. INVESTMENT IN MINERA LI
The Company´s equity investment at
March 31, 2016 and June 30, 2015 relates to its 49% investment in Minera Li. The activity of the investment for the nine months
ended March 31, 2016 and 2015 is as follows:
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Opening balance - July 1, 2015 and 2014
|
|
$
|
7,336,375
|
|
|
$
|
7,572,425
|
|
Less: Equity in loss of Minera Li
|
|
|
(562,228
|
)
|
|
|
(180,786
|
)
|
Closing balance – March 31, 2016 and 2015
|
|
$
|
6,774,147
|
|
|
$
|
7,391,639
|
|
Summarized Financial Information of
Minera Li
Set out below is the summarized financial
information of Minera Li, which is accounted for using the equity method. The information reflects the amounts presented in the
financial statements of Minera Li adjusted for differences in accounting policies between the Company and Minera Li. Our share
of income and losses from our equity method investment in Minera Li is included in loss from Minera Li equity investment in the
consolidated statements of operations.
Summarized Balance Sheets
|
|
March 31,
2016
|
|
|
June 30,
2015
|
|
Current assets
|
|
$
|
42,855
|
|
|
$
|
122,106
|
|
Non-current assets
|
|
|
17,061,936
|
|
|
|
17,062,020
|
|
Total assets
|
|
$
|
17,104,791
|
|
|
$
|
17,184,126
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
1,554,398
|
|
|
$
|
486,329
|
|
Equity
|
|
|
15,550,393
|
|
|
|
16,697,797
|
|
Total liabilities and equity
|
|
$
|
17,104,791
|
|
|
$
|
17,184,126
|
|
Summarized Statements of Operations
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
(902,849
|
)
|
|
|
(18,791
|
)
|
General & administrative expenses
|
|
|
(244,555
|
)
|
|
|
(350,160
|
)
|
Total operating expenses
|
|
|
(1,147,404
|
)
|
|
|
(368,951
|
)
|
Net loss
|
|
$
|
(1,147,404
|
)
|
|
$
|
(368,951
|
)
|
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
(300,950
|
)
|
|
|
(756
|
)
|
General & administrative expenses
|
|
|
80,675
|
)
|
|
|
(9,720
|
)
|
Total operating expenses
|
|
|
(381,625
|
)
|
|
|
(10,476
|
)
|
Net loss
|
|
$
|
(381,625
|
)
|
|
$
|
(10,476
|
)
|
NOTE 5. RELATED PARTY TRANSACTIONS
MSB
MSB owns 51% of Minera Li with Li3 retaining
a 49% ownership interest. MSB is a private Chilean corporation with an objective to advance a business in the production of lithium.
MSB is controlled by a Chilean entrepreneur.
As of June 30, 2015, the Company had received
a total of $1,220,000 of loans from MSB, bearing interest of 8.5% per annum and due within 18 months from the date of receipt.
On January 19, 2016, the Company entered into an additional agreement with MSB whereby the Company and MSB agreed to offset the
$1,000,000 Additional Payment MSB previously agreed to provide to the Company against $1,000,000 of the Company’s notes payable
to MSB and $134,901 of accrued interest owed to MSB was rolled into the Company’s existing note payable. In addition, MSB
loaned an additional $100,000 to the Company and MSB waived the 13 shares in Minera Li which were pledged by the Company to MSB
as security for its notes payable. The resulting $454,901 loan payable and accrued interest is due on January 18, 2018, bears interest
at 8.5% per annum, and is secured by 5 of the Company’s shares in Minera Li.
The total interest accrued on the loans
from MSB as of March 31, 2016 and June 30, 2015 was $7,627 (with $134,901 of accrued interest to January19, 2016 rolled into the
note payable) and $79,355, respectively. For the nine months ended March 31, 2016 and 2015, $64,755 and $50,870, respectively,
of interest expense was recognized in our consolidated statements of operations.
On January 19, 2016, the Company entered
into an amendment to the Shareholders Agreement with MSB, pursuant to which the total number of directors of Minera Li was reduced
from 7 to 5 and the parties agreed to allow MSB, in its capacity as majority shareholder and principal of Minera Li, to lead and
carry out negotiations with a third party to decide and execute individually on matters that previously required a special quorum
under the initial Shareholders Agreement. The amendments to the Shareholders Agreement were approved at an extraordinary shareholders
meeting of Minera Li.
Notes Payable to Directors
On July 31, 2015, the Company issued an
unsecured promissory note to Mr. Luis Saenz, the CEO of the Company, bearing an interest rate of 3% per annum, for cash proceeds
of $7,500, and due on January 31, 2016. Also on July 31, 2015, the Company issued an unsecured promissory note to Mr. Patrick
Cussen, the Company’s Chairman of the Board, bearing an interest rate of 3% per annum, for cash proceeds of $7,500, and due
on January 31, 2016. On March 8, 2016, the Company issued 667,807 shares of its common stock to each of Mr. Saenz and Mr.
Cussen in repayment of the principal and accrued interest of $226.
On November 4, 2015, the Company issued
unsecured non-interest-bearing promissory notes to the following directors:
Director
|
|
Amount
|
|
Mr. Patrick Cussen
|
|
$
|
10,000
|
|
Mr. Patricio Campos
|
|
$
|
15,000
|
|
The promissory notes were repaid on February
9, 2016.
NOTE 6. CONVERTIBLE DEBT
On December 8, 2015, the Company issued
a $27,500 promissory note to LG Capital Funding, LLC, which is convertible at a price equal to 55% of the lowest daily trading
prices of the Company’s common stock for the last 25 trading days prior to conversion, and bears interest at 10% per annum.
The note is due and payable on December 8, 2016.
Also on December 8, 2015, the Company issued
a $30,000 promissory note to JDF Capital Inc. (together with the promissory note issued to LG Capital Funding, LLC, the “Convertible
Notes”), which is convertible at a price equal to the lower of (i) 55% of the lowest reported sale price of the Company’s
common stock for the 25 trading days immediately prior to the issuance date, or (ii) 55% of the lowest reported sale price for
the 25 days prior to conversion, and bears interest at 10% per annum. The note is due and payable on December 8, 2016.
The Company determined that the Convertible
Notes contained embedded derivative instruments as the conversion prices were based on a variable that was not an input to the
fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair values of the Convertible
Notes were recognized as derivative instruments at issuance and are measured at fair value at each reporting period. The Company
determined that the fair value of the derivatives was $131,884 at the issuance date. As the proceeds from the debt at issuance
was $52,500, an initial loss of $79,384 was recognized and recorded to change in fair value of derivative liabilities during the
nine months ended March 31, 2016.
The Company determined the fair values
of the embedded derivatives on the grant dates using the modified lattice valuation model with the following assumptions: stock
price on the measurement date of $0.025 per share, term of 1 year, expected volatility of 156%, and a discount rate of 0.15%.
The table below summarizes the carrying
value of debt as of March 31, 2016.
Value of convertible debt on issue date of December 8, 2015
|
|
$
|
57,500
|
|
Less: Original issue discount
|
|
|
(57,500
|
)
|
Carrying value at December 8, 2015
|
|
|
-
|
|
Amortization of debt discount (recorded as interest expense)
|
|
|
19,167
|
|
Carrying value at March 31, 2016
|
|
$
|
19,167
|
|
NOTE 7. DERIVATIVE LIABILITIES
Warrants
The Company has determined that certain
warrants that the Company has issued contain provisions that protect holders from future issuances of the Company’s common
stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the
warrants exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as
defined under FASB ASC Topic No. 815 - 40.
Activity for derivative warrant instruments
during the nine months ended March 31, 2016 was as follows:
|
|
|
|
|
Decrease in
|
|
|
|
|
|
|
Balance at
|
|
|
fair value of
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
derivative
|
|
|
March 31,
|
|
|
|
2015
|
|
|
liabilities
|
|
|
2016
|
|
Lender warrants
|
|
$
|
3,799
|
|
|
$
|
(3,799
|
)
|
|
$
|
-
|
|
Warrants for advisory services and arranger warrants
|
|
|
241
|
|
|
|
(241
|
)
|
|
|
-
|
|
|
|
$
|
4,040
|
|
|
$
|
(4,040
|
)
|
|
$
|
-
|
|
There were no warrants exercised during
the nine months ended March 31, 2016. On July 13, 2015, 5,488,115 of the warrants issued pursuant to the first 2010 unit offering
expired unexercised, with the balance of the warrants issued pursuant to the first 2010 unit offering of 671,244 warrants expiring
unexercised on September 13, 2015. On August 17, 2015, 62,499,938 of the POSCAN warrants issued on August 17, 2012 expired unexercised.
On November 28, 2015, 1,886,716 of the warrants issued pursuant to the second 2010 unit offering expired unexercised and in December
2015, a total of 6,866,798 of the warrants issued pursuant to the third 2010 unit offering expired unexercised. On February 23,
2016, the balance of the warrants issued pursuant to the third 2010 unit offering of 119,634 warrants expired unexercised. On March
23, 2016, 7,879,635 of the incentive warrants issued on March 24, 2011 expired unexercised.
Activity for derivative warrant instruments during the nine
months ended March 31, 2015 was as follows:
|
|
|
|
|
Decrease in
|
|
|
|
|
|
|
Balance at
|
|
|
fair value of
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
derivative
|
|
|
March 31,
|
|
|
|
2014
|
|
|
liabilities
|
|
|
2015
|
|
2009 Unit Offering warrants
|
|
$
|
1,499
|
|
|
$
|
(1,499
|
)
|
|
$
|
-
|
|
First 2010 Unit Offering warrants
|
|
|
305,483
|
|
|
|
(305,483
|
)
|
|
|
-
|
|
Second 2010 Unit Offering warrants
|
|
|
46,224
|
|
|
|
(34,287
|
)
|
|
|
11,937
|
|
Third 2010 Unit Offering warrants
|
|
|
108,685
|
|
|
|
(86,492
|
)
|
|
|
22,193
|
|
Incentive warrants
|
|
|
110,027
|
|
|
|
(91,613
|
)
|
|
|
18,414
|
|
Lender warrants
|
|
|
41,372
|
|
|
|
(30,548
|
)
|
|
|
10,824
|
|
Warrants for advisory services and arranger warrants
|
|
|
2,111
|
|
|
|
(1,531
|
)
|
|
|
580
|
|
POSCAN warrants
|
|
|
1,233,606
|
|
|
|
(1,233,606
|
)
|
|
|
-
|
|
|
|
$
|
1,849,007
|
|
|
$
|
(1,785,059
|
)
|
|
$
|
63,948
|
|
On September 13, 2014, 38,095,300 of the
POSCAN warrants issued on September 14, 2011 expired unexercised. During November and December 2014, 14,618,791 of the warrants
issued pursuant to the 2009 unit offering expired unexercised.
The following is a summary of the assumptions
used in the modified lattice valuation model as of March 31, 2016 and 2015, respectively:
|
|
Valuation as of
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Common stock issuable upon exercise of warrants
|
|
|
3,955,950
|
|
|
|
98,590,015
|
|
Market value of common stock on measurement date (1)
|
|
$
|
0.02
|
|
|
$
|
0.0129
|
|
Adjusted exercise price
|
|
$
|
0.20-$0.23
|
|
|
$
|
0.04-$0.28
|
|
Risk free interest rate (2)
|
|
|
0.39
|
%
|
|
|
0.14%-0.26
|
%
|
Warrant lives in years
|
|
|
0.1-1.4
|
|
|
|
0.19 – 1.09
|
|
Expected volatility (3)
|
|
|
143
|
%
|
|
|
167%-197
%
|
%
|
Expected dividend yields (4)
|
|
|
None
|
|
|
|
None
|
|
Assumed stock offerings per year over next two years (5)
|
|
|
1
|
|
|
|
1
|
|
Probability of stock offering in any year over next two years (6)
|
|
|
100
|
%
|
|
|
100
|
%
|
Range of percentage of existing shares offered (7)
|
|
|
14
|
%
|
|
|
22% - 24
|
%
|
Offering price range (8)
|
|
$
|
0.03
|
|
|
$
|
0.02 - $0.03
|
|
|
(1)
|
The
market value of common stock is the stock price at the close of trading on the date of issuance or at period-end, as applicable.
|
|
(2)
|
The
risk-free interest rate was determined by management using the 0.5-year Treasury Bill as of the respective offering or measurement
date.
|
|
(3)
|
The
historical trading volatility was determined by the Company’s trading history.
|
|
(4)
|
Management
determined the dividend yield to be -0-% based upon its expectation that it will not pay dividends for the foreseeable future.
|
|
(5)
|
Management
estimates the Company will have at least one stock offering in the next year.
|
|
(6)
|
Management
estimates that the probability of a stock offering is 100% during the next year.
|
|
(7)
|
Management
estimates that the range of percentages of existing shares offered in each stock offering will be 14% of the shares outstanding.
|
|
(8)
|
Represents
the estimated offering price range in future offerings as determined by management.
|
Embedded Derivative Instruments
The Company determined that the Convertible
Notes, issued during December 2015, contain an embedded derivative instrument as the conversion price is based on a variable that
is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 – 40.
The fair value of the derivatives was recognized as a derivative instrument at issuance and is measured at fair value at each reporting
period.
The following is a summary of the assumptions
used in the modified lattice valuation model as of December 8, 2015 and March 31, 2016, respectively:
|
|
Valuation as of
|
|
|
|
December 8,
2015
|
|
|
March 31,
2016
|
|
Common stock issuable upon conversion of debt
|
|
|
5,227,273
|
|
|
|
6,575,186
|
|
Market value of common stock on measurement date (1)
|
|
$
|
0.025
|
|
|
$
|
0.02
|
|
Adjusted exercise price
|
|
$
|
0.011
|
|
|
$
|
0.020
|
|
Risk free interest rate (2)
|
|
|
0.15
|
%
|
|
|
0.39
|
%
|
Life in years
|
|
|
1.0
|
|
|
|
0.7
|
|
Expected volatility (3)
|
|
|
156
|
%
|
|
|
143
|
%
|
Expected dividend yields (4)
|
|
|
None
|
|
|
|
None
|
|
Assumed stock offerings per year over next two years (5)
|
|
|
1
|
|
|
|
1
|
|
Probability of stock offering in any year over next two years (6)
|
|
|
100
|
%
|
|
|
100
|
%
|
Range of percentage of existing shares offered (7)
|
|
|
14
|
%
|
|
|
15% - 20
|
%
|
Offering price range (8)
|
|
$
|
0.03
|
|
|
$
|
0.03 - $0.04
|
|
|
(1)
|
The
market value of common stock is the stock price at the close of trading on the date of issuance or at period-end, as applicable.
|
|
(2)
|
The
risk-free interest rate was determined by management using the 1 year Treasury Bill as of the respective offering or measurement
date.
|
|
(3)
|
The
historical trading volatility was determined by the Company’s trading history.
|
|
(4)
|
Management
determined the dividend yield to be -0-% based upon its expectation that it will not pay dividends for the foreseeable future.
|
|
(5)
|
Management
estimates the Company will have at least one stock offering in the next year.
|
|
(6)
|
Management
estimates that the probability of a stock offering is 100% during the next year.
|
|
(7)
|
Management
estimates that the range of percentages of existing shares offered in each stock offering will be 14% of the shares outstanding.
|
|
(8)
|
Represents
the estimated offering price range in future offerings as determined by management.
|
Activity for embedded derivative instruments during the nine
months ended March 31, 2016 was as follows:
|
|
|
|
|
Initial valuation
|
|
|
|
|
|
|
|
|
|
|
|
|
of embedded
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
derivative
|
|
|
in
|
|
|
|
|
|
|
Balance at
|
|
|
instruments
|
|
|
fair value of
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
issued during
|
|
|
derivative
|
|
|
March 31,
|
|
|
|
2015
|
|
|
the period
|
|
|
liabilities
|
|
|
2016
|
|
Convertible Notes
|
|
$
|
-
|
|
|
$
|
52,500
|
|
|
$
|
79,864
|
|
|
$
|
132,364
|
|
|
|
$
|
-
|
|
|
$
|
52,500
|
|
|
$
|
79,864
|
|
|
$
|
132,364
|
|
NOTE 8. STOCKHOLDERS’ EQUITY
Common Stock Issued for Services
and Repayment of Loans
On August 19, 2015, the Company issued
3,508,771 shares of common stock to Mr. Marc Lubow, a former officer of the Company, valued at $40,000 and recorded as common stock
payable at June 30, 2015.
On March 8, 2016, the Company issued 667,807
shares of its common stock to each of Mr. Saenz and Mr. Cussen in repayment of loans from each of the directors, including both
principal and accrued interest, of $7,613.
During the nine months ended March 31,
2016, the Company issued an aggregate of 5,344,402 shares of common stock as consideration in lieu of $102,232 of accrued directors
fees. The Company recorded stock-compensation of $26,531 for the difference between the fair value of the common stock on the measurement
dates and the fees accrued by the Company.
Restricted Stock Units
The Company committed to grant restricted
stock units with respect to an aggregate of 800,000 shares to members of its Board of Directors, with such restricted stock units
to vest over a period of three years starting from the later of July 1, 2011 and the initial date of the applicable director’s
substantial involvement with the Board’s activities. However, the Company does not currently have enough shares authorized
for issuance under our 2009 Plan to satisfy all of these obligations. The Company recorded compensation expense of $176 and $5,185
during the nine months ended March 31, 2016 and 2015, respectively, in relation to the restricted stock units to be granted to
its directors.
Stock Option Awards
There were no stock options issued during
the nine months ended March 31, 2016. A summary of stock option activity is presented in the table below:
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
average
|
|
|
|
|
|
|
|
|
|
average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term (years)
|
|
|
Value
|
|
Outstanding at June 30, 2015
|
|
|
1,250,000
|
|
|
$
|
0.21
|
|
|
|
1.2
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired/Forfeited
|
|
|
(333,334
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
|
916,666
|
|
|
$
|
0.23
|
|
|
|
0.9
|
|
|
$
|
-
|
|
Exercisable at March 31, 2016
|
|
|
916,666
|
|
|
$
|
0.23
|
|
|
|
0.9
|
|
|
$
|
-
|
|
Warrants
Summary information regarding common stock
warrants outstanding is as follows:
|
|
|
|
|
Weighted-
average
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
Warrants
|
|
|
Price
|
|
Outstanding at June 30, 2015
|
|
|
89,125,976
|
|
|
$
|
0.15
|
|
Issued
|
|
|
-
|
|
|
|
|
|
Additional shares issuable upon exercise of warrants as a result of adjustments pursuant to anti-dilution provisions
|
|
|
242,053
|
|
|
|
n/a
|
|
Expired
|
|
|
(85,412,079
|
)
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
|
3,955,950
|
|
|
$
|
0.22
|
|
Warrants outstanding as of March 31, 2016
are as follows:
|
|
|
|
|
Outstanding
|
|
|
|
|
Exercisable
|
|
|
|
Exercise
|
|
|
number
|
|
|
Remaining
|
|
number
|
|
|
|
price
|
|
|
of shares
|
|
|
life
|
|
of shares
|
|
Lender warrants
|
|
$
|
0.23
|
|
|
|
1,500,000
|
|
|
0.08 years
|
|
|
1,500,000
|
|
Warrants for advisory services
|
|
$
|
0.20
|
|
|
|
75,000
|
|
|
0.08 years
|
|
|
75,000
|
|
Arranger warrants
|
|
$
|
0.21
|
|
|
|
2,380,950
|
|
|
1.38 years
|
|
|
2,380,950
|
|
|
|
|
|
|
|
|
3,955,950
|
|
|
|
|
|
3,955,950
|
|
The warrants outstanding at March 31, 2016
had no intrinsic value.
During the nine months ended March 31,
2016, 85,412,079 warrants expired unexercised.
NOTE 9. FAIR VALUE MEASUREMENTS
The following table sets forth, by level
within the fair value hierarchy, the Company’s derivative liabilities that were accounted for at fair value on a recurring
basis:
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
Markets for
|
|
|
Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
Total
|
|
|
|
Assets
|
|
|
Inputs
|
|
|
Inputs
|
|
|
Carrying
|
|
Description
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Value
|
|
As of March 31, 2016
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
132,364
|
|
|
$
|
132,364
|
|
As of June 30, 2015
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,040
|
|
|
$
|
4,040
|
|
The following table sets forth a reconciliation
of changes in the fair value of financial liabilities classified as level 3 in the fair value hierarchy:
|
|
Significant Unobservable Inputs
(Level 3)
|
|
|
|
Nine months Ended March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance as of June 30
|
|
$
|
4,040
|
|
|
$
|
1,849,007
|
|
Change in fair value
|
|
|
49,380
|
|
|
|
290,432
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
Balance as of September 30
|
|
$
|
53,420
|
|
|
$
|
2,139,439
|
|
Change in fair value
|
|
|
6,298
|
|
|
|
(1,767,270
|
)
|
Additions
|
|
|
52,500
|
|
|
|
-
|
|
Balance as of December 31
|
|
$
|
112,218
|
|
|
$
|
372,169
|
|
Change in fair value
|
|
|
20,146
|
|
|
|
(308,221
|
)
|
Additions
|
|
|
-
|
|
|
|
-
|
|
Ending balance as of March 31
|
|
|
132,364
|
|
|
|
63,948
|
|
Change in unrealized gains (losses) included in earnings for the three months ended March 31, 2016 and 2015
|
|
$
|
(20,146
|
)
|
|
$
|
308,221
|
|
Change in unrealized gains (losses) included in earnings for the nine months ended March 31, 2016 and 2015
|
|
$
|
(75,824
|
)
|
|
$
|
1,785,059
|
|
NOTE 10. COMMITMENTS AND CONTINGENCIES
On January 29, 2016, the Company executed
a non-binding letter of intent (“LOI”) with Wealth Minerals Ltd ("Wealth") (TSX.V: WML) for a transaction
between the companies under the following terms:
|
•
|
Wealth will undertake an equity financing of CAD$3 million.
|
|
•
|
Post-financing, Wealth and Li3 shareholders will each hold 50% of the new company.
|
|
•
|
The use of proceeds of the financing will be to advance Li3's Maricunga lithium project in Chile and pursue other corporate initiatives.
|
|
•
|
The new company will have seven Board seats, with Wealth holding four and Li3 holding the remaining three seats. The management of Wealth will largely remain intact and Li3's current management team will support the new company as necessary.
|
|
•
|
Wealth will have a 60-day exclusivity period to complete its due diligence and financing.
|
On signing the non-binding letter of intent
with Wealth, the Company received a payment of $50,000 from Wealth recorded as Notes Payable in the Consolidated Balance Sheets.
If the transaction is completed, the payment will remain a non-interest bearing shareholder loan. If the transaction is terminated
by Li3, the Company is required to repay the amount within 30 days. If the transaction is terminated by Wealth, the payment will
be converted into common shares of Li3 at a price equal to $0.02 per share or the 10-day volume weighted average price of the common
shares of Li3 as quoted on the OTCBB.
On March 22, 2016, the parties extended
the LOI for an additional 60 days.
NOTE 11. SUBSEQUENT EVENTS
On May 2, 2016, 1,500,000 of the lender
warrants and 75,000 of the warrants for advisory services expired unexercised.
On May 12, 2016, the Company entered into unsecured convertible promissory notes with third parties for
total cash proceeds of $275,000 bearing interest at 10% per annum and payable on May 11, 2017. The notes and accrued interest are
convertible at the option of the note holders any time prior to the maturity date into common stock of the Company at a conversion
price of $0.0125 per share. In addition, the notes and accrued interest automatically convert into common stock of the Company
upon the Company entering into either a definitive merger or a sale of the Company to Wealth, at a conversion rate of $0.0125.
In the event the transaction with Wealth is cancelled, Li3 must seek the noteholders’ permission to execute any other debt.
The conversion feature of the notes has down round protection. In the event the proposed transaction with Wealth is changed to
reduce the Company’s ownership of Wealth to below 40%, the conversion rate of the notes will change to $0.0100.