10-Q 1 v459805_10q.htm 10-Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 2016

 

or

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from __________ to __________

 

Commission File Number: 000-54303

 

 

LI3 ENERGY, INC.

(Exact name of registrant as specified in its charter)

 

Nevada 20-3061907
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)

 

Matias Cousiño 82, Of 806

Santiago de Chile, 8320269, Chile

(Address of principal executive offices) (Zip Code)

 

+ (56) 2 2206 5252

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x   No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer     ¨   Accelerated filer     ¨
Non-accelerated filer      ¨   Smaller reporting company  x
(Do not check if a smaller reporting company)    

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨    No x

 

As of February 21, 2017, there were 502,829,707 shares of the registrant’s common stock outstanding.

 

 

 

 

LI3 ENERGY, INC.

 

TABLE OF CONTENTS 

 

  Page
   
Part I - Financial Information 3
     
Item 1 Financial Statements 3
     
Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
     
Item 3 Quantitative and Qualitative Disclosures About Market Risk 23
     
Item 4 Controls and Procedures 23
   
Part II - Other Information 24
     
Item 1 Legal Proceedings 24
     
Item 1A Risk Factors 24
     
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds 24
     
Item 3 Defaults Upon Senior Securities 24
     
Item 4 Mine Safety Disclosures 24
     
Item 5 Other Information 24
     
Item 6 Exhibits 25
   
Signatures 26

 

1

 

 

Statement Regarding Forward-Looking Information

 

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

 

All statements other than statements of historical facts included in this Report including, without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report, regarding our financial condition, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements including, but not limited to, our ability to identify appropriate corporate acquisition and/or joint venture opportunities in the lithium mining sector, our ability to establish technical and managerial infrastructure, our ability to raise the required capital to take advantage of and successfully participate in such opportunities, and future economic conditions, political stability and lithium prices. Descriptions of certain risks and uncertainties that could cause our actual results to differ materially from those described by the forward-looking statements in this Quarterly Report on Form 10-Q appear in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016, filed with the Securities and Exchange Commission (the “SEC”) on October 7, 2016.

 

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Report to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

 

2

 

 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LI3 ENERGY, INC.

Consolidated Balance Sheets

 

   December 31, 2016
(unaudited)
   June 30, 2016 
Assets          
Current assets:          
Cash  $52,291   $382,054 
Prepaid expenses and advances   93,310    9,169 
Total current assets   145,601    391,223 
Equity investment in Minera Li   6,707,400    6,779,337 
Total assets  $6,853,001   $7,170,560 
           
Liabilities & Stockholders´ Equity          
Current liabilities:          
Accounts payable  $390,664   $360,979 
Accrued expenses   333,015    306,861 
Common stock payable   236,678    236,678 
Notes payable   -    200,000 
Convertible notes payable, net of discount of $149,857 and $349,081 respectively   375,143    175,919 
Total current liabilities   1,335,500    1,280,437 
Long-term notes payable to MSB   454,901    454,901 
Total liabilities   1,790,401    1,735,338 
           
Commitments and contingencies          
           
Common stock subject to rescission, 65,000 shares issued and outstanding   3,041    3,041 
           
Stockholders’ Equity:          
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding   -    - 
Common stock, $0.001 par value, 990,000,000 shares authorized; 500,121,178 and 495,153,347 shares issued and outstanding, respectively   500,121    495,153 
Additional paid-in capital   72,598,748    72,511,626 
Accumulated deficit   (68,039,310)   (67,574,598)
Total stockholders' equity   5,059,559    5,432,181 
Total liabilities and stockholders’ equity  $6,853,001   $7,170,560 

  

See accompanying notes to unaudited consolidated financial statements.

 

3

 

 

LI3 ENERGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

 

   Three Months Ended
December 31,
   Six Months Ended
December 31,
 
   2016   2015   2016   2015 
Operating expenses:                    
Loss from Minera Li equity investment  $(6,817)  $(161,848)  $(71,937)  $(375,232)
General and administrative expenses   (126,689)   (194,455)   (345,412)   (370,998)
Total operating expenses   (133,506)   (356,303)   (417,349)   (746,230)
                     
Other income (expense):                    
Gain on debt extinguishment   200,000    -    200,000    - 
Change in fair value of derivative liability instruments   -    (6,298)   -    (55,678)
Gain (loss) on foreign currency transactions   43    (150)   (2,178)   6,264 
Interest expense, net   (122,591)   (30,462)   (245,185)   (55,823)
Total other income (expense)   77,452    (36,910)   (47,363)   (105,237)
                     
Net loss  $(56,054)  $(393,213)  $(464,712)  $(851,467)
                     
Net loss per common share – basic  $(0.00)  $(0.00)  $(0.00)  $(0.00)
Net loss per common share - diluted  $(0.00)  $(0.00)  $(0.00)  $(0.00)
                     
Weighted average number of common shares outstanding – basic   499,797,189    483,371,280    497,475,268    483,331,565 
Weighted average number of common shares outstanding – diluted   499,797,189    483,371,280    497,475,268    483,331,565 

 

See accompanying notes to unaudited consolidated financial statements.

 

4

 

 

LI3 ENERGY, INC.

Consolidated Statements of Changes in Stockholders’ Equity

From July 1, 2015 through December 31, 2016

(Unaudited)

 

           Additional       Total 
   Common Stock   Paid-in   Accumulated   Stockholders’ 
   Shares   Par Value   Capital   Deficit   Equity 
                     
Balance, June 30, 2015   477,119,526   $477,120   $71,808,625   $(66,033,878)  $6,251,867 
                          
Stock-based compensation:                         
Amortization of stock-based compensation   -    -    176    -    176 
                          
Stock issued to settle liabilities:                         
Stock issued to directors and employees   12,213,936    12,213    213,975    -    226,188 
Stock issued to third parties   5,819,885    5,820    93,650    -    99,470 
                          
Beneficial conversion feature related to convertible notes payable   -    -    395,200    -    395,200 
                          
Net loss   -    -    -    (1,540,720)   (1,540,720)
                          
Balance, June 30, 2016   495,153,347   $495,153   $72,511,626   $(67,574,598)  $5,432,181 
                          
Stock issued to settle liabilities:                         
Stock issued to directors and employees   4,967,831    4,968    87,122    -    92,090 
                          
Net loss   -    -    -    (464,712)   (464,712)
                          
Balance, December 31, 2016   500,121,178   $500,121   $72,598,748   $(68,039,310)  $5,059,559 

 

See accompanying notes to unaudited consolidated financial statements.

 

5

 

 

LI3 ENERGY, INC.

Consolidated Statements of Cash Flows

(Unaudited)

 

   Six Months Ended   Six Months Ended 
   December 31, 2016   December 31, 2015 
Cash flows from operating activities          
Net loss  $(464,712)  $(851,467)
Adjustments to reconcile net loss to net cash used in operating activities:          
Amortization of convertible debt discount   199,224    4,792 
Gain on debt extinguishment   (200,000)   - 
Loss from Minera Li equity investment   71,937    375,232 
Stock-based compensation   -    33,176 
Change in fair value of derivative liabilities   -    55,678 
Loss (gain) on foreign currency transactions   2,178    (6,264)
Changes in operating assets and liabilities:          
Decrease (increase) in prepaid expenses and advances   (84,141)   21,183 
Accretion of interest income on MSB receivable   -    (1,889)
Increase in accounts payable   27,507    87,766 
Increase in accrued expenses   118,244    186,523 
Net cash used in operating activities   (329,763)   (95,270)
           
Cash flows from financing activities          
Proceeds from notes payable - Directors   -    40,000 
Proceeds from notes payable   -    52,500 
Net cash provided by financing activities   -    92,500 
           
Net decrease in cash   (329,763)   (2,770)
           
Cash at beginning of the period   382,054    6,217 
           
Cash at end of the period  $52,291   $3,447 
           
Supplemental disclosure of cash flow information:          
Cash paid for:          
Income taxes  $-   $- 
Interest  $-   $- 
Non-cash financing transactions:          
Debt discount due to derivative conversion feature on convertible notes   -    52,500 
Settlement of accrued liabilities through issuance of stock  $92,090   $97,000 

 

See accompanying notes to unaudited consolidated financial statements.

 

6

 

 

LI3 ENERGY, INC.

Notes to Consolidated Financial Statements

For the three months ended December 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 Energy SpA (“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 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.

 

7

 

 

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 December 31, 2016 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 December 31, 2016 or June 30, 2016, and did not recognize any interest in its consolidated statements of operations during the six months ended December 31, 2016 or 2015.

 

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:

 

8

 

 

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 six months ended December 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 income or loss per share, as the inclusion of such shares would be anti-dilutive:

 

   Three Months Ended
December 31,
 
   2016   2015 
Stock options   583,333    916,666 
Restricted stock units   600,000    800,000 
Convertible debt   -    5,808,081 
Stock warrants   2,380,950    11,955,219 
    3,564,283    19,479,966 

 

   Six Months Ended
December 31,
 
   2016   2015 
Stock options   583,333    916,666 
Restricted stock units   600,000    800,000 
Convertible debt   -    5,808,081 
Stock warrants   2,380,950    11,955,219 
    3,564,283    19,479,966 

 

9

 

 

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 December 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 December 31, 2016, the Company had no source of current revenue, a cash balance on hand of $52,291 and negative working capital of $1,189,899.

 

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.

 

10

 

 

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 December 31, 2016 and June 30, 2016 relates to its 49% investment in Minera Li. The activity of the investment for the six months ended December 31, 2016 and 2015 is as follows:

 

   December 31, 2016   December 31, 2015 
Opening balance - July 1, 2016 and 2015  $6,779,337   $7,336,375 
Less: Equity in loss of Minera Li   (71,937)   (375,232)
Closing balance – December 31, 2016 and 2015  $6,707,400   $6,961,143 

 

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

 

   December 31, 2016   June 30, 2016 
Current assets  $13,340   $47,973 
Non-current assets   17,383,067    17,383,067 
Total assets  $17,396,407   $17,431,040 
           
Current liabilities  $1,982,234   $1,870,056 
Equity   15,414,173    15,560,984 
Total liabilities and equity  $17,396,407   $17,431,040 

   

Summarized Statements of Operations

 

   Six months ended   Six months ended 
   December 31, 2016   December 31, 2015 
Revenue  $-   $- 
Operating expenses:          
Exploration expenses   (50,779)   (601,899)
General & administrative expenses   (96,032)   (163,880)
Total operating expenses   (146,811)   (765,779)
Net loss  $(146,811)  $(765,779)

 

   Three months ended   Three months ended 
   December 31, 2016   December 31, 2015 
Revenue  $-   $- 
Operating expenses:          
Exploration expenses   (7,922)   (244,661)
General & administrative expenses   (5,990)   (85,640)
Total operating expenses   (13,912)   (330,301)
Net loss  $(13,912)  $(330,301)

  

11

 

 

NOTE 5. RELATED PARTY TRANSACTIONS

 

MSB

 

At December 31, 2016, MSB owned 51% of Minera Li with the Company 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 (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 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 December 31, 2016, and June 30, 2016 was $36,760 and $17,268, respectively. For the six months ended December 31, 2016 and 2015, $19,492 and $52,368, respectively, of interest expense was recognized in our consolidated statements of operations.

 

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 six months ended December 31, 2016.

 

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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 six months ended December 31, 2016, the Company recorded amortization of debt discount and interest expense of $199,224 and $26,466, respectively, on these convertible notes. Total unamortized debt discount and interest accrued on the loans as of December 31, 2016, was $149,857 and $32,678, 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 December 31, 2016 and June 30, 2016, all derivative warrant instruments had expired.

 

Activity for derivative warrant instruments during the six months ended December 31, 2015 was as follows:

 

       Decrease in     
   Balance at   fair value of   Balance at 
   June 30,   derivative   December 31, 
   2015   liabilities   2015 
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 six months ended December 31, 2015.

  

The following is a summary of the assumptions used in the modified lattice valuation model as of December 31, 2015:

 

   Valuation as of
December 31,
2015
 
Common stock issuable upon exercise of warrants   11,955,219 
Market value of common stock on measurement date (1)  $0.021 
Adjusted exercise price  $0.10-$0.24 
Risk free interest rate (2)   0.49%
Warrant lives in years   0.1-0.3 
Expected volatility (3)   156%
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.

 

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(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 December 31, 2015, respectively:

 

   Valuation as of 
   December 8,
2015
   December 31,
2015
 
Common stock issuable upon conversion of debt   5,227,273    5,808,081 
Market value of common stock on measurement date (1)  $0.025   $0.021 
Adjusted exercise price  $0.011   $0.0099 
Risk free interest rate (2)   0.15%   0.15%
Life in years   1.0    0.9 
Expected volatility (3)   156%   156%
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.

 

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(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 six months ended December 31, 2015 was as follows:

 

       Initial valuation         
       of embedded   Increase     
       derivative   in     
   Balance at   instruments   fair value of   Balance at 
   June 30,   issued during   derivative   December 31, 
   2015   the period   liabilities   2015 
Convertible Notes  $-   $52,500   $59,718   $112,218 
   $-   $52,500   $59,718   $112,218 

  

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.

 

Stock Option Awards

 

There were no stock options issued during the six months ended December 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, 2016   916,666   $0.23    0.6   $- 
Granted   -    -    -    - 
Exercised   -    -    -    - 
Expired/Forfeited   (333,333)   -    -    - 
Outstanding at December 31, 2016   583,333   $0.26    0.4   $- 
Exercisable at December 31, 2016   583,333   $0.26    0.4   $- 

 

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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)
 
   Six months Ended December 31, 
   2016   2015 
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 
Ending balance as of December 31  $-   $112,218 
Change in unrealized gains (losses) included in earnings for the three months ended December 31, 2016 and 2015  $-   $(6,298)
Change in unrealized gains (losses) included in earnings for the six months ended December 31, 2016 and 2015  $-   $(55,678)

 

NOTE 11. COMMITMENTS AND CONTINGENCIES

 

On December 9, 2016, the Company entered into a binding letter of intent (the “LOI”) with Bearing Resources Ltd., a company incorporated under the laws of British Columbia (“Bearing”). Pursuant to the LOI, the Company agreed to sell its 49% equity interest in Minera Li, which represents a 17.7% interest in Minera Salar Blanco S.A., in exchange for 16,000,000 common shares of Bearing and Bearing’s assumption of up to $2.2 million of the debts and liabilities of the Company. The consummation of the transaction is subject to certain terms and conditions, including satisfactory completion of a definitive agreement between the parties, the satisfactory completion of customary due diligence by the parties and receipt of applicable regulatory and shareholder approvals by the parties.

 

The LOI will terminate upon certain events, including if the parties fail to enter into a definitive agreement for the transaction by March 31, 2017, material breaches of the LOI and the discovery of material adverse information during the parties’ respective due diligence investigations. The parties agreed to work exclusively with each other on a definitive agreement until the earlier of (i) the time the LOI is superseded by a definitive agreement and (ii) the termination of the LOI (refer Note 12).

 

NOTE 12. SUBSEQUENT EVENTS

 

Subsequent to December 31, 2016, the Company issued 2,708,529 shares of common stock to officers and directors for services.

 

On January 27, 2017, the Company and 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.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

  

This discussion contains forward-looking statements. Please see “Statement Regarding Forward-Looking Information” above and “Risk Factors” included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2016, filed with the SEC, for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

 

You should read this discussion and analysis together with our consolidated financial statements and the notes thereto for the three months ended December 31, 2016.

 

Overview

 

We are a South America based exploration company in the lithium and potassium mining sector. We aim to acquire and develop a unique portfolio of lithium and potassium brine projects in the Americas.

 

All of our mineral rights in SLM Litio 1-6 and the Cocina Mining Concessions are held by Minera Li Energy SpA (“Minera Li”) , of which the Company retains a 49% ownership interest. The controlling interest in Minera Li (51%) is held by a private Chilean company, Minera Salar Blanco SpA (“MSB”, previously BBL SpA).

 

As of December 31, 2016, Minera Li owned (a) a 60% interest in SLM Litio 1-6, which consists of mining concessions covering an area of approximately 1,438 hectares in the Salar de Maricunga in northern Chile; and (b) the Cocina Mining Concessions, covering 450 hectares located adjacent to SLM Litio 1-6.

 

The Company is currently evaluating additional exploration and production opportunities.

 

Going Concern

 

As of December 31, 2016, the Company had no source of current revenue, a cash balance on hand of $52,291 and negative working capital of $1,189,899.

  

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 that 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.

 

Further, the development and exploitation of the properties in which we have mineral interests require permits at various stages of development.

 

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.

 

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Operational Update

 

During the six months ended December 31, 2016, work was undertaken on a preliminary work program for the Maricunga Project to expand the work performed on SLM Litio 1-6 to include additional studies of the Cocina Mining Concessions. Phase 1 of the exploration plan commenced in September 2016 and includes the drilling of 16 diamond drill holes and 2 pumping wells within the Cocina Mining Concessions, the development of a pilot plant engineering report and the completion of a NI 43-101 technical report, aimed at further expanding the existing lithium resource for the properties acquired since the original estimate. 10 trial evaporation ponds have been constructed on site to measure the precipitation of salts, the evolution of brine and evaporation rates over the next 12 months as part of the lithium processing evaluation. Further to this, a weather station has also been constructed on site, in order to monitor temperature, wind rainfall, and solar radiation over the development period.

 

On February 1, 2017, LPI announced that drilling at the Maricunga Project had been completed with results being collated for the upcoming resource estimate anticipated in the first half of 2017. The results from all drill holes confirm the existence of extremely high lithium grades within the Maricunga Project.

 

On December 9, 2016, the Company entered into a binding letter of intent (the “LOI”) with Bearing Resources Ltd., a company incorporated under the laws of British Columbia (“Bearing”). Pursuant to the LOI, the Company agreed to sell its 49% equity interest in Minera Li, which represents a 17.7% interest in Minera Salar Blanco S.A., in exchange for 16,000,000 common shares of Bearing and Bearing’s assumption of up to $2.2 million of the debts and liabilities of the Company.

 

The consummation of the transaction is subject to certain terms and conditions, including satisfactory completion of a definitive agreement between the parties, the satisfactory completion of customary due diligence by the parties and receipt of applicable regulatory and shareholder approvals by the parties.

 

The LOI will terminate upon certain events, including if the parties fail to enter into a definitive agreement for the Merger by March 31, 2017, material breaches of the LOI and the discovery of material adverse information during the parties’ respective due diligence investigations. The parties agreed to work exclusively with each other on a definitive agreement until the earlier of (i) the time the LOI is superseded by a definitive agreement and (ii) the termination of the LOI.

 

On January 27, 2017, the Company and Bearing entered into an agreement and plan of merger under which Bearing has agreed to acquire Li3.

 

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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.

 

Strategic Plan

 

Our objective is to become an integrated chemical company through the strategic acquisition and development of lithium and potassium assets, as well as other assets that have by-product synergies. Part of our strategic plan is to ensure Minera Li explores and develops the existing Maricunga Project 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 and other industrial minerals properties. Our primary objective is to become a low-cost lithium and potash producer utilizing improved technologies for the extraction of lithium and potash from brines.

 

Along with our strategic partners MSB and LPI, we are fully committed to advancing the Maricunga Project to the stage of full permitting, including environmental, social, and construction permits, and all other studies required on the project.

 

Results of Operations

 

Three Months Ended December 31, 2016 Compared with Three Months Ended December 31, 2015

 

Revenues

 

We had no revenues during the three months ended December 31, 2016 and 2015. 

 

Loss from Minera Li equity investment

 

During the three months ended December 31, 2016, we incurred a loss from equity method investments of $6,817 compared to a loss of $161,848 for the three months ended December 31, 2015. This reflects our share of the losses incurred by Minera Li for each period.

 

General and administrative expenses

 

Our general and administrative expenses for the three months ended December 31, 2016 and 2015 consisted of the following:

 

   Three Months Ended   Three Months Ended   Increase 
   December 31, 2016   December 31, 2015   (Decrease) 
Rent  $236   $214   $22 
Communications   1,612    206    1,406 
Travel expenses   9,780    413    9,367 
Legal fees   31,818    49,403    (17,585)
Accounting & finance fees   11,684    11,084    600 
Audit fees   8,000    7,530    470 
Other professional fees   9,034    35,889    (26,855)
Marketing & investor relations   -    995    (995)
Directors fees   21,000    27,700    (6,700)
Bank fees   945    513    432 
Salaries & wages   32,580    27,508    5,072 
Stock-based compensation   -    33,000    (33,000)
   $126,689   $194,455   $(67,766)

  

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We incurred general and administrative expenses of $126,689 for the three months ended December 31, 2016 compared to general and administrative expenses of $194,455 for the three months ended December 31, 2015, a $67,766 decrease. The decrease in general and administrative expenses is mainly a result of:

 

A decrease in legal fees of $17,585 mainly due to a reduction in legal advice regarding dealings with Codelco, MSB and LPI during the three months ended December 31, 2016;

  

A decrease in other professional fees of $26,855 mainly due to the reversal of $30,200 of over-accrued directors and officers insurance for prior periods, offset by an additional $6,887 for services provided in relation to an economic opinion on the Minera Li properties; and

 

A decrease in stock-based compensation of $33,000 for stock issued in lieu of directors’ fees and salaries as a result of the difference between the fair value of the common stock on the measurement dates and the fees accrued by the Company during each of the respective periods.

 

Other income (expense)

 

Other income for the three months ended December 31, 2016 was $77,452 compared to other expense of $36,910, for the three months ended December 31, 2015. The other income for the three months ended December 31, 2016 mainly consists of a gain on debt extinguishment of $200,000, partially offset by interest expense of $122,591. The other expense for the three months ended December 31, 2015 mainly consist of change in fair value of derivative liabilities of $6,298 and interest expense of $30,462.

 

The gain on debt extinguishment recorded during the three months ended December 31, 2016 is a result of the termination of the non-binding letter of intent with Wealth in November 2016 pursuant to which the Company’s obligation to repay the notes payable to Wealth of $200,000 was also terminated.

 

During the three months ended December 31, 2015, we recorded a loss of $6,298 due to the change in fair value of derivative liability - warrant instruments. All of our remaining warrant instruments expired unexercised during the year ended June 30, 2016, and therefore, there was no activity for derivative liabilities during the three months ended December 31, 2016.

 

Net interest expense amounted to $122,591 and $30,462 during the three months ended December 31, 2016 and 2015, respectively. The increase is mainly due to amortization of the beneficial conversion feature on convertible debt of $99,612 recorded during the three months ended December 31, 2016.

 

Six Months Ended December 31, 2016 Compared with Six Months Ended December 31, 2015

 

Revenues

 

We had no revenues during the six months ended December 31, 2016 and 2015. 

 

Loss from Minera Li equity investment

 

During the six months ended December 31, 2016, we incurred a loss from equity method investments of $71,937 compared to a loss of $375,232 for the six months ended December 31, 2015. This reflects our share of the losses incurred by Minera Li for each period.

 

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General and administrative expenses

 

Our general and administrative expenses for the six months ended December 31, 2016 and 2015 consisted of the following:

 

   Six Months Ended   Six Months Ended   Increase 
   December 31, 2016   December 31, 2015   (Decrease) 
Rent  $488   $(1,677)  $2,165 
Office expenses   -    899    (899)
Communications   3,443    2,874    569 
Travel expenses   14,859    3,465    11,394 
Legal fees   120,224    82,547    37,677 
Accounting & finance fees   23,741    28,439    (4,698)
Audit fees   16,000    16,030    (30)
Other professional fees   54,949    70,763    (15,814)
Marketing & investor relations   5,160    1,345    3,815 
Directors fees   42,310    61,678    (19,368)
Bank fees   2,162    1,311    851 
Salaries & wages   62,076    75,384    (13,308)
Stock-based compensation   -    33,176    (33,176)
Other   -    (5,236)   5,236 
   $345,412   $370,998   $(25,586)

 

We incurred general and administrative expenses of $345,412 for the six months ended December 31, 2016 compared to general and administrative expenses of $370,998 for the six months ended December 31, 2015, a $25,586 decrease. The decrease in general and administrative expenses is mainly a result of:

 

A decrease in other professional fees of $15,814 mainly due to the reversal of $30,200 of over-accrued directors and officers insurance for prior periods and additional costs incurred during the six months ended December 31, 2015 for transfer agent fees on funding documents of $10,381 and fees for patents on concessions of $6,375. These decreases have been offset by an additional $31,420 incurred during the six months ended December 31, 2016 for services provided in relation to an economic opinion on the Minera Li properties;

 

A decrease in directors fees of $19,368 due to the resignation of 3 directors;

 

A decrease in salaries and wages of $13,308 due to the closure of the Chile and Peru offices; and

 

A decrease in stock-based compensation of $33,176 for stock issued in lieu of directors’ fees and salaries as a result of the difference between the fair value of the common stock on the measurement dates and the fees accrued by the Company during each of the respective periods.

  

These decreases have been offset by an increase in travel expenses of $11,394 due to additional travel by the CEO for discussions on potential transactions and an increase in legal fees of $37,677 for services provided on dealings with MSB and LPI during the period.

 

Other expense

 

Other expense for the six months ended December 31, 2016 and 2015 was $47,363 and $105,237, respectively. The decrease is mainly due to a gain on debt extinguishment of $200,000 recorded during the six months ended December 31, 2016 and a change in fair value of derivative liabilities of $55,678 recorded during the six months ended December 31, 2015, partially offset by an increase in interest expense of $189,362.

 

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The gain on debt extinguishment recorded during the six months ended December 31, 2016 is a result of the termination of the non-binding letter of intent with Wealth in November 2016 pursuant to which the Company’s obligation to repay the notes payable to Wealth of $200,000 was also terminated.

 

During the six months ended December 31, 2015, we recorded a loss of $55,678 due to the change in fair value of derivative liability - warrant instruments. All of our remaining warrant instruments expired unexercised during the year ended June 30, 2016, and therefore, there was no activity for derivative liabilities during the three months ended December 31, 2016.

 

Net interest expense amounted to $245,185 and $55,823 during the six months ended December 31, 2016 and 2015, respectively. The increase is mainly due to amortization of the beneficial conversion feature on convertible debt of $199,224 recorded during the six months ended December 31, 2016.

 

Liquidity and Capital Resources

 

We are primarily engaged in exploration and acquisition of new properties and do not generate income from operations currently. As of December 31, 2016, our only source of liquidity had been debt and equity financing.

 

The Company’s current negative working capital position is not sufficient to maintain its basic operations for at least the next 12 months.

 

Although the Company continues to seek investment in certain other mining properties, any such properties that we may acquire will require exploration and development that could take years to complete before such properties begin to generate revenues. There can be no assurances that we will be successful in acquiring such properties or that if we do complete acquisitions, properties acquired will be successfully developed to the revenue producing stage. If we are not successful in our proposed mining operations, our business, results of operations, liquidity and financial condition will suffer materially.

 

Various factors outside of our control, including the price of lithium, potassium nitrate and other minerals, overall market and economic conditions, the volatility in equity markets may limit our ability to raise the capital needed to execute our plan of operations. These or other factors could adversely affect our ability to raise additional capital. As a result of an inability to raise additional capital, our short-term or long-term liquidity and our ability to execute our plan of operations could be significantly impaired.

  

Common Stock Subject to Rescission

 

On March 19, 2012, the SEC declared effective a registration statement that we had filed to cover the resale of shares previously issued and sold (or to be issued upon the exercise of warrants). On March 1, 2013, we filed a post-effective amendment for that registration statement that included our audited financial statements as of and for the year ended June 30, 2012 as had been filed on our Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 Annual Report”). We believe that the filing of the post-effective amendment fulfilled our obligation to update the registration with current financial information pursuant to Section 10(a)(3) of the Act. However, there were approximately three months when our registration statement contained financial information that was not current. During that period, 65,000 shares were sold pursuant to that prospectus in open market transactions which may have violated Section 5 of the Securities Act, and, as a result, the purchasers of those shares may have rescission rights or claims for damages. Accordingly, we have reduced shareholders’ equity at December 31, 2016 by $3,041, the total amount that we would have to refund if all the purchasers of those shares exercised their rescission right.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide disclosures under this Item 3.

 

Item 4. Controls and Procedures

 

Evaluation of disclosure of controls and procedures

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2016. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective.

  

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

 

Changes in internal controls over financial reporting 

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.

 

We are currently not aware of any pending legal proceedings to which we are a party or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by any governmental authority.

 

Item 1A.  Risk Factors

 

There have been no material changes from the risk factors disclosed in Part I, Item 1A, “Risk Factors” of the Form 10-K we filed with the SEC on October 7, 2016.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

  

Mine Safety and Health Administration Regulations

 

We consider health, safety and environmental stewardship to be a core value for the Company.

 

Our Chilean exploration properties are not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the fiscal quarter ended December 31, 2016, despite the fact Li3 Energy, Inc. is outside the Mine Act jurisdiction, the Company had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K.

 

Item 5.  Other Information

 

None.

 

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Item 6.Exhibits

 

Exhibit
Number
  Exhibit Title
     
10.1   Amendment to Agreement between Minera Salar Blanco S.p.A. and Li3 Energy, Inc., dated October 5, 2016. (1)
     
10.2   Acknowledgement and Agreement with Wealth Minerals Ltd. to terminate the non-binding letter of intent the parties entered into on January 29, 2016, dated November 15, 2016. (2)
     
10.3   Letter of Intent with Bearing Resources Ltd., dated December 9, 2016.*
     
31.1   Certification of Principal Executive Officer, pursuant to Securities Exchange Act Rules 13a - 14(a) and 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
     
31.2   Certification of Principal Financial Officer, pursuant to Securities Exchange Act Rules 13a - 14(a) and 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
     
32.1   Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
32.2   Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
     
101.INS   XBRL Instance Document*
     
101.SCH   XBRL Taxonomy Schema*
     
101.CAL   XBRL Taxonomy Calculation Linkbase*
     
101.DEF   XBRL Taxonomy Definition Linkbase*
     
101.LAB   XBRL Taxonomy Label Linkbase*
     
101.PRE   XBRL Taxonomy Presentation Linkbase*

 

(1)Filed with the Securities and Exchange Commission on October 11, 2016 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

  

(2)Filed with the Securities and Exchange Commission on November 21, 2016 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

*Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Date:  February 21, 2017 LI3 ENERGY, INC.
   
  By: /s/ Luis F. Saenz
    Luis F. Saenz
    Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ Luis Santillana
    Luis Santillana
    Chief Financial Officer
    (Principal Financial Officer)

 

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