UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: June 30, 2015
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 | (IRS Employer Identification No.) |
| incorporation or organization) | |
| Matias Cousiño 82 | |
| Oficina 806 | |
| Santiago | |
| Chile | |
| (Address of principal executive offices) | (Zip Code) |
| Registrant’s telephone number, including area code | +(56) 2-2206 5252 |
| Securities registered under Section 12(b) of the Act: | None |
| Securities registered under Section 12(g) of the Act: | Common Stock, $0.001 par value per share |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ¨ No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.
Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See the definitions of the “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 ¨ (Do not check if a smaller reporting company) | Smaller reporting company x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
On December 31, 2014, the last business day of the registrant’s most recently completed second fiscal quarter, 261,272,692 shares of its common stock, par value $0.001 per share (its only class of voting or non-voting common equity), were held by non-affiliates of the registrant. The aggregate market value of such shares was approximately $3,919,090, based on the price at which the registrant’s common stock was last sold at such time (i.e. $0.015 per share on December 31, 2014). For purposes of making this calculation, shares beneficially owned at such time by each executive officer and director of the registrant and by each beneficial owner of greater than 10% of the voting stock of the registrant have been excluded because such persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of November 6, 2015, there were 483,291,849 shares of the registrant's common stock, par value $0.001, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
TABLE OF CONTENTS
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Various statements in this Annual Report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are “forward-looking statements.” The forward-looking statements may include projections and estimates concerning the timing and success of specific projects, revenues, income and capital spending. Forward-looking statements are often (but not always) accompanied by words such as “believe,”“intend,”“expect,”“seek,”“may,”“should,”“anticipate,”“could,”“estimate,”“plan,”“predict,”“project,”“target,”“goal,”“objective” or other similar expressions. These statements are likely to address our growth strategy, financial results and exploration and development programs, among other things.
Forward-looking statements are subject to risks and uncertainties that may change at any time. The forward-looking statements contained in this Annual Report are largely based on our expectations, which reflect many estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. In addition, management’s assumptions about future events may prove to be inaccurate. Management cautions all readers that the forward-looking statements contained in this Annual Report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward looking events and circumstances will occur. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those anticipated or implied in the forward-looking statements, including, but not limited to, those described in the “Risk Factors” section and elsewhere in this Annual Report.
All forward-looking statements are based upon information available to us on the date of this Annual Report. 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.
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| ITEM 1. | BUSINESS |
Corporate Summary
Li3 Energy, Inc., (“Li3,” “Li3 Energy”, “the Company” “we,” “our” or “us”) was incorporated under the laws of the state of Nevada on June 24, 2005. We are an exploration company in the lithium and potassium mining sector, based in South America. Our common stock is currently quoted on the OTCQB. We aim to acquire and develop a unique portfolio of lithium and potassium brine projects in the Americas. We are currently focused on further exploring, developing and commercializing our 49% 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. The “Maricunga Project” refers to a lithium and potassium exploration project consisting of two adjacent properties covering an aggregate of 1,888 hectares: a 60% interest in Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga (“SLM Litio 1-6”), and a 100% interest in a group of exploitation mining concessions named Cocina 19 through 27 (the “Cocina Mining Concessions”). To the best of our knowledge, the Maricunga Project is the only advanced exploration stage lithium and potassium project within the Salar de Maricunga, the second largest lithium-bearing salt brine deposit in Chile. We plan to continue exploring other synergistic opportunities to further augment and strengthen this property and our land portfolio throughout the region. We are seeking to be a low cost producer of lithium, potash and other mineral products.
Our goals are to: a) advance our portfolio of projects to the feasibility study stage; b) support the global implementation of clean and green energy initiatives; c) meet growing lithium market demands; and d) become a mid-tier, low cost secondary supplier of lithium, potassium, and other strategic minerals, serving global clients in the energy, fertilizer and specialty chemical industries.
All of our mineral rights in the Maricunga Project are held by Minera Li Energy SpA (“Minera Li”), of which the Company holds a 49% ownership interest. The controlling interest in Minera Li (51%) is held by a private Chilean company, BBL SpA (“BBL”). Pursuant to the Shareholders Agreement with BBL, BBL has agreed to provide funding for our share of the development of the Maricunga Project until construction permits are in place.
In Chile, the Chilean Organic Law on Mining Concessions (“LOCM”) and the Chilean Mining Code (“CMC”) provide that lithium may not be granted in a mining concession initiated after January 1, 1979. As a result, only mining exploitation concessions initiated before January 1, 1979 are authorized for the exploitation of lithium. For all other cases, the CMC establishes the reserve of lithium to Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of Chile for each case. As a result, Minera Li is currently authorised to exploit lithium from the Cocina Mining Concessions but not from SLM Litio 1-6.
However, in June 2014, Chile´s President and Minister of Mining signed a decree for the establishment of the National Lithium Commission, with the objective of recommending a new state policy for the exploitation of lithium and promotion and development of new projects in Chile. In January 2015, the National Lithium Commission issued its report and, as a result, the Chilean government is to consider working alongside companies from the private sector to develop the country's lithium reserves, increase production and secure the long-term sustainability of Chile's lithium industry. This is a positive step forward in Minera Li´s continued efforts of seeking a permit to exploit lithium from SLM Litio 1-6. Minera Li continues to seek a permit for SLM Litio 1-6, however, if no permit for lithium exploitation is acquired, Minera Li plans to develop and exploit potassium from this property.
The current market environment is showing attractive valuations for advanced lithium projects, and due to our execution of the Maricunga Project and our regional/market knowledge, we believe that we are uniquely positioned to identify and execute on certain of these opportunities. We have been actively reviewing opportunities with low-cost, high-quality deposits in an advanced exploration stage that are located mainly in Chile, Argentina, and North America.
Through our strategic partner, POSCO Canada, Ltd. (“POSCAN”), a wholly-owned subsidiary of POSCO (NYSE: PKX), we have been evaluating the use of advanced process technologies that may further improve upon the economics and shorten the commercial production timeline of Minera Li´s Maricunga Project, of which we retain a 49% interest. These technologies have been evaluated by POSCO in a pilot test facility, proving effective when measured against the conventional lithium and potassium commercialization process.
According to the signumBOX Performance Index published in January 2015, SLM Litio 1-6 is ranked as the fourth best undeveloped lithium project in the world out of 37 other brine salars, subject to obtaining lithium exploitation permits. SLM Litio 1-6 is the highest ranked undeveloped lithium brine project in Chile and after Atacama, the Salar de Maricunga has the second highest quality deposit of lithium in Chile.
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During the period from May 2011 to April 2013, our key activities were as follows:
| · | Completed acquisition of 60% Controlling Interest in SLM Litio1-6, which established the Maricunga Project. |
| · | Strategic Partnership with POSCAN, which established, among other things, an $18 million Exploration and Development program for SLM Litio 1-6. |
| · | Completed $8 million funding tranche with POSCAN and launched $8 million Phase One Exploration Plan on SLM Litio 1-6. |
| · | Issued a technical report validating our lithium and potash exploration campaign at SLM Litio 1-6 and recommending the project to advance to the feasibility study stage. |
| · | Completed a $10 million funding tranche from POSCAN. |
| · | Formed a consortium (Li3 Energy, POSCO, Mitsui, Daewoo) to bid on auction for lithium exploitation permit on SLM Litio 1-6. |
| · | Participated in a government auction for a lithium exploitation permit (CEOL) for SLM Litio 1-6, for which we were unsuccessful. The CEOL process was subsequently cancelled by the Chilean government. |
| · | Received approval of Environmental Impact Declaration for SLM Litio 1-6. This approval allows us to advance the development of SLM Litio 1-6 toward a feasibility study. |
| · | Acquired the Cocina Mining Concessions for a purchase price of $6.3 million, which Cocina Mining Concessions do not require a special permit to exploit lithium. |
During January 2014, the Company executed the BBL Transaction pursuant to which BBL SpA acquired 51% of Minera Li, with Li3 retaining 49% ownership.
We believe that if Minera Li is successful in advancing the Maricunga Project through the exploration and feasibility study stage, obtains the necessary Chilean government approvals/licenses, closes and acquires additional land acreage to support further development of the Maricunga Project, achieves a definitive feasibility study, and raises the necessary capital, Minera Li could begin commercial production and generate revenues within the next 5-7 years. However, there can be no assurance that it will achieve its stated objectives.
We are led by a management team with extensive exploration, mining, minerals, finance and commercialization expertise, and a Board of Directors who have advised, led and operated numerous mining entities. They are supported by an experienced technical team, many of whom have worked on other junior lithium projects. The Li3 management team comprises three of the seven Board members advising on the development of the Maricunga Project.
We have never generated revenues from operations and currently do not expect to generate any such revenues in the near term.
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.
Some of the actions we have taken in striving to achieve our objective are as follows:
Advancement of the Existing Maricunga Project
Along with our strategic partner BBL, 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, to internationally recognized standards (the "Project Milestone"). To enable this, BBL has committed to financing our share of the exploration expenses until the Project Milestone is achieved.
During the year ended June 30, 2015, a preliminary work program was carried out on the Maricunga Project including preparation of a closure plan and relevant approvals, preparation and permitting of a new Declaration de Impacto Ambiental (“DIA”), geophysical surveys, initiation of baseline monitoring programs and pumping test program on existing production wells. The results of the testing are expected during the last quarter of 2015.
The Company continues to pursue joint venture opportunities within the Salar de Maricunga. BBL has also acquired options to buy additional mining properties within the Salar in order to consolidate its property holdings within the Salar de Maricunga. We also continue to negotiate with the Chilean government regarding permitting for exploitation of lithium and have been part of the discussions with the National Lithium Commission for a joint effort between state and private companies to develop a lithium project within Chile.
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In March 2013, POSCO announced that it had developed a chemical lithium extraction technology that reduces recovery time from around 12 months to less than a few days. Testing of this technology showed that it increases the lithium recovery rate from a maximum of 50% using traditional evaporation ponds to more than 80%, and the lithium carbonate produced is more than 99.9% pure. Minera Li plans to assess the use of this technology to gain efficiencies in exploiting lithium from the Maricunga Project.
In January 2015, initial test results from POSCO´s demonstration plant located in the Cauchari-Olaroz salar in Argentina indicated that the Direct Lithium Extraction Process achieved or exceeded all performance targets and that the lithium products subsequently processed were of very high quality. During a one month period, over 20 tonnes of lithium phosphate was produced from the demonstration plant and subsequently exported to POSCO’s facility in Pohang, Korea where it was further processed into battery grade lithium carbonate and lithium hydroxide.
Identifying other opportunities with new projects
The current market environment is showing attractive valuations for advanced lithium projects, and due to our execution of the Maricunga Project and our regional/market knowledge, we believe that we are uniquely positioned to identify and execute on certain of these opportunities. We have been actively reviewing opportunities with low-cost, high quality deposits in an advanced exploration stage that are located mainly in Chile, Argentina and North America.
Strategic Partners
BBL
BBL is a private Chilean Corporation with an objective to advance a business in the production of lithium. BBL is controlled by a Chilean entrepreneur.
On January 27, 2014, the Company entered into the BBL Transaction, pursuant to which BBL acquired 11 of our 60 shares of Minera Li for a cash payment of $1,500,000 and Minera Li issued 40 Additional Shares to BBL in exchange for a cash payment of $5,500,000. As a result of the BBL Transaction, BBL became the majority shareholder of Minera Li with a 51% interest, and the Company retains a 49% interest in Minera Li.
Concurrent with the execution of the BBL Transaction, the Company and BBL also entered into a Shareholders Agreement regarding their joint ownership interest of Minera Li (the “Shareholders Agreement”). Under the Shareholders Agreement, BBL will pay $1,000,000 (the “Additional Payment”) to the Company upon the earlier of (i) its completion of certain Project Milestones relating to the permitting and development of the Maricunga Project and (ii) January 27, 2016.
Under the Shareholders Agreement, BBL agreed to finance the Company’s exploration and development expenses until the Maricunga Project reaches full permitting and is ready for construction, by providing loans due 24 months from receipt at an interest rate of 12% per annum. The loans will be secured by the Company’s ownership interest in Minera Li. Specific limits for these loans have not been established and will be negotiated in good faith between BBL and the Company. To date, the Company has not received any such loans.
In addition to the foregoing financing, BBL also committed to provide the Company with a line of credit (the “BBL Credit Facility”) in the amount of $1,800,000 (the “Maximum Amount”) to be used for the working capital needs of the Company. Each drawdown must be repaid within 18 months of the drawdown date, at 8.5% interest per annum. The BBL Credit Facility is secured by the Company’s ownership interest in Minera Li. As of June 30, 2015 and 2014, the Company has received $1,220,000 and $240,000, respectively, under the BBL Credit Facility, as follows:
| Agreement Date | June 30, 2015 | June 30, 2014 | ||||||
| May 27, 2014 | $ | 100,000 | $ | 100,000 | ||||
| June 11, 2014 | 140,000 | 140,000 | ||||||
| July 23, 2014 | 200,000 | - | ||||||
| August 27, 2014 | 200,000 | - | ||||||
| October 21, 2014 | 200,000 | - | ||||||
| November 25, 2014 | 180,000 | - | ||||||
| February 3, 2015 | 200,000 | - | ||||||
| Total | 1,220,000 | 240,000 | ||||||
| Current-portion of long-term notes payable to BBL | (1,020,000 | ) | - | |||||
| Long-term notes payable to BBL | $ | 200,000 | $ | 240,000 | ||||
The Company has made several requests to BBL for the remaining $580,000 payable under the BBL Credit Facility, however to date these requests have not been honored and the Company continues to negotiate with BBL regarding this matter.
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In accordance with the Shareholders Agreement, the board of directors of Minera Li consists of four representatives from BBL and three representatives from Li3, including Li3´s Chairman and CEO. Although financial control of Minera Li lies with BBL, BBL is reliant on Li3´s expertise in the mining and lithium sectors. As such, the technical team previously responsible for the Maricunga Project remains deeply involved in its current development plans and continues to be supervised by Li3´s management and board participants.
POSCO / POSCAN
POSCO (with its subsidiaries) is a diversified company, with operations in energy, chemicals and materials and is one of the largest steel manufacturers in the world. It is publicly-listed on the NYSE and POSCO’s management possesses executive leadership, a world renowned Global Research and Development Center (RIST), a vast knowledge of lithium and other strategic minerals, and a vision to transform the methodology in how lithium is commercialized. We believe that POSCO demonstrates a unique ability to apply both intellectual and financial capital, and that a strategic partnership with POSCO would enable the Company to begin to execute its strategic plan.
On August 24, 2011, we entered into a Securities Purchase Agreement (the “SPA”) and an Investor Rights Agreement (the “IRA” and, together with the SPA, the “POSCAN Agreements”) with POSCAN pursuant to which POSCAN acquired 100,595,238 units of the Company for approximately $18 million, with each unit consisting of one share of common stock and one three-year warrant, each warrant enabling the holder to purchase one share of the Company’s common stock at an exercise price of $0.21 per share. Li3 also agreed to issue POSCAN a two-year warrant to purchase 5,000,000 shares of common stock at an exercise price of $0.15 per share (together with the warrants underlying the units, the POSCAN Warrants). All POSCAN Warrants have expired unexercised and, as of the date of this filing, shares of the Company’s common stock held by POSCAN represent 20.8% of our common stock currently issued and outstanding.
The IRA provides that Li3 will appoint a director nominated by POSCAN to our board of directors, and will continue to nominate a POSCAN-designee at each annual meeting for as long as POSCAN owns not less than 10% of the issued and outstanding shares of common stock. Dr. Uong Chon was appointed as a director on May 23, 2014, and is currently the POSCAN-designee on the Company’s board of directors.
In March 2013, POSCO announced that it had successfully completed testing of its proprietary, patented Direct Lithium Extraction Process. This process addresses the current economics and inefficiencies in the lithium market by significantly improving lithium recovery yields and shortening the time to commercial production. According to POSCO, this process includes the following benefits:
| · | Significantly reduces the use of evaporation ponds, thereby reducing capital requirements, time to market, required land footprint, and variability of production rates and quality; |
| · | Lowers processing times (from an average of 12 months under traditional methods to under 8 hours), thereby reducing working capital requirements and time to market; and |
| · | Higher lithium recoveries (increase from 40-50% under traditional methods to 70-80%), thereby enabling faster and greater recovery of lithium from the same brine resource. |
In January 2015, initial test results from POSCO´s demonstration plant located in the Cauchari-Olaroz salar in Argentina indicated that the Direct Lithium Extraction Process achieved or exceeded all performance targets and that the lithium products subsequently processed were of very high quality. During a one month period, over 20 tonnes of lithium phosphate was produced from the demonstration plant and subsequently exported to POSCO’s facility in Pohang, Korea where it was further processed into battery grade lithium carbonate and lithium hydroxide.
There can be no assurance that any agreement will be reached with POSCAN with respect to a pilot plant, a commercial plant, any further investment by POSCAN, any purchase by POSCAN of our production, or otherwise.
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Project Overview
Maricunga Project
Location
We retain a 49% interest in the Maricunga Project. The Maricunga Project consists of approximately 1,888 hectares, and is located in the northeast section of the Salar de Maricunga, the second largest lithium-bearing salt brine deposit in Chile. It consists of Minera Li´s 60% controlling interest in SLM Litio 1-6 (1,438 hectares - highlighted in blue on the map below) and the Cocina Mining Concessions (450 hectares - highlighted in green on the map below).
The Salar de Maricunga is located in Region III (Atacama region) of northern Chile at an elevation of approximately 3,750m. It is classified as a mixed type of salar of the Na-Cl-Ca/SO4 system. It is located about 180km to the north-east of Copiapo, the capital of the Atacama region, via “Carreteradel Inca” highway. As the properties are both undeveloped, at this stage there is no source of power or material plant and equipment located on the properties. Local infrastructure at the Salar de Maricunga includes National Highway 31 and an electrical power line running parallel to the highway.
Location of the Salar de Maricunga
Maricunga Project within the Salar
 |
 |
The area of each mining concession is:
| (a) | Litio 1- 1/29 - 130 hectares. |
| (b) | Litio 2- 1/29 - 143 hectares. |
| (c) | Litio 3- 1/58 - 286 hectares. |
| (d) | Litio 4- 1/60 - 297 hectares. |
| (e) | Litio 5- 1/60 - 300 hectares. |
| (f) | Litio 6- 1/60 - 282 hectares. |
| (g) | Cocina 19-27 - 450 hectares. |
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SLM Litio 1-6
On May 20, 2011, Minera Li acquired 60% of SLM Litio 1-6, comprising six exploitation mining concessions granted by the Chilean government, each held by one of a group of six private companies (the “Maricunga Companies”) as follows:
| 1. | Sociedades Legales Mineras Litio 1 de la Sierra Hoyada de Maricunga |
| 2. | Sociedades Legales Mineras Litio 2 de la Sierra Hoyada de Maricunga |
| 3. | Sociedades Legales Mineras Litio 3 de la Sierra Hoyada de Maricunga |
| 4. | Sociedades Legales Mineras Litio 4 de la Sierra Hoyada de Maricunga |
| 5. | Sociedades Legales Mineras Litio 5 de la Sierra Hoyada de Maricunga |
| 6. | Sociedades Legales Mineras Litio 6 de la Sierra Hoyada de Maricunga |
The purchase price was $6,370,000 in cash, including amounts paid to agents, and 127,500,000 restricted shares of our common stock. Each mining concession grants the owner the right to explore and commercially develop any mineral deposits located at SLM Litio 1-6, with the exception of lithium. SLM Litio 1-6 were constituted subsequent to the 1979 Lithium Exploitation Restrictions. Consequently, under the current Chilean state policy, their holder is not authorized to exploit lithium in the area covered by those concessions. In June 2014, Chile´s President and Minister of Mining signed a decree for the establishment of the National Lithium Commission, with the objective of recommending a new state policy for the exploitation of lithium and promotion and development of new projects in Chile. In January 2015, the National Lithium Commission issued its report and, as a result, the Chilean government is to consider working alongside private companies in the lithium sector to develop the country's lithium reserves, increase production and secure the long term sustainability of Chile's lithium industry.
SLM Litio 1-6 are not subject to royalties or other agreements. However, Minera Li must pay annual licenses in March of each year, aggregating approximately $15,000 per year for exploration and exploitation concessions.
Cocina Mining Concessions
On April 16, 2013, Minera Li entered into an agreement to acquire the Cocina Mining Concessions. Minera Li paid $6.6 million (including a $300,000 late penalty payment) to acquire the Cocina Mining Concessions.
The Cocina Mining Concessions were constituted prior to the 1979 Lithium Exploitation Restrictions. Consequently, their holder has a constitutionally protected ownership right to exploit lithium in the area covered by those concessions. All requisite permits must be obtained prior to receipt of authorization for exploitation. Refer to the section ‘Lithium Exploitation Permitting in Chile’ below for more details about the rights to exploit lithium in Chile.
Exploration Work Performed
In December 2011, we effected a timely completion of the $8 million Phase One of our Exploration and Development Program, on our SLM Litio 1-6 concessions. We reported the initial results from brine samples taken during the sonic and reverse circulation well drilling program that was initiated in October 2011. We carried out sonic drilling for the collection of undisturbed samples from continuous core for porosity determinations and brine samples for laboratory chemical analyses. Six sonic boreholes, for a total of 900 meters, were drilled and completed to a depth of 150 meters each. We carried out reverse circulation well drilling with isolated brine sampling. A total of 884 meters of 6-inch monitoring wells were drilled and a total of 300 meters of 17 inch production wells were drilled. A total of 431 samples were taken during the drilling and were submitted to the University of Antofagasta in Antofagasta, Chile for analysis.
In May 2012, we reported the completion of a technical report on SLM Litio 1-6 prepared by Donald H. Hains, Principal of Hains Technology and Associates. The technical report demonstrates that SLM Litio 1-6 has high grades of lithium and potassium and recommended the project to advance to the feasibility study stage. The report included the following conclusions and recommendations:
| - | Results of airlift testing and pumping tests on test trenches indicate that future brine production can be achieved through a combination of production wells and open trenches. |
| - | The analyses of brine chemistry indicate that the brine is amenable to lithium and potash recovery through conventional technology. |
| - | It is believed that through the application of proprietary technology developed by Li3’s strategic partners, lithium recovery from the brine can be significantly enhanced and may range from 45 percent to more than 70 percent. |
| - | It is the recommendation of the authors that a full feasibility study be completed for the Project. |
In March 2013, we received approval of the Environmental Impact Declaration for SLM Litio 1-6 from the Chilean Environmental Authority. This approval allows us to advance the development of SLM Litio 1-6 toward a feasibility study.
During the year ended June 30, 2015, a preliminary work program was carried out on the Maricunga Project including preparation of a closure plan and relevant approvals, preparation and permitting of a new DIA, geophysical surveys, initiation of baseline monitoring programs and a pumping test program on existing production wells. The results of the testing are expected during the last quarter of 2015.
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Short-Term Goals for the Maricunga Project
The Minera Li Board has formed an Operations and Finance Committee which will oversee the technical work required to advance the Maricunga Project along with the financial aspects of Minera Li.
The Operations and Finance Committee has identified the short term goals to continue the program of exploration on the Maricunga Project as follows:
Stage 1 – Complete an updated technical report to include both SLM Litio 1-6 and the Cocina Mining Concessions. Works required include core drilling and pumping tests, monitoring well installations and geophysical, stratigraphic and topographic survey.
Stage 2 – Complete a Prefeasibility Study (“PFS”).
Minera Li´s technical teams have developed a work program targeted to complete stage 1, with an estimated cost of $1.8 - $2 million, of which Li3´s share will be approximately $0.9 - $1 million. As part of the work program, data will be collected for the Environmental Impact Assessment. Once the PFS is completed, Minera Li will carry out further works towards a feasibility study.
The timeline to complete this technical work on the Maricunga Project will depend on the outcome of the ongoing developments on the legislation over the exploitation of lithium in Chile. The developments have been positive with the recommendations of the National Lithium Commission in January 2015 calling for a joint effort between state and private companies to develop a lithium project within Chile. We have been in discussions to be part of this joint effort and if an agreement is reached, we will be in a position to move ahead with the final exploration and permitting on the Maricunga Project.
Lithium Exploitation Permitting in Chile
In Chile, the Chilean Organic Law on Mining Concessions (“LOCM”) and the Chilean Mining Code (“CMC”) provide that lithium may not be granted in a mining concession initiated after January 1, 1979. As a result, only mining exploitation concessions initiated before January 1, 1979 are authorized for the exploitation of lithium. For all other cases, the CMC establishes the reserve of lithium to Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of Chile for each case. Additionally, Law 16,319, which created the Chilean Nuclear Energy Commission (the “NEC”), provides in its Article 8 that, for reasons of national interest, any act or contract in connection with lithium will require the previous authorization of NEC (or have NEC as a party thereto). Once any such authorization is granted to an applicant, NEC is not authorized to amend it or terminate it, nor the applicant to resign it, for reasons other than those set forth in the resolution granting it.
As the constitution process of the Cocina Mining Concessions was initiated in 1937, lithium exploitation is authorized in the area covered by the Cocina Mining Concessions. However, as the constitution process of SLM Litio 1-6 was initiated in 2000, lithium exploitation is not authorized in the area covered by such concessions. All other minerals on the property are concessible and, as with any mineral exploitation in Chile, all requisite permits must be obtained.
In June 2012, the Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a 7% royalty. In September 2012, we formed a consortium consisting of Li3, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, the Consortium submitted its bid for the CEOLs and in September 2012, the Company was informed that the Consortium’s bid was not the winning bid.
The Chilean government subsequently decided to invalidate the CEOL process due to an administrative error, as well as rescinding the CEOL Basis, which defined the regulations of the CEOL process. The Company submitted several appeals to the Chilean government requesting it to reconsider the invalidation and award the CEOL to the second highest bidder - the Consortium. The appeals have been rejected by the Chilean government. In June 2014, Chile´s President and Minister of Mining signed a decree for the establishment of the National Lithium Commission, tasked with recommending a new state policy for the exploitation of lithium in Chile. The recommendation was issued in January 2015, following which the Chilean government is to consider working alongside private companies in the lithium sector to develop the country’s lithium reserves, increase production and secure the long term sustainability of Chile’s lithium industry. We believe this is a positive step forward in Minera Li´s continued efforts of seeking a permit to exploit lithium from SLM Litio 1-6.
While Minera Li´s current plan for the Maricunga Project is to exploit lithium and potash from both SLM Litio 1-6 and the Cocina Mining Concessions, if no permit for lithium exploitation is obtained for SLM Litio 1-6, Minera Li plans to produce lithium carbonate and potash from the Cocina Mining Concessions in conjunction with producing potash only from SLM Litio 1-6. The technical report shows that potassium resources are available in these properties. The majority of the past and current technical work performed on the project is applicable to the production of lithium and/or potassium. Potassium exploitation does not require special permits and it is exploitable via regular mining concessions, according to the CMC. Initial estimations suggest that a potash project may be economically feasible. However, there can be no assurance that Minera Li will be able to obtain the permits necessary to exploit any minerals that it discovers in a timely manner or at all.
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Other Permits
Our operations, and that of Minera Li, are subject to numerous Chilean and international laws and regulations governing the operation and maintenance of our facilities and the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may:
| · | Require that we acquire the relevant permits before commencing extraction operations; |
| · | Restrict the substances that can be released into the environment in connection with mining and extraction activities; |
| · | Limit or prohibit mining activities on protected areas such as wetland or wilderness areas; and |
| · | Require remedial measures to mitigate pollution from former operations, such as dismantling abandoned production facilities. |
Companies must meet, maintain and abide by strict environmental regulations in accordance with Chilean and international laws and regulations. We will also have to abide and comply with national labor laws that protect and govern our employees. We believe that between our management team, our consultants and the experts we have hired, we will be able to satisfy any and all regulatory and compliance requirements. We are unable to assess the cost of complying with all of the regularity requirements at this stage, however, non-compliance may result in us or Minera Li being unable to continue exploration, construction or operation of a mine.
Competition
We are a junior mineral resource exploration company that competes with other mineral resource exploration companies for financing, personnel and equipment and for the acquisition of mineral properties. Many of the mineral resource exploration companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties and on exploration and development. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and/or development. This competition could adversely impact on our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral properties. Our competition includes companies such as Pure Energy Minerals, Western Lithium and Lithium Americas.
Compliance with Government Regulation
We are committed to complying with and are, to our knowledge, in compliance with, all governmental and environmental regulations applicable to our company and our properties. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. We cannot predict the extent to which these requirements will affect our company or our properties if we identify the existence of minerals in commercially exploitable quantities. In addition, future legislation and regulation could cause additional expense, capital expenditure, restrictions and delays in the exploration of our properties.
Employees
At June 30, 2015, we had three full-time employees, including our Chief Executive Officer and Chief Financial Officer, and one contract employee. In addition, we engage several advisors and consultants.
We engage contractors from time to time to consult with us on specific corporate affairs or to perform specific tasks in connection with our exploration programs.
Subsidiaries
We currently have three wholly owned subsidiaries:
| 1. | Li3 Energy Peru SRL, a private limited company organized under the laws of Peru; |
| 2. | Alfredo Holdings, Ltd., an exempted limited company incorporated under the laws of the Cayman Islands; |
| 3. | Li3 Energy Copiapó, SA, a Chilean corporation which is a subsidiary of Alfredo Holdings, Ltd.; and |
On October 22, 2014, the Company sold 60% of its shares in Noto Energy SA (“Noto”, an Argentinean corporation and a previously 100% owned subsidiary) to its CEO for proceeds of $4,245.
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Following the BBL Transaction on January 27, 2014, we retain 49% ownership of Minera Li (previously a 100% owned subsidiary). Minera Li holds 60% ownership of SLM Litio 1-6, a group of six private companies (the “Maricunga Companies”).
Intellectual Property
We do not own, either legally or beneficially, any patent or trademark nor any material intellectual license, and are not dependent on any such rights. We have trademarked Li3 Energy, its logo and registered the domain name www.li3energy.com. We consider many of our lithium mining site evaluation, exploration and development techniques to be proprietary, and periodically evaluate whether to seek protection for any such techniques.
Lithium and Lithium Mining
Lithium is the lightest metal in the periodic table of elements. It is a soft, silver white metal and belongs to the alkali group of elements, which includes sodium, potassium, rubidium, cesium and francium. The chemical symbol for lithium is “Li,” and its atomic number is 3. Like the other alkali metals, lithium has a single valence electron that is easily given up to form a cation (positively charged ion). Because of this, it is a good conductor of both heat and electricity and highly reactive, though it is the least reactive of the alkali metals. Lithium possesses a low coefficient of thermal expansion (which describes how the size of an object changes with a change in temperature) and the highest specific heat capacity (a measure of the heat, or thermal energy, required to increase the temperature of a given quantity of a substance by one unit of temperature) of any solid element.
These properties make lithium an excellent material for manufacturing batteries (lithium-ion batteries). According to the U.S. Geological Survey’s (“USGS”) “Mineral Commodity Summaries 2014”, issued in February 2014, batteries accounted for 29% of lithium end-usage globally, and we expect demand for lithium from the battery segment to grow along with demand for such batteries. Although lithium markets vary by location, global end-usage was estimated by the USGS as follows: ceramics and glass, 35%; batteries, 29%; lubricating greases, 9%; continuous casting mold flux powders, 6%; air treatment, 5%; polymer production, 5%; primary aluminum production, 1%; and other uses, 10%. Lithium use in batteries has increased significantly in recent years because rechargeable lithium batteries are used extensively in portable electronic devices, and have been used increasingly in electric tools, electric vehicles, and grid storage applications. Lithium is extracted from solutions called brines, which are associated with evaporate deposits, as well as from spodumene (a lithium aluminum silicate), which occurs in a rock called pegmatite.
Historically, especially during the period leading up to and during World War II, lithium was designated a strategic metal, heavily used in the aircraft industry because it is light and strong. During this period, the mineral spodumene (a lithium aluminum silicate) was mined by open pit hard rock mining methods and processed to recover the lithium. During the post-war period, lithium production from the higher cost hard rock mines was replaced by the lower cost extraction of lithium from the mineral rich brines associated with evaporite deposits. Evaporite deposits occur in environments characterized by arid conditions with extremely high evaporation rates. This environment typically occurs at high altitudes, greater than 3,000 meters above sea level, so evaporite deposits occur in only a very few locations in the world, including China (the province of Qinghai and the Autonomous Region of Tibet); the Puna Plateau, a high altitude plateau covering part of Argentina, Chile, Bolivia and the southern portion of Peru; and in a small region in Nevada, which is the core of what is called the Great Basin of the western United States.
Brine extraction (mining) and the recovery of lithium and other economic compounds is analogous to pumping water from an aquifer, but instead of fresh water, the water contains a variety of mineral salts in solution, including lithium, potassium (K), magnesium (Mg) and sodium (Na). This form of “mining” is much more efficient, cost effective and environmentally friendly than open pit mining. However, the processing cost of brine extraction can vary by a wide range, depending largely on:
| · | lithium concentration in the particular brine; |
| · | evaporation rates at the site, which determine how quickly the brine can be concentrated; and |
| · | the balance of other minerals in the brine, which affects the degree of processing needed to remove impurities. |
Ideal Brine Conditions
The most important metrics when evaluating lithium brine resources are:
| 1) | lithium content; |
| 2) | evaporation rate; |
| 3) | magnesium to lithium ratio; |
| 4) | potassium content; and |
| 5) | sulphate to lithium ratio. |
The lithium concentration in the brines is typically measured in parts per million (ppm) or weight percentages. A high lithium concentration is most desirable. However, high local evaporation rates can compensate for lower lithium concentrations.
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Providing that lithium contents are high enough, the magnesium to lithium (Mg:Li) ratio is another important chemical feature in assessing favorable brine chemistry and the ultimate economic viability of a site at an early stage. The lower the ratio the better, as a high ratio means that, during the evaporation process, an increasing amount of lithium will be trapped (“entrained”) in the magnesium salts when they crystallize early. This will ultimately lead to a lower lithium recovery rate and thus less profitability. High Mg:Li ratios also generally mean that more soda ash (Na 2 CO 3) reagent is required during the processing of the brine and, therefore, may add significantly to costs.
The potassium (K) concentration in the brines is typically measured as a weight percentage.
The lower the sulphate (SO4) to lithium ratio in the final lithium brine pond, the more the brine will be amenable to lithium extraction via the conventional solar evaporation process. This is because lithium sulphate (Li 2 SO 4) is highly soluble and so, to the extent that it is able to form, the lithium recovery will suffer.
Brine Exploration Phases
The life cycle of a brine mining operation can be divided into five phases:
| · | Mining activity begins with the “exploration phase,” in which one seeks to define the type, extent, location and value of deposits and to estimate the grade and size of the deposits; |
| · | The “feasibility phase” then ensues to address the financial viability of the project (including any permitting requirements) and to determine whether or not to proceed to development - the end of the feasibility stage is marked by the conclusion of a feasibility study; |
| · | If the decision is made to move forward after the feasibility stage, then the “development phase” follows, in which the infrastructure needed to begin operations is constructed; |
| · | Upon completion of such infrastructure, a project enters the “production phase,” during which the applicable minerals are extracted, produced and sold; |
| · | Once all economically extractable minerals have been produced, a mine is closed and it enters the “reclamation phase,” in which the area is made suitable for future uses. |
The Maricunga Project is currently in the exploration phase, seeking to define the type, extent, location and value of deposits.
Key Stages of Lithium Recovery
Currently the most economical way to recover lithium from a salar (a dry lake or salt flat) is by solar evaporation. However, the process is subject to natural conditions, and the evaporation rate, relative humidity, wind velocity, temperature and brine composition have a tremendous influence on the solar pond requirements and in turn on pumping and settling rates to meet production quotas.
Each lithium recovery process has a unique design based on the concentrations of Li, Na, K, Mg, calcium (Ca) and SO4 in the brine, and, although there may be some similarities, each salar has its own customized methodology for optimum recovery due to the varying ionic concentrations. Wells are drilled, and the mineral rich brine is pumped to the surface into a series of large shallow ponds of increasing concentration. As water evaporates, the concentration of minerals in solution increases. Typically the brine evaporates over an 18-24 month period until it has a sufficient concentration of lithium salts. At that point, the concentrate is shipped by truck or pipelined to processing plants where it is converted to usable salt products. In the plant, sodium carbonate (soda ash) is added to precipitate lithium carbonate, which is dried and shipped to end users to be further processed into pure lithium metal. The by-products such as potassium chloride (potash), sodium borate (borax) and other salts may also be recovered and sold to end users.
The primary reagents used to produce lithium from brine are lime and soda ash. Both substances are natural materials, commonly used in many processes and have no detrimental environmental effect when used properly. Other than solar energy, only minor amounts of fuels are consumed in the production process (pumping the brines into the ponds, etc.).
Global Market
Based on the most recent available information from the United States Geological Survey (“USGS”) issued in January 2015, worldwide lithium production increased by about 6% in 2014. According to the report, production from Argentina and Chile increased approximately 15%, each in response to increased lithium demand for battery applications, and lithium production in Australia and China increased by approximately 2.5%. Major lithium producers expected worldwide consumption of lithium in 2014 to be approximately 33,000 tons, an increase of 10% from that of 2013. Lithium prices, on average, remained flat owing to the near balanced increase in worldwide lithium consumption and supply. Several brine operations were under development in Argentina, Bolivia, and Chile; spodumene mining operations were under development in Australia, Canada, China, and Finland; and a jadarite mining operation was under development in Serbia. Additional exploration for lithium continued, with numerous claims having been leased or staked worldwide.
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Subsurface brines have become the leading raw material for lithium carbonate production worldwide because of lower production costs compared with the mining and processing costs for hard-rock ores. Owing to growing lithium demand from China in the past several years, however, mineral-sourced lithium regained market share and was estimated to account for one-half of the world’s lithium supply in 2014. Two brine operations in Chile and a spodumene operation in Australia accounted for the majority of world production. Argentina produced lithium carbonate and lithium chloride from brines. China produced lithium carbonate, lithium chloride, and lithium hydroxide from domestic brines and, increasingly, domestic and imported spodumene. In the United States, the brine operation in Nevada doubled production capacity in 2013. A new brine operation in Argentina was expected to be commissioned by year end 2014. Lithium minerals were used directly as ore concentrates in ceramics and glass applications worldwide,
Recent years have seen consolidation among the handful of major lithium producers. In 2013, China’s leading lithium chemical producer acquired Australia’s leading spodumene producing facility, having a capacity of 110,000 tons per year of lithium carbonate equivalent. In 2014, the United States-based parent company of one of Chile’s brine operations acquired 49% of the Australian spodumene operation from the Chinese chemical producer, and effectively became the world’s leading lithium producer. Later in 2014, a U.S. bromine products manufacturer agreed to purchase the U.S. lithium producer for $6.2 billion to create one of the world’s largest specialty chemicals businesses.
Rechargeable batteries were the largest potential growth area for lithium compounds. Demand for rechargeable lithium batteries exceeds that of other rechargeable batteries. Automobile companies were developing lithium batteries for electric and hybrid electric vehicles. A leading electric car manufacturer announced plans to construct an immense lithium-ion battery plant in the United States capable of producing up to 500,000 lithium-ion vehicle batteries per year by 2020. The plant was expected to be vertically integrated, capable of producing finished battery packs directly from raw materials.
According to the USGS, Australia and Chile are the leading lithium producers in the world. China, Argentina and the United States are also major producers. The 2015 edition of the USGS Mineral Commodity Summaries gives the following estimated world lithium mine production (in metric tons of lithium content):
| Mine production | ||||||||
| 2014 (est.) | 2013 | |||||||
| Australia | 13,000 | 12,700 | ||||||
| Chile | 12,900 | 11,200 | ||||||
| China | 5,000 | 4,700 | ||||||
| Argentina | 2,900 | 2,500 | ||||||
| Zimbabwe | 1,000 | 1,000 | ||||||
| Portugal | 570 | 570 | ||||||
| Brazil | 400 | 400 | ||||||
| United States (1) | Withheld | 870 | ||||||
| World total (rounded) | 36,000 | 1 | 34,000 | 1 | ||||
| (1) | Excludes U.S. production. |
Substitution for lithium compounds is possible in batteries, ceramics, greases, and manufactured glass. Examples are calcium and aluminum soaps as substitutes for stearates in greases; calcium, magnesium, mercury, and zinc as anode material in primary batteries; and sodic and potassic fluxes in ceramics and glass manufacture. Lithium carbonate is not considered to be an essential ingredient in aluminum potlines. Substitutes for aluminum-lithium alloys in structural materials are composite materials consisting of boron, glass, or polymer fibers in engineering resins.
Demand for Lithium
According to the January 2015 signumBOX Performance Index, Global lithium demand is expected to grow at a base rate of 13% in 2015 from 2014 rates. The increase in the growth rate is due primarily to an increase in demand from the battery industry. signumBOX forecast that lithium demand in the following five years will grow at an average rate of about 7.6% annually, and then will start to grow faster as the developments of hybrid and electric vehicles allow them to be more affordable.
Additional Information
The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. The public may inspect or copy these materials at the Public Reference Room at the SEC at 100 F Street, N.E., Washington, D.C. 20549, and can obtain information of the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Our public filings are also available from the SEC’s website at www.sec.gov.
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| ITEM 1A. | RISK FACTORS |
THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. YOU ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, MANY OF WHICH WE CANNOT CONTROL OR PREDICT. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY FORWARD-LOOKING STATEMENTS. IN EVALUATING SUCH STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER, AMONG OTHER THINGS, THE VARIOUS FACTORS IDENTIFIED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THE MATTERS SET FORTH BELOW. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, THEN OUR BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.
RISKS RELATED TO OUR BUSINESS AND FINANCIAL CONDITION
We are in the exploration stage and our planned principal operations have not commenced. Currently we have no revenues. Our business plan depends on our ability to explore for and develop mineral reserves and place any such reserves into extraction. Because we have a limited operating history, it is difficult to predict our future performance.
Although we were formed in June 2005, we continue to be in the exploration stage. Therefore, we have limited operating and financial history available to help potential investors evaluate our past performance and the risks of investing in us. Moreover, our limited historical financial results may not accurately predict our future performance. Companies in their initial stages of development present substantial business and financial risks and may suffer significant losses. As a result of the risks specific to our new business and those associated with new companies in general, it is possible that we may not be successful in implementing our business strategy.
We have generated no revenues to date and do not anticipate generating any revenues in the near term. Our activities to date 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. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our success is significantly dependent on a successful exploration, mining and production program. Our 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. We are in the exploration stage and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our Company.
There is doubt about our ability to continue as a going concern.
The consolidated financial statements contained herein have been prepared assuming we will continue as a going concern. At June 30, 2015, we had no source of current revenue, had a cash balance of $6,217 and negative working capital of $881,467.
Pursuant to the terms of the BBL Transaction and the Shareholders Agreement with BBL, the Company has access to the following sources of funding:
| · | Li3 Energy will receive $1,000,000 upon the earlier of completion of certain Maricunga Project milestones, or January 27, 2016. |
| · | BBL has provided the Company with the BBL Credit Facility of $1,800,000 for working capital. The loans are secured by the Company’s ownership interest in Minera Li. Repayment of each drawdown is 18 months from the drawdown date, at 8.5% interest per annum. As of the date of this filing, the Company has received $1,220,000 under the BBL Credit Facility. The Company has made several requests to BBL for the remaining $580,000 payable under the BBL Credit Facility, however to date these requests have not been honored and the Company continues to negotiate with BBL regarding this matter. |
| · | BBL will finance Li3 Energy´s share of exploration expenses on the Maricunga Project to the stage of full permitting including environmental, social, and construction, and all studies related to the Maricunga Project to internationally recognized standards. The loans will be due 24 months from receipt and interest will be charged at 12% per annum. Specific limits for these loans have not been established and will be negotiated in good faith between the Company and BBL. |
The Company’s current negative working capital position is not sufficient to maintain its basic operations for at least the next 12 months.
We have sustained and continue to sustain losses as a result of our operations and cannot predict if and when we may generate profits. In the event we identify commercial reserves of lithium or other minerals, it will require substantial additional capital to develop those reserves. We expect to finance our operations primarily through future equity or debt financing. However, as discussed in the notes to our consolidated financial statements included elsewhere in this Report, there exists substantial doubt about our ability to continue as a going concern because there is no assurance that we will be able to obtain such capital, through equity or debt financing, or any combination thereof, on satisfactory terms or at all. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Mineral operations are subject to applicable law and government regulation, which could restrict or prohibit the exploitation of that mineral resource.
Both mineral exploration and extraction in Chile require obtaining mining concessions as well as permits from various foreign, federal, state, provincial and local governmental authorities, as the case may be, and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that we will be able to obtain or maintain any of the mining rights and permits required for the continued exploration of mineral properties or for the construction and operation of a mine on its properties (especially but not limited to extracting lithium) nor that it will be able to obtain or maintain any of such rights and permits at economically viable costs.
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In Chile, the Chilean Organic Law on Mining Concessions (“LOCM”) and the Chilean Mining Code (“CMC”) provide that lithium may not be granted in a mining concession initiated after January 1, 1979. As a result, only mining exploitation concessions initiated before January 1, 1979 are authorized for the exploitation of lithium. For all other cases, the CMC establishes the reserve of lithium to Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of Chile for each case. Additionally, Law 16,319, which created the Chilean Nuclear Energy Commission (the “NEC”), provides in its article 8 that, for reasons of national interest, any act or contract in connection with lithium will require the previous authorization of NEC (or have NEC as a party thereto). Once any such authorization is granted to an applicant, NEC is not authorized to amend it or terminate it, nor the applicant to resign it, for reasons other than those set forth in the resolution granting it. The Chilean government is currently reviewing this law to allow private companies to exploit lithium.
As the constitution process of the Cocina Mining Concessions was initiated in 1937, Minera Li, as the owner of the Cocina Mining Concessions, is authorized to exploit lithium in the area covered by the Cocina Mining Concessions. However, as the constitution process of SLM Litio 1-6 was initiated in 2000, the Maricunga Companies are not authorized to exploit lithium in the area covered by such concessions, unless they also obtain a CEOL authorizing such exploitation. At the date of this report there is no assurance that the Chilean Government will begin another CEOL process.
Our option on the Alfredo Property has expired, and we may have a continuing obligation in the event we develop future iodine nitrate properties in Chile.
On August 3, 2010, we signed an agreement to acquire Alfredo Holdings, Ltd. which held an option to acquire six mining concessions in Pozo Almonte, Chile. We allowed the option to expire because we determined that the project was not economically viable. Pursuant to an amendment to our agreement with the Alfredo Sellers, if and when certain milestones are achieved with respect to any future Li3 Energy iodine nitrate project in Chile, we must make additional payments to the Alfredo Sellers in an aggregate amount of up to $5.5 million. There can be no assurance that financing sufficient to make such payments will be available to us when needed. We are not currently planning to explore, exploit or develop any iodine nitrate project in Chile.
All of the properties in which we retain an ownership interest are in the exploration stage. Investment in exploration projects increases the risks inherent in our mining activities. There is no assurance that the existence of any mineral resource can be established on any of the properties in commercially exploitable quantities, and mining operations may not be successful.
We have not established that any of the mineral properties in which we retain an ownership interest contain any meaningful levels of mineral reserves. There can be no assurance that future exploration and mining activities will be successful.
A mineral reserve is defined by the SEC in its Industry Guide 7 (which can be viewed at http://www.sec.gov/divisions/corpfin/forms/industry.html.secguide7) as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. There can be no assurance that we will ever establish any mineral reserves.
Even if a meaningful mineral reserve is eventually discovered on one or more of the properties, there can be no assurance that the properties will be able to be developed into producing mines and that resources will be able to be extracted from those properties. Both mineral exploration and development involve a high degree of risk and few properties which are explored are ultimately developed into producing mines. Furthermore, we cannot be sure that an overall exploration success rate or extraction operations within a particular area will ever come to fruition and, in any event, production rates inevitably decline over time. The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the resource to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.
We have limited financial resources and may not be able to fund our anticipated exploration activities. If we are unable to fund our exploration activities, our potential profitability will be adversely affected.
Our anticipated exploration activities will require financial resources substantially in excess of our current working capital. If we are not able to finance our exploration activities, then we will be unable to identify commercially exploitable resources even if present on our properties. If we fail to adequately support our exploration activities, it could have a material adverse effect on our results of operations and the market price of our shares. There can be no assurance that capital will be available to us when needed, on favorable terms or at all.
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If the existence of a mineral resource is established in a commercially exploitable quantity on any of the properties in which we retain an ownership interest, we will require additional capital in order to finance the development of the property into a producing mine. If we are unable to obtain additional funding, our business operations will be harmed and if we do obtain additional financing, existing shareholders may suffer substantial dilution.
If mineral resources are discovered in commercially exploitable quantities on any of the properties in which we retain an ownership interest, we will be required to expend substantial sums of money to establish the extent of the resource, develop processes to extract it and develop extraction and processing facilities and infrastructure. Although we may derive substantial benefits from the discovery of a major deposit, there can be no assurance that such a resource will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis.
Pursuant to the Shareholders Agreement, BBL has agreed to provide funding for our share of the development of the Maricunga Project until construction permits are in place. To continue developing the property from that stage into a producing mine, we will need to fund our 49% share of the development costs or risk dilution of our 49% ownership interest. We currently do not have any contracts or firm commitments for additional financing. There can be no assurance that additional financing will be available in amounts or on terms acceptable to us, if at all. An inability to obtain additional capital would restrict our ability to grow and could diminish our ability to continue to conduct our business operations. If we are unable to obtain additional financing, we will likely be required to curtail exploration and development plans and possibly cease operations. Any additional equity financing may involve substantial dilution to then existing shareholders.
Newer battery and/or fuel cell technologies could decrease demand for lithium over time, which could significantly impact our prospects and future revenues.
Many materials and technologies are being researched and developed with the goal of making batteries lighter, more efficient, faster charging and less expensive. Some of these technologies could be successful and could impact demand for lithium batteries in personal electronics, electric and hybrid vehicles and other applications. Advances in nanotechnology, in particular, offer the prospect of significantly better batteries in the future. For example, researchers at Stanford University have recently demonstrated ultra-lightweight, bendable batteries and super capacitors made from paper coated with ink made of carbon nanotubes and silver nanowires; the material charges and discharges very quickly, making it potentially useful in hybrid and electric vehicles, which need rapid power for acceleration and would benefit from quicker charging than is available with current technologies. We cannot predict which new technologies may ultimately prove to be commercializable and on what time horizon. While lithium battery technology is currently among the best available for electronics, vehicles and other applications, commercialized battery technologies that offer superior weight, capacity, charging time and/or cost could significantly adversely affect the demand for lithium in the future and thus could significantly adversely impact our prospects and future revenues.
Mineral exploration and development is subject to extraordinary operating risks. We do not currently insure against these risks. In the event of a cave-in or similar occurrence, our liability may exceed our resources, which could have an adverse impact on us.
Mineral exploration, development and production involve many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Our operations will be subject to all the hazards and risks inherent in the exploration for mineral resources and, if we discover a mineral resource in commercially exploitable quantity, our operations could be subject to all of the hazards and risks inherent in the development and production of resources, including liability for pollution, cave-ins or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in work stoppages and damage to property, including damage to the environment. We do not currently maintain any insurance coverage against these operating hazards. The payment of any liabilities that arise from any such occurrence would have a material adverse impact on us.
Lithium and potash prices are subject to unpredictable fluctuations, making it difficult to predict the economic viability of the exploration properties and projects that we retain an ownership interest in.
We may derive revenues, if any, from income or loss from our equity investment in Minera Li or from the sale of our equity interest in Minera Li. Minera Li will derive its revenues, if any, either from the extraction and sale of lithium and potash, as well as other potentially economic salts produced from the lithium salar brines, or from the sale of its mineral resource properties. The price of these commodities may fluctuate widely, and is affected by numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities, increased production due to new extraction developments and improved extraction and production methods and technological changes in the markets for the end products. The effect of these factors on the price of these minerals, and therefore the economic viability of any of Minera Li´s exploration properties and projects, cannot accurately be predicted.
The mining industry is highly competitive, and we face competition from many established global companies. We may not be able to compete effectively with these companies which may adversely affect our prospects.
The markets in which we operate are highly competitive. The mineral exploration, development, and production industry is largely un-integrated. We compete against numerous well-established national and foreign companies in every aspect of the mineral mining industry. Some of our competitors have longer operating histories and greater technical facilities, and significantly greater recognition in the market and financial and other resources, than we. We may not compete effectively with other exploration companies in locating and acquiring mineral resource properties, and customers may not buy any or all of the mineral products that we expect to produce.
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Because we are small and have limited capital, we may have to limit our exploration and developmental mining activity which may adversely affect our prospects.
Because we are a small exploration stage company and have limited capital, we may have to limit our exploration and production activity. As such, we may not be able to complete an exploration program that is as thorough as we would like. In that event, existing reserves may go undiscovered. Without finding reserves, our ability to generate revenues and our business prospects will be adversely affected.
Compliance with environmental and other government regulations could be costly and could negatively impact production and adversely affect our operating results.
Our operations are subject to numerous federal, state and local laws and regulations governing the operation and maintenance of our facilities and the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may:
| · | require that we acquire permits before commencing extraction operations; |
| · | restrict the substances that can be released into the environment in connection with mining and extraction activities; |
| · | limit or prohibit mining activities on protected areas such as wetland or wilderness areas; and |
| · | require remedial measures to mitigate pollution from former operations, such as dismantling abandoned production facilities. |
Under these laws and regulations, we could be liable for personal injury and clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. We do not believe that insurance coverage for environmental damages that occur over time is available at a reasonable cost, and we do not maintain any such insurance. Also, we do not believe that insurance coverage for the full potential liability that could be caused by sudden and accidental environmental damages is available at a reasonable cost. Accordingly, we may be subject to liability or we may be required to cease production (subsequent to any commencement) from properties in the event of environmental damages.
The Maricunga Project requires, as a condition precedent for commencing any extracting activity, the approval by the Chilean environmental authorities of its environmental impact study. The process to obtain the approval of an environmental impact study includes, among other things, requiring the opinion of all relevant authorities with environmental powers. Once the environmental impact study is approved, no sectional environmental permit can be denied.
The developer of the Maricunga Project also needs to obtain all non-environmental permits necessary to carry out exploration and exploitation mining activities in the area. The environmental impact assessment system regulated in law 19 300 considers the inclusion of the mitigation measures to protect the habitat of vulnerable animals in the area which should be included by us in the environmental impact study or statement, as applicable.
We may be unable to amend the mining claims that we are seeking to acquire to cover the primary minerals that we plan to develop.
Our business plan includes acquisition, exploration and development of lithium and potassium brine properties. However, we may pursue this goal by acquiring salt-mining claims and/or options or other interests in salt-mining claims or other types of claims, which we intend to seek to have amended to cover lithium extraction. There can be no assurance that we will be successful in amending any such claims timely, economically or at all. See Risk Factors - “Mineral operations are subject to applicable law and government regulation” above.
We may not be able to acquire additional mineral properties.
Our most significant asset is our 49% ownership interest in Minera Li, which owns the Maricunga Project. If we lose, abandon or otherwise dispose of our interest in Minera Li, there is no assurance that we will be able to acquire any other mineral properties of merit.
Title to properties in which we retain an ownership interest may be challenged, impugned or revoked or be subject to undetected defects, which may result in the loss of all or a portion of our rights or interests.
Although we have exercised customary due diligence with respect to determining title to our properties, there can be no assurance that our rights or interests in and to our properties will not be challenged, impugned or revoked. Our properties may be subject to prior unregistered agreements or transfers or indigenous land claims and title may be affected by undetected defects. If title defect exists, it is possible that we may lose all or a portion of our interest in our properties. Until competing rights or interest to our properties have been determined, there is no assurance as to the validity of our rights or interest to our properties. In addition, we may be unable to operate our properties as permitted or to enforce our rights with respect to our properties, and the title to our mineral properties may also be impacted by state action.
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We may have difficulty managing growth in our business, which could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute our business plan.
Because of the relatively small size of our business, growth in accordance with our long-term business plans, if achieved, will place a significant strain on our financial, technical, operational and management resources. As we increase our activities and the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical, operational and management resources. The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of required personnel could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute our business plan.
If we are unable to keep our key management personnel, then we are likely to face significant delays at a critical time in our corporate development and our business is likely to be damaged which could have a material adverse effect on our business, financing condition and operations.
Our success depends upon the skills, experience and efforts of our management and other key personnel, including our Chief Executive Officer. As a relatively new company, much of our corporate, scientific and technical knowledge is concentrated in the hands of a few individuals. We do not have employment agreements with any of our employees other than our Chief Executive Officer and Chief Financial Officer. Furthermore, the employment agreements with our Chief Executive Officer and our Chief Financial Officer both terminate as of December 31, 2015, unless extended by mutual agreement of the Company and such executives prior to such time. We do not maintain key-man life insurance on any of our management or other key personnel. The loss of the services of one or more of our present management or other key personnel could significantly delay our exploration and development activities as there could be a learning curve of several months or more for any replacement personnel. Furthermore, competition for the type of highly skilled individuals we require is intense and we may not be able to attract and retain new employees of the caliber needed to achieve our objectives. Failure to replace key personnel could have a material adverse effect on our business, financial condition and operations.
BBL, who holds the controlling interest in Minera Li, may decide that they do not wish to continue with the development of Minera Li´s assets.
If BBL decides that they do not wish to continue with the development of Minera Li´s assets, we may be unable to execute our business plan for developing the Maricunga Project which could significantly adversely impact our prospects and future revenues.
If BBL fails to provide us loans to the extent previously agreed, our business is likely to be damaged which could have a material adverse effect on our business, financing condition and operations.
BBL agreed to finance the Company’s exploration and development expenses until the Maricunga Project reaches full permitting and is ready for construction, by providing loans due 24 months from receipt at an interest rate of 12% per annum. To date, the Company has not received any such loans. If BBL fails to provide loans to us to the extent previously agreed, we may have insufficient cash available to pay creditors and to maintain our basic operations. If that were to occur, our business is likely to be damaged which could have a material adverse effect on our business, financing condition and operations.
RISKS RELATED TO OUR COMMON STOCK
There is currently a limited public market for our common stock, and there may not ever be an active market for our common stock.
There currently is a limited public market for our common stock. Further, although our common stock is currently quoted on the OTC Bulletin Board (the “OTCQB”), trading of our common stock may be extremely sporadic. For example, several days may pass before any shares may be traded. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, our common stock. Accordingly, investors must assume they may have to bear the economic risk of an investment in our common stock for an indefinite period of time. There can be no assurance that a more active market for our common stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our common stock, and would likely have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.
We cannot assure you that our common stock will become liquid or that it will be listed on a securities exchange.
Until our common stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq Capital Market, we expect our common stock to remain eligible for quotation on the OTCQB, or on another over-the-counter quotation system. The OTCQB is part of the OTC Market Group, an unorganized, inter-dealers, over-the-counter group of markets that provides significantly less liquidity than the New York Stock Exchange or the Nasdaq Capital Market. No assurances can be given that we will ever obtain a listing for our securities on a senior exchange. The trading price of our common stock is therefore expected to be subject to significant fluctuations in response to variations in quarterly operating results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general conditions in the industry in which we operate and other factors. Investors may find it difficult to obtain accurate quotations as to the market value of our common stock. The eligibility standards of the OTCQB have recently changed and include, amongst other things, a minimum bid price test of $0.01 and the payment of an annual fee. If we fail to meet the OTCQB standards, we will be downgraded to OTC Pink. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.
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Our common stock is subject to the “penny stock” rules of the SEC and FINRA’s sales practice requirements, and the trading market in our common stock is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in the stock.
Broker-dealer practices in connection with the “penny stock” are regulated by certain penny stock rules adopted by the SEC. which defines “penny stock,” as any equity security that has a market price of less than $5.00 per share (other than securities registered on certain national securities exchanges and on Nasdaq). For any transaction involving a penny stock, unless exempt, the rules require:
| · | that a broker or dealer approve a person’s account for transactions in penny stocks; and |
| · | the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. |
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:
| · | obtain financial information and investment experience objectives of the person; and |
| · | make a reasonable determination, in writing, that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks. |
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth:
| · | the basis on which the broker or dealer made the suitability determination; and |
| · | that the broker or dealer received a signed, written agreement from the investor prior to the transaction. |
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that becomes subject to penny stock rules. This may make it more difficult for investors to dispose of common stock and cause a decline in the market value of stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information, including bid and offer quotations, for the penny stock held in the account and information on the limited market in penny stocks.
In addition to the "penny stock" rules promulgated by the SEC, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA’s requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
The price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
| · | actual or anticipated variations in our operating results; |
| · | announcements of developments by us, our strategic partners or our competitors; |
| · | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
| · | adoption of new accounting standards affecting our industry; |
| · | additions or departures of key personnel; |
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| · | sales of our common stock or other securities in the open market; and |
| · | other events or factors, many of which are beyond our control. |
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.
Compliance with U.S. securities laws, including the Sarbanes-Oxley Act, will be costly and time-consuming.
We are a reporting company under U.S. securities laws and are obliged to comply with the provisions of applicable U.S. laws and regulations, including the Securities Act of 1933 (the “Securities Act”), the Exchange Act, and the Sarbanes-Oxley Act of 2002 and the related rules of the SEC, and the rules and regulations of the relevant U.S. market, in each case, as amended from time to time. Preparing and filing annual and quarterly reports and other information with the SEC, furnishing audited reports to stockholders and other compliance with these rules and regulations will involve a material increase in regulatory, legal and accounting expenses and the attention of management, and there can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all.
We do not anticipate dividends to be paid on our common stock, and investors may lose the entire amount of their investment.
Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.
If securities analysts do not initiate coverage or continue to cover our common stock or publish unfavorable research or reports about our business, this may have a negative impact on the market price of our common stock.
The trading market for our common stock may be affected by, among other things, the research and reports that securities analysts publish about our business and the Company. We do not have any control over these analysts. There is no guarantee that securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price. If we are covered by securities analysts, and our stock is the subject of an unfavorable report, our stock price and trading volume would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, then we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.
State Blue Sky registration - potential limitations on resale of the shares.
The holders of the shares of our common stock and persons who desire to purchase the shares in any trading market that might develop in the future, should be aware that there may be significant state law restrictions upon the ability of investors to resell the securities. Accordingly, investors should consider the secondary market for our securities to be a limited one. It is the intention of our management to seek coverage and publication of information regarding us in an accepted publication which permits a “manuals exemption.” This manuals exemption permits a security to be sold by shareholders in a particular state without being registered if the company issuing the security has a listing for that security in a securities manual recognized by that state. The listing entry must contain (i) the names of issuers, officers, and directors, (ii) an issuer’s balance sheet, and (iii) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. The principal accepted manuals are those published by Standard and Poor’s, and Mergent, Inc. Many states expressly recognize these manuals. A smaller number of states declare that they recognize securities manuals, but do not specify the recognized manuals. Among others, the following states do not have any provisions and, therefore, do not expressly recognize the manuals exemption: Alabama, California, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont, and Wisconsin.
Current stockholders may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock.
In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders and the purchasers of our common stock offered hereby. We are currently authorized to issue an aggregate of 1,000,000,000 shares of capital stock consisting of 990,000,000 shares of common stock and 10,000,000 shares of preferred stock with preferences and rights to be determined by our Board of Directors. As of November 6, 2015, there are 483,291,849 shares of our common stock and no shares of our preferred stock outstanding. There are 1,550,000 shares of our common stock reserved for issuance under our 2009 Equity Incentive Plan (the “2009 Plan”), of which we have 1,250,000 nonqualified stock options outstanding. Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 800,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. In addition, as of November 6, 2015, there are 20,466,679 shares of our common stock issuable upon the exercise of outstanding warrants.
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Any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding equity. As described above, we may need to raise additional capital through public or private offerings of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock. We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options issued under our equity incentive plans), as payment to providers of goods and services, in connection with future acquisitions or for other business purposes. Our Board of Directors may at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our certificate of incorporation. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Also, the future issuance of any such additional shares of common or preferred stock or other securities may create downward pressure on the trading price of the common stock. There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then traded.
We may obtain additional capital through the issuance of preferred stock, which may limit your rights as a holder of our common stock.
Without any stockholder vote or action, our Board of Directors may designate and approve for issuance shares of our preferred stock. The terms of any preferred stock may include priority claims to assets and dividends and special voting rights which could limit the rights of the holders of our common stock. The designation and issuance of preferred stock favorable to current management or stockholders could make any possible takeover of us or the removal of our management more difficult.
We may be subject to claims for rescission or damages in connection with certain sales of shares of our Common Stock in the open market.
On March 19, 2012, the Securities and Exchange Commission 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 sold pursuant to that prospectus in open market transactions which may have violated Section 5 of the Securities Act of 1933, as amended, and, as a result, the purchasers of those shares may have rescission rights or claims for damages. Accordingly, we have reduced shareholders’ equity at June 30, 2015 by $3,041, the total amount that we would have to refund if all the purchasers of those shares exercised their rescission right. However, we cannot be certain that any claims for damages will not exceed such an amount. This uncertainty may have a material adverse effect on the market price of our common stock.
OTHER RISKS
We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.
| ITEM 1B. | UNRESOLVED STAFF COMMENTS |
Not applicable for smaller reporting companies.
| ITEM 2. | PROPERTIES |
The information set forth above under “Business” relating to the exploration properties within the Salar de Maricunga owned by Minera Li, is incorporated herein by reference. We hold a 49% ownership interest in Minera Li.
| ITEM 3. | 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.
Ware 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.
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| 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 recently enacted 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 year ended June 30, 2015, 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.
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| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information and Holders
As of November 6, 2015, there were 483,291,849 shares of our common stock issued and outstanding, 20,466,679 shares issuable upon exercise of outstanding warrants and other rights, and 1,250,000 shares issuable upon exercise of outstanding options. Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 800,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. On November 6, 2015, there were approximately 196 holders of record of shares of our common stock.
Since July 1, 2006, our common stock has been listed for quotation on the OTCQB, originally under the symbol “MYTC.” Our symbol changed to “NNDY” in July 2008 in connection with our name change to Nano Dynamics Holdings, Inc. Our symbol changed to “LIEG” effective November 18, 2009, in connection with our name change to Li3 Energy, Inc. The OTCQB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. An OTCQB equity security generally is any equity that is not listed or traded on a national securities exchange.
The following table sets forth the high and low bid prices for our common stock for the fiscal quarters indicated as reported on the OTCQB quotation service. These bid prices represent prices quoted by broker-dealers on the OTCQB quotation service. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Our Common Stock is thinly traded and, thus, pricing of our common stock on the OTCQB does not necessarily represent its fair market value.
| Fiscal Year Ending June 30, 2014 | High | Low | ||||||
| First Quarter | $ | 0.0400 | $ | 0.0200 | ||||
| Second Quarter | 0.0300 | 0.0100 | ||||||
| Third Quarter | 0.0600 | 0.0100 | ||||||
| Fourth Quarter | 0.0300 | 0.0100 | ||||||
| Fiscal Year Ending June 30, 2015 | High | Low | ||||||
| First Quarter | $ | 0.0300 | $ | 0.0200 | ||||
| Second Quarter | 0.0300 | 0.0100 | ||||||
| Third Quarter | 0.0200 | 0.0100 | ||||||
| Fourth Quarter | 0.0200 | 0.0100 | ||||||
Dividends
We have never declared any cash dividends with respect to our common stock. Future payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. We presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock.
Securities Authorized for Issuance under Equity Compensation Plans
Our Board of Directors adopted, and our stockholders approved, our 2009 Equity Incentive Plan (the “2009 Plan”) on October 19, 2009. The 2009 Plan reserves a total of 5,000,000 shares of our common stock for issuance pursuant to awards granted thereunder. If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan. As of the date of this report, we have issued 3,450,000 shares of our common stock under the 2009 Plan, and 1,550,000 shares remain reserved for issuance.
We have currently granted the following awards under the 2009 Plan:
| (a) | awards of 1,250,000 non-qualified stock options with a weighted average exercise price of approximately $0.21 per share, none of which have been exercised. All of the stock options have vested and have five year terms; | |
| (b) | an award of 2,500,000 shares of restricted stock which are fully vested and issued; and |
| (c) | awards of restricted stock units with respect to 950,000 shares of common stock which are fully vested and issued. |
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Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 800,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations and have not issued any of these shares.
In April 2015, 200,000 non-qualified stock options that were issued in April 2010 expired unexercised and the shares subject to this award are therefore available for further awards under the 2009 Plan. Other awards of non-qualified stock options were previously granted under the 2009 Plan, however such awards expired unexercised and the shares subject to these awards are also available for further awards under the 2009 Plan.
The following table provides information as of June 30, 2015, with respect to the shares of common stock that may be issued under our existing equity compensation plans:
| Weighted- | ||||||||||||
| average | Number of securities | |||||||||||
| Number of securities | Exercise price of | remaining available for | ||||||||||
| to be issued upon | Outstanding | future issuance under equity | ||||||||||
| exercise of | options, | compensation plans | ||||||||||
| outstanding options, | Warrants and | (excluding securities reflected | ||||||||||
| warrants and rights | rights | in column (a)) | ||||||||||
| Plan Category | (a) | (b) | (c) | |||||||||
| Equity compensation plans approved by security holders (1) | 1,250,000 | $ | 0.21 | 300,000 | ||||||||
| Equity compensation plans not approved by security holders | - | - | - | |||||||||
| Total | 1,250,000 | $ | 0.21 | 300,000 | ||||||||
| (1) | Represents the 2009 Equity Incentive Plan. |
See “Executive Compensation” for information regarding individual equity compensation arrangements received by our executive officers pursuant to their employment agreements with us.
Unregistered Sales of Equity Securities
Except as previously disclosed in Quarterly Reports on Form 10-Q or Current Reports on Form 8-K that we have filed, during the period covered by this Report we have not sold any of our equity securities that were not registered under the Securities Act.
| ITEM 6. | SELECTED FINANCIAL DATA |
Not applicable for smaller reporting companies.
| ITEM 7. | MANAGEMENT´S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations as of, and for the years ended, June 30, 2015 and 2014, are based on our audited consolidated financial statements as of June 30, 2015, and for the years ended June 30, 2015 and 2014.
You should read this discussion and analysis together with such consolidated financial statements and the notes thereto.
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, of which the Company retains a 49% ownership interest. The controlling interest in Minera Li (51%) is held by a private Chilean company, BBL SpA (“BBL”).
As of June 30, 2015, 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
At June 30, 2015, the Company had no source of current revenue, a cash balance on hand of $6,217 and negative working capital of $881,467.
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Pursuant to the terms of the BBL Transaction and the Shareholders Agreement with BBL, the Company has access to the following sources of funding:
| · | Li3 Energy will receive $1,000,000 upon the later of completion of certain Maricunga Project milestones, or January 27, 2016. |
| · | BBL has provided the Company with a credit facility of $1,800,000 for working capital (the “BBL Credit Facility”). The loans are secured by the Company’s ownership interest in Minera Li. Repayment of each drawdown will be 18 months from the drawdown date, at 8.5% interest per annum. As of June 30, 2015, the Company has received $1,220,000 under the BBL Credit Facility. The Company has made several requests to BBL for the remaining $580,000 payable under the BBL Credit Facility, however to date these requests have not been honored and the Company continues to negotiate with BBL regarding this matter. |
| · | BBL will finance Li3 Energy´s share of exploration expenses on the Maricunga Project to the stage of full permitting including environmental, social, and construction, and all studies related to the Maricunga Project to internationally recognized standards. The loans will be due 24 months from receipt and interest will be charged at 12% per annum. Specific limits for these loans have not been established and will be negotiated in good faith between the Company and BBL. |
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.
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.
Operational Update
The BBL Transaction
On January 27, 2014, Li3 Energy entered into the BBL Sale Agreement with BBL, pursuant to which BBL acquired from the Company eleven of its sixty shares of Minera Li (the “Share Purchase”) for a cash payment of $1,500,000. In connection with the Share Purchase, Minera Li held a shareholders’ meeting, pursuant to which Minera Li issued forty additional shares (the “Additional Shares”) to BBL in exchange for a cash payment of $5,500,000 (the “Issuance”, and together with the “Share Purchase”, the “BBL Transaction”). As a result of the BBL Transaction, BBL became the majority shareholder of Minera Li holding 51% ownership, with the Company retaining a 49% interest in Minera Li.
Concurrent with the execution of the Agreement, the Company and BBL also entered into a Shareholders Agreement regarding their joint ownership interest of Minera Li (the “Shareholders Agreement”). Under the Shareholders Agreement, BBL will pay $1,000,000 (the “Additional Payment”) to the Company upon the earlier of its completion of certain milestones (the “Milestones”) relating to the permitting and development of the Maricunga Project and January 27, 2016.
BBL agreed to finance the Company’s exploration and development expenses until the Maricunga Project reaches full permitting and is ready for construction by providing loans due 24 months from receipt at an interest rate of 12% per annum. The loans will be secured by the Company’s ownership interest in Minera Li. Specific limits for these loans have not been established and will be negotiated in good faith between BBL and Li3 Energy.
In addition to the foregoing financing, BBL also committed to provide the Company with a line of credit (the “BBL Credit Facility”) in the amount of $1,800,000 (the “Maximum Amount”). The BBL Credit Facility will be available from May 2014, and can be drawn down by the Company as follows: (i) $100,000 beginning in May 2014 and (ii) $200,000 every month thereafter, until the Maximum Amount is reached. Each drawdown must be repaid within 18 months of the drawdown date, at 8.5% interest per annum. The BBL Credit Facility is secured by the Company’s ownership interest in Minera Li. The proceeds of the BBL Credit Facility have been used for the working capital needs of the Company.
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At June 30, 2015 and 2014, the Company owed BBL $1,220,000 and $240,000, respectively, which are recorded as notes payable (current liabilities of $1,020,000 and non-current liabilities of $200,000 at June 30, 2015) in the consolidated balance sheets. The Company has made several requests to BBL for the remaining $580,000 payable under the BBL Credit Facility, however to date these requests have not been honored and the Company continues to negotiate with BBL regarding this matter. The total interest accrued on the loans from BBL as of June 30, 2015 and 2014 was $79,355 and $1,048, respectively. For the years ended June 30, 2015 and 2014, $78,307 and $1,048, respectively, of interest expense was recognized in our consolidated statement of operations.
As at June 30, 2015, 13 of our 49 shares in Minera Li are guaranteed as security for the loans with BBL.
The Company determined that immediately following the BBL Transaction, it ceased to have voting and management control of Minera Li and therefore accounted for the sale of the 51% of Minera Li by deconsolidating the subsidiary from its consolidated financial statements in accordance with ASC 810 - Consolidation. The Company´s remaining 49% interest in Minera Li has been treated as an equity investment in accordance with ASC 323 - Investments - Equity Method and Joint Ventures.
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In June 2012, the Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. The Consortium submitted its bid for the CEOLs and in September 2012, the Company was informed that the Consortium’s bid was not the winning bid.
The Chilean government subsequently decided to invalidate the CEOL process due to an administrative error, as well as rescinding the CEOL Basis, which defined the regulations of the CEOL process. The Company submitted several appeals to the Chilean government requesting it to reconsider the invalidation and award the CEOL to the second highest bidder - the Consortium. The appeals have been rejected by the Chilean government. In June 2014, Chile´s President and Minister of Mining signed a decree for the establishment of the National Lithium Commission, tasked with recommending a new state policy for the exploitation of lithium in Chile. The recommendation was issued in January 2015, following which the Chilean government is to consider working alongside private companies in the lithium sector to develop the country’s lithium reserves, increase production and secure the long term sustainability of Chile’s lithium industry. We believe this is a positive step forward in Minera Li´s continued efforts of seeking a permit to exploit lithium from SLM Litio 1-6.
While Minera Li´s current plan for the Maricunga Project is to exploit lithium and potash from both SLM Litio 1-6 and the Cocina Mining Concessions, if no permit for lithium exploitation is obtained for SLM Litio 1-6, Minera Li plans to produce lithium carbonate and potash from the Cocina Mining Concessions in conjunction with producing potash only from SLM Litio 1-6. The technical report shows that potassium resources are available in these properties. The majority of the past and current technical work performed on the project is applicable to the production of lithium and/or potassium. Potassium exploitation does not require special permits and it is exploitable via regular mining concessions, according to the CMC. Initial estimations suggest that a potash project is economically feasible. However, there can be no assurance that Minera Li will be able to obtain the permits necessary to exploit any minerals that our exploration activities discover in a timely manner or at all.
During the year ended June 30, 2015, a preliminary work program was carried out on the Maricunga Project including preparation of a closure plan and relevant approvals, preparation and permitting of a new Declaration de Impacto Ambiental (“DIA”), geophysical surveys, initiation of baseline monitoring programs and pumping test program on existing production wells. The results of the testing are expected during the last quarter of 2015.
The Company continues to pursue further opportunities within the Salar de Maricunga for additional property or joint venture opportunities and BBL has recently acquired options to buy other mining properties within the Salar in order to consolidate its property holdings within the Salar de Maricunga. We also continue to negotiate with the Chilean government regarding permitting for exploitation of lithium and have been part of the discussions with the National Lithium Commission for a joint effort between state and private companies to develop a lithium project within Chile.
In March 2013, POSCO announced the development of a chemical lithium extraction technology that reduces recovery time from around 12 months to less than a few days. Testing of this technology showed that it increases the lithium recovery rate from a maximum of 50% using traditional evaporation ponds to more than 80%, and the lithium carbonate produced is more than 99.9% pure. Minera Li plans to assess the use of this technology to gain efficiencies in exploiting lithium from the Maricunga Project.
In January 2015, initial test results from POSCO´s demonstration plant located in the Cauchari-Olaroz salar in Argentina indicated that the Direct Lithium Extraction Process achieved or exceeded all performance targets and that the lithium products subsequently processed were of very high quality. During a one month period, over 20 tonnes of lithium phosphate was produced from the demonstration plant and subsequently exported to POSCO’s facility in Pohang, Korea where it was further processed into battery grade lithium carbonate and lithium hydroxide.
Maricunga Minority Shareholders’ Lawsuit
Due to the non-payment by minority shareholders of the Company of their respective share of the Company’s exploration expenses, the Company filed lawsuits in Chile against the minority shareholders of SLM Litio 1-6 seeking either payment of their pro rata portion of costs or an auction of their 40% share of the properties.
On January 27, 2014, Li3 Energy executed an agreement (the “Tierras Agreement”) with Tierras Raras SpA (“Tierras Raras”), an affiliate of BBL. Pursuant to the Tierras Agreement, Tierras Raras agreed to purchase all of the interests of the SLM Litio 1-6 minority shareholders, and, in conjunction with the purchase, to pay $1,600,000 to Minera Li, which in turn would pay the funds to Li3, as consideration for the settlement and release by the Company of all claims against the SLM Litio 1-6 minority shareholders. The transactions contemplated by the Tierras Agreement closed in February 2014, and the Company received $1,555,000 in settlement on February 26, 2014, which was recorded as a gain on settlement in the consolidated financial statements for the year ended June 30, 2014. The Company agreed that $45,000 would be retained in Minera Li in order to settle liabilities incurred prior to the BBL Transaction date. No additional amounts are owed to the Company in connection with this settlement agreement.
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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 partner BBL, 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, to internationally recognized standards (the "Project Milestone"). To enable this, BBL has committed to financing our share of the exploration expenses until the Project Milestone is achieved.
Results of Operations
Fiscal Year Ended June 30, 2015 Compared with Fiscal Year Ended June 30, 2014
Revenues
We had no revenues during the years ended June 30, 2015 and 2014.
Operating Expenses
Exploration expenses
During the years ended June 30, 2015 and 2014, we incurred exploration expenses of $0 and $47,240, respectively. The expenses incurred during the year ended June 30, 2014 relate primarily to storage costs and legal fees incurred by Minera Li prior to the BBL Transaction.
Mineral rights impairment expense
During the year ended June 30, 2014, we incurred impairment expense of $6,485,438 to write down the SLM Litio 1-6 mineral rights to their estimated recoverable amount.
Gain on sale of mineral rights
On December 16, 2013, the Company agreed to sell certain mining concessions acquired by the Company in 2012 and located in Chile (“Amarillo Ocho” and “Amarillo Diez” mining concessions) to a third party for $120,000. The gain on sale was recognized during the year ended June 30, 2014.
Loss from Minera Li equity method investment
We incurred losses from equity method investments of $236,050 and $106,589 during the years ended June 30, 2015 and 2014. The losses reflect our share of the losses incurred by Minera Li since the date of its deconsolidation.
Debt modification expense
A debt modification expense of $300,000 was recorded during the year ended June 30, 2014 as a result of deferring a payment due in July 2013 for acquisition of the Cocina Mining Concessions and as agreed on the extinguishment of the debt with the Cocina Sellers.
Gain on settlements, net
During the year ended June 30, 2014, we recorded a gain on settlement of $1,536,822 as a result of the receipt of $1,555,000 in settlement of lawsuits between the Company and the SLM Litio 1-6 minority shareholders, offset by settlement agreements entered into by the Company with respect to an aggregate of $320,498 of obligations, under which the Company issued an aggregate of 16,675,721 shares of the Company’s common stock.
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General and administrative expenses
Our general and administrative expenses for the years ended June 30, 2015 and 2014 consisted of the following:
| Increase | ||||||||||||
| June 30, 2015 | June 30, 2014 | (Decrease) | ||||||||||
| Rent | $ | 30,804 | $ | 40,958 | $ | (10,154 | ) | |||||
| Office expenses | 6,089 | 13,373 | (7,284 | ) | ||||||||
| Communications | 17,266 | 27,977 | (10,711 | ) | ||||||||
| Travel expenses | 81,662 | 78,297 | 3,365 | |||||||||
| Legal fees | 175,908 | 461,238 | (285,330 | ) | ||||||||
| Accounting & finance fees | 69,829 | 80,892 | (11,063 | ) | ||||||||
| Audit fees | 58,355 | 134,048 | (75,693 | ) | ||||||||
| Other professional fees | 156,207 | 193,589 | (37,382 | ) | ||||||||
| Marketing & investor relations | 76,043 | 98,046 | (22,003 | ) | ||||||||
| Directors fees | 196,458 | 221,997 | (25,539 | ) | ||||||||
| Bank fees | 6,245 | 5,504 | 741 | |||||||||
| Salaries & wages | 445,822 | 576,651 | (130,829 | ) | ||||||||
| Stock-based compensation | 232,843 | 23,988 | 208,855 | |||||||||
| Depreciation & amortization | 322 | 13,577 | (13,255 | ) | ||||||||
| Penalties | (160,000 | ) | 40,000 | (200,000 | ) | |||||||
| Other | (3,425 | ) | 2,715 | (6,140 | ) | |||||||
| $ | 1,390,428 | $ | 2,012,850 | $ | (622,422 | ) | ||||||
We incurred total general and administrative expenses of $1,390,428 for the year ended June 30, 2015 compared to $2,012,850 for the year ended June 30, 2014, a $622,422 decrease. The reduction in general and administrative expenses is mainly a result of:
| · | A decrease in legal fees of $285,330 mainly relating to non-recurring fees incurred in the prior year on the potential Blue Wolf transaction ($221,718), the lawsuit against the minority shareholders of SLM Litio 1-6 ($66,901), and a potential transaction with a third party ($10,928), as well as a reduction in Argentinean corporate matters, consisting of provision of company director services and general consulting ($9,694). These decreases have been offset by fees incurred in the current year on BBL negotiations ($16,207); |
| · | A decrease in audit fees of $75,693 due to a reduction in fees relating to the Company´s SEC and quarterly filing requirement mainly as a result of the disposal of the controlling interest in Minera Li; |
| · | A decrease in other professional fees of $37,382 mainly due to non-recurring professional fees incurred in the prior period with regard to retainer for the former COO ($25,000), various consulting fees for Maricunga ($21,222), and a reduction in the Directors & Officers insurance premium ($10,176). These reductions have been offset by fees incurred during the current period on OTCQB registration fee and annual fee ($12,500) and capital expenditure report prepared by consultants($6,718); |
| · | A decrease in salaries & wages of $130,829 mainly due to the resignation of the Chile Manager in December 2013 ($63,600), the resignation of a former officer in August 2013 ($15,056) and a reduction in the salary paid to the CEO ($27,157) and the CFO ($19,418) from April 2015 in order to preserve cash; and |
| · | A decrease in penalties of $200,000. Penalties of $120,000 were accrued during the year ended June 30, 2013 in relation to the late filing of Forms 5471 with the IRS. The accrual was increased by $40,000 during the year ended June 30, 2014, to $160,000. During the year ended June 30, 2015, the penalties were abated by the IRS and the accrual of $160,000 was reversed. |
The above decreases have been partially offset by an increase in stock-based compensation of $208,855. The amount for the year ended June 30, 2015, consists mainly of shares issued to the CEO and CFO in April 2015 pursuant to amendments to their employment agreements, valued at $185,000, as described in Item 11: Executive Compensation, and shares issuable to a former officer valued at $40,000 and recorded in the current year. The shares were issued on August 19, 2015.
Subsequent to June 30, 2015, the Company has continued its efforts to reduce its cost of operations to reflect the nature of its current business. Some of the areas in which cost savings have been achieved are in the reduction of the fees paid to our CEO and CFO, a reduction in the number of employees and ceasing our office lease in favor of utilizing shared office space.
Other Income (Expense)
Loss on sale of controlling interest in Minera Li
A loss on sale of controlling interest in Minera Li of $43,315 was incurred during the year ended June 30, 2014, in relation to the sale of 51% of Minera Li. The loss reflects the difference between the gross proceeds received of $11,897,060 and the net assets of Minera Li on the date of the sale of $11,940,375. There were no sales of investments during the year ended June 30, 2015.
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Gain on debt extinguishment
We recognized gains on debt extinguishment of $333,769 and $85,864 for the years ended June 30, 2015 and 2014, respectively. The gain recorded during the year ended June 30, 2015 was in relation to the write-off of loans from Milestone of $95,000, accrued interest of $49,169, and the write-off of certain accrued liabilities. During the year ended June 30, 2014, a gain on debt extinguishment of $302,454 was recognized as the fair value of the embedded derivative on conversion of the Asher Notes. A gain of $49,512 was also recorded in relation to the extinguishment of the long term debt payable to the Cocina Sellers of the Cocina Mining Concessions. The gains were partially offset by losses on debt extinguishment as follows: $23,906 recognized when the Company entered into a Third Amendment Agreement with the holders of the zero-coupon convertible notes whereby the terms of the notes were extended and the conversion price was reduced from $0.095 to $0.02 per share; $45,594 recorded in relation to the settlement of the zero-coupon convertible notes; $111,315 recorded on conversion of the Asher Notes as the difference between the value of the debt converted and the market value of the shares issued on each conversion date; $26,512 being prepayment penalties on repayment of the Asher Notes; and $58,775 in unamortized debt discount on conversion or repayment of the Asher Notes.
Change in fair value of derivative liability
During the year ended June 30, 2015, we recorded a gain of $1,844,967 on the change in fair value of derivative liability, compared to $1,944,388 during the year ended June 30, 2014. The change in fair value of our derivative liability has no impact on our cash flows from operations and was primarily a result of the decrease in our stock price during each of the years.
Gain on foreign currency transactions
During the years ended June 30, 2015 and 2014, gain on foreign currency transactions amounted to $1,532 and $51,364, respectively, and such activity was related to our operations in Chile and Peru.
Interest expense
During the years ended June 30, 2015 and 2014, net interest expense was $140,915 and $1,172,571, a decrease of $1,031,656. The decrease is mainly due to non-recurring interest in the prior year from the zero-coupon convertible notes of $33,631, registration rights penalties of $31,095, the 2013 Credit Facility of $54,434, the sellers of the Cocina Mining Concessions of $26,942, and the Asher Notes $10,943 and amortization of debt discount on the zero-coupon convertible notes of $730,536, on the Asher Notes of $179,023 and amortization of deferred financing cost of long term debt of $30,592. These decreases have been offset by interest of $75,676 on the notes payable to BBL during the year ended June 30, 2015.
Net Income (Loss)
Net income for the year ended June 30, 2015 was $412,875 compared to a net loss of $6,429,565 for the year ended June 30, 2014. The variance in net gain (loss) is primarily due to: mineral rights impairment expense of $6,485,438 recorded during the year ended June 30, 2014, a gain on settlements of $1,536,822 incurred during the year ended June 30, 2014, the decrease in general and administrative expenses of $622,422, and a decrease of $1,031,656 in net interest expense.
Net Loss Attributable to Non-controlling Interest
During the year ended June 30, 2014, the net loss attributable to non-controlling interests was $2,596,551. This represents the non-controlling interest’s 40% share of expenses relating to the exploration of SLM Litio 1-6 up until the sale of the controlling interest in Minera Li, and includes their 40% share of the mineral rights impairment expense recorded during the year ended June 30, 2014.
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 June 30, 2015, our only source of liquidity had been debt and equity financing.
Under the Shareholders Agreement with BBL, BBL will pay an Additional Payment of $1,000,000 to the Company upon the earlier of its completion of certain Project Milestones relating to the permitting and development of the Maricunga Project and January 27, 2016. We expect to use some of the proceeds received from the Additional Payment to repay loans under the BBL Credit Facility.
Also under the Shareholders Agreement, BBL agreed to finance the Company’s exploration and development expenses until the Maricunga Project reaches full permitting and is ready for construction, by providing loans due 24 months from receipt at an interest rate of 12% per annum. The loans will be secured by a portion of the Company’s ownership interest in Minera Li. Specific limits on amounts that may be borrowed under these loans have not been established and will be negotiated in good faith between BBL and the Company.
In addition to the foregoing financing, BBL has committed to provide the Company with the BBL Credit Facility with a Maximum Amount of $1,800,000. The BBL Credit Facility became available in May 2014 and can be drawn down by the Company as follows: (i) $100,000 beginning in May 2014 and (ii) $200,000 every month thereafter, until the Maximum Amount is reached. Each drawdown must be repaid within 18 months of the drawdown date, at 8.5% interest per annum. The BBL Credit Facility is secured by a portion of the Company’s ownership interest in Minera Li. The proceeds of the BBL Credit Facility will be used for the working capital needs of the Company. Through June 30, 2015, BBL has loaned the Company $1,220,000. The Company has made several requests to BBL for the remaining $580,000 payable under the BBL Credit Facility, however to date these requests have not been honored and the Company continues to negotiate with BBL regarding this matter.
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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 it begins 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.
Notes Payable
The Company has entered into the following loan agreements with BBL:
| Agreement Date | June 30, 2015 | June 30, 2014 | ||||||
| May 27, 2014 | $ | 100,000 | $ | 100,000 | ||||
| June 20, 2014 | 140,000 | 140,000 | ||||||
| July 23, 2014 | 200,000 | - | ||||||
| August 27, 2014 | 200,000 | - | ||||||
| October 21, 2014 | 200,000 | - | ||||||
| November 25, 2014 | 180,000 | - | ||||||
| February 3, 2015 | 200,000 | - | ||||||
| Total | 1,220,000 | 240,000 | ||||||
| Current portion of notes payable to BBL | (1,020,000 | ) | - | |||||
| Notes payable to BBL | $ | 200,000 | $ | 240,000 | ||||
The total interest accrued on the loans from BBL as of June 30, 2015 and June 30, 2014 was $79,355 and $1,048, respectively. For the year ended June 30, 2015 and 2014, $78,307 and $1,048, respectively, of interest expense was recognized in our consolidated statement of operations.
The loans from BBL bear an interest rate of 8.5% per annum and are repayable within 18 months from the date of receipt. At June 30, 2015, 13 of our 49 shares in Minera Li are guaranteed as security for the loans with BBL.
Shares for Debt Settlement
In addition to utilizing our capital to acquire properties and pay other corporate costs, we periodically issue shares of our common stock as consideration in lieu of cash to conserve our cash and meet our obligations. We likely will continue to issue common stock for these purposes where feasible, if we determine that it is in our economic best interests. During the year ended June 30, 2015, we issued 42,030,012 shares of our common stock for the settlement of $1,231,938 relating to certain outstanding liabilities (of which $868,313 were outstanding at June 30, 2014).
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Common Stock Subject to Rescission
On March 19, 2012, the Securities and Exchange Commission 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 of 1933, as amended, and, as a result, the purchasers of those shares may have rescission rights or claims for damages. Accordingly, we have reduced shareholders’ equity at June 30, 2015 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.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). U.S. GAAP represents a comprehensive set of accounting and disclosure rules and requirements. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, however, in the past the estimates and assumptions have been materially accurate and have not required any significant changes. Should we experience significant changes in the estimates or assumptions that would cause a material change to the amounts used in the preparation of our financial statements, material quantitative information will be made available to investors as soon as it is reasonably available.
We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:
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 shares issued for mineral acquisitions; the fair value of derivative liabilities; stock-based payments; and contingencies.
Mineral Exploration and Development Costs
All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs incurred to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If we do not continue with exploration after the completion of the feasibility study, the cost of mineral rights will be expensed at that time. Costs of abandoned projects are charged to mining costs, including related property and equipment costs. To determine if capitalized costs are in excess of their recoverable amount, periodic evaluation of the carrying value of capitalized costs and any related property and equipment costs are performed based upon expected future cash flows and/or estimated salvage value.
Impairment of Long Lived Assets
Long-lived assets, including mineral rights, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. We account for asset impairment in accordance with ASC 360, Property Plant and Equipment. Long-lived assets such as property, plant and equipment, mineral properties and purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is considered to exist if the total estimated future cash flow on an undiscounted basis is less than the carrying amount of the related assets. An impairment loss is measured and recorded based on the estimated fair value of the long-lived asset.
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Share-Based Payments
The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last quoted market price of the Company’s common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital.
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.
As required by FASB ASC Topic No. 820 - 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our 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.
| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable for smaller reporting companies.
| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our audited consolidated financial statements as of, and for the years ended, June 30, 2015 and 2014, are included beginning on Page F-1 immediately following the signature page to this report. See Item 15 for a list of the financial statements included herein.
| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
| ITEM 9A | CONTROLS AND PROCEDURES |
(a) Evaluation of Disclosure 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 June 30, 2015. 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 to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. To address the material weakness, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles in the United States of America. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
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.
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(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2015, based on the framework in Internal Control-Integrated Framework and the Internal Control over Financial Reporting-Guidance for Smaller Public Companies, both issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weakness:
We are currently in the exploration stage, and we have focused on hiring individuals to assist in identifying and pursuing business opportunities in lithium and industrial minerals mining. Although we have hired qualified resources to carry out our day-to-day accounting and financial reporting obligations, we have not yet reached the point at which we have adequate resources to address all complex accounting issues in-house. We rely on external consultants who we understand are sufficiently qualified to provide us with expert assistance in these areas. As a result of this, while we are not aware of any specific deficiency, a reasonable possibility exists that a material misstatement of the company's annual or interim financial statements will not be prevented or detected by us on a timely basis.
Because of this material weakness, management has concluded that our Company did not maintain effective internal control over financial reporting as of June 30, 2015, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by our independent registered public accounting firm because smaller reporting companies are exempt from this requirement.
(c) Changes in Internal Controls.
There has been no change in our internal control over financial reporting that occurred during the year ended June 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 9B. | OTHER INFORMATION |
None.
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
Below are the names and certain information regarding our current executive officers and directors:
| Name | Age | Title | Date First Appointed | |||
| Luis Francisco Saenz | 44 | President, Chief Executive Officer and Director | October 19, 2009 | |||
| Luis Santillana | 39 | Chief Financial Officer, Secretary and Treasurer | July 1, 2012 | |||
| Patrick Cussen | 66 | Chairman of the Board | December 5, 2011 | |||
| Patricio A. Campos | 69 | Director | October 23, 2011 | |||
| Eduardo G. de Aguirre | 68 | Director | October 23, 2011 | |||
| Harvey McKenzie | 69 | Director | June 27, 2011 | |||
| David G. Wahl | 70 | Director | February 18, 2010 | |||
| Uong Chon | 51 | Director | May 23, 2014 |
Directors are elected to serve until the next meeting of stockholders and until their successors are elected and qualified. Our executive officers are appointed by the Board of Directors and serve at its pleasure.
Certain biographical information for each of our executive officers and directors is set forth below.
Luis Francisco Saenz joined our Board of Directors and has been our Chief Executive Officer since October 19, 2009, and President since September 14, 2011. Mr. Saenz was formerly employed at Standard Bank (“Standard”) with Standard’s investment banking unit, Standard Americas, Inc. Mr. Saenz joined Standard in New York in 1997 and relocated to Peru in 1998 to establish Standard’s Peru representative office. While in Peru, Mr. Saenz led Standard’s mining and metals organization effort in the Latin America region. Mr. Saenz returned to New York in 2007 to head Standard’s mining and metals team in the Americas. Mr. Saenz previously worked for Pechiney World Trade in the base metals trading area before joining Merrill Lynch as Vice-President for Commodities in Latin America. Mr. Saenz graduated from Franklin and Marshall College in 1991 with a Bachelor of Arts degree in economics and international affairs. He also serves as Director of Atico Mining Corporation, a TSX-listed company with mining operations in Colombia and acts as advisor on mining for Faro Capital in Peru.
Mr. Saenz’ qualifications to serve on the board of directors include his extensive experience in the mining and metals industry in Latin America.
Luis Santillana became our Vice President of Finance on March 1, 2012, and has been our Chief Financial Officer, Secretary and Treasurer since July 1, 2012. Mr. Santillana strengthens our existing management team and brings additional domain expertise, having over 10 years’ experience in the mining industry, specifically in finance, fund raising, debt facilities, deal negotiation and execution, strategic and financial planning, financial valuations, treasury management, and improvement of management reporting. Prior to joining our Company, Mr. Santillana held the position of Strategic Planning Manager, for ENRC plc, a $7 billion revenue, diversified mining company listed on the London Stock Exchange (FTSE 100). Based in London, he was involved in strategic and financial planning and management reporting for ENRC. From September 2008 to June 2010, Mr. Santillana was responsible for the financial planning and treasury functions at London Mining plc, an iron-ore mining company listed on the London Stock Exchange (AIM). Prior to joining London Mining plc, Mr. Santillana worked for Hochschild Mining plc, a Peruvian gold and silver producer, where he was part of the core management team that led Hochschild Mining’s successful IPO and listing on the London Stock Exchange (FTSE 250). Mr. Santillana holds an MBA from IESE Business School (Spain) and a Bachelor’s Degree in Industrial Engineering from Universidad de Lima (Peru).
Patrick Cussen joined our Company as Chairman of the Board of Directors in December 2011. Mr. Cussen brings us 43 years of mineral and mining expertise and, since 1991has been the President of Celta Consultoras Limitada, a Chilean mining consulting and service company to the Latin American mining industry, advising global clients including: Antofagasta Minerals, Vale, Phelps Dodge (Freeport), Placer Dome (Barrick), Codelco, Citibank, LS-Nikko Copper and Royal Gold. From 1972 - 1985, Mr. Cussen held numerous positions within Codelco, the world’s largest copper producer, culminating as Managing Director, Chile Copper Ltd., a London based Codelco subsidiary. From 1985 - 1990, Mr. Cussen was VP Sales, Empresa Minera de Mantos Blancos S.A. (subsidiary of Anglo American Chile). Mr. Cussen is currently Chairman of the Board of the Center for Copper and Mining Studies (Cesco), the Chilean think-tank on mining. Mr. Cussen is also a former member of the board of the Chilean Copper Commission. Mr. Cussen is an industrial civil engineer and holds an MA in economics from the University of Chile.
Mr. Cussen’s qualifications to serve on the board of directors include his extensive experience within the Latin American mining industry.
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Patricio Campos joined our Board of Directors in September 2011. Mr. Campos brings us valuable domain expertise having over 44 years’ experience in the mining industry, specifically in project exploration, evaluation, technical and economic preparation, plant constructions and operations. His mineral and mining experience includes copper, gold and non-metallic (coal, phosphate, limestone, nitrate and iodine, lithium (brines) minerals, boron and potassium chloride projects. Mr. Campos has also acted as a consultant in the evaluation of ore deposit reserves, copper, gold, iodine, nitrate, coal, phosphate, lithium salares, boron, potassium chloride and potassium sulphate projects. Prior to joining our Company, Mr. Campos previously led and supervised the construction of several plants (iodine, bagging) for Chemical & Mining Co. of Chile Inc. (NYSE: SQM), a multi-national global producer and seller of fertilizers and specialty chemicals and Bifox Ltd. (phosphoric acid, grinding, crushing). Additionally, Mr. Campos has worked as a consultant spanning 30 years for companies such as Anglo American (Salar de Atacama Project), SQM (Salar de Atacama Project), Falcon Mines, MAGSA, ACF Minera S.A., SCM Montevideo & Montecristo, and Sociedad Minera Isla Riesco. Mr. Campos has also actively participated in due diligence processes and negotiations for mining assets such as Algorta Norte S.A.’s iodine project, SQM’s Salar de Atacama and Antucoya copper projects, Codelco´s El Hueso gold mine and other exploration projects, Phelp Dodge’s Safford project, among others. Mr. Campos is a former Professor of Mining Economy at the Mining Department, Universidad de Chile and a former Professor for due diligence, Mining Department, Escuela de Ingenieria, Unversidad de Chile and Instituto de Ingenieros de Minas de Chile. Currently Mr. Campos is a member of the Comité de Recursos Mineros del II MCh (Mining Resources Committee, Chile). Mr. Campos received his Civil Mining Engineering degree from Universidad de Chile and Graduated in economic evaluation and project preparation, Bid-Odeplan - Universidad Católica de Chile. Mr. Campos provides consulting services for BBL, SpA, a related party of Li3 Energy, Inc.
Mr. Campos’s significant experience in the mining industry, specifically in project exploration, evaluation, technical and economic preparation qualifies him to serve as a member of our board of directors.
Eduardo de Aguirre joined our Board of Directors in October 2011. Mr. de Aguirre brings us over 39 years of experience in business development, project management and finance. Since 2007, Mr. de Aguirre has served as Legal Representative to General Dynamics Installation Services Inc., Chile who manufactured and commissioned radio telescopes for the ALMA Project for a total value of about $150MMUS. ALMA is the largest astronomical project in existence in the world, now fully operational in the Atacama Desert in Chile. Its total cost is in the range of billions of dollars. In addition, since 2005, he has acted as Consultant and Sales Representative for Latin America to General Dynamics SATCOM Technologies Inc. Prior to that, from 2000 - 2011, he acted as a consultant for various Chilean entities including Target-DDI, AACA, ASL, Filmosonido and Via Sat. From 1989 - 2000, Mr. de Aguirre served as Regional Manager in South America and as General Manager of the Chilean Subsidiary of Scientific Atlanta, Inc. Mr. de Aguirre is a Civil Industrial Engineer and attended Engineering School at the Catholic University, Santiago, Chile.
Mr. de Aguirre’s qualifications to serve on the board of directors include his experience in business development, project management and finance.
Harvey McKenzie was appointed to our Board of Directors on June 27, 2011. Mr. McKenzie is a Chartered Professional Accountant (“CPA”), granted by the Institute of Chartered Accountants of Ontario, Canada, and has been the CFO and Corporate Secretary of Anconia Resources Corp. (TSXV: ARA.V) since June 2011. Prior thereto, Mr. McKenzie served as the CFO of several Canadian publicly listed exploration, development and producing mining companies, including Red Crescent Resources Limited from January 1, 2013 to March 31, 2014, Martina Minerals Corp. from February 2005 to December 31 2012, Eurotin Inc. from May 2011 to September 2011, Sino Vanadium Inc. from May 2010 to March 2011, Iberian Minerals Corp. from July 2007 to June 2009, Carlisle Goldfields Limited from September 2006 to July 2007, and Asian Mineral Resources Limited from July 2006 to January 2008. From August 2005 to July 2007, he was the CFO and a director of Card One Plus, Ltd., an electronic payment solutions company. Prior thereto he was the CFO of Thistle Mining Inc. from March 1999 to August 2005 (TSXV: TMG.V). He has also served as a consultant for several private companies and on the boards of several junior Canadian natural resource companies for over a decade. Prior thereto, he was in the financial services sector from 1987 to 1995; and from 1983 to 1987 he served as Director of Information Services of Ernst & Young, Chartered Accountants, in Toronto. From 1977 to 1983, he provided management and controllership functions for various financial institutions. From 1970 to 1977, he served as an Auditor for PricewaterhouseCoopers, Chartered Accountants. Mr. McKenzie obtained his Diploma in Alternate Dispute Resolution from the University of Toronto in 2001. He obtained his CPA designation on November 1, 2012 and prior to this he qualified as a CA from the Institute of Chartered Accountants of Ontario in 1973 and a B.Sc. (Hons.) in Mathematics from the University of Toronto in 1970.
Mr. McKenzie’s qualifications to serve on the board of directors include his extensive financial and accounting experience with publicly listed companies involved in the mining and mineral industry.
David G. Wahl, P. Eng., P.Geo. ICD.D was appointed to our Board of Directors on February 18, 2010. From 2005 to the present, Mr. Wahl has been the President and CEO of Southampton Associates - Consulting Engineers & Geoscientist, a private consulting concern specializing in mining and technical issues for corporate clients, financial institutions and governments. Mr. Wahl is a Director of Renforth Resources Inc. (TSX-V) and FeminInc (Frankfurt). Mr. Wahl also has served in a technical advisory capacity to certain financial institutions, government agencies, and national legal and accounting firms. As a past director of the Prospectors and Developers Association, Mr. Wahl provided independent peer review of the OSC/TSE Mining Standard Task Force and for Canadian National Instrument 43-101. Mr. Wahl contributed to a similar review process as co-chair of the Professional Engineers of Ontario Review Committee. Mr. Wahl is a graduate of the Colorado School of Mines and received a degree as an Engineer of Mines in 1968. Mr. Wahl is a member of Professional Engineers Ontario and Professional Geoscientists of Ontario, both of which are self-regulatory organizations. Mr. Wahl is also a member of the Institute of Corporate Directors.
Mr. Wahl’s qualifications to serve on the board of directors include his far-reaching technical experience with companies involved in the mining and mineral industry.
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Uong Chon, PhD, was appointed to Li3´s board of directors on May 23, 2014. Dr. Chon joined the Research Institute of Industrial Science and Technology (RIST), which is a part of POSCO, as a researcher in 1992. He has been an expert in the field of New Materials for 22 years and achieved numerous successes in various R&D projects. During the past few years, Dr. Chon has been leading the development of POSCO’s Lithium Direct Extraction Technology which was designated as “the Top 100 Technologies of Korea” by the National Academy of Engineering of Korea in December of 2013. Besides his career in POSCO, Dr. Chon has also been serving as a technical advisor in the field of energy resources and materials for Korea Evaluation Institute of Industrial Technology (KEIT) and Korea Energy Management Corporation (KEMCO) under the Ministry of Trade, Industry & Energy, Republic of Korea, since 2011. Dr. Chon obtained his MS in Materials Science & Engineering from the University of Utah, USA and holds a Ph.D. from Pohang University of Science & Technology, Korea.
Dr. Chon´s qualifications to serve on the board of directors include his experience with the lithium extraction process.
Rights to Nominate Directors
Pursuant to the Investor’s Rights Agreement between POSCAN and us, dated as of August 24, 2011, we were required to appoint a director nominated by POSCAN to our Board of Directors, and we must continue to nominate a POSCAN-designee at each annual meeting for as long as POSCAN owns not less than 10% of the issued and outstanding shares of our common stock. We appointed Mr. Hyundae Kim to our Board of Directors, effective upon the September 14, 2011 closing of POSCAN’s initial investment in Li3. On Mr. Kim´s resignation on December 19, 2012, Dr. Sung Won Lee was appointed to the board of directors as the POSCAN-designee. Dr. Sung Won Lee was replaced by Dr. Uong Chon as the POSCAN-designee on May 23, 2014.
Director Independence
We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “Independent Directors.” However, our Board of Directors has determined that each of Messrs. De Aguirre, McKenzie, Wahl and Dr. Chon is an “Independent Director” within the meaning of the rules of the Nasdaq Stock Market.
Board of Directors Meetings
Our business is under the general oversight of the Board of Directors as provided by the laws of Nevada and our bylaws. During the fiscal year ended June 30, 2015, the Board of Directors held five meetings. Except as set forth below, each incumbent director attended at least 75% of the Board of Directors meetings and the meetings of the committees on which he served during fiscal 2015.
| Director | Percentage of meetings attended |
|||
| Patricio A. Campos | 60% | |||
| Uong Chon | 0% | |||
Board Committees
Our Board of Directors currently has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee and have adopted charters for all such committees. Following the Company´s disposal of the controlling interest in Minera Li, the Board of Directors determined that the Health, Safety, Environment and Community Committee was no longer necessary, and as such it was disbanded on February 4, 2015.
Audit Committee
The purpose of the Audit Committee of the Board of Directors is to represent and assist the Board in monitoring (i) accounting, auditing, and financial reporting processes; (ii) the integrity of our financial statements; (iii) our internal controls and procedures designed to promote compliance with accounting standards and applicable laws and regulations; and (iv) the appointment of and evaluating the qualifications and independence of our independent registered public accounting firm. The Audit Committee’s responsibilities are set forth in its formal charter. The Audit Committee consists of Mr. McKenzie (Chairman), Mr. Cussen and Mr. de Aguirre. The Audit Committee was formed on December 5, 2011, and has met four times during fiscal 2015.
The Company appointed Mr. de Aguirre to the Audit Committee on March 12, 2015.
The Board of Directors has determined that all Audit Committee members are financially literate under the rules of the Nasdaq Stock Market. The Board also determined that Mr. McKenzie qualifies as an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K promulgated under the Exchange Act.
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Compensation Committee
The purpose of the Compensation Committee of the Board of Directors is to (i) assist the Board in discharging its responsibilities with respect to compensation of our executive officers, (ii) evaluate the performance of our executive officers, and (iii) administer our stock and incentive compensation plans and recommend changes in such plans to the Board as needed. The Compensation Committee’s specific responsibilities are set forth in its formal charter. The Compensation Committee currently consists of Mr. McKenzie (Chairman), Mr. Cussen and Mr. De Aguirre. The Compensation Committee was formed on December 5, 2011, and met once during fiscal 2015.
Nominating and Corporate Governance Committee
The purpose of the Nominating and Corporate Governance Committee of the Board of Directors is to assist the Board in identifying qualified individuals to become Board members, in determining the composition of the Board and its committees, in monitoring a process to assess Board effectiveness and in developing and implementing corporate procedures and policies. The Nominating and Corporate Governance Committee’s specific responsibilities are set forth in its formal charter. The Nominating and Corporate Governance Committee currently consists of Mr. McKenzie (Chairman), Mr. Cussen and Mr. De Aguirre. The Nominating and Corporate Governance Committee was formed on December 5, 2011, and did not meet during fiscal 2015 as any items considered pertinent to this committee were discussed at the Board of Directors meetings.
Shareholder Communications
Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders. To date, no security holders have made any such recommendations.
Code of Ethics
We have adopted a Company Code of Ethics and a Code of Ethics for Financial Reporting Officers (collectively, “Codes”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of our Codes will be provided to any person requesting same without charge. To request a copy of our Code of Ethics or Code of Ethics for Financial Reporting Officers please make written request to our President c/o Matias Cousiño 82, Of. 806, Santiago de Chile, Chile. The Codes are also filed as an exhibit to this annual report. We believe our Codes are reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
Whistle Blowing Policy
We have adopted a Company Whistle Blowing Policy, for which a copy will be provided to any person requesting same without charge. To request a copy of our Whistle Blowing Policy please make written request to our President c/o Matias Cousiño 82, Of. 806, Santiago de Chile, Chile. We believe our Whistle Blowing Policy is reasonably designed to provide an environment where our employees and consultants may raise concerns about any and all dishonest, fraudulent or unacceptable behaviour, which, if disclosed, could reasonably be expected to raise concerns regarding the integrity, ethics or bona fides of the Company.
Compliance with Section 16(a) of the Exchange Act
Prior to March 16, 2011, our common stock was not registered pursuant to Section 12 of the Exchange Act. Accordingly, our officers, directors and principal shareholders were not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act prior to that date.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under Rule 16a-3(e) under the Exchange Act during its most recent fiscal year and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any written representation to the Company from the reporting person that no Form 5 is required, no person who, at any time during the fiscal year, was a director, officer, beneficial owner of more than ten percent of the Company’s common stock, or any other person known to the Company to be subject to section 16 of the Exchange Act with respect to the Company, failed to file on a timely basis, as disclosed in the above Forms, reports required by section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years, except: Eduardo G. de Aguirre (1 late filing) and David G. Wahl (3 late filings).
| ITEM 11. | EXECUTIVE COMPENSATION |
The following table sets forth information concerning the total compensation paid or accrued by us during the last two fiscal years ended June 30, 2015 and June 30, 2014 to (i) all individuals that served as our principal executive officer or acted in a similar capacity for us at any time during the fiscal year ended June 30, 2015; and (ii) all individuals that served as executive officers of ours at any time during the fiscal year ended June 30, 2014 that received annual compensation during such fiscal year in excess of $100,000.
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Summary Compensation Table
| Change | ||||||||||||||||||||||||||||||||||||
| in | ||||||||||||||||||||||||||||||||||||
| Pension | ||||||||||||||||||||||||||||||||||||
| Value | ||||||||||||||||||||||||||||||||||||
| and Non- | ||||||||||||||||||||||||||||||||||||
| Non-Equity | qualified | |||||||||||||||||||||||||||||||||||
| Year | Incentive | Deferred | ||||||||||||||||||||||||||||||||||
| Ended | Stock | Option | Plan | Compensation | All Other | |||||||||||||||||||||||||||||||
| Name and Principal | June 30, | Salary | Bonus | Awards | Awards | Compensation | Earnings | Compensation | ||||||||||||||||||||||||||||
| Position | 2014 | ($) | ($) | ($) | ($) | ($) | ($) | ($) | Total ($) | |||||||||||||||||||||||||||
| Luis Francisco Saenz | 2015 | 190,625 | - | 153,125 | - | - | - | 4,649 | 348,399 | |||||||||||||||||||||||||||
| Chief Executive Officer (1) | 2014 | 246,785 | - | 3,215 | - | - | - | 556 | 250,556 | |||||||||||||||||||||||||||
| Luis Santillana | 2015 | 141,530 | - | 80,813 | - | - | - | 4,522 | 226,865 | |||||||||||||||||||||||||||
| Chief Financial Officer (2) | 2014 | 182,687 | - | 2,313 | - | - | - | - | 185,000 | |||||||||||||||||||||||||||
| (1) | Mr. Saenz was appointed our Chief Executive Officer as of October 19, 2009. Mr. Saenz has an employment agreement with us as described below. We have been paying Mr. Saenz at the rate of $250,000 per annum until March 31, 2015 and $125,000 per annum from April 1, 2015 to June 30, 2015. From June 1, 2014 to March 31, 2015, Mr. Saenz agreed to receive $3,125 of his monthly salary in shares of common stock of the Company in lieu of cash salary. The number of shares of common stock issued was calculated based on the average closing price of the Company´s common stock for the thirty day period prior to, and including, the due date for such salary. Pursuant to the amendment to the employment agreement with Mr. Saenz dated April 8, 2015, the Company issued 8,928,571 shares of common stock to Mr. Saenz valued at $125,000. The Company paid $4,649 and $556, respectively, in medical insurance for Mr. Saenz during fiscal years 2015 and 2014. |
| (2) | Mr. Santillana served as our Vice President of Finance from March 1, 2012 until June 30, 2012, when he was appointed Chief Financial Officer. Mr. Santillana has an employment agreement with us as described below. We have been paying Mr. Santillana at the rate of $185,000 per annum from his commencement until March 31, 2015 and $92,500 per annum from April 1, 2015 to June 2015. From June 1, 2014 to March 31, 2015, Mr. Santillana agreed to receive $2,313 of his monthly salary in shares of common stock of the company in lieu of cash salary. The number of shares of common stock issued was calculated based on the average closing price of the Company´s common stock for the thirty day period prior to, and including, the due date for such salary. Pursuant to the amendment to the employment agreement with Mr. Santillana dated April 8, 2015, the Company issued 4,285,715 shares of common stock to Mr. Saenz valued at $60,000. During the year ended June 30, 2015, the Company paid $4,522 in medical insurance for Mr. Santillana. |
Outstanding Equity Awards at Fiscal Year-End
We have not issued any stock options or maintained any stock option or other incentive plans other than our 2009 Equity Incentive Plan. (See “Market for Common Equity and Related Stockholder Matters - Securities Authorized for Issuance under Equity Compensation Plans,” above).
The following tables set forth information regarding stock options held by the Company’s Named Executive Officers at June 30, 2015.
| Option Awards | ||||||||||||||||||||
| Equity incentive | ||||||||||||||||||||
| plan awards: | ||||||||||||||||||||
| Number of | Number of | Number of | ||||||||||||||||||
| securities | securities | Securities | ||||||||||||||||||
| underlying | underlying | underlying | ||||||||||||||||||
| unexercised | unexercised | unexercised | Option plan | |||||||||||||||||
| options | options | unearned | exercise | Option | ||||||||||||||||
| Name | exercisable (#) | unexercisable (#) | options (#) | price ($) | expiration date | |||||||||||||||
| Luis Santillana (1) | 250,000 | - | - | $ | 0.40 | March 1, 2017 | ||||||||||||||
| (1) | Pursuant to an Employment Agreement, Mr. Santillana received a grant of 250,000 restricted stock units under the 2009 Plan, which vested in three equal instalments on each of March 1, 2013, 2014 and 2015. As of June 30, 2015, all of the restricted stock units have vested pursuant to which 250,000 shares of common stock have been issued. The Company also agreed to grant Mr. Santillana an option under the 2009 Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, all of which are fully vested. |
We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement, including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.
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Agreements with Executive Officers
We have an employment agreement with each of our Chief Executive Officer and our Chief Financial Officer.
Employment Agreement with Luis Saenz
We entered into an Employment Services Agreement with our Chief Executive Officer (CEO), Luis Saenz, effective as of August 24, 2011. Under the Employment Services Agreement, the base salary of Mr. Saenz was determined by our Board of Directors. The Employment Services Agreement had an initial term of one year and was automatically renewed for successive one-year terms unless either party delivered timely notice of its intention not to renew. Our Board of Directors also had sole discretion to pay Mr. Saenz an annual bonus at such time and in such amount as it so determined. We granted Mr. Saenz 700,000 restricted stock units under our 2009 Equity Incentive Plan, which vested in three equal instalments on each of January 15, 2012, 2013 and 2014.
On April 8, 2015, the Company entered into Amendment No. 1 (the “Saenz Amendment”) to the Employee Services Agreement with its CEO. Pursuant to the Saenz Amendment, the CEO´s term will terminate on December 31, 2015 (the “Termination Date”) unless the parties agree in writing to extend the term prior to that date. The CEO was paid a base salary of $10,416 per month for the period April 1, 2015 to June 30, 2015 (reduced from $20,833 per month) and will be paid a base salary of $5,208 per month for the period July 1, 2015 to December 31, 2015. The Saenz Amendment also imposes payments and conditions related to certain corporate events. In consideration of the Saenz Amendment, the Company agreed to issue the CEO 8,928,571 shares of common stock of the Company valued at $125,000 and recorded as stock compensation expense within general and administrative expenses in the consolidated statements of operations.
Mr. Saenz’s employment by us remains “at-will” and terminable at any time for any reason or for no reason. If Mr. Saenz’s employment is terminated by us without Cause, we must continue to pay him any base salary at the rate then in effect for a period of 18 months. If we terminate Mr. Saenz’s employment without Cause, or in connection with a Change of Control, or if Mr. Saenz terminates the Employment Services Agreement for Good Reason, or in the event of a termination of employment due to a permanent disability, we will continue to pay him any base salary at the rate then in effect until the Termination Date.
For the duration of the employment period and, unless we terminate Mr. Saenz’s employment without Cause, for the period until the Termination Date, Mr. Saenz has agreed not to directly or indirectly compete with any business engaged in by us or proposed to be engaged in by us during the period of his employment anywhere within the countries in which we are then operating.
The foregoing is a summary of the principal terms of the Employment Services Agreement and the Saenz Amendment and is qualified in its entirety by the detailed provisions of the actual agreements, which are incorporated by reference as exhibits to this Report and are incorporated herein by reference.
From June 1, 2014 until March 31, 2015, Mr. Saenz agreed to receive $3,125 of his monthly salary in shares of common stock of the Company in lieu of cash salary. The number of shares of common stock issued was calculated based on the average closing price of the Company´s common stock for the thirty day period prior to, and including, the due date for such salary.
Employment Services Agreement with Luis Santillana
We are party to an Employment Services Agreement with Mr. Santillana, dated as of December 1, 2011, amended as of April 10, 2012 (the “Employment Agreement”). Under the Employment Agreement, Mr. Santillana was appointed as our Chief Financial Officer (“CFO”), and we paid Mr. Santillana an annual base salary of $185,000. The Employment Agreement had an initial term of one year and was automatically renewed for successive one-year terms unless either party delivered timely notice of its intention not to renew. Pursuant to the Employment Agreement, we may also pay Mr. Santillana an annual bonus of up to 50% of his base salary, at such time and in such amount as may be determined by our Board of Directors in its sole discretion. We granted Mr. Santillana 250,000 restricted stock units under our 2009 Equity Incentive Plan, which vested in three equal instalments on each of March 1, 2013, 2014 and 2015. We also granted Mr. Santillana an option under our 2009 Equity Incentive Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which vested in its entirety on September 1, 2013.
On April 8, 2015, the Company entered into Amendment No. 1 (the “Santillana Amendment”) to the Employee Services Agreement with its CFO, dated as of December 1, 2011 (as amended on April 10, 2012). Pursuant to the Santillana Amendment, the CFO´s term will terminate on December 31, 2015 (the “Termination Date”) unless the parties agree in writing to extend the term prior to that date. The CFO was paid a base salary of $7,708 per month for the period April 1, 2015 to June 30, 2015 (reduced from $15,417 per month) and a base salary of $3,854 per month for the period July 1, 2015 to December 31, 2015. The Santillana Amendment also imposes payments and conditions related to certain corporate events. In consideration of the Santillana Amendment, the Company agreed to issue the CFO 4,285,715 shares of common stock of the Company valued at $60,000 and recorded as stock compensation expense within general and administrative expenses in the consolidated statements of operations.
Mr. Santillana’s employment by us is “at-will” and terminable at any time for any reason or for no reason. If Mr. Santillana’s employment is terminated by us without Cause or in connection with a Change of Control (as such terms are defined in the Employment Agreement) or if he terminates his employment for Good Reason (as defined in the Employment Agreement), his options will expire nine months after such termination. If we terminate Mr. Santillana’s employment without Cause, or in connection with a Change of Control, or if Mr. Santillana terminates his employment for Good Reason, or in the event of a termination of employment due to a permanent disability, we will continue to pay Mr. Santillana his base salary at the rate then in effect for until the Termination Date.
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For the duration of the employment period and, unless we terminate Mr. Santillana’s employment without Cause, for the period until the Termination Date, Mr. Santillana has agreed not to directly or indirectly compete with any business engaged in by us or proposed to be engaged in by us during the period of his employment anywhere within the countries in which we are then operating.
The foregoing is a summary of the principal terms of the Employment Agreement and the Santillana Amendment and is qualified in its entirety by the detailed provisions of the actual agreements, which are filed as an exhibit to this Annual Report and are incorporated herein by reference.
From June 1, 2014 until March 31, 2015, Mr. Santillana agreed to receive $2,313 of his monthly salary in shares of common stock of the Company in lieu of cash salary. The number of shares of common stock issued was calculated based on the average closing price of the Company´s common stock for the thirty day period prior to, and including, the due date for such salary.
Compensation of Non-Employee Directors
The following table sets forth information concerning the total compensation paid or accrued by us during the fiscal year ended June 30, 2015 to all individuals that served on our board of Directors for us at any time during the fiscal year ended June 30, 2015:
| Director Compensation | ||||||||||||||||||||||||||||
| Name | Fees Accrued ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||
| Patrick Cussen | - | 58,667 | - | - | - | - | 58,667 | |||||||||||||||||||||
| Patricio A. Campos | 10,833 | 17,000 | - | - | - | - | 27,833 | |||||||||||||||||||||
| Eduardo G. de Aguirre | - | 29,291 | - | - | - | - | 29,291 | |||||||||||||||||||||
| Harvey McKenzie | - | 36,667 | - | - | - | - | 36,667 | |||||||||||||||||||||
| David G. Wahl | - | 22,000 | - | - | - | - | 22,000 | |||||||||||||||||||||
| Uong Chon | 22,000 | - | - | - | - | - | 22,000 | |||||||||||||||||||||
| Total | 32,833 | 163,625 | - | - | - | - | 196,458 | |||||||||||||||||||||
On May 2, 2012, our Board adopted a plan of compensation for its non-employee directors’ services to the Company, pursuant to which each current and former non-employee director shall be paid cash (the “Cash Director Compensation”) at the greatest of the following annual rates that applies to such director during the relevant time periods: $64,000 for the Chairman of the Board; $40,000 for the Audit Committee Chairman; $34,000 for the Chairman of any other standing Board committee; and $24,000 for directors who do not chair any committees. On February 4, 2015, our Board resolved to reduce the compensation due to each director by 25% from March 1, 2015, such that the annual rates became: $48,000 for the Chairman of the Board; $30,000 for the Audit Committee Chairman; $25,500 for the Chairman of any other standing Board committee; and $184,000 for directors who do not chair any committees. The Cash Director Compensation shall be deemed to begin to accrue retroactively for each non-employee director on the later of such director’s initiation of substantial involvement with the Board, as determined in good faith by the Chief Executive Officer, and July 1, 2011 (each such director’s “Compensation Start Date”). The increased rates of Cash Director Compensation for the Chairman of the Board and Committee Chairmen shall only apply to the period of time that the relevant director served in such capacity.
During the year ended June 30 2015, the Company issued an aggregate of 10,670,558 shares of our common stock as consideration in lieu of $184,125 in accrued Director Compensation, of which $49,000 related to fees accrued during the year ended June 30, 2014. On August 5, 2015, the Company agreed to issue an aggregate of 3,084,113 shares of our common stock as consideration in lieu of $33,000 of Director Compensation accrued during the year ended June 30, 2015. We likely will continue to issue common stock for this purpose where feasible.
On May 2, 2012, the Board also determined to grant to each of its non-employee directors other than the Chairman of the Board 100,000 Restricted Stock Units under the 2009 Plan, which were to vest in three equal instalments on each of the first three anniversaries of such director’s Compensation Start Date. The Board also determined to grant to the Chairman of the Board 300,000 Restricted Stock Units under the 2009 Plan, which were to vest in three equal instalments on each of the first three anniversaries of his becoming Chairman of the Board. However, such restricted stock units have not yet been granted, as we do not have sufficient shares authorized at this time for issuance pursuant to awards under our 2009 Plan to accommodate all of such restricted stock units.
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Equity Compensation Plan Information
On October 19, 2009, our Board of Directors adopted, and our stockholders approved, the 2009 Equity Incentive Plan (the “2009 Plan”), which reserved a total of 5,000,000 shares of our common stock for issuance under the 2009 Plan (3,450,000 shares of which have been issued and the restrictions thereon lapsed). If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan.
In addition, the number of shares of Common Stock subject to the 2009 Plan, any number of shares subject to any numerical limit in the 2009 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.
Administration
It is expected that the Compensation Committee of our Board of Directors, or the Board of Directors in the absence of such a committee, will administer the 2009 Plan. Subject to the terms of the 2009 Plan, the Compensation Committee would have complete authority and discretion to determine the terms of awards under the 2009 Plan.
Grants
The 2009 Plan authorizes the grant to participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code (as amended, the “Code”) and stock appreciation rights, as described below:
| • | Options granted under the 2009 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified exercise price per share. The exercise price for shares of our common stock covered by an option cannot be less than the fair market value of the common stock on the date of grant unless agreed to otherwise at the time of the grant. |
| • | Restricted stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more performance goals for restricted stock units. |
| • | The compensation committee may make performance grants, each of which will contain performance goals for the award, including the performance criteria, the target and maximum amounts payable, and other terms and conditions. |
| • | The 2009 Plan authorizes the granting of stock awards. The compensation committee will establish the number of shares of our common stock to be awarded and the terms applicable to each award, including performance restrictions. |
| • | Stock appreciation rights (“SARs”) entitle the participant to receive a distribution in an amount not to exceed the number of shares of our common stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of common stock on the date of exercise of the SAR and the market price of a share of common stock on the date of grant of the SAR. |
Duration, Amendment and Termination
The Board has the power to amend, suspend or terminate the 2009 Plan without stockholder approval or ratification at any time or from time to time. No change may be made that increases the total number of shares of our common stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year. Unless sooner terminated, the 2009 Plan would terminate ten years after its adoption.
Grants to Officers and Directors
The Board granted 700,000 restricted stock units to Mr. Saenz under the 2009 Plan. All of the restricted stock units have vested and been issued as follows: 233,334 shares issued on January 15, 2012, 233,333 shares issued on January 15, 2013 and 233,333 shares issued on January 15, 2014.
Pursuant to an Employment Agreement, we granted Mr. Santillana 250,000 restricted stock units under the 2009 Plan, all of which have vested and been issued as follows: 83,334 shares issued on March 1, 2013, 83,333 shares issued on March 1, 2014 and 83,333 shares issued on March 1, 2015. We also granted Mr. Santillana an option under the 2009 Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which option has vested.
On May 2, 2012, the Board determined to grant to each of its non-employee directors other than the Chairman of the Board 100,000 Restricted Stock Units under the 2009 Plan, which were to vest in three equal instalments on each of the first three anniversaries of such director’s Compensation Start Date. The Board also determined to grant to the Chairman of the Board 300,000 Restricted Stock Units under the 2009 Plan, which were to vest in three equal instalments on each of the first three anniversaries of his becoming Chairman of the Board. However, such restricted stock units have not yet been granted, as we do not have sufficient shares authorized at this time for issuance pursuant to awards under our 2009 Plan to accommodate all of such restricted stock units.
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| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following table sets forth information with respect to the beneficial ownership of our common stock known by us as of November 6, 2015 by:
| • | each person or entity known by us to be the beneficial owner of more than 5% of our common stock; | |
| • | each of our directors; | |
| • | each of our executive officers; and | |
| • | all of our directors and executive officers as a group. |
Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent such power may be shared with a spouse. Information given with respect to beneficial owners who are not officers or directors of ours is to the best of our knowledge. Unless otherwise noted, the address of each director and executive officer listed below is c/o Li3 Energy, Inc., Matias Cousiño 82, Of. 806, Santiago de Chile, Chile.
Title of Class: Common Stock
| Amount and Nature | ||||||||
| of Beneficial | Percentage Of | |||||||
| Name and Address of Beneficial Owner | Ownership(1) | Class (2) | ||||||
| Luis Francisco Saenz | 17,353,965 | 3.6 | % | |||||
| Luis Santillana | 6,417,534 | (3) | 1.3 | % | ||||
| Patrick Cussen | 12,112,374 | (6) | 2.5 | % | ||||
| Patricio A. Campos | 22,070,956 | (4)(5) | 4.6 | % | ||||
| Eduardo G. de Aguirre | 4,527,007 | (4) | * | |||||
| Harvey McKenzie | 5,703,773 | (4) | 1.2 | % | ||||
| David G. Wahl | 3,409,232 | (4) | * | |||||
| Uong Chon | - | 0 | % | |||||
| All directors and executive officers as a group (8 persons) | 71,344,841 | (3)(4)(6)(8) | 14.8 | % | ||||
| POSCO Canada Ltd. | ||||||||
| 650 W. Georgia St., Suite 2350 | ||||||||
| Vancouver, British Columbia | ||||||||
| V6B 4N9 | ||||||||
| Canada | 100,595,238 | 20.8 | % | |||||
| Calcata Sociedad Anónima S.A. | ||||||||
| San Antonio N°19, Of. 1601 | ||||||||
| Santiago, Santiago | ||||||||
| Chile | 51,041,666 | (7)(8) | 10.6 | % | ||||
* Indicates less than one percent.
| (1) | Beneficial ownership is determined in accordance with the rules of the SEC and generally includes having or sharing voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of November 6, 2015, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person. |
| (2) | Percentages are based upon 483,291,849 shares of common stock issued and outstanding as of November 6, 2015. |
| (3) | Includes 250,000 shares of common stock issuable upon exercise of options. |
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| (4) | Does not include 100,000 shares of common stock issuable pursuant to restricted stock units that the Board determined to grant under the 2009 Plan, but which have not yet been granted due to an insufficient number of shares being authorized for issuance pursuant to awards granted under the 2009 Plan. 400,000 of such restricted stock units have vested at November 6, 2015. |
| (5) | Includes 18,375,000 shares of our common stock held by Campos Mineral Asesorias Profesionales Limitada, an entity controlled by Mr. Campos, a director of the Company. |
| (6) | Does not include 2,345,895 shares of common stock held by Celta Consultores Limitada (“Celta”). Although Mr. Cussen owns a minority equity interest in Celta, he does not have voting or dispositive power over the securities held by Celta and disclaims beneficial ownership thereof, except to the extent of his pecuniary interest therein. Does not include 300,000 shares of common stock issuable pursuant to restricted stock units that the Board determined to grant under the 2009 Plan, but which have not yet been granted due to an insufficient number of shares being authorized for issuance pursuant to awards granted under the 2009 Plan. All such restricted stock have vested at November 6, 2015. |
| (7) | Estimate of beneficial ownership, based on information available to us. The beneficial owner may have acquired shares held in street name, of which we are not aware. |
| (8) | Because of the arrangements described in “Directors, Executive Officers, Promoters and Control Persons, Rights to Nominate Directors” above, these persons may be deemed to constitute a group as defined in Section 13(d) of the Exchange Act. However, each such person (a) disclaims membership in a group and (b) disclaims beneficial ownership of the shares of Common Stock beneficially owned by any other such person or any other person. |
Securities Authorized for Issuance under Equity Compensation Plans
Our Board of Directors adopted, and our stockholders approved, the 2009 Plan on October 19, 2009. The 2009 Plan reserved a total of 5,000,000 shares of our common stock for issuance pursuant to awards granted thereunder (3,450,000 of which have been issued and the restrictions with respect thereto have lapsed). If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan. As of the date hereof, we have outstanding option awards under the 2009 Plan exercisable for an aggregate of 1,250,000 shares of our common stock, the options of which are fully vested. In addition, we granted a restricted stock award under the 2009 Plan with respect to 2,500,000 shares of common stock which are fully vested and issued. We also issued Restricted Stock Units under the 2009 Plan with respect to 950,000 shares of common stock which are fully vested and issued. Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 800,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. We have not maintained any other equity compensation plans since our inception.
The table provided under Item 5 above contains information with respect to the shares of common stock that may be issued under our existing equity compensation plans as of June 30, 2015.
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
In February 2013, we entered into an agreement with Celta Consultores Limitada (“Celta”), for Celta to provide consulting services with the objective of the Company entering into a joint venture agreement with a third party. Our Chairman, Mr. Cussen, is the President of Celta.
On July 8, 2013, the agreement was amended, providing for the Company to remunerate Celta as follows:
| - | Five days after the signing of a memorandum of understanding for a potential joint venture, Celta shall receive 2,000,000 shares of Li3 common stock, and |
| - | Five days after the signing of a joint venture agreement, Celta shall receive 1,000,000 shares of Li3 common stock. |
To date, we have not executed either the memorandum of understanding or the joint venture agreement referred to above.
Director Independence
We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “Independent Directors”. However, our Board of Directors has determined that each of Messrs. De Aguirre, McKenzie, Wahl and Dr. Chon is an “Independent Director” within the meaning of the rules of the Nasdaq Stock Market.
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| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
Audit Fees
The aggregate fees billed to us by our principal independent public accountant for services rendered during the fiscal years ended June 30, 2015 and 2014, are set forth in the table below:
| Fiscal year | Fiscal year | |||||||
| Ended | Ended | |||||||
| Fee Category | June 30, 2015 | June 30, 2014 | ||||||
| Audit fees (1) | $ | 61,355 | $ | 160,890 | ||||
| Audit-related fees (2) | - | 25,533 | ||||||
| Tax fees (3) | 17,050 | 14,682 | ||||||
| All other fees (4) | - | - | ||||||
| Total fees | $ | 78,405 | $ | 201,105 | ||||
| (1) | Audit fees consist of fees incurred for professional services rendered for the audit of consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Forms 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements. |
| (2) | Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.” |
| (3) | Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice. |
| (4) | All other fees consist of fees billed for all other services. |
Audit Committee’s Pre-Approval Practice
In accordance with its charter, our Audit Committee approves in advance all audit and non-audit services to be provided by our independent registered public accounting firm. During the years ended June 30, 2015 and 2014, all such services were pre-approved by either our Board or our Audit Committee, in accordance with these policies.
Our Board selected GBH CPAs, PC as our independent registered public accounting firm for purposes of auditing our financial statements for the year ended June 30, 2015. In accordance with Board’s practice, GBH CPAs, PC was pre-approved by the Board to perform these audit services for us prior to its engagement.
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| ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
Financial Statement Schedules
Our consolidated financial statements are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.
All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
Exhibits
The following Exhibits are being filed with this Annual Report on Form 10-K:
|
Exhibit |
Description | |
| 3.1 | Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on June 24, 2005 (1) | |
| 3.2 | Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on July 11, 2008 (2) | |
| 3.3 | Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on October 19, 2009 (4) | |
| 3.4 | Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on March 15, 2011 (17) | |
| 3.5 | Amended and Restated Bylaws of the Registrant(20) | |
| 4.1 | Form of Investor A Warrant of the Registrant, issued in connection with a private placement of which several closings were held in November and December of 2009 (5) | |
| 4.2 | Form of Investor B Warrant of the Registrant, issued in connection with a private placement of which several closings were held in November and December of 2009 (5) | |
| 4.3 | Form of Warrant of the Registrant, issued in connection with a private placement of which several closings were held in June, July and September of 2010 (10) | |
| 4.4 | Form of Warrant included in the D Units sold in the Second 2010 Unit Offering (13) | |
| 4.5 | Form of Warrant included in the E Units sold in the Third 2010 Unit Offering (15) | |
| 4.6 | Form of Warrant included in the units issued in private placement in April and May, 2011 (16) | |
| 4.7 | Form of Warrant issued pursuant to Securities Purchase Agreement dated as of August 24, 2011, between the Registrant and POSCAN (18) | |
| 4.8 | Form of Warrant issued pursuant to the Additional Agreement to Securities Purchase Agreement, dated as of August 17, 2012, between the Registrant and POSCAN (26) | |
| 4.9 | Form of Bonus Warrant issued pursuant to the Additional Agreement to Securities Purchase Agreement, dated as of August 17, 2012, between the Registrant and POSCAN (26) | |
| 10.1 † | Registrant’s 2009 Stock Incentive Plan adopted October 19, 2009 (5) | |
| 10.2 † | Form of Stock Option Agreement under the Registrant’s 2009 Equity Incentive Plan (5) |
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| 10.3 | Form of Subscription Agreement between the Registrant and each subscriber in a private placement offering of units (5) | |
| 10.12 | Registration Rights Agreement, dated as of February 16, 2010, among the Registrant, Next Lithium Corp. and Next Lithium (Nevada) Corp. (7) | |
| 10.14 † | Engagement Letter, dated January 7, 2010, between the Registrant and Marin Management Services, LLC (8) | |
| 10.18 | Form of Subscription Agreement between the Registrant and each subscriber in the private placement of which several closings were held in June, July and September of 2010 (10) | |
| 10.19 | Form of Registration Rights Agreement between the Registrant and the subscribers in the private placement of which several closings were held in June, July and September of 2010 (9) | |
| 10.20 | Addendum to Master Option Agreement between Lacus Minerals S.A. and the Registrant, dated as of July 30, 2010 (12) | |
| 10.21 | Stock Purchase Agreement, dated as of August 3, 2010, among the Registrant, Pacific Road Capital A Pty. Limited, as trustee for Pacific Road Resources Fund A, Pacific Road Capital B Pty. Limited, as trustee for Pacific Road Resources Fund B, and Pacific Road Capital Management G.P. Limited, as General Partner of Pacific Road Resources Fund L.P. (11) | |
| 10.22† | Employment Services Agreement, dated as of August 11, 2010, between the Registrant and MIZ Comercializadora, S. de R.L. (12) | |
| 10.23† | Form of Restricted Stock Agreement, dated as of August 11, 2010, between the Registrant and MIZ Comercializadora, S. de R.L. (12) | |
| 10.24 | Letter Agreement between the Registrant and LW Securities, Ltd., dated November 24, 2010 (13) | |
| 10.25 | Form of Subscription Agreement between the Registrant and each Subscriber in the Second 2010 Unit Offering (13) | |
| 10.27 | Investment Agreement, dated as of December 2, 2010, between the Registrant and Centurion Private Equity, LLC (11) | |
| 10.28 | Registration Rights Agreement, dated as of December 2, 2010, between the Registrant and Centurion Private Equity, LLC (14) | |
| 10.29 | Form of Subscription Agreement between the Registrant and each Subscriber in the Third 2010 Unit Offering (15) | |
| 10.31 † | Amendment No. 1 to Employment Services Agreement, dated as of December 14, 2010, between the Registrant and MIZ Comercializadora, S. de R.L. (13) | |
| 10.32 | Settlement Agreement, dated as of December 30, 2010, between the Registrant and Robert James Sedgemore (13) | |
| 10.33 | Binding Letter of Intent between the Registrant and shareholders of Sociedades Legales MinerasLitio 1 a 6 de la Sierra Hoyada de Maricunga, dated as of February 24, 2011, relating to Registrant’s acquisition of a controlling interest in certain assets (16) | |
| 10.34 | Form of Securities Purchase Agreement between the Registrant and each subscriber in connection with private placement of units in April and May, 2011 (16) | |
| 10.36 | Form of Registration Rights Agreement between the Registrant and each subscriber in connection with private placement of units in April and May, 2011 (16) | |
| 10.37 | Amending Agreement, dated as of March 30, 2011, between the Registrant and the Alfredo Sellers, amending the Stock Purchase Agreement between Registrant and the Alfredo Sellers dated as of August 3, 2010 (11) | |
| 10.38 | Credit Agreement, dated as of May 2, 2011, between the Registrant and certain private institutional investors (16) | |
| 10.39 | Framework Contract of Mining Project Development and Buying and Selling of Shares of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga dated as of May 20, 2011 (16) | |
| 10.40 | Securities Purchase Agreement dated as of August 24, 2011, between the Registrant and POSCAN (11) | |
| 10.41 | Investor Rights Agreement dated as of August 24, 2011, between the Registrant and POSCAN (11) |
| 48 |
| 10.42 | Employment Services Agreement between the registrant and Luis Saenz, effective as of August 24, 2011 (18) | |
|
10.43 |
|
Amendment and Waiver Agreement with the holders of the Registrant’s zero-coupon bridge notes, dated as of August 25, 2011 (18) |
| 10.44 † | Consulting Services Agreement between the Registrant and R&M Global Advisors, dated November 23, 2011, with respect to Eric Marin’s services as Interim Chief Financial Officer of the Registrant (19) | |
| 10.45 | Agreement Between R3 Fusion and Li3 Energy, dated as of January 12, 2012 (21) | |
| 10.46 | Form of 15% Bridge Notes issued by the Registrant (30) | |
| 10.47 † | First Amendment to Registrant’s 2009 Stock Incentive Plan, dated May 2, 2012 (22) | |
| 10.48 † | Second Amendment to Registrant’s 2009 Stock Incentive Plan, dated June 17, 2012 (23) | |
| 10.49 † | Amendment No. 1 to Contractor Services Agreement between the Registrant and R&M Global Advisors, Inc., dated as of June 30, 2012 (24) | |
| 10.50 | Additional Agreement to the Securities Purchase Agreement between the Registrant and POSCAN, dated as of August 17, 2012 (25) | |
| 10.51 † | Employment Services Agreement between the Registrant and Luis Santillana, dated as of December 1, 2011 (29) | |
| 10.52 † | Amendment to Employment Services Agreement between the Registrant and Luis Santillana, dated as of March 1, 2012 (29) | |
| 10.53 | Form of Settlement Agreement between the Registrant and the Receivable Holders entered into on September 7, 2012 (31) | |
| 10.54 |
Second Amendment and Waiver Agreement with the holders of the Registrant’s zero-coupon bridge notes, dated as of September 28, 2012 (28)
| |
| 10.55 | Memorandum of Understanding dated March 17, 2013 for the Merger of Blue Wolf Mongolia Holdings Corp and the Registrant (32) | |
| 10.56 | Purchase Agreement between the Registrant and Jose Resk Nara and Carlos Alfonso Iribarren to purchase all of the outstanding shares of SLM Cocina Diecinueve de la Hoyada de Maricunga dated April 16, 2013 (33) | |
| 10.57 | Agreement and Plan of Merger by and among the Registrant, Blue Wolf Mongolia Holdings Corp. and Blue Wolf Acquisition Sub dated May 21, 2013 (34) | |
| 10.58 | Shares Purchase-Sale of Minera Li Energy SPA from Li3 Energy, Inc. to BBL SPA, dated January 27, 2014 (35) | |
| 10.59 | Third Extraordinary Shareholders Meeting of Minera Li Energy SPA, dated January 27, 2014 (35) | |
| 10.60 | Shareholders´ Agreement of Minera Li Energy SPA, dated January 27, 2014 (35) | |
| 10.61 | Assignment of Contentious Rights and Credit Sociedad Legal MineraLitio 1 de la Sierra Hoyada de Maricunga and Others and Inversiones Tierras Raras SPA, dated January 27, 2014 (35) | |
| 10.62 | Form of Registration Damages Settlement Agreement between Registrant and certain shareholders of the Company who participated in a private placement with the Company in April and May of 2011 (36) | |
| 10.63 | Loan Contract and Pledge Without Transfer of Possession between BBL SpA and the Company, dated February 3, 2015 (36) | |
| 10.64 † | Amendment No. 1 to Employment Services Agreement between the Registrant and Luis Saenz, dated April 8, 2015 (37) | |
| 10.65 † | Amendment No. 1 to Employment Services Agreement between the Registrant and Luis Santillana, dated April 8, 2015 (37) | |
| 14.1 | Code of Ethics (3) | |
| 21.1* | List of Subsidiaries |
| 49 |
| 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 Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| (1) | Filed with the Securities and Exchange Commission on August 19, 2005 as an exhibit to the Registrant’s registration statement on Form SB-2 (SEC File No. 333-127703), which exhibit is incorporated herein by reference. |
| (2) | Filed with the Securities and Exchange Commission on July 29, 2008 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (3) | Filed with the Securities and Exchange Commission on September 25, 2008 as an exhibit to the Registrant’s annual report on Form 10-KSB, which exhibit is incorporated herein by reference. |
| (4) | Filed with the Securities and Exchange Commission on October 23, 2009 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (5) | Filed with the Securities and Exchange Commission on November 16, 2009 as an exhibit to the Registrant’s quarterly report on Form 10-Q, which exhibit is incorporated herein by reference. |
| (6) | Filed with the Securities and Exchange Commission on January 25, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (7) | Filed with the Securities and Exchange Commission on March 18, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (8) | Filed with the Securities and Exchange Commission on May 14, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (9) | Filed with the Securities and Exchange Commission on June 15, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (10) | Filed with the Securities and Exchange Commission on July 19, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (11) | Filed with the Securities and Exchange Commission on March 15, 2012 as an exhibit to Amendment No. 8 to Registration Statement on Form S-1/A, which exhibit is incorporated herein by reference. |
| (12) | Filed with the Securities and Exchange Commission on November 4, 2010, as an exhibit to the Registrant’s annual report on Form 10-K, which exhibit is incorporated herein by reference. |
| (13) | Filed with the Securities and Exchange Commission on February 22, 2011, as an exhibit to the Registrant’s quarterly report on Form 10-Q, which exhibit is incorporated herein by reference. |
| 50 |
| (14) | Filed with the Securities and Exchange Commission on December 8, 2010, as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (15) | Filed with the Securities and Exchange Commission on December 15, 2010, as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (16) | Filed with the Securities and Exchange Commission on May 23, 2011, as an exhibit to the Registrant’s quarterly report on Form 10-Q, which exhibit is incorporated herein by reference. |
| (17) | Filed with the Securities and Exchange Commission on March 16, 2011, as an exhibit to the Registrant’s registration statement on Form 8-A, which exhibit is incorporated herein by reference. |
| (18) | Filed with the Securities and Exchange Commission on August 26, 2011 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (19) | Filed with the Securities and Exchange Commission on November 29, 2011 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (20) | Filed with the Securities and Exchange Commission on January 30, 2014, as an exhibit to the Registrant’s current report on Form 8-K,and incorporated herein by reference. |
| (21) | Filed with the Securities and Exchange Commission on January 20, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (22) | Filed with the Securities and Exchange Commission on May 18, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (23) | Filed with the Securities and Exchange Commission on June 21, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (24) | Filed with the Securities and Exchange Commission on July 5, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (25) | Filed with the Securities and Exchange Commission on August 24, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (26) | Filed with the Securities and Exchange Commission on August 24, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (27) | Filed with the Securities and Exchange Commission on January 6, 2012 as an exhibit to Amendment No. 2 to the Registrant’s annual report on Form 10-K/A, which exhibit is incorporated herein by reference. |
| (28) | Filed with the Securities and Exchange Commission on October 10, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (29) | Filed with the Securities and Exchange Commission on September 21, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
| (30) | Filed with the Securities and Exchange Commission on October 15, 2012 as an exhibit to the Registrant’s Annual Report on Form 10-K, which exhibit is incorporated herein by reference. |
| (31) | Filed with the Securities and Exchange Commission on September 13, 2012 as an exhibit to the Registrant’s current report on Form 8-K which exhibit is incorporated herein by reference. |
| (32) | Filed with the Securities and Exchange Commission on March 21, 2013 as an exhibit to the Registrant’s current report on Form 8-K which exhibit is incorporated herein by reference. |
| (33) | Filed with the Securities and Exchange Commission on May 1, 2013 as an exhibit to the Registrant’s current report on Form 8-K which exhibit is incorporated herein by reference. |
| (34) | Filed with the Securities and Exchange Commission on May 21, 2013 as an exhibit to the Registrant’s current report on Form 8-K which exhibit is incorporated herein by reference. |
| 51 |
| (35) | Filed with the Securities and Exchange Commission on May 15, 2014 as an exhibit to the Registrant’s quarterly report on Form 10-Q, which exhibit is incorporated herein by reference. |
| (36) | Filed with the Securities and Exchange Commission on May 15, 2015 as an exhibit to the Registrant’s quarterly report on Form 10-Q, which exhibit is incorporated herein by reference. |
| (37) | Filed with the Securities and Exchange Commission on April 9, 2015 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference. |
* Filed herewith.
| ¶ | This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except if and to the extent that the Registrant specifically incorporates it by reference. |
| † | Management contract or compensatory plan or arrangement |
| 52 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Li3 ENERGY, INC. | ||
| Dated: November 6, 2015 | By: | /s/ Luis Saenz |
| Luis Saenz | ||
| Chief Executive Officer | ||
| (principal executive officer) | ||
| By: | /s/ Luis Santillana | |
| Luis Santillana | ||
| Chief Financial Officer | ||
| (principal financial officer and principal accounting officer) | ||
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| SIGNATURE | TITLE | DATE | ||
| /s/ Luis Saenz | Chief Executive Officer (principal | November 6, 2015 | ||
| Luis Saenz | executive officer), and Director | |||
| /s/ Patrick A. Cussen | Director | November 6, 2015 | ||
| Patrick A. Cussen | ||||
| /s/ Patricio A. Campos | Director | November 6, 2015 | ||
| Patricio A. Campos | ||||
| /s/ Eduardo G. de Aguirre | Director | November 6, 2015 | ||
| Eduardo G. de Aguirre | ||||
| /s/ Harvey McKenzie | Director | November 6, 2015 | ||
| Harvey McKenzie | ||||
| /s/ David G. Wahl | Director | November 6, 2015 | ||
| David G. Wahl | ||||
| /s/Uong Chon | Director | November 6, 2015 | ||
| Uong Chon |
| 53 |
LI3 ENERGY, INC.
INDEX TO FINANCIAL STATEMENTS
| F-1 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors
Li3 Energy, Inc.
Santiago de Chile, Chile
We have audited the accompanying consolidated balance sheets of Li3 Energy, Inc. as of June 30, 2015 and 2014, and the related consolidated statements of operations, changes in equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of Li3 Energy, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Li3 Energy, Inc., as of June 30, 2015 and 2014, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has no source of recurring revenue; negative working capital and cash flows; and has suffered recurring losses from operations; which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ GBH CPAs, PC | |
| GBH CPAs, PC | |
| www.gbhcpas.com | |
| Houston, Texas | |
November 6, 2015 |
| F-2 |
Consolidated Balance Sheets
| June 30, 2015 | June 30, 2014 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | 6,217 | $ | 38,490 | ||||
| Prepaid expenses and advances | 51,760 | 35,781 | ||||||
| Receivable from BBL for sale of controlling interest in Minera Li | 997,796 | - | ||||||
| Total current assets | 1,055,773 | 74,271 | ||||||
| Receivable from BBL for sale of controlling interest in Minera Li | - | 994,017 | ||||||
| Equity investment in Minera Li | 7,336,375 | 7,572,425 | ||||||
| Property and equipment, net | - | 322 | ||||||
| Total non-current assets | 7,336,375 | 8,566,764 | ||||||
| Total assets | $ | 8,392,148 | $ | 8,641,035 | ||||
| Liabilities & Stockholders´ Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 358,045 | $ | 239,441 | ||||
| Accrued expenses | 278,477 | 805,976 | ||||||
| Accrued registration rights penalties | - | 518,243 | ||||||
| Common stock payable | 276,678 | 291,116 | ||||||
| Note payable | - | 50,000 | ||||||
| Convertible note payable | - | 45,000 | ||||||
| Current portion of long-term notes payable to BBL | 1,020,000 | - | ||||||
| Current portion of derivative liabilities | 4,040 | 142,017 | ||||||
| Total current liabilities | 1,937,240 | 2,091,793 | ||||||
| Long-term notes payable to BBL | 200,000 | 240,000 | ||||||
| Derivative liabilities | - | 1,706,990 | ||||||
| Total non-current liabilities | 200,000 | 1,946,990 | ||||||
| Total liabilities | 2,137,240 | 4,038,783 | ||||||
| Commitments and contingencies | ||||||||
| Common stock subject to rescission, 65,000 shares issued and outstanding | 3,041 | 3,041 | ||||||
| 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; 477,119,526 and 435,006,181 shares issued and outstanding, respectively | 477,120 | 435,006 | ||||||
| Additional paid-in capital | 71,808,625 | 70,610,958 | ||||||
| Accumulated deficit | (66,033,878 | ) | (66,446,753 | ) | ||||
| Total stockholders' equity | 6,251,867 | 4,599,211 | ||||||
| Total liabilities and stockholders´ equity | $ | 8,392,148 | $ | 8,641,035 | ||||
See accompanying notes to the consolidated financial statements.
| F-3 |
Consolidated Statements of Operations
| Year Ended | Year Ended | |||||||
| June 30, 2015 | June 30, 2014 | |||||||
| Operating expenses: | ||||||||
| Exploration expenses | - | (47,240 | ) | |||||
| Mineral rights impairment expense | - | (6,485,438 | ) | |||||
| Gain on sale of mineral rights | - | 120,000 | ||||||
| Loss from Minera Li equity investment | (236,050 | ) | (106,589 | ) | ||||
| Debt modification expense | - | (300,000 | ) | |||||
| Gain on settlements, net | - | 1,536,822 | ||||||
| General and administrative expenses | (1,390,428 | ) | (2,012,850 | ) | ||||
| Total operating expenses | (1,626,478 | ) | (7,295,295 | ) | ||||
| Other income (expense): | ||||||||
| Loss on sale of controlling interest in Minera Li | - | (43,315 | ) | |||||
| Gain on debt extinguishment | 333,769 | 85,864 | ||||||
| Change in fair value of derivative liability instruments | 1,844,967 | 1,944,388 | ||||||
| Gain on foreign currency transactions | 1,532 | 51,364 | ||||||
| Interest expense, net | (140,915 | ) | (1,172,571 | ) | ||||
| Total other income | 2,039,353 | 865,730 | ||||||
| Net income (loss) | 412,875 | (6,429,565 | ) | |||||
| Net loss attributable to non-controlling interests | - | 2,596,551 | ||||||
| Net income (loss) attributable to Li3 Energy, Inc. | $ | 412,875 | $ | (3,833,014 | ) | |||
| Net income (loss) per common share - basic | $ | 0.00 | $ | (0.01 | ) | |||
| Net income (loss) per common share - diluted | $ | 0.00 | $ | (0.01 | ) | |||
| Weighted average number of common shares outstanding - basic | 447,583,953 | 414,294,512 | ||||||
| Weighted average number of common shares outstanding - diluted | 448,383,953 | 414,294,512 | ||||||
See accompanying notes to the consolidated financial statements.
| F-4 |
Consolidated Statements of Changes in Stockholders´ Equity
Years Ended June 30, 2015 and 2014
| Deficit | ||||||||||||||||||||||||
| Accumulated | ||||||||||||||||||||||||
| Additional | During the | Non- | Total | |||||||||||||||||||||
| Common Stock | Paid-in | Exploration | Controlling | Stockholders | ||||||||||||||||||||
| Shares | Par Value | Capital | Stage | Interest | Equity | |||||||||||||||||||
| Balance, June 30, 2013 | 395,497,453 | $ | 395,497 | $ | 69,327,269 | $ | (62,613,739 | ) | $ | 4,322,154 | $ | 11,431,181 | ||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||
| Amortization of stock-based compensation | - | - | 38,207 | - | - | 38,207 | ||||||||||||||||||
| Stock issued pursuant to vesting of restricted stock units | 316,666 | 317 | (317 | ) | - | - | - | |||||||||||||||||
| Beneficial conversion feature of convertible debt | - | - | 700,000 | - | - | 700,000 | ||||||||||||||||||
| Stock issued to settle liabilities: | ||||||||||||||||||||||||
| Stock issued to directors and employees for services | 13,054,919 | 13,055 | 245,276 | - | - | 258,331 | ||||||||||||||||||
| Stock issued to third parties for services | 3,620,802 | 3,621 | 76,724 | - | - | 80,345 | ||||||||||||||||||
| Stock issued on conversion of debt | 22,516,341 | 22,516 | 223,799 | - | - | 246,315 | ||||||||||||||||||
| Deconsolidation of Maricunga on sale of controlling interest | - | - | - | - | (1,725,603 | ) | (1,725,603 | ) | ||||||||||||||||
| Net loss | (3,833,014 | ) | (2,596,551 | ) | (6,429,565 | ) | ||||||||||||||||||
| Balance, June 30, 2014 | 435,006,181 | $ | 435,006 | $ | 70,610,958 | $ | (66,446,753 | ) | $ | - | $ | 4,599,211 | ||||||||||||
| Stock-based compensation: | ||||||||||||||||||||||||
| Amortization of stock-based compensation | - | - | 7,843 | - | - | 7,843 | ||||||||||||||||||
| Stock issued to settle liabilities: | ||||||||||||||||||||||||
| Stock issued to directors and employees for services | 27,143,285 | 27,144 | 396,356 | - | - | 423,500 | ||||||||||||||||||
| Stock issued in settlement of registration rights penalties | 14,970,060 | 14,970 | 793,468 | - | - | 808,438 | ||||||||||||||||||
| Net income | - | - | - | 412,875 | - | 412,875 | ||||||||||||||||||
| Balance, June 30, 2015 | 477,119,526 | $ | 477,120 | $ | 71,808,625 | $ | (66,033,878 | ) | $ | - | $ | 6,251,867 | ||||||||||||
See accompanying notes to the consolidated financial statements.
| F-5 |
Consolidated Statements of Cash Flows
| Year Ended | Year Ended | |||||||
| June 30, 2015 | June 30, 2014 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | 412,875 | $ | (6,429,565 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | 322 | 13,577 | ||||||
| Loss on write off of fixed assets | - | 4,786 | ||||||
| Mineral rights impairment expense | - | 6,485,438 | ||||||
| Gain on sale of mineral rights | - | (120,000 | ) | |||||
| Loss from Minera Li equity investment | 236,050 | 106,589 | ||||||
| Loss on sale of controlling interest in Minera Li | - | 43,315 | ||||||
| Gain on sale of Noto Energy | (4,245 |
) | - | |||||
| Gain on settlements, net | - | (1,536,822 | ) | |||||
| Stock-based compensation | 232,843 | 78,425 | ||||||
| Gain on debt extinguishment | (333,769 | ) | (85,864 | ) | ||||
| Change in fair value of derivative liabilities | (1,844,967 | ) | (1,944,388 | ) | ||||
| Zero coupon interest accretion and amortization of debt discount on convertible notes | - | 892,548 | ||||||
| Amortization of deferred financing costs | - | 30,592 | ||||||
| Gain on foreign currency transactions | (1,532 | ) | (51,364 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| (Increase) decrease in prepaid expenses and advances | (12,090 | ) | 27,957 | |||||
| Accretion of interest income on BBL receivable | (3,779 | ) | (1,574 | ) | ||||
| Increase in accounts payable | 120,280 | 62,315 | ||||||
| Increase in accrued expenses | 185,739 | 523,601 | ||||||
| Net cash used in operating activities | (1,012,273 | ) | (1,900,434 | ) | ||||
| Cash flows from investing activities | ||||||||
| Proceeds from sale of controlling interest in Minera Li | - | 1,500,000 | ||||||
| Deconsolidation of investments | - | (72 | ) | |||||
| Proceeds from sale of mining properties | - | 60,000 | ||||||
| Amounts recovered from minority shareholders | - | 1,555,000 | ||||||
| Net cash provided by investing activities | - | 3,114,928 | ||||||
| Cash flows from financing activities | ||||||||
| Payments on zero coupon convertible debt | - | (1,930,000 | ) | |||||
| Proceeds from notes payable | - | 1,088,605 | ||||||
| Proceeds from notes payable – BBL | 980,000 | 240,000 | ||||||
| Payments on notes payable | - | (587,276 | ) | |||||
| Net cash provided by (used in) financing activities | 980,000 | (1,188,671 | ) | |||||
| Net (decrease) increase in cash | (32,273 | ) | 25,823 | |||||
| Cash at beginning of the year | 38,490 | 12,667 | ||||||
| Cash at end of the year | $ | 6,217 | $ | 38,490 | ||||
| Supplemental disclosure of cash flow information: | ||||||||
| Cash paid for: | ||||||||
| Income taxes | $ | - | $ | - | ||||
| Interest | $ | 2,652 | $ | 127,523 | ||||
| Non-cash financing transactions: | ||||||||
| Debt discount due to beneficial conversion feature | $ | - | $ | 700,000 | ||||
| Debt discount due to warrant derivative liabilities issued with convertible debt | $ | - | $ | 106,000 | ||||
| Settlement of accrued liabilities through issuance of stock | $ | 238,499 | $ | 338,676 | ||||
| Issuance of common stock on conversion of debt | $ | - | $ | 246,315 | ||||
| Issuance of common stock to shareholders due to registration rights penalty settlement | $ | 808,438 | $ | - | ||||
See accompanying notes to the consolidated financial statements.
| F-6 |
Notes to Consolidated Financial Statements
For the Years Ended June 30, 2015 and 2014
NOTE 1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Li3 Energy, Inc. (“Li3 Energy” or the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2005. In 2009, the Company established its business focus and strategy toward identifying and pursuing business opportunities in lithium and industrial minerals mining in the Americas.
Part of our strategic plan is to ensure that Minera Li (of which the Company owns a non-controlling interest) explores and develops the existing Maricunga Project in Chile while simultaneously identifying other synergistic opportunities with new projects with production potential that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium, potassium, nitrates and other industrial minerals properties.
The Company’s three wholly owned subsidiaries include: Li3 Energy Peru SRL (“Li3 Peru”), a subsidiary formed in Peru to explore mining opportunities in Peru and in South America; Alfredo Holdings, Ltd. (“Alfredo”), an exempted limited company incorporated under the laws of the Cayman Islands; and Li3 Energy Copiapó, SA (“Li3 Copiapó”), a Chilean corporation, which is a subsidiary of Alfredo.
On October 22, 2014, the Company sold 60% of its shares in Noto Energy SA (“Noto”, an Argentinean corporation and a previously 100% owned subsidiary) to its CEO for proceeds of $4,245.
On January 27, 2014, the Company entered into a transaction with a third party, BBL SpA (“BBL”), subsequent to which BBL 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.
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. 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 June 30, 2015 and 2014. The Company has not experienced any losses on its deposits of cash and cash equivalents.
c. Mineral Exploration and Development Costs
All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs incurred to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If the Company does not continue with exploration after the completion of the feasibility study, the cost of mineral rights will be expensed at that time. Costs of abandoned projects are charged to mining costs, including related property and equipment costs. To determine if capitalized costs are in excess of their recoverable amount, periodic evaluation of the carrying value of capitalized costs and any related property and equipment costs are performed based upon expected future cash flows and/or estimated salvage value. During the years ended June 30, 2015 and 2014, the Company recorded mineral rights impairment charges of $-0- and $6,485,438, respectively.
| F-7 |
d. Impairment of Long-lived Assets
Long-lived assets, including mineral rights, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. We account for asset impairment in accordance with FASB ASC 360, Property Plant and Equipment. Long-lived assets such as property, plant and equipment, mineral properties and purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is considered to exist if the total estimated future cash flow on an undiscounted basis is less than the carrying amount of the related assets. An impairment loss is measured and recorded based on the estimated fair value of the long-lived asset.
e. 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.
f. Property and Equipment
Property and equipment are stated at cost. Equipment and fixtures are being depreciated using the straight-line method over the estimated useful lives ranging from 3 to 10 years.
g. 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 June 30, 2015, or 2014, and did not recognize any interest in its consolidated statements of operations during the years ended June 30, 2015or 2014. At June 30, 2015 and 2014, the Company has recorded $-0- and $160,000, respectively, of accrued penalties related to income tax matters. During the year ended June 30, 2014, the Company recorded penalties expense of $40,000 in its consolidated statements of operations and comprehensive loss. During the year ended June 30, 2015, the Company reversed the balance of accrued penalties related to income tax matters of $160,000 and this reversal is recorded in general and administrative expenses in the consolidated statement of operations.
h. Share-based Payments
The Company utilizes the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in these inputs and assumptions can materially affect the measure of estimated fair value of share-based compensation. These assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value, some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a matter of judgment, based on relevant facts and circumstances.
The Company estimates volatility by considering the historical stock volatility. The Company has opted to use the simplified method for estimating expected term, which is generally equal to the midpoint between the vesting period and the contractual term.
| F-8 |
i. Fair Value Measurements
As defined in FASB ASC Topic No. 820 - 10, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820 - 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements. The statement requires fair value measurements be classified and disclosed in one of the following categories:
Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.
Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.
As required by FASB ASC Topic No. 820 - 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The fair value of the Company’s derivative liabilities are estimated using a modified lattice valuation model.
j. 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 years ended June 30, 2015 and 2014, 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:
| Year Ended | ||||||||
| June 30, 2015 | June 30, 2014 | |||||||
| Stock options | 1,250,000 | 1,450,000 | ||||||
| Restricted stock units | - | 983,333 | ||||||
| Stock warrants | 89,125,976 | 155,635,919 | ||||||
| Convertible debt | - | 1,548,205 | ||||||
| 90,375,976 | 159,617,457 | |||||||
k. 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).
l. 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.
m. Non-controlling Interests
The Company is required to report its non-controlling interests as a separate component of equity. The Company is also required to present the consolidated net income and the portion of the consolidated net income allocable to the non-controlling interests and to the stockholders of the Company separately in its consolidated statements of operations. Losses applicable to the non-controlling interests are allocated to the non-controlling interests even when those losses are in excess of the non-controlling interests’ investment basis. During the years ended June 30, 2015 and 2014, the Company recorded a net loss allocable to non-controlling interests of $-0- and $2,596,551, respectively. The non-controlling interests related to the 40% of the Maricunga Companies that were not owned by Minera Li. As a result of the BBL Transaction (see Note 4) during January 2014, BBL became the majority shareholder of Minera Li, with the Company retaining a 49% interest. The Company determined that it ceased to have voting and management control of Minera Li and therefore accounted for the sale of the 51% of Minera Li by deconsolidating the subsidiary from its consolidated financial statements in accordance with ASC 810 - Consolidation. The Company´s remaining 49% interest in Minera Li has been treated as an equity investment in accordance with ASC 323 - Investments - Equity Method and Joint Ventures.
n. 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.
o. Subsequent Events
The Company evaluated material events occurring between the end of our fiscal year, June 30, 2015, and through the date when the consolidated financial statements were available to be issued for disclosure consideration.
NOTE 3. GOING CONCERN AND BBL TRANSACTION
As of June 30, 2015, the Company had no source of current revenue, a cash balance on hand of $6,217 and negative working capital of $881,467.
Pursuant to the terms of the BBL Transaction and the Shareholders Agreement with BBL, the Company has access to the following sources of funding:
| · | Li3 Energy will receive $1,000,000 upon the earlier of completion of certain Maricunga Project milestones or January 27, 2016. |
| F-9 |
| · | BBL has provided the Company with a credit facility of $1,800,000 for working capital (the “BBL Credit Facility”). The BBL Credit Facility allows the Company to draw $100,000 during May 2014, and $200,000 per month thereafter, until the maximum $1,800,000 (the “Maximum Amount”) is reached. The loans are secured by the Company’s ownership interest in Minera Li. Repayment of each drawdown will be 18 months from the drawdown date, at 8.5% interest per annum. As of the date of this filing, the Company has received $1,220,000 under the BBL Credit Facility. |
| · | BBL will finance Li3 Energy´s share of exploration expenses on the Maricunga Project to the stage of full permitting including environmental, social, and construction, and all studies related to the Maricunga Project to internationally recognized standards. The loans will be due 24 months from receipt and interest will be charged at 12% per annum. Specific limits for these loans have not been established and will be negotiated in good faith between the Company and BBL. |
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 June 30, 2015 and 2014 relates to its 49% investment in Minera Li. The investment in Minera Li was consolidated prior to January 27, 2014. The activity of the investment for the period from July 1, 2013 to June 30, 2015 is as follows:
| Balance, July 1, 2013 | $ | - | ||
| Add: Fair value of investment in Minera Li recognized on January 27, 2014 | 7,679,014 | |||
| Less: Equity in loss of Minera Li | (106,589 | ) | ||
| Balance, June 30, 2014 | 7,572,425 | |||
| Less: Equity in loss of Minera Li | (236,050 | ) | ||
| Balance, June 30, 2015 | $ | 7,336,375 |
Minera Li was previously a wholly owned subsidiary of the Company. On January 27, 2014, the Company entered into the BBL Transaction, pursuant to which BBL acquired 11 of our 60 shares of Minera Li (the “Share Purchase”) for a cash payment of $1,500,000. In connection with the Share Purchase, Minera Li held a shareholders’ meeting, pursuant to which Minera Li issued 40 additional shares (the “Additional Shares”) to BBL (the “Issuance” and together with the “Share Purchase”, the “BBL Transaction”) for $5,500,000. As a result of the BBL Transaction, BBL became the majority shareholder of Minera Li holding 51% ownership, with the Company retaining a 49% interest.
Concurrent with the execution of the agreement, the Company and BBL also entered into a Shareholders Agreement regarding their joint ownership interest of Minera Li (the “Shareholders Agreement”). Under the Shareholders Agreement, BBL will pay $1,000,000 (the “Additional Payment”) to the Company upon the earlier of its completion of certain milestones relating to the permitting and development of the Maricunga Project and, in any event, no later than January 27, 2016. The Company recorded the present value of the Additional Payment receivable of $992,443 as receivable on sale of controlling interest in Minera Li in the consolidated balance sheets and will amortize interest income of $7,557 over the life of the receivable. The balance of the receivable from BBL for sale of controlling interest in Minera Li recorded in the consolidated balance sheets at June 30, 2015 and 2014 was $997,796 and $994,017, respectively. For the years ended June 30, 2015 and 2014, $3,779 and $1,574, respectively, of interest income was recognized in our consolidated statement of operations relating to this.
| F-10 |
Accounting for the BBL Transaction
The Company determined that immediately following the BBL Transaction, it ceased to have voting and management control of Minera Li and therefore accounted for the sale of the 51% of Minera Li by deconsolidating the subsidiary from its consolidated financial statements in accordance with ASC 810 - Consolidation.
The Company´s remaining 49% interest in Minera Li was recorded as an equity investment in accordance with ASC 323 - Investments - Equity Method and Joint Ventures. The Company calculated that the fair value of the Company´s remaining investment in Minera Li immediately following the BBL Transaction was $7,679,014 and a loss on sale of investments of $43,315 relating to the deconsolidation was recorded in the consolidated statement of operations for the year ended June 30, 2014 as follows:
| Consideration received | ||||
| Cash proceeds received for sale of shares in Minera Li | $ | 1,500,000 | ||
| Fair value of $1,000,000 Additional Payment receivable for sale of shares in Minera Li | 992,443 | |||
| 2,492,443 | ||||
| Add: | ||||
| Fair value of retained equity method investment (49% investment in Minera Li) | 7,679,014 | |||
| Carrying amount of non-controlling interest in Minera Li | 1,725,603 | |||
| 11,897,060 | ||||
| Less: | ||||
| Carrying amount of net assets of Minera Li at January 27, 2014 | (11,940,375 | ) | ||
| Loss on sale of controlling interest in Minera Li | $ | (43,315 | ) |
The fair value of the remaining 49% investment in Minera Li retained by the Company of $7,679,014 was calculated with reference to the BBL Transaction, whereby BBL paid $7,992,443 to acquire 51% of Minera Li (comprised of a $1,500,000 cash payment to Li3, $992,443 Additional Payment due to Li3 at fair value and $5,500,000 of cash contributed as equity to Minera Li).
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
| June 30, 2015 | June 30, 2014 | |||||||
| Current assets | $ | 122,106 | $ | 174,613 | ||||
| Non-current assets | 17,062,020 | 17,062,724 | ||||||
| Total assets | $ | 17,184,126 | $ | 17,237,337 | ||||
| Current liabilities | $ | 486,329 | $ | 57,806 | ||||
| Equity | 16,697,797 | 17,179,531 | ||||||
| Total liabilities and equity | $ | 17,184,126 | $ | 17,237,337 | ||||
| F-11 |
Summarized Statements of Operations
| Year ended | January 27, 2014 | |||||||
| June 30, 2015 | – June 30, 2014 | |||||||
| Revenue | $ | - | $ | - | ||||
| Operating expenses: | ||||||||
| Exploration expenses | (22,302 | ) | (6,643 | ) | ||||
| General & administrative expenses | (459,432 | ) | (210,887 | ) | ||||
| Total operating expenses | (481,734 | ) | (217,530 | ) | ||||
| Net loss | $ | (481,734 | ) | $ | (217,530 | ) | ||
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
| June 30, 2015 | June 30, 2014 | |||||||
| Leasehold improvement and office equipment | $ | 1,941 | $ | 1,941 | ||||
| Field equipment | - | - | ||||||
| Less: Accumulated depreciation | (1,941 | ) | (1,619 | ) | ||||
| $ | - | $ | 322 | |||||
Depreciation expense for the years ended June 30, 2015 and 2014 was $322 and $13,577, respectively.
NOTE 6. RELATED PARTY TRANSACTIONS
BBL
Following the BBL Transaction on January 27, 2014, BBL owns 51% of Minera Li with Li3 retaining a 49% ownership interest. BBL is a private Chilean Corporation with an objective to advance a business in the production of lithium. BBL is controlled by a Chilean entrepreneur. The BBL Transaction is described in Note 4.
The Company has entered into the following loan agreements with BBL:
| Agreement Date | June 30,2015 | June 30, 2014 | ||||||
| May 27, 2014 | $ | 100,000 | $ | 100,000 | ||||
| June 11, 2014 | 140,000 | 140,000 | ||||||
| July 23, 2014 | 200,000 | - | ||||||
| August 27, 2014 | 200,000 | - | ||||||
| October 21, 2014 | 200,000 | - | ||||||
| November 25, 2014 | 180,000 | - | ||||||
| February 3, 2015 | 200,000 | - | ||||||
| Total | 1,220,000 | 240,000 | ||||||
| Current portion of notes payable to BBL | (1,020,000 | ) | - | |||||
| Notes payable to BBL | $ | 200,000 | $ | 240,000 | ||||
The total interest accrued on the loans from BBL as of June 30, 2015 and 2014 was $79,355 and $1,048, respectively. For the years ended June 30, 2015 and 2014, $78,307 and $1,048, respectively, of interest expense was recognized in our consolidated statement of operations.
The loans from BBL bear an interest rate of 8.5% per annum and are repayable within 18 months from the date of receipt. At June 30, 2015, 13 of our 49 shares in Minera Li are guaranteed as security for the loans with BBL. The Company has made several requests to BBL for the remaining $580,000 payable under the BBL Credit Facility, however to date these requests have not been honored and the Company continues to negotiate with BBL regarding this matter.
| F-12 |
NOTE 7. NOTE PAYABLE
On June 5, 2008, the Company issued an unsecured promissory note to Milestone Enhanced Fund Ltd. (“Milestone”), bearing an interest rate of 8.25% per annum, in the amount of $50,000, due June 5, 2009. The Company did not pay amounts due under the note by the maturity date and was subsequently in default under the note. During the year ended June 30, 2015, the Company recorded a debt extinguishment of $77,290 relating to the extinguishment of the related note payable and interest obligations with Milestone pursuant to this unsecured promissory note.
NOTE 8. CONVERTIBLE NOTES PAYABLE
On April 30, 2009, the Company issued an unsecured Convertible Promissory Note to Milestone, bearing an interest rate of 8.25% per annum, in the amount of $45,000, due November 8, 2010. The Company did not pay amounts due under the note by the maturity date and was subsequently in default under the note. During the year ended June 30, 2015, the Company recorded a debt extinguishment of $66,879 relating to the extinguishment of the related convertible note payable and interest obligations with Milestone.
NOTE 9. DERIVATIVE LIABILITIES
Warrants
The Company has determined that certain warrants that the Company has issued contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the warrants exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40.
Activity for derivative warrant instruments during the years ended June 30, 2014 and 2015 was as follows:
| Decrease in | Decrease in | |||||||||||||||
| Balance at | fair value of | Balance at | fair value of | Balance at | ||||||||||||
| June 30, | derivative | June 30, | derivative | June 30, | ||||||||||||
| 2013 | liabilities | 2014 | liabilities | 2015 | ||||||||||||
| 2009 Unit Offering warrants | $ 314,835 | $ (313,336 | ) | $ | 1,499 | $ | (1,499 | ) | $ | - | ||||||
| First 2010 Unit Offering warrants | 361,632 | (56,149 | ) | 305,483 | (305,483 | ) | - | |||||||||
| Second 2010 Unit Offering warrants | 54,411 | (8,187 | ) | 46,224 | (46,224 | ) | - | |||||||||
| Third 2010 Unit Offering warrants | 129,379 | (20,694 | ) | 108,685 | (108,685 | ) | - | |||||||||
| Incentive warrants | 148,289 | (38,262 | ) | 110,027 | (110,027 | ) | - | |||||||||
| 2011 Unit Offering warrants | 190,100 | (190,100 | ) | - | - | - | ||||||||||
| Lender warrants | 52,929 | (11,557 | ) | 41,372 | (37,573 | ) | 3,799 | |||||||||
| Warrants for advisory services and arranger warrants | 10,933 | (8,822 | ) | 2,111 | (1,870 | ) | 241 | |||||||||
| POSCAN warrants | 2,530,887 | (1,297,281 | ) | 1,233,606 | (1,233,606 | ) | - | |||||||||
| $ 3,793,395 | $ (1,944,388 | ) | $ | 1,849,007 | $ | (1,844,967 | ) | $ | 4,040 | |||||||
| F-13 |
The following is a summary of the assumptions used in the modified lattice valuation model as of June 30, 2015 and 2014, respectively:
| Valuation as of | Valuation as of | |||||||
| June 30, | June 30, | |||||||
| 2015 | 2014 | |||||||
| Common stock issuable upon exercise of warrants | 89,125,976 | 155,635,919 | ||||||
| Market value of common stock on measurement date (1) | $ | 0.011 | $ | 0.0185 | ||||
| Adjusted exercise price | $ | 0.04-$0.25 | $ | 0.04-$0.29 | ||||
| Risk free interest rate (2) | 0.11%-0.28 | % | 0.07%-0.67 | % | ||||
| Warrant lives in years | 0.0 – 2.1 | 0.0 – 1.8 | ||||||
| Expected volatility (3) | 131%-175 | % | 199%-307 | % | ||||
| Expected dividend yields (4) | None | None | ||||||
| Assumed stock offerings per year over next five years (5) | 1 | 1 | ||||||
| Probability of stock offering in any year over five years (6) | 100 | % | 100 | % | ||||
| Range of percentage of existing shares offered (7) | 21 | % | 15% - 20 | % | ||||
| Offering price (8) | $ | 0.02 | $ | 0.03 - $0.05 | ||||
| (1) | The market value of common stock is the stock price at the close of trading at year-end, as applicable. |
| (2) | The risk-free interest rate was determined by management using the 0.5 or 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 per year over the next five years. |
| (6) | Management has determined that the probability of a stock offering is 100% during the next year. |
| (7) | Management estimates that the percentage of existing shares offered in a stock offering will be between 21% of the shares outstanding. |
| (8) | Represents the estimated offering price in future offerings as determined by management. |
NOTE 10. STOCKHOLDERS’ EQUITY
There were no sales of the Company’s common stock during the years ended June 30, 2015 and 2014.
Common Stock Issued for Services
Common stock issued for services during the year ended June 30, 2015
The Company issued the following shares of common stock to its Chief Executive Officer (“CEO”) in lieu of cash salary during the year ended June 30, 2015:
| Date of issuance | Number of shares | Fair Value | Company´s stock price on grant date |
|||||||||
| August 5, 2014 | 329,822 | $ | 6,250 | $ | 0.0205 | |||||||
| September 30, 2014 | 286,872 | $ | 6,250 | $ | 0.0248 | |||||||
| November 14, 2014 | 148,157 | $ | 3,125 | $ | 0.105 | |||||||
| February 10, 2015 | 664,887 | $ | 9,375 | $ | 0.0145 | |||||||
| April 15, 2015 | 412,058 | $ | 10,875 | $ | 0.011 | |||||||
| Total | 1,841,796 | $ | 35,875 | |||||||||
The Company issued the following shares of common stock to its Chief Financial Officer (“CFO”) in lieu of cash salary during the year ended June 30, 2015:
| Date of issuance | Number of shares | Fair Value | Company´s stock price on grant date |
|||||||||
| August 5, 2014 | 273,236 | $ | 4,625 | $ | 0.0205 | |||||||
| September 30, 2014 | 206,343 | $ | 4,625 | $ | 0.0248 | |||||||
| November 14, 2014 | 106,567 | $ | 2,313 | $ | 0.105 | |||||||
| February 10, 2015 | 478,243 | $ | 6,938 | $ | 0.0145 | |||||||
| April 15, 2015 | 304,923 | $ | 4,625 | $ | 0.011 | |||||||
| Total | 1,369,312 | $ | 23,126 | |||||||||
| F-14 |
The number of shares issued to the CEO and CFO in lieu of salary during the year ended June 30, 2015, was determined based on the average price of the Company´s common stock 30 days prior to and including the due date for such salary.
On September 30, 2014, the Company issued an aggregate of 2,474,748 shares of our common stock to its non-employee directors as consideration in lieu of $49,000 of directors’ fees accrued during the year ended June 30, 2014. The Company’s stock price on the issuance date was $0.0248 per share. On November 14, 2014, the Company issued 2,058,824 shares of common stock to its non-employee directors as consideration in lieu of $49,000 of directors’ fees. The Company’s stock price on the issuance date was $0.0105 per share. On February 10, 2015, the Company issued 3,576,642 shares of common stock to its non-employee directors as consideration in lieu of $49,000 of directors’ fees. The Company’s stock price on the issuance date was $0.0145 per share. On May 20, 2015, the Company issued an aggregate of 2,560,344 shares of our common stock to its non-employee directors as consideration in lieu of $37,125 of directors’ fees. The Company’s stock price on the issuance date was $0.012 per share.
The number of shares issued to the directors in lieu of directors’ fees during the year ended June 30, 2015, was determined based on the average price of the common stock 30 days prior to and including the due date for such fees.
In consideration of the Saenz Amendment and the Santillana Amendment (both described in Note 13), on April 9, 2015, the Company issued 8,928,571 shares of common stock of the Company to its CEO with a grant date fair value of $125,000, and 4,285,715 shares of common stock of the Company to its CFO with a grant date fair value of $60,000. The Company’s stock price on the issuance date was $0.013 per share.
Common stock issued for services during the year ended June 30, 2014
On September 12, 2013, the Company agreed to issue 2,206,870 restricted shares of common stock to a third party in settlement of $50,000 of legal services accrued during the year ended June 30, 2013. The closing price of the common stock on the measurement date was $0.03 per share, and a loss on settlement of $16,206 was recorded by the Company during the year ended June 30, 2014. The shares were issued on October 31, 2013.
On September 30, 2013, the Company agreed to issue restricted shares of common stock to certain Directors of the Company in settlement of accrued directors’ fees. On October 31, 2013, the Company issued 4,688,291 restricted shares of common stock in settlement of $106,000 of directors fees, of which $55,000 were accrued during the year ended June 30, 2013. The closing price of the common stock on the measurement date was $0.023 per share, and a loss on settlement of $1,831 was recorded during the year ended June 30, 2014.
On December 26, 2013, the Company issued 2,792,553 restricted shares of common stock to its Chief Executive Officer in settlement of $52,500 in accrued salary. The closing price of the common stock on the measurement date was $0.01 per share.
On January 30, 2014, the Company agreed to issue 3,629,630 restricted shares of common stock to certain Directors of the Company in settlement of $49,000 in accrued directors’ fees. The closing price of the common stock on the measurement date was $0.01 per share. The shares were issued on February 25, 2014.
Also on January 30, 2014, the Company agreed to issue 1,413,932 restricted shares of common stock to a certain third party in settlement of $13,998 in travel expenses. The closing price of the common stock on the measurement date was $0.01 per share, and a loss on settlement of $141 was recorded during the year ended June 30, 2014. The shares were issued on February 25, 2014.
On April 29, 2014, the Company issued 1,944,445 restricted shares of common stock to certain Directors of the Company in settlement of $49,000 in accrued directors’ fees. The closing price of the common stock on the measurement date was $0.02 per share.
Stock Issued in Settlement of Registration Rights Penalties
On March 22, 2011, the Board of Directors approved a private placement offering (the “2011 Offering”) to investors of up to $10,000,000 worth of units of securities at an offering price of $0.27 per unit (“G Unit”). Each G Unit consisted of (i) one share of our common stock, par value $0.001 per share, and (ii) a warrant to purchase one-half of a share of common stock, at an exercise price of $0.40 per whole share (“G Warrant”, or “2011 Unit Offering Warrant”).
Pursuant to a registration rights agreement for the 2011 Offering, the Company agreed to file a registration statement with the Securities and Exchange Commission within 75 days after the closing date to register the shares of common stock and the shares of common stock underlying the G Warrants under the Securities Act of 1933, as amended, and to use its best efforts to cause such registration statement to become effective within 150 days after the filing date, all at the Company’s own expense. Pursuant to the registration rights agreement, in the event the Company failed to meet these deadlines, the Company agreed to pay the investors monetary penalties of 2% of their investment per month until such failures were cured. In accordance with the registration rights agreement, the Company recorded $518,243 of monetary penalties plus accrued interest, calculated at 18% per annum for registration rights penalties considered past due.
| F-15 |
Pursuant to the registration rights agreement, any amendment, modification or supplement, and waivers or consents to departures from the provisions of the registration rights agreement were required to be in writing and signed by the Company and the holders of 67% or more of the then outstanding shares issued in the 2011 Offering. On September 23, 2014, the Company´s Board of Directors determined to issue shares of common stock in lieu of cash, in an amount up to $250,000 in aggregate, in order to fully settle the monetary registration rights penalties (the “Registration Damages Settlement”). The Registration Damages Settlement would be memorialized in separate agreements entered into by the Company with purchasers in the 2011 Offering (the “Registration Damages Settlement Agreements”). Under the Registration Damages Settlement Agreements, the number of shares to be issued to purchasers of shares issued in the 2011 Offering (“the 2011 PPO Purchasers”) was to be calculated based on the volume weighted average price of the Company´s common stock for the thirty days prior to, and including, the date upon which the Company obtains written approval for the Registration Damages Settlement from shareholders representing 67% or more of the 2011 PPO Purchasers. On March 11, 2015, the Company received signed Registration Damages Settlement Agreements from shareholders representing 67% of the 2011 PPO Purchasers and calculated that 14,970,060 shares valued at $250,000 were to be issued in settlement of the registration rights penalties. The shares were issued on April 14, 2015 following which the company reversed the accrued registration rights penalty of $518,246 and the associated accrued interest of $290,195 (recorded in accrued expenses) and recognized the difference of $558,438 between the settlement amount of $250,000 and the reversed accruals as additional paid-in capital.
Restricted Stock Units
There were no restricted stock units granted during the years ended June 30, 2015 and 2014. The Company recorded stock-based compensation expense of $2,482 and $18,262 during the years ended June 30, 2015 and 2014, respectively, in relation to restricted stock units previously granted to its CEO and CFO. During the year ended June 30, 2014, the Company issued 233,333 shares of common stock to its CEO in relation to restricted stock units that had vested. During the years ended June 30, 2015 and 2014, the Company issued 83,333 and 83,333, respectively, of shares of common stock to its CFO in relation to restricted stock units that had vested. As of June 30, 2015, all of the shares of common stock have been issued in relation to all of the restricted stock units previously granted by the Company.
The Company committed to grant restricted stock units with respect to an aggregate of 800,000 shares to members of its Board of Directors, with such restricted stock units to vest over a period of three years starting from the later of July 1, 2011 and the initial date of the applicable director’s substantial involvement with the Board’s activities. However, the Company does not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. The Company recorded compensation expense of $5,361 and $16,351 during the years ended June 30, 2015 and 2014, respectively, in relation to the restricted stock units to be granted to its directors.
Stock Option Awards
There were no stock options issued during the years ended June 30, 2015 and 2014. During the years ended June 30, 2015 and 2014, the Company recognized stock-based compensation expense of $-0- and $3,593, respectively, related to stock options.
A summary of stock option activity is presented in the table below:
| Weighted-average | ||||||||||||||||
| Weighted-average | Remaining | Aggregate | ||||||||||||||
| Number of | Exercise | Contractual | Intrinsic | |||||||||||||
| Shares | Price | Term (years) | Value | |||||||||||||
| Outstanding at June 30, 2013 | 1,450,000 | $ | 0.22 | 3.03 | $ | - | ||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired/Forfeited | - | - | - | - | ||||||||||||
| Outstanding at June 30, 2014 | 1,450,000 | $ | 0.22 | 2.03 | $ | - | ||||||||||
| Granted | - | - | - | - | ||||||||||||
| Exercised | - | - | - | - | ||||||||||||
| Expired/Forfeited | (200,000 | ) | - | - | - | |||||||||||
| Outstanding at June 30, 2015 | 1,250,000 | $ | 0.21 | 1.2 | $ | - | ||||||||||
| Exercisable at June 30, 2015 | 1,250,000 | $ | 0.21 | 1.2 | $ | - | ||||||||||
As of June 30, 2015, all of the stock options have vested. On April 22, 2015, 200,000 stock options expired unexercised.
| F-16 |
Warrants
Summary information regarding common stock warrants outstanding is as follows:
| Weighted-average | ||||||||
| Number of | Exercise | |||||||
| Warrants | Price | |||||||
| Outstanding at June 30, 2013 | 163,227,532 | $ | 0.22 | |||||
| Additional shares issuable upon exercise of warrants as a result of adjustments pursuant to anti-dilution provisions | 7,082,043 | n/a | ||||||
| Expired | (14,673,656 | ) | - | |||||
| Outstanding at June 30, 2014 | 155,635,919 | $ | 0.17 | |||||
| Additional shares issuable upon exercise of warrants as a result of adjustments pursuant to anti-dilution provisions | 1,988,605 | n/a | ||||||
| Expired | (68,498,548 | ) | - | |||||
| Outstanding at June 30, 2015 | 89,125,976 | $ | 0.15 | |||||
Warrants outstanding as of June 30, 2015 are as follows:
| Outstanding | Exercisable | |||||||||||||
| Exercise | number | Remaining | number | |||||||||||
| Issuance Date | price | of shares | life | of shares | ||||||||||
| June 9, 2010 - September 13, 2010 | $ | 0.18 | 5,873,377 | 0.1–0.2 years | 5,873,377 | |||||||||
| June 9, 2010 - July 13, 2010 | $ | 0.12 | 285,981 | 0.1–0.2 years | 285,981 | |||||||||
| November 8-15, 2010 | $ | 0.04 | 1,869,763 | 0.4 years | 1,869,763 | |||||||||
| December 9, 2010 - March 24, 2011 | $ | 0.10 | 6,884,765 | 0.4 - 0.6 years | 6,884,765 | |||||||||
| March 24, 2011 | $ | 0.25 | 7,756,201 | 0.7 years | 7,756,201 | |||||||||
| May 2, 2011 | $ | 0.24 | 1,500,000 | 0.8 years | 1,500,000 | |||||||||
| May 2, 2011 | $ | 0.20 | 75,000 | 0.8 years | 75,000 | |||||||||
| August 17, 2012 | $ | 0.14 | 62,499,939 | 0.1 years | 62,499,939 | |||||||||
| August 17, 2012 | $ | 0.21 | 2,380,950 | 2.1 years | 2,380,950 | |||||||||
| 89,125,976 | 89,125,976 | |||||||||||||
The warrants outstanding at June 30, 2015 had no intrinsic value.
| F-17 |
NOTE 11. FAIR VALUE MEASUREMENTS
The following table sets forth, by level within the fair value hierarchy, the Company’s derivative liabilities that were accounted for at fair value on a recurring basis:
| Quoted Prices | ||||||||||||||||
| In Active | Significant | Total | ||||||||||||||
| Markets for | Other | Significant | Carrying | |||||||||||||
| Identical | Observable | Unobservable | Value as of | |||||||||||||
| Assets | Inputs | Inputs | June 30, | |||||||||||||
| Description | (Level 1) | (Level 2) | (Level 3) | 2014 | ||||||||||||
| As of June 30, 2015 | $ | - | $ | - | $ | 4,040 | $ | 4,040 | ||||||||
| As of June 30, 2014 | $ | - | $ | - | $ | 1,849,007 | $ | 1,849,007 | ||||||||
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) | ||||||||
| Years Ended June 30, | ||||||||
| 2015 | 2014 | |||||||
| Beginning balance | $ | 1,849,007 | $ | 3,989,849 | ||||
| Change in fair value | (1,844,967 | ) | (1,944,388 | ) | ||||
| Additions | - | 106,000 | ||||||
| Fair value of embedded derivative liability reclassified to gain on debt extinguishment upon repayment of debt | - | (302,454 | ) | |||||
| Ending balance | $ | 4,040 | $ | 1,849,007 | ||||
| Change in unrealized gains included in earnings | $ | 1,844,967 | $ | 1,944,388 | ||||
| Realized gains included in gain on debt extinguishment | $ | - | $ | 302,454 | ||||
NOTE 12. INCOME TAXES
The Company files a U.S. federal income tax return. The Company’s foreign subsidiaries file income tax returns in their jurisdictions.
The components of the consolidated taxable net loss are as follows for the years ended June 30, 2015 and 2014:
| 2015 | 2014 | |||||||
| U.S. | $ | (1,530,766 | ) | $ | (2,979,890 | ) | ||
| Foreign | (333,718 | ) | (708,749 | ) | ||||
| Total | $ | (1,864,484 | ) | $ | (3,688,639 | ) | ||
The components of the Company’s deferred tax assets at June 30, 2015 and 2014 are as follows:
| 2015 | 2014 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry-forwards | $ | 7,003,166 | $ | 6,845,588 | ||||
| Stock-based compensation | 166,747 | 166,747 | ||||||
| Impairment of mineral rights | 2,205,049 | 1,775,130 | ||||||
| Loss contingency | - | 173,005 | ||||||
| Equity method loss | 116,497 | 36,240 | ||||||
| Differences in cost base of equity method investment | (621,598 | ) | (621,598 | ) | ||||
| Valuation allowance | (8,869,861 | ) | (8,375,112 | ) | ||||
| Net deferred tax assets | $ | - | $ | - | ||||
The following table provides reconciliation between income taxes computed at the federal statutory rate and our provision for income taxes for the years ended June 30, 2015 and 2014:
| 2015 | 2014 | |||||||
| Federal income taxes at 34% | $ | 183,655 | $ | (2,091,036 | ) | |||
| Change in fair value of derivative liability - warrant instruments | (627,289 | ) | (661,092 | ) | ||||
| Meals and entertainment | 781 | 300 | ||||||
| Restricted stock units | 2,667 | 11,769 | ||||||
| Income tax penalty | (54,400 | ) | 13,600 | |||||
| Foreign currency transaction exchange gain | (163 | ) | (11,662 | ) | ||||
| Change in valuation allowance | 494,749 | 2,738,121 | ||||||
| Provision for income taxes | $ | - | $ | - | ||||
| F-18 |
Unless previously utilized, $16,500,497 of federal tax loss carry-forwards will begin to expire in 2030 and $11,363,842 foreign loss can be carried forward indefinitely. Federal tax laws limit the time during which the net operating loss carry-forwards may be applied against future taxes, and if the Company fails to generate taxable income prior to the expiration dates it may not be able to fully utilize the net operating loss carry-forwards to reduce future income taxes. As the Company has had cumulative losses and there is no assurance of future taxable income, valuation allowances have been recorded to fully offset the deferred tax asset at June 30, 2015 and 2014.
NOTE 13. COMMITMENTS AND CONTINGENCIES
Nevada
Under the BSV Option Agreement, as amended, the Company was required to pay to GeoXplor $100,000 on June 30, 2010, which the Company has not paid. During the year ended June 30, 2011, the Company became obligated to pay approximately $57,000 of claim maintenance fees on the Nevada Claims and approximately $32,600 of Nevada state taxes. The Company had recorded $189,600 of accrued liabilities related to this agreement. During the year ended June 30, 2015, the Company recorded a gain on debt extinguishment of $189,600 relating to the extinguishment of the accrued liabilities pursuant to this agreement.
Employment Services Agreements
The Company entered into an Employment Services Agreement with our CEO, Mr. Saenz, effective as of August 24, 2011. Under the Employment Services Agreement, the base salary of Mr. Saenz was determined by our Board of Directors. The Employment Services Agreement had an initial term of one year and was automatically renewed for successive one-year terms unless either party delivered timely notice of its intention not to renew. Our Board of Directors also had sole discretion to pay Mr. Saenz an annual bonus at such time and in such amount as it so determined. We granted Mr. Saenz 700,000 restricted stock units under our 2009 Equity Incentive Plan, which vested in three equal instalments on each of January 15, 2012, 2013 and 2014.
On April 8, 2015, the Company entered into Amendment No. 1 (the “Saenz Amendment”) to the Employee Services Agreement with its CEO. Pursuant to the Saenz Amendment, the CEO´s term will terminate on December 31, 2015 unless the parties agree in writing to extend the term prior to that date. The CEO was paid a base salary of $10,416 per month for the period April 1, 2015 to June 30, 2015 (reduced from $20,833 per month) will be paid a base salary of $5,208 per month for the period July 1, 2015 to December 31, 2015. The Saenz Amendment also imposes payments and conditions related to certain corporate events. In consideration of the Saenz Amendment, the Company agreed to issue 8,928,571 shares of common stock of the Company valued at $125,000 to the CEO and recorded as stock compensation expense within general and administrative expenses in the consolidated statements of operations.
Mr. Saenz’s employment by us remains “at-will” and terminable at any time for any reason or for no reason. If Mr. Saenz’s employment is terminated by us without cause, we must continue to pay him any base salary at the rate then in effect for a period of 18 months. If we terminate Mr. Saenz’s employment without cause, or in connection with a change of control, or if Mr. Saenz terminates the Employment Services Agreement for good reason, or in the event of a termination of employment due to a permanent disability, we will continue to pay him any base salary at the rate then in effect until the termination date.
For the duration of the employment period and, unless we terminate Mr. Saenz’s employment without cause, for the period until the termination date, Mr. Saenz has agreed not to directly or indirectly compete with any business engaged in by us or proposed to be engaged in by us during the period of his employment anywhere within the countries in which we are then operating.
From June 1, 2014 until March 31, 2015, Mr. Saenz agreed to receive $3,125 of his monthly salary in shares of common stock of the Company in lieu of cash salary. The number of shares of common stock issued was calculated based on the average closing price of the Company´s common stock for the thirty day period prior to, and including, the due date for such salary.
The Company is party to an Employment Services Agreement with Mr. Santillana, dated as of December 1, 2011, amended as of April 10, 2012 (the “Employment Agreement”). Under the Employment Agreement, Mr. Santillana was appointed as our CFO, and we paid Mr. Santillana an annual base salary of $185,000. The Employment Agreement had an initial term of one year and was automatically renewed for successive one-year terms unless either party delivered timely notice of its intention not to renew. Pursuant to the Employment Agreement, we may also pay Mr. Santillana an annual bonus of up to 50% of his base salary, at such time and in such amount as may be determined by our Board of Directors in its sole discretion. We granted Mr. Santillana 250,000 restricted stock units under our 2009 Equity Incentive Plan, which vested in three equal instalments on each of March 1, 2013, 2014 and 2015. We also granted Mr. Santillana an option under our 2009 Equity Incentive Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which vested in its entirety on September 1, 2013.
| F-19 |
On April 8, 2015, the Company entered into Amendment No. 1 (the “Santillana Amendment”) to the Employee Services Agreement with its CFO, dated as of December 1, 2011 (as amended on April 10, 2012). Pursuant to the Santillana Amendment, the CFO´s term will terminate on December 31, 2015 unless the parties agree in writing to extend the term prior to that date. The CFO was paid a base salary of $7,708 per month for the period April 1, 2015 to June 30, 2015 (reduced from $15,417 per month) and a base salary of $3,854 per month for the period July 1, 2015 to December 31, 2015. The Santillana Amendment also imposes payments and conditions related to certain corporate events. In consideration of the Santillana Amendment, the Company agreed to issue 4,285,715 shares of common stock of the Company valued at $60,000 to the CFO and recorded as stock compensation expense within general and administrative expenses in the consolidated statements of operations.
Mr. Santillana’s employment by us is “at-will” and terminable at any time for any reason or for no reason. If Mr. Santillana’s employment is terminated by us without cause or in connection with a change of control (as such terms are defined in the Employment Agreement) or if he terminates his employment for Good Reason (as defined in the Employment Agreement), his options will expire nine months after such termination. If we terminate Mr. Santillana’s employment without cause, or in connection with a change of control, or if Mr. Santillana terminates his employment for good reason, or in the event of a termination of employment due to a permanent disability, we will continue to pay Mr. Santillana his base salary at the rate then in effect for until the termination date.
For the duration of the employment period and, unless we terminate Mr. Santillana’s employment without cause, for the period until the termination date, Mr. Santillana has agreed not to directly or indirectly compete with any business engaged in by us or proposed to be engaged in by us during the period of his employment anywhere within the countries in which we are then operating.
The foregoing is a summary of the principal terms of the Employment Agreement and the Santillana Amendment and is qualified in its entirety by the detailed provisions of the actual agreements, which are filed as exhibits to this Annual Report and are incorporated herein by reference.
From June 1, 2014 until March 31, 2015, Mr. Santillana agreed to receive $2,313 of his monthly salary in shares of common stock of the Company in lieu of cash salary. The number of shares of common stock issued was calculated based on the average closing price of the Company´s common stock for the thirty day period prior to, and including, the due date for such salary.
Operating Leases
Rental expense for office operating leases was $30,804 and $40,958 during the years ended June 30, 2015 and 2014, respectively. The Company has no non-cancellable operating leases that extend beyond fiscal year 2015.
NOTE 14. SUBSEQUENT EVENTS
Issuance of Restricted Stock
On August 19, 2015, the Company issued an aggregate of 2,663,552 shares of our common stock as consideration in lieu of $28,500 of directors fees accrued during the year ended June 30, 2015.
On August 19, 2015, the Company issued 3,508,771 shares of common stock to Mr. Marc Lubow, a former officer of the Company, valued at $40,000 and recorded as common stock payable at June 30, 2015.
Convertible Debt
On, July 31, 2015, the Company issued an unsecured promissory note to Mr. Luis Saenz, the CEO of the Company, bearing an interest rate of 3% per annum, for cash proceeds of $7,500, and due on January 31, 2016. Also on July 31, 2015, the Company issued an unsecured promissory note to Mr. Patrick Cussen, the Chairman of the Board, bearing an interest rate of 3% per annum, for cash proceeds of $7,500, and due on January 31, 2016.
Loan from Directors
On November 4, 2015, certain Directors of the Company made an interest free loan to the Company of $25,000 in aggregate, due for repayment on December 4, 2015.
Expiration of Warrants
On July 13, 2015, 5,488,115 of warrants issued pursuant to the first 2010 unit offering expired unexercised, with the balance of the warrants issued pursuant to the first 2010 unit offering of 671,244 warrants expired unexercised on September 13, 2015. On August 17, 2015, 62,499,938 of the POSCAN warrants issued on August 17, 2012 expired unexercised.
Resignation of Directors
On July 20, 2015, Dr. Uong Chon resigned from the Board of Directors of the Company. On October 27, 2015, Mr. Harvey McKenzie resigned from the Board of Directors of the Company due to personal reasons.
| F-20 |