Notes to Consolidated Financial Statements
For the three months ended March 31, 2017
(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.
We aim to acquire and develop a unique portfolio of lithium and potassium brine projects in the Americas. We are focused on further exploring, developing and commercializing our interest in the Maricunga Project (as defined below), located in the northeast section of the Salar de Maricunga in Region III of Atacama in northern Chile, as well as increasing our portfolio of projects, 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 SpA”, previously BBL SpA), subsequent to which MSB SpA became the majority holder of Minera Li Energy SpA (“Minera Li”), holding 51% of the ownership interest. The Company retains a 49% ownership of Minera Li. Minera Li held 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”). However, Minera Li has transferred all of its Maricunga Project assets to Minera Salar Blanco SA (“MSB SA”) as consideration for 36.05% of the shares in MSB SA.
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 have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the 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, 2016, as reported in the 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. All intercompany amounts have been eliminated in consolidation.
b. 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, 2017 and June 30, 2016. The Company has not experienced any losses on its deposits of cash and cash equivalents.
c. 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.
d. 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 year 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, 2017 or June 30, 2016, and did not recognize any interest in its consolidated statements of operations during the nine months ended March 31, 2017 or 2016.
e. 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.
|
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.
f. Beneficial Conversion Feature
If the conversion features of conventional convertible debt provide for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount. In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt.
g. Earnings (Loss) per Share
Basic net earnings per share amounts are computed by dividing the net income available to Li3 Energy, Inc. 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, 2017 and 2016, the following convertible debt, stock options and warrants to purchase shares of common stock were excluded from the computation of diluted net income or loss per share, as the inclusion of such shares would be anti-dilutive:
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
333,333
|
|
|
|
916,666
|
|
Restricted stock units
|
|
|
600,000
|
|
|
|
800,000
|
|
Convertible debt
|
|
|
-
|
|
|
|
5,808,081
|
|
Stock warrants
|
|
|
2,380,950
|
|
|
|
3,955,950
|
|
|
|
|
3,314,283
|
|
|
|
11,480,697
|
|
|
|
Nine Months Ended
March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Stock options
|
|
|
333,333
|
|
|
|
916,666
|
|
Restricted stock units
|
|
|
600,000
|
|
|
|
800,000
|
|
Convertible debt
|
|
|
-
|
|
|
|
5,808,081
|
|
Stock warrants
|
|
|
2,380,950
|
|
|
|
3,955,950
|
|
|
|
|
3,314,283
|
|
|
|
11,480,697
|
|
h. 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).
i. 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.
j. 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, operations or cash flows.
k. Subsequent Events
The Company evaluated material events occurring between March 31, 2017 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, 2017, the Company had no source of current revenue, a cash balance on hand of $1,631 and negative working capital of $1,901,559.
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, 2017 and June 30, 2016 relates to its 49% investment in Minera Li. The activity of the investment for the nine months ended March 31, 2017 and 2016 is as follows:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
Opening balance - July 1, 2016 and 2015
|
|
$
|
6,779,337
|
|
|
$
|
7,336,375
|
|
Less: Equity in loss of Minera Li
|
|
|
(618,566
|
)
|
|
|
(562,228
|
)
|
Closing balance – March 31, 2017 and 2016
|
|
$
|
6,160,771
|
|
|
$
|
6,774,147
|
|
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,
2017
|
|
|
June 30,
2016
|
|
Current assets
|
|
$
|
3,285
|
|
|
$
|
47,973
|
|
Non-current assets
|
|
|
14,296,505
|
|
|
|
17,383,067
|
|
Total assets
|
|
$
|
14,299,790
|
|
|
$
|
17,431,040
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
1,185
|
|
|
$
|
1,870,056
|
|
Equity
|
|
|
14,298,605
|
|
|
|
15,560,984
|
|
Total liabilities and equity
|
|
$
|
14,299,790
|
|
|
$
|
17,431,040
|
|
Summarized Statements of Operations
|
|
Nine Months
Ended
|
|
|
Nine Months
Ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
(368,516
|
)
|
|
|
(902,849
|
)
|
Loss from equity investments
|
|
|
(783,921
|
)
|
|
|
-
|
|
General & administrative expenses
|
|
|
(109,942
|
)
|
|
|
(244,555
|
)
|
Total operating expenses
|
|
|
(1,262,379
|
)
|
|
|
(1,147,404
|
)
|
Net loss
|
|
$
|
(1,262,379
|
)
|
|
$
|
(1,147,404
|
)
|
|
|
Three Months
Ended
|
|
|
Three Months
Ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
Revenue
|
|
$
|
-
|
|
|
$
|
-
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Exploration expenses
|
|
|
(317,737
|
)
|
|
|
(300,950
|
)
|
Loss from equity investments
|
|
|
(783,921
|
)
|
|
|
-
|
|
General & administrative expenses
|
|
|
(13,910
|
)
|
|
|
(80,675
|
)
|
Total operating expenses
|
|
|
(1,115,568
|
)
|
|
|
(381,625
|
)
|
Net loss
|
|
$
|
(1,115,568
|
)
|
|
$
|
(381,625
|
)
|
NOTE 5. RELATED PARTY TRANSACTIONS
MSB SpA
At March 31, 2017, MSB SpA owned 51% of Minera Li with the Company retaining a 49% ownership interest. MSB SpA is a private Chilean corporation with an objective to advance a business in the production of lithium. MSB SpA 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 SpA (of which $980,000 was received during the year ended June 30, 2015), 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 SpA whereby the Company and MSB SpA agreed to offset the $1,000,000 Additional Payment MSB SpA previously agreed to provide to the Company against $1,000,000 of the Company’s notes payable to MSB SpA and $134,901 of accrued interest owed to MSB SpA was rolled into the Company’s existing note payable. In addition, MSB SpA loaned an additional $100,000 to the Company and MSB SpA waived the 13 shares in Minera Li which were pledged by the Company to MSB SpA 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 SpA as of March 31, 2017 and June 30, 2016, was $46,294 and $17,268, respectively. For the nine months ended March 31, 2017 and 2016, $29,026 and $50,870, respectively, of interest expense was recognized in the Company’s consolidated statements of operations.
On July 20, 2016, MSB SpA entered into an agreement with Lithium Power International Limited (“LPI”), an Australian company, regarding a joint venture to explore and develop the Maricunga Project in accordance with a term sheet dated July 14, 2016. On August 30, 2016, the Company entered into an agreement with MSB SpA, pursuant to which, the Company and MSB SpA, as the current shareholders of Minera Li, unanimously agreed to approve the transactions contemplated by the term sheet (the “Transaction”).
As part of the Transaction, Mineral Li and MSB SpA agreed to contribute their Maricunga lithium brine assets to a new joint venture (the “Maricunga JV”) and LPI agreed to contribute $27.5 million in cash to the Maricunga JV to cover exploration and development costs for the next 2.5 years until the completion of a definitive feasibility study in late 2018. Following the completion of the Transaction, the Company will own a direct 17.67% equity interest of the Maricunga JV, with LPI and MSB SpA owning 50.0% and 32.33%, respectively. The Company will be entitled to appoint one director of the Maricunga JV (so long as it holds at least 10% of the equity interests of the joint venture), with LPI and MSB SpA holding three and two director seats, respectively.
On September 7, 2016, the Maricunga JV entity, Minera Salar Blanco SA (“MSB SA”), a Chilean company, was incorporated and Minera Li has transferred all of its Maricunga Project assets to MSB SA as consideration for 36.05% of the shares in MSB SA. LPI and MSB SpA currently hold 13.95% and 50%, respectively, of the shares in MSB SA. Following the planned dissolution of Minera Li, Li3 will receive 49% share of Minera Li’s shares in MSB SA (being 17.67%), with MSB SpA receiving 51%.
NOTE 6. NOTES PAYABLE
On January 29, 2016, the Company executed a non-binding letter of intent (“Wealth LOI”) with Wealth Minerals Ltd ("Wealth") for a transaction between the companies and on signing the Wealth LOI, the Company received a payment of $50,000 from Wealth which was recorded as notes payable in the consolidated balance sheet. On March 22, 2016, the parties extended the Wealth LOI for an additional 60 days and on April 29, 2016, the Company received a further payment of $150,000 from Wealth, also recorded as notes payable in the consolidated balance sheet.
On November 15, 2016, the Company entered into an agreement with Wealth pursuant to which the Wealth LOI was terminated and the Company’s obligation to repay the notes payable to Wealth of $200,000 was also terminated. The Company subsequently reversed the notes payable from Wealth in its consolidated balance sheet, recording a gain on debt settlement of $200,000 in its consolidated statements of operations during the nine months ended March 31, 2017.
NOTE 7. CONVERTIBLE NOTES PAYABLE
During May 2016, the Company issued unsecured convertible promissory notes to various individuals for aggregate proceeds of $525,000, bearing an interest rate of 10% per annum, due 12 months from the date of issuance and convertible at a price of $0.0125 per share. The Company assessed the embedded conversion feature and determined that the intrinsic value of the beneficial conversion feature at inception exceeded the face value of this note and accordingly recorded a beneficial conversion feature of $395,200. Such beneficial conversion feature was accounted for as a debt discount, which is amortized to interest expense over the life of the note. During the nine months ended March 31, 2017, the Company recorded amortization of debt discount and interest expense of $296,671 and $39,411, respectively, on these convertible notes. Total unamortized debt discount and interest accrued on the loans as of March 31, 2017, was $52,411 and $45,623, respectively. Total unamortized debt discount and interest accrued on the loans as of June 30, 2016, was $349,081 and $6,212, respectively.
NOTE 8. DERIVATIVE LIABILITIES
Warrants
The Company determined that certain warrants that the Company issued contained provisions that protected holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could have resulted in modification of the warrants exercise price 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. As of March 31, 2017 and June 30, 2016, all derivative warrant instruments had expired.
Activity for derivative warrant instruments during the nine months ended March 31, 2016 was as follows:
|
|
|
|
|
Decrease in
|
|
|
|
|
|
|
|
|
|
fair value of
|
|
|
|
|
|
|
Balance at
|
|
|
derivative
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
liability
|
|
|
March 31,
|
|
|
|
2015
|
|
|
instruments
|
|
|
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.
The following is a summary of the assumptions used in the modified lattice valuation model as of March 31, 2016:
|
|
Valuation as of
March 31,
2016
|
|
Common stock issuable upon exercise of warrants
|
|
|
3,955,950
|
|
Market value of common stock on measurement date (1)
|
|
$
|
0.02
|
|
Adjusted exercise price
|
|
$
|
0.20-$0.23
|
|
Risk free interest rate (2)
|
|
|
0.39
|
%
|
Warrant lives in years
|
|
0.1-1.4
|
|
Expected volatility (3)
|
|
|
143
|
%
|
Expected dividend yields (4)
|
|
None
|
|
Assumed stock offerings per year over next two years (5)
|
|
|
1
|
|
Probability of stock offering in any year over next two years (6)
|
|
|
100
|
%
|
Range of percentage of existing shares offered (7)
|
|
|
14
|
%
|
Offering price range (8)
|
|
$
|
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
On December 8, 2015, the Company issued $57,500 of promissory notes to third parties for cash proceeds of $52,500 (the “2015 Convertible Notes”), 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 bearing interest at 10% per annum. The notes were due and payable on December 8, 2016, but were repaid in May 2016 for a total of $86,317 including accrued interest of $2,417 and prepayment penalty of $26,401.
The Company determined that the 2015 Convertible Notes contained an embedded derivative instrument as the conversion price was 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 value of the derivatives was recognized as a derivative instrument at issuance and measured at fair value at each reporting period. The Company repaid the 2015 convertible notes during the year ended June 30, 2016.
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
|
|
|
Increase
|
|
|
|
|
|
|
|
|
|
of embedded
|
|
|
in
|
|
|
|
|
|
|
|
|
|
derivative
|
|
|
fair value of
|
|
|
|
|
|
|
Balance at
|
|
|
instruments
|
|
|
derivative
|
|
|
Balance at
|
|
|
|
June 30,
|
|
|
issued during
|
|
|
liability
|
|
|
March 31,
|
|
|
|
2015
|
|
|
the period
|
|
|
instruments
|
|
|
2016
|
|
Convertible Notes
|
|
$
|
-
|
|
|
$
|
52,500
|
|
|
$
|
79,864
|
|
|
$
|
132,364
|
|
|
|
$
|
-
|
|
|
$
|
52,500
|
|
|
$
|
79,864
|
|
|
$
|
132,364
|
|
NOTE 9. STOCKHOLDERS’ EQUITY
On October 6, 2016, the Company issued 4,967,831 shares of common stock to officers and directors in lieu of accrued directors’ fees of $42,000 and salaries of $50,090. The Company recorded a credit to additional paid-in capital of $18,070 for the difference between the fair value of the common stock on the measurement dates and the fees accrued by the Company.
On February 16, 2017, the Company issued 2,708,529 shares of common stock to officers and directors in lieu of accrued directors’ fees of $21,000 and salaries of $25,045. The Company recorded a loss on settlement of related party payables of $55,796 for the difference between the fair value of the common stock on the measurement date and the fees accrued by the Company.
Stock Option Awards
There were no stock options issued during the nine months ended March 31, 2017. 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, 2016
|
|
|
916,666
|
|
|
$
|
0.23
|
|
|
|
0.6
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired/Forfeited
|
|
|
(583,333
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at March 31, 2017
|
|
|
333,333
|
|
|
$
|
0.16
|
|
|
|
0.4
|
|
|
$
|
-
|
|
Exercisable at March 31, 2017
|
|
|
333,333
|
|
|
$
|
0.16
|
|
|
|
0.4
|
|
|
$
|
-
|
|
NOTE 10. FAIR VALUE MEASUREMENTS
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,
|
|
|
|
2017
|
|
|
2016
|
|
Beginning balance as of June 30
|
|
$
|
-
|
|
|
$
|
4,040
|
|
Change in fair value
|
|
|
-
|
|
|
|
49,380
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
Balance as of September 30
|
|
$
|
-
|
|
|
$
|
53,420
|
|
Change in fair value
|
|
|
-
|
|
|
|
6,298
|
|
Additions
|
|
|
-
|
|
|
|
52,500
|
|
Balance as of December 31
|
|
$
|
-
|
|
|
$
|
112,218
|
|
Change in fair value
|
|
|
-
|
|
|
|
20,146
|
|
Additions
|
|
|
-
|
|
|
|
-
|
|
Ending balance as of March 31
|
|
$
|
-
|
|
|
$
|
132,364
|
|
Change in unrealized gains (losses) included in earnings for the three months ended March 31, 2017 and 2016
|
|
$
|
-
|
|
|
$
|
(20,146
|
)
|
Change in unrealized gains (losses) included in earnings for the nine months ended March 31, 2017 and 2016
|
|
$
|
-
|
|
|
$
|
(75,824
|
)
|
NOTE 11. COMMITMENTS AND CONTINGENCIES
On January 27, 2017, the Company and Bearing Resources Ltd., a company incorporated under the laws of British Columbia (“Bearing”), entered into an agreement and plan of merger under which Bearing has agreed to acquire Li3. Pursuant to the agreement, a newly formed wholly owned subsidiary of Bearing, LI Acquisition Corporation, will merge with and into Li3 (the “Merger”), with Li3 surviving the Merger as a wholly owned subsidiary of Bearing. At the effective time of the Merger, each share of Li3 common stock will be converted into the right to receive common shares of Bearing based upon an aggregate of 16,000,000 Bearing common shares issuable for the Company’s common stock.
As a result, the 16,000,000 common shares of Bearing that the Company’s stockholders will receive will represent approximately 43% of the issued and outstanding shares and voting power of the combined company after giving effect to the Merger. Holders of options and warrants to purchase the Company’s common stock will receive options and warrants to purchase common shares of Bearing in exchange for their Li3 options and warrants, as adjusted based on the exchange ratio of the Company’s common stock to Bearing common stock in the Merger, but otherwise on the same terms and conditions as in the original options and warrants of the Company.
The Merger is subject to customary closing conditions, including the approval of the TSX Venture Exchange and of the Company’s shareholders and, if required, of Bearing.
As the Company has only nominal cash on hand, Bearing is advancing funds to Li3 on an as-needed basis to satisfy the Company’s expenses incurred in relation to the merger agreement, among other expenses. If the merger agreement is terminated, any funds advanced by Bearing to Li3 will become payable on demand. As of March 31, 2017, Bearing had advanced $50,000 to the Company, recorded as notes payable in the consolidated balance sheets.
NOTE 12. SUBSEQUENT EVENTS
On May 9, 2017, the Company agreed to issue an aggregate of 14,203,080 shares of common stock to officers and directors for services (9,597,718 shares) and reimbursement of expenses (573,104 shares), and to creditors in settlement of professional services (4,032,258 shares).