Attached files
| file | filename |
|---|---|
| EX-31.1 - Li3 Energy, Inc. | v174630_ex31-1.htm |
| EX-31.2 - Li3 Energy, Inc. | v174630_ex31-2.htm |
| EX-32.1 - Li3 Energy, Inc. | v174630_ex32-1.htm |
| EX-32.2 - Li3 Energy, Inc. | v174630_ex32-2.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
|
For the
quarterly period ended December 31, 2009
OR
|
o
|
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 333-127703
LI3
ENERGY, INC.
(Exact
Name of Small Business Issuer as Specified in its Charter)
|
3990
|
20-3061907
|
|||
|
(State
of incorporation)
|
(Primary
SIC Number)
|
(IRS
Employer ID Number)
|
Av. Pardo
y Aliaga 699 Of. 802
San
Isidro, Lima, Peru
+ (51)
1-212-1880
(Address
and telephone number of principal executive offices)
1640
Terrace Way
Walnut
Creek, CA
(925)930-0100
(Former
address of principal executive offices)
Indicate
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No
o
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 o No o
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
One):
|
Large
accelerated filer o
|
Accelerated filer o
|
Non-accelerated
filer o
|
Smaller
reporting company þ
|
|||
|
(Do
not check if a smaller
Reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes x No o
There
were 66,250,095 shares of Common Stock outstanding as of February 11,
2010.
LI3
ENERGY, INC.
TABLE
OF CONTENTS
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Page
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Part
I - Financial Information
|
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Item 1
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Financial
Statements
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|
|
Balance
Sheets (unaudited)
|
1
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||
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Statements
of Operations (unaudited)
|
2
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||
|
Statement
of Changes in Shareholders’ Equity (Deficit) (unaudited)
|
3
|
||
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Statements
of Cash Flows (unaudited)
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4
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||
|
|
|||
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Notes
to the Financial Statements (unaudited)
|
5
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||
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Item 2
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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19
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Item 4T
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Controls
and Procedures
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24
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Part
II - Other Information
|
26
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||
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Item
1
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Legal
Proceedings
|
26
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Item
2
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Unregistered
Sales of Equity Securities and Use of Proceeds
|
27
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Item
3
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Defaults
Upon Senior Securities
|
27
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Item
4
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Submission
of Matters to a Vote of Security Holders
|
27
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Item
5
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Other
Information
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27
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Item 6
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Exhibits
|
27
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Signatures
|
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||
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Exhibits
|
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||
ii
Statement
Regarding Forward-Looking Information
This
report contains forward-looking statements. All statements other than statements
of historical facts included in this Quarterly Report on Form 10-Q, including
without limitation, statements in this Management’s Discussion and Analysis of
Financial Condition and Results of Operations regarding our financial position,
estimated working capital, business strategy, the plans and objectives of our
management for future operations and those statements preceded by, followed by
or that otherwise include the words “believe”, “expects”, “anticipates”,
“intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”,
“should”, or similar expressions or variations on such expressions are
forward-looking statements. We can give no assurances that the assumptions upon
which the forward-looking statements are based will prove to be correct. Because
forward-looking statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by the
forward-looking statements. There are a number of risks, uncertainties and other
important factors that could cause our actual results to differ materially from
the forward-looking statements, including, but not limited to, our ability to identify
appropriate corporate acquisition and/or joint venture opportunities in the
lithium mining sector and to establish the technical and managerial
infrastructure, and to raise the required capital, to take advantage of, and
successfully participate in such opportunities; future economic conditions;
political stability; and lithium prices.
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 Quarterly Report on Form 10-Q 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.
iii
PART
I – FINANCIAL INFORMATION
Item
1. Financial Statements
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Balance
Sheets
(Unaudited)
|
As
of
|
As
of
|
|||||||
|
December
31,
|
June
30,
|
|||||||
|
2009
|
2009
|
|||||||
|
Assets
|
||||||||
|
Current
Assets:
|
||||||||
|
Cash
|
$ | 3,154,386 | $ | 9,703 | ||||
|
Total
current assets
|
3,154,386 | 9,703 | ||||||
|
Property
and equipment, net of accumulated depreciation of $13,299 and $11,350,
respectively
|
5,896 | 7,845 | ||||||
|
Total
assets
|
$ | 3,160,282 | $ | 17,548 | ||||
|
Liabilities
and Stockholders' Equity (Deficit)
|
||||||||
|
Current
Liabilities:
|
||||||||
|
Accounts
payable
|
$ | 55,270 | $ | 3,921 | ||||
|
Accrued
expenses
|
8,725 | 4,837 | ||||||
|
Loans
payable
|
95,000 | 95,000 | ||||||
|
Derivative
liabilities – warrant instruments
|
1,890,668 | - | ||||||
|
Total
current liabilities
|
2,049,663 | 103,758 | ||||||
|
Commitments
and contingencies
|
- | - | ||||||
|
Stockholders'
equity (deficit):
|
||||||||
|
Preferred
stock, $0.001 par value, 10,000,000 shares authorized; 0
shares issued and outstanding as of December 31, 2009 and June 30,
2009
|
- | - | ||||||
|
Common
stock, $0.001 par value, 290,000,000 shares authorized;
66,250,095 and 121,052,721 shares issued and outstanding as of
December 31, 2009 and June 30, 2009, respectively
|
66,250 | 121,052 | ||||||
|
Additional
paid-in capital
|
2,502,976 | (13,552 | ) | |||||
|
Deficit
accumulated during exploration stage
|
(1,458,607 | ) | (193,710 | ) | ||||
|
Total
stockholders' equity (deficit)
|
1,110,619 | (86,210 | ) | |||||
|
Total
liabilities and stockholders' equity (deficit)
|
$ | 3,160,282 | $ | 17,548 | ||||
See notes
to unaudited financial statements.
- 1
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Statements
of Operations
(Unaudited)
|
Three Months
Ended
|
Three
Months
Ended
|
Six Months
Ended
|
Six Months
Ended
|
June 24, 2005
(inception) through |
||||||||||||||||
|
December 31,
|
December 31,
|
December 31,
|
||||||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
2009
|
||||||||||||||||
|
Revenues
|
||||||||||||||||||||
|
Revenues
|
$ | - | $ | - | $ | - | $ | - | $ | 2,278 | ||||||||||
|
Total
revenues
|
- | - | - | - | 2,278 | |||||||||||||||
|
Cost
of goods sold
|
||||||||||||||||||||
|
Purchases
|
- | - | - | - | 1,182 | |||||||||||||||
|
Total
cost of goods sold
|
- | - | - | - | 1,182 | |||||||||||||||
|
Gross
profit
|
- | - | - | - | 1,096 | |||||||||||||||
|
Operating
expenses:
|
||||||||||||||||||||
|
Inventory
write off
|
- | - | - | - | 1,469 | |||||||||||||||
|
General
and administrative expenses
|
702,653 | 9,693 | 717,418 | 25,853 | 905,929 | |||||||||||||||
|
Total
operating expenses:
|
702,653 | 9,693 | 717,418 | 25,853 | 907,398 | |||||||||||||||
|
Other
income (expense):
|
||||||||||||||||||||
|
Unrealized
loss on fair value of derivative instruments
|
(545,340 | ) | - | (545,340 | ) | - | (545,340 | ) | ||||||||||||
|
Interest
income
|
1,748 | 11 | 1,749 | 13 | 1,760 | |||||||||||||||
|
Interest
expense
|
(1,930 | ) | (1,002 | ) | (3,888 | ) | (2,002 | ) | (8,725 | ) | ||||||||||
|
Net
loss
|
$ | (1,248,175 | ) | $ | (10,684 | ) | $ | (1,264,897 | ) | $ | (27,842 | ) | $ | (1,458,607 | ) | |||||
|
Basic
and diluted loss per share
|
$ | (0.02 | ) | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.00 | ) | ||||||||
|
Weighted
average number of common shares outstanding - basic and
diluted
|
71,716,942 | 121,052,721 | 96,384,829 | 121,052,721 | ||||||||||||||||
See notes
to unaudited financial statements.
- 2
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Statement
of Changes in Stockholders’ Equity (Deficit)
From
June 24, 2005 (Inception) through December 31, 2009
(Unaudited)
|
Deficit
|
||||||||||||||||||||
|
Accumulated
|
||||||||||||||||||||
|
Common
|
Additional
|
During
|
||||||||||||||||||
|
Common
|
Stock
|
Paid-In
|
Exploration
|
|||||||||||||||||
|
Stock
|
Amount
|
Capital
|
Stage
|
Total
|
||||||||||||||||
|
Balance
at June 24, 2005 (Inception)
|
- | $ | - | $ | - | $ | - | $ | - | |||||||||||
|
Stock
issued for cash on June 24, 2005 at $0.000105 per
share
|
35,526,336 | 35,526 | (31,776 | ) | - | 3,750 | ||||||||||||||
|
Stock
issued for cash on June 24, 2005 at $0.000105 per
share
|
35,526,336 | 35,526 | (31,776 | ) | - | 3,750 | ||||||||||||||
|
Net
loss
|
- | - | - | - | - | |||||||||||||||
|
Balance,
June 30, 2005
|
71,052,672 | 71,052 | (63,552 | ) | - | 7,500 | ||||||||||||||
|
Stock
issued for cash on March 14, 2006 at $0.001056 per share
|
47,368,454 | 47,368 | 2,632 | - | 50,000 | |||||||||||||||
|
Net
loss
|
- | - | - | (14,068 | ) | (14,068 | ) | |||||||||||||
|
Balance,
June 30, 2006
|
118,421,126 | 118,420 | (60,920 | ) | (14,068 | ) | 43,432 | |||||||||||||
|
Net
loss
|
- | - | - | (16,081 | ) | (16,081 | ) | |||||||||||||
|
Balance,
June 30, 2007
|
118,421,126 | 118,420 | (60,920 | ) | (30,149 | ) | 27,351 | |||||||||||||
|
Stock
issued for cash on February 7, 2008 at $0.019 per share
|
2,631,595 | 2,632 | 47,368 | - | 50,000 | |||||||||||||||
|
Net
loss
|
- | - | - | (95,656 | ) | (95,656 | ) | |||||||||||||
|
Balance,
June 30, 2008
|
121,052,721 | 121,052 | (13,552 | ) | (125,805 | ) | (18,305 | ) | ||||||||||||
|
Net
loss
|
- | - | - | (67,905 | ) | (67,905 | ) | |||||||||||||
|
Balance,
June 30, 2009
|
121,052,721 | 121,052 | (13,552 | ) | (193,710 | ) | (86,210 | ) | ||||||||||||
|
October
19, 2009, cancellation of former officer's shares
|
(71,052,626 | ) | (71,052 | ) | 71,052 | - | - | |||||||||||||
|
October
19, 2009, stock issued to the chief executive officer for
services at $0.0032 per share
|
1,500,000 | 1,500 | 3,300 | - | 4,800 | |||||||||||||||
|
November
10, 2009, common stock sold in private placement offering at $0.25 per
share, less offering costs totaling $42,392
|
6,400,000 | 6,400 | 1,018,222 | - | 1,024,622 | |||||||||||||||
|
November
12, 2009, common stock sold in private placement offering at $0.25 per
share, less offering costs totaling $5,350
|
2,120,000 | 2,120 | 299,447 | - | 301,567 | |||||||||||||||
|
November
17, 2009, common stock sold in private placement offering at $0.25 per
share, less offering costs totaling $31,243
|
1,820,000 | 1,820 | 234,944 | - | 236,764 | |||||||||||||||
|
December
15, 2009, common stock sold in private placement offering at $0.25 per
share, less offering costs totaling $4,859
|
1,900,000 | 1,900 | 260,222 | - | 262,122 | |||||||||||||||
|
December
23, 2009, common stock sold in private placement offering at $0.25 per
share, less offering costs totaling $76,632
|
1,760,000 | 1,760 | 167,361 | - | 169,121 | |||||||||||||||
|
December
2009, common stock issued to a consultant for services at $0.61 per
share
|
750,000 | 750 | 456,750 | - | 457,500 | |||||||||||||||
|
Amortizaton
of stock-based compensation
|
- | - | 5,230 | - | 5,230 | |||||||||||||||
|
Net
loss
|
- | - | - | (1,264,897 | ) | (1,264,897 | ) | |||||||||||||
|
Balance,
December 31, 2009
|
66,250,095 | $ | 66,250 | $ | 2,502,976 | $ | (1,458,607 | ) | $ | 1,110,619 | ||||||||||
See notes
to unaudited financial statements.
- 3
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Statements
of Cash Flow
(Unaudited)
|
June 24, 2005
|
||||||||||||
|
Six Months
|
Six Months
|
(inception)
|
||||||||||
|
Ended
|
Ended
|
through
|
||||||||||
|
December 31,
|
December 31,
|
December 31,
|
||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
Cash
Flows from Operating Activities
|
||||||||||||
|
Net
loss
|
$ | (1,264,897 | ) | $ | (27,842 | ) | $ | (1,458,607 | ) | |||
|
Adjustments
to reconcile net loss to net cash
|
||||||||||||
|
used
in operating activities:
|
||||||||||||
|
Depreciation
|
1,949 | 1,950 | 13,604 | |||||||||
|
Stock-based
compensation
|
467,529 | - | 467,530 | |||||||||
|
Unrealized
loss on fair value of derivative instruments
|
545,340 | - | 545,340 | |||||||||
|
Write
off inventory
|
- | - | 1,469 | |||||||||
|
Changes
in operating assets and liabilities:
|
||||||||||||
|
Increase
in inventory
|
- | - | (1,469 | ) | ||||||||
|
Increase
in (decrease) in accounts payable
|
51,351 | (779 | ) | 55,271 | ||||||||
|
Increase
in accrued expenses
|
3,888 | 2,002 | 8,725 | |||||||||
|
Net
cash used in operating activities
|
(194,840 | ) | (24,669 | ) | (368,137 | ) | ||||||
|
Cash
Flows from Investing Activities
|
||||||||||||
|
Acquisition
of equipment
|
- | - | (9,500 | ) | ||||||||
|
Increase
in leasehold improvement
|
- | - | (10,000 | ) | ||||||||
|
Net
cash used in investing activities
|
- | - | (19,500 | ) | ||||||||
|
Cash
Flows from Financing Activities
|
||||||||||||
|
Increase
in loans payable
|
- | - | 95,000 | |||||||||
|
Proceeds
from issuance of common stock, net of offering costs
|
3,339,523 | - | 3,447,023 | |||||||||
|
Net
cash provided by financing activities
|
3,339,523 | - | 3,542,023 | |||||||||
|
Net
increase (decrease) in cash
|
3,144,683 | (24,669 | ) | 3,154,386 | ||||||||
|
Cash
at beginning of period
|
9,703 | 24,800 | - | |||||||||
|
Cash
at end of period
|
$ | 3,154,386 | $ | 131 | $ | 3,154,386 | ||||||
|
Supplemental
disclosure of cash flow information:
|
||||||||||||
|
Cash
paid during the period for:
|
||||||||||||
|
Income
taxes
|
$ | - | $ | - | $ | - | ||||||
|
Interest
|
$ | - | $ | - | $ | - | ||||||
|
Non-cash
financing transactions:
|
||||||||||||
|
Common
stock cancelled
|
$ | 71,052 | $ | - | $ | - | ||||||
|
Fair
value of derivative instruments in private offering
|
$ | 1,890,668 | $ | - | $ | - | ||||||
See notes
to unaudited financial statements.
- 4
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
NOTE
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Li3
Energy, Inc. (the “Company”) was incorporated under the laws of the State of
Nevada on June 24, 2005. The Company’s principal products have been
soy-blend wax candles. Recently, however, the Company decided to redirect its
business focus and strategy toward identifying and pursuing business
opportunities in the energy sector and related lithium mining in North and
South America. The Company is in the exploration stage in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) Topic No. 915 (formerly Statement of Financial Accounting Standards
(“SFAS”) No.7, “Accounting and
Reporting by Development Stage Enterprises”). Its
activities to date have been limited to capital formation, organization, and
development of its business.
On
October 19, 2009, the Company amended its articles of incorporation with the
Secretary of the State of Nevada, pursuant to which the
Company changed its name from NanoDynamics Holdings, Inc. to Li3
Energy, Inc., to reflect its plans to focus on its business strategy on the
energy sector and related lithium mining opportunities in North and
South America.
Split-off
of Legacy Business
In
connection with the discontinuation of the Company’s previous business and the
redirecting of its business strategy to focus on the energy sector and related
lithium mining opportunities in North and South America, the Company split off
and sold all of the assets and liabilities of the Legacy Business (the
“Split-Off”) to Jon Suk, the Company’s founding stockholder. The Split Off
closed on October 19, 2009. As more fully described in a Form 8-K filed by the
Company with the SEC on December 14, 2009, the Company contributed all of its
assets and liabilities relating to the Legacy Business, whether accrued,
contingent or otherwise, and whether known or unknown, to a newly organized,
wholly owned subsidiary, Mystica Candle, Inc., a Nevada corporation (“Split-Off
Sub”), and immediately thereafter sold all of the outstanding capital stock of
Split-Off Sub to Mr. Suk in exchange for 71,052,626 shares of the Company’s
common stock, $0.001 par value per share that Mr. Suk then owned. The
71,052,626 shares surrendered by Mr. Suk have been cancelled.
NOTE
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The
accompanying unaudited interim financial statements of Li3 Energy, Inc. have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange Commission
(“SEC”), and should be read in conjunction with the audited financial statements
and notes thereto contained in the Company’s latest Annual Report filed with the
SEC on Form 10-K. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of
financial position and the results of operations for the interim periods
presented have been reflected herein. The results of operations
for interim periods are not necessarily indicative of the results to be expected
for the full year. Notes to the financial statements which would
substantially duplicate the disclosure contained in the audited financial
statements for the most recent fiscal year ending June 30, 2009, as
reported in Form 10-K, have been omitted.
- 5
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
a. 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
cash deposits of approximately $2,904,386 in excess of the FDIC’s $250,000
current insured limits at the period end. The Company has not experienced
any losses on its deposits of cash and cash equivalents.
b. Property
and Equipment
Property
and equipment are stated at cost. Equipment and fixtures are being depreciated
using the straight-line method over the estimated asset lives ranging from 3 to
7 years.
c. Mineral
Exploration and Development Costs
The
Company did not incur any mineral exploration or development costs during the
periods presented, however, the Company’s accounting policies for such costs
are:
All
exploration expenditures are expensed as incurred. Significant
property acquisition payments for active exploration properties are
capitalized. If no minable ore body is discovered, previously
capitalized costs are expensed in the period the property is
abandoned. Expenditures to develop new mines, to define further
mineralization in existing ore bodies, and to expand the capacity of
operating mines, are capitalized and amortized on a unit of production basis
over proven and probable reserves.
Should a
property be abandoned, its capitalized costs are charged to
operations. The Company charges to operations the allocable portion
of capitalized costs attributable to properties sold. Capitalized
costs are allocated to properties sold based on the proportion of claims sold to
the claims remaining within the project area.
Costs of
acquiring mineral properties are capitalized by project area upon purchase of
the associated claims. Costs to maintain the mineral rights and
leases are expensed as incurred. When a property reaches the
production stage, the related capitalized costs will be amortized, using the
units of production method on the basis of periodic estimates of ore
reserves.
- 6
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
d. Income
Taxes
Income
taxes are provided in accordance with ASC Topic No. 740 (formerly SFAS No. 109,
“Accounting for Income
Taxes”). A deferred tax asset or liability is recorded for all
temporary differences between financial and tax reporting and net operating loss
carryforwards. 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.
e. Share-based
Payments
The
Company determines the fair value of stock option awards granted to employees in
accordance with FASB ASC Topic No. 718 – 10 (formerly SFAS No. 123(R), “Share-Based Payments”) and to non-employees
in accordance with FASB ASC Topic No. 505 – 50 (formerly EITF 96-18 “Accounting
for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction
with Selling, Goods or Services”).
f. Basic
Loss per Share
The
Company accounts for earnings (loss) per share in accordance with FASB ASC Topic
No. 260 – 10 (formerly SFAS No. 128, “Earnings per Share”), which specifies the
computation, presentation and disclosure requirements for earnings (loss) per
share for entities with publicly held common stock and requires the
presentation of basic earnings (loss) per share and diluted earnings (loss) per
share.
Basic net
loss per share amounts are computed by dividing the net loss by the weighted
average number of common shares outstanding. In periods in which the
Company reports a net loss, dilutive securities are excluded from the
calculation as the effect would be anti-dilutive.
g. 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.
- 7
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
h. Recent
Accounting Pronouncements
In June
2009, the FASB issued SFAS No.
168, “The FASB Accounting Standards
Codification TM and the Hierarchy of Generally Accepted Accounting Principles
– a replacement of FASB Statement No.
162 ” (“SFAS
168”). The FASB Accounting Standards
Codification TM , (“Codification” or “ASC”) became the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On
the effective date of SFAS 168, the Codification superseded all then-existing
non-SEC accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification became
non-authoritative.
Following
SFAS 168, the FASB will no longer issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will
issue Accounting Standards Updates (ASU’s). The FASB will not consider ASU’s as
authoritative in their own right; rather these updates will serve only to update
the Codification, provide background information about the guidance, and provide
the bases for conclusions on the change(s) in the Codification. SFAS
No. 168 is incorporated in ASC Topic 105, Generally Accepted Accounting
Principles. The Company adopted SFAS No. 168 in the third
quarter of 2009, and the Company will provide reference to both the Codification
topic reference and the previously authoritative references related to
Codification topics and subtopics, as appropriate.
Effective
January 1, 2009, the Company adopted FASB ASC Topic No. 815 – 40, Derivatives and Hedging - Contracts
in Entity’s Own Stock (formerly Emerging Issues
Task Force Issue No. 07-5,
Determining Whether an Instrument or Embedded Feature is Indexed to an
Entity’s Own Stock). The adoption of
FASB ASC Topic No. 815 – 40’s requirements can affect the accounting for
warrants and many convertible instruments with provisions that protect holders
from a decline in the stock price (or “down-round” provisions). For example,
warrants with such provisions will no longer be recorded in
equity. Down-round provisions reduce the exercise price of a warrant
or convertible instrument if a company either issues equity shares for a price
that is lower than the exercise price of those instruments or issues new
warrants or convertible instruments that have a lower exercise price. The
Company evaluates whether warrants or convertible instruments contain provisions
that protect holders from declines in the Company’s stock price or otherwise
could result in
modification of the exercise price and/or shares to be issued under the
respective warrant or preferred stock agreements 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.
- 8
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
NOTE
3. GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. The Company currently has no
sources of recurring revenue and has generated net losses of $1,458,607 and
negative cash flows from operations of $368,137 during the period from June 24,
2005 (inception) through December 31, 2009.
This
condition raises 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 meet its obligations, to obtain additional financing as may be
required until such time as it can generate sources of recurring revenues and
ultimately to attain profitability. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
NOTE 4. PROPERTY AND
EQUIPMENT
Property
and equipment consists of the following:
|
December
31,
2009
|
June
30,
2009
|
|||||||
|
Leasehold
improvement and equipment
|
$
|
19,195
|
$
|
19,195
|
||||
|
Total
Fixed Assets
|
19,195
|
19,195
|
||||||
|
Less:
Accumulated Depreciation
|
(13,299
|
)
|
(11,350
|
)
|
||||
|
Net
Fixed Assets
|
$
|
5,896
|
$
|
7,845
|
||||
Depreciation
expenses for the six-month period ending December 31, 2009 and 2008 were $1,949
and $1,950, respectively.
NOTE
5. LOANS PAYABLE
The
Company issued a $50,000 unsecured Promissory Note dated June 5, 2008
(the”Note”) to Milestone Enhanced Fund Ltd. (“Milestone”) in connection with
Milestone’s $50,000 working capital loan to the Company, and the terms and
conditions of such Note allow for prepayment of the principal and accrued
interest any time without penalty. Interest rate is 8% per annum and
maturity date is May, 2010. The total interest accrued at December 31,
2009 is $ 6,314.
The
Company issued an unsecured Convertible Promissory Note dated April 30, 2009,
bearing an interest rate of 8.25% per annum, in aggregate amount of $45,000,
payable on November 8, 2010 (the Maturity Date) to Milestone. The
total interest accrued at December 31, 2009 is $2,411.
- 9
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
NOTE
6. DERIVATIVE LIABILITIES
The
Company determined that warrants to purchase a total of 14,203,000 shares of
common stock issued in the 2009 Unit Offering contained provisions that protect
holders from declines in the Company’s stock price that could result in
modification of the exercise price under the warrant 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. As a result, these warrants were
not indexed to the Company’s own stock. The fair value of these
2009 Unit Offering warrants was recognized as derivative warrant instruments and
will be measured at fair value at each reporting period. The Company
measured the fair value of these instruments as of December 31, 2009, and
recorded $545,340 unrealized loss to the statement of operations for the three
and six months ended December 31, 2009. The Company determined the fair values
of these securities using a Black-Scholes valuation model.
Activity
for derivative warrant instruments during the six months ended December 31, 2009
was as follows:
|
June
30, 2009
|
Activity
during the
period
|
Increase
(Decrease) in
Fair Value of
Derivative
Liability
|
December 31,
2009
|
|||||||||||||
|
Derivative warrant
instruments
|
$ | — | $ | 1,345,328 | $ | 545,340 | $ | 1,890,668 | ||||||||
| $ | — | $ | 1,345,328 | $ | 545,340 | $ | 1,890,668 | |||||||||
The fair
value of the derivative warrant instruments is estimated using the Black-Scholes
option pricing model with the following assumptions as of December 31,
2009:
|
Common
stock issuable upon exercise of warrants
|
14,203,000
|
|||
|
Estimated
market value of common stock on measurement date (1)
|
$
|
0.18
|
||
|
Exercise
price
|
$
|
0.50 - $1.00
|
||
|
Risk
free interest rate (2)
|
2.69
|
%
|
||
|
Warrant
lives in years
|
4.86
– 4.98
|
|||
|
Expected
volatility (3)
|
133.96
|
%
|
||
|
Expected
dividend yields (4)
|
None
|
|||
|
(1)
|
The
estimated market value of the stock is measured each period end and is
based on a calculation by management after consideration of price per
share received in private offerings and reported public market
prices.
|
- 10
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
|
(2)
|
The
risk-free interest rate was determined by management using the U.S.
Treasury zero-coupon yield over the contractual term of the warrant on
date of grant.
|
|
(3)
|
The
volatility factor was estimated by management using the historical
volatilities of comparable companies in the same industry and region,
because the Company does not have adequate trading history to determine
its historical volatility.
|
|
(4)
|
Management
determined the dividend yield to be 0% based upon its expectation that
there will not be earnings available to pay dividends in the near
term.
|
NOTE
7. STOCKHOLDERS’ EQUITY
Common
Stock splits
On July
11, 2008, the Company declared a 3.031578 for 1 forward stock split on each
share of its common stock issued and outstanding at the close of business on
July 21, 2008, in the form of a stock dividend. All share and per share amounts
have been retroactively adjusted for all periods presented.
On
October 19, 2009, the Company’s Board of Directors declared a 15.625 for 1
forward stock split in the form of a dividend. The record date for
this stock dividend was November 20, 2009, and the payment and effective date
was November 23, 2009. Shares issued prior to November 20, 2009 and per
share amounts have been retroactively restated to reflect the impact of the
stock split.
Common
Stock issued for services
On
October 19, 2009, the Company’ Board of Directors authorized the issuance of
1,500,000 shares of its common stock to its Chief Executive Officer as
compensation for services to be rendered to the Company. Management determined
the fair value of the stock issued to the Chief Executive Officer at $0.0032 per
share based on the stock price on October 19, 2009. Accordingly, stock-based
compensation expense of $4,800 was recognized in the accompanying statements of
operations for the three and six months ended December 31, 2009.
On
December 22, 2009, the Company’ Board of Directors authorized the issuance of
750,000 shares of its common stock in exchange for consulting services. The
transaction was valued in accordance with FASB ASC Topic No. 505 – 50 (formerly
EITF 96-18, “Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or
Services”). Management determined the fair value of the stock issued
to the consultant to be $0.61 per share based on the stock price on December 22,
2009. Accordingly, stock-based compensation expense of $457,500 was recognized
in the accompanying statements of operations for the three and six months ended
December 31, 2009.
- 11
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
Common
Stock sales
On June
24, 2005 the Company issued 35,526,336 (after giving effect to the common stock
splits) shares of common stock to a director for cash valued at $0.0001 per
share for total consideration of $7,500.
On June
24, 2005 the Company issued 35,526,336 (after giving effect to the common stock
splits) shares of common stock to a director for cash valued at $0.0001 per
share for total consideration of $3,750.
On March
14, 2006 the Company issued 47,368,454 shares of common stock for cash valued at
$0.001 per share for total consideration of $50,000.
On
February 7, 2008 the Company issued 2,631,595 (post-split) shares of common
stock for cash valued at $0.019 per share for total consideration of
$50,000.
On
October 19, 2009 the Board of Directors authorized the Company to offer up to a
maximum of 16,000,000 units (the “2009 Unit Offering”) at an offering price of
$0.25 per Unit. Each Unit consisted of (i) one share of the Company’s common
stock, par value $0.001 per share (“Common Stock ”), (ii) a warrant representing
the right to purchase one-half of one (0.5) share of Common Stock, exercisable
for a period of five years at an exercise price of $0.50 per whole share (the “A
Warrant ”), and (iii) a warrant representing the right to purchase one-half of
one (0.5) share of Common Stock, exercisable for a period of five years at an
exercise price of $1.00 per whole share (the “B Warrant ,” and together with the
A Warrant, the “Warrants”). On November 10, 2009 (“Initial Closing’), the
Company sold 6,400,000 Units for total proceeds to the Company of $1,600,000
($1,557,608 net after offering expenses), and warrants to purchase 6,400,000
shares of Common Stock. The Company offered the Units directly and
through finders (the “Finders”).
On
November 12, 2009, the Company completed the second closing (the “Second
Closing”) of the Offering. In the Second Closing, the Company sold 2,120,000
Units for an aggregate of $530,000 ($524,650 net after offering
expenses).
On
November 17, 2009, the Company completed the third closing (the “Third Closing”)
of the Offering. In the Third Closing, the Company sold 1,820,000
Units for an aggregate of $455,000 ($423,757 after offering
expenses).
On
December 15, 2009, the Company completed the fourth closing (the “Fourth
Closing”) of the Offering. In the Fourth Closing, the Company sold
1,900,000 Units for an aggregate of $475,000 ($470,141 net after
offering expenses).
On
December 23, 2009, the Company completed the fifth and final closing (the “Final
Closing”) of the Offering. In the Final Closing, the Company sold
1,760,000 Units for an aggregate of $440,000 ($363,368 net after offering
expenses).
- 12
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
In the
aggregate, the Company sold 14,000,000 Units for gross proceeds of $3,500,000
($3,339,524 net after offering expenses) during the 2009 Unit
Offering.
The
Company determined that warrants to purchase a total of 14,203,000 shares of
common stock issued in the 2009 Unit Offering contained provisions that protect
holders from declines in the Company’s stock price that could result in modification
of the exercise price under the respective warrant agreements 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 -
15. As a result, these warrants are not indexed to the Company’s own
stock. At the Initial Closing, Second Closing, Third Closing, Fourth
Closing, and Final Closing of the 2009 Unit Offering, the fair value of these
warrants was determined to be approximately $532,986, $223,083, $186,993,
$208,019 and $194,247, respectively, which were recorded as a derivative
liability.
The table
below reflects the breakdown of the components of gross proceeds from the
Company’s 2009 Unit Offering:
|
Par
value of common stock issued
|
$
|
14,000
|
||
|
Paid-in
capital
|
1,980,196
|
|||
|
Derivative
warrant instruments
|
1,345,328
|
|||
|
Offering
expenses
|
160,476
|
|||
|
Total
gross proceeds
|
$
|
3,500,000
|
Common
Stock Cancelled
On
October 19, 2009, 71,052,626 shares of the Company’s common stock owned by the
founding director, were surrendered in exchange for the Company’s interest in a
split-off subsidiary, Mystica Candle, Inc., as more fully described in a Form
8-K of the same date filed by the Company with the SEC. The net
assets of the Split-Off Subsidiary were $0 as of October 19,
2009. Therefore, this transaction was valued at $0.
2009
Equity Incentive Plan
On
October 19, 2009, stockholders representing approximately fifty-nine percent
(59%) of the Company’s issued and outstanding capital stock executed a written
consent in lieu of a meeting and approved the creation of the 2009 Equity
Incentive Plan (the “2009 Plan”). The 2009 Plan provides for the
issuance of both non-statutory and incentive stock options and other awards to
acquire, in the aggregate, up to 5,000,000 shares of the Company’s common
stock.
- 13
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
Stock
Option Awards
On
December 9, 2009, the Company granted options to purchase (i) 500,000 shares of
its Common Stock to a newly appointed director and (i) 50,000 shares of its
Common Stock to each of two newly appointed directors. These were granted with
an exercise price equal to $0.25 per share. The options vest pro-rata
in three annual installments beginning on the first anniversary of the date of
grant and have a 10 year term.
Stock
option activity summary covering options granted to the Company’s employees is
presented in the table below:
|
Number of
Shares
|
Weighted-
average
Exercise
Price
|
Weighted-
average
Remaining
Contractual
Term (years)
|
Aggregate
Intrinsic
Value
|
|||||||||||||
|
Outstanding
at June 30, 2008
|
—
|
—
|
—
|
—
|
||||||||||||
|
Granted
|
—
|
—
|
—
|
—
|
||||||||||||
|
Exercised
|
—
|
—
|
—
|
—
|
||||||||||||
|
Expired/Forfeited
|
—
|
—
|
—
|
—
|
||||||||||||
|
Outstanding
at June 30, 2008
|
—
|
—
|
—
|
—
|
||||||||||||
|
Granted
|
600,000
|
$
|
0.25
|
9.95
|
252,000
|
|||||||||||
|
Exercised
|
—
|
—
|
—
|
—
|
||||||||||||
|
Expired /
Forfeited
|
—
|
—
|
—
|
—
|
||||||||||||
|
Outstanding
at December 31, 2009
|
600,000
|
$
|
0.25
|
9.95
|
$
|
252,000
|
||||||||||
|
Exercisable
at December 31, 2009
|
—
|
$
|
—
|
—
|
$
|
—
|
||||||||||
During
the six months ended December 31, 2009, the 600,000 options that were granted
had a weighted average grant-date fair value of $0.41 per
share. During the six months ended December 31, 2009, the Company
recognized stock-based compensation expense of $5,230 related to stock
options. As of December 31, 2009, there was approximately $243,764 of
total unrecognized compensation cost related to non-vested stock options which
is expected to be recognized over a weighted-average period of approximately
2.94 years.
- 14
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
The fair
value of the options granted during the six months ended December 31, 2009 was
estimated at the date of grant using the Black-Scholes option-pricing model with
the following assumptions:
|
Market
value of stock on grant date
|
$ | 0.46 | ||
|
Risk-free
interest rate (1)
|
2.89 | % | ||
|
Dividend
yield
|
0.00 | |||
|
Volatility
factor
|
133.67 | % | ||
|
Weighted
average expected life (2)
|
6.5 | |||
|
Expected
forfeiture rate
|
0 | % |
|
(1)
|
The
risk-free interest rate was determined by management using the U.S.
Treasury zero-coupon yield over the contractual term of the option on date
of grant.
|
|
(2)
|
Due
to a lack of stock option exercise history, the Company uses the
simplified method under SAB 107 to estimate expected
term.
|
NOTE
8. FAIR VALUE MEASUREMENTS
As
defined in FASB ASC Topic No. 820 – 10 (formerly SFAS 157), 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.
|
- 15
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
|
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 (formerly SFAS 157), 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
estimated fair value of the derivative warrant instruments was calculated using
the Black-Scholes model.
Fair
Value on a Recurring Basis
The
following table sets forth, by level within the fair value hierarchy, the
Company’s financial assets and liabilities that were accounted for at fair value
on a recurring basis as of December 31, 2009:
|
Fair Value Measurements at December 31, 2009
|
||||||||||||||||
|
Quoted
Prices
|
||||||||||||||||
|
In Active
|
Significant
|
Total
|
||||||||||||||
|
Markets for
|
Other
|
Significant
|
Carrying
|
|||||||||||||
|
Identical
|
Observable
|
Unobservable
|
Value as of
|
|||||||||||||
|
Assets
|
Inputs
|
Inputs
|
December
|
|||||||||||||
|
Description
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
31, 2009
|
||||||||||||
|
Derivative
warrant instruments
|
$ | - | $ | - | $ | 1,890,668 | $ | 1,890,668 | ||||||||
|
Total
|
$ | - | $ | - | $ | 1,890,668 | $ | 1,890,668 | ||||||||
- 16
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
The
following table sets forth a reconciliation of changes in the fair value of
financial assets and liabilities classified as level 3 in the fair value
hierarchy:
|
Significant Unobservable Inputs (Level 3)
|
||||||||||||||||
|
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
|
December 31,
|
December 31,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Beginning
balance
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||
|
Total
gains (losses)
|
(545,340
|
)
|
-
|
(545,340
|
)
|
-
|
||||||||||
|
Settlements
|
-
|
-
|
-
|
-
|
||||||||||||
|
Additions
|
(1,345,328
|
)
|
-
|
(1,345,328
|
)
|
-
|
||||||||||
|
Transfers
|
-
|
-
|
-
|
-
|
||||||||||||
|
Ending
balance
|
$
|
(1,890,668
|
)
|
$
|
-
|
$
|
(1,890,668
|
)
|
$
|
-
|
||||||
|
Change
in unrealized gains (losses) included in earnings relating to derivatives
still held as of December 31, 2009 and 2008
|
$
|
(545,340
|
)
|
$
|
-
|
$
|
(545,340
|
)
|
$
|
-
|
||||||
NOTE
9. COMMITMENTS AND CONTINGENCIES
The
Company signed a binding offer to acquire Next Lithium Corp. ("Next Lithium") on
November 24, 2009. Total consideration for the acquisition is
expected to comprise of 4,000,000 shares of the Company’s common stock and is
expected to close on or around late February 2010. Next Lithium owns
options to acquire 100% interests in the BSV Placer, CSV Placer, LM Placer and
MW Placer Mineral Claims, comprising approximately 75,000 acres in total of
lithium brine mineral properties located in Big Smokey Valley near Tonopah,
Nevada.
The
Company also signed a binding offer to acquire Puna Lithium Corporation ("Puna")
on November 25, 2009. Total consideration for the acquisition is
expected to comprise of 16,000,000 shares of the Company’s common stock and is
expected to close on or around late February 2010. Puna owns an
option to acquire up to an aggregate eighty percent (80%) interest in 123,000
acres of prime Chilean salar ground located across 9 Chilean salars, including
the producing Salar de Atacama. Puna also owns an option to acquire up to eighty
five percent (85%) of 90,000 acres of salar property in Argentina, in the
Centenario, Rincon, Pocitos and Cauchari salars.
- 17
-
LI3
ENERGY, INC.
(FORMERLY
NANODYNAMICS HOLDINGS INC.)
(An
Exploration Stage Company)
Notes
to Financial Statements
December
31, 2009
(Unaudited)
NOTE
10. SUBSEQUENT EVENTS
The
Company evaluated all events subsequent to December 31, 2009 through the date of
this filing and determined that there were no events requiring
disclosure.
- 18
-
Item
2. Management’s Discussion and Analysis or Plan of
Operation
This
section of the report includes a number of forward-looking statements that
reflect our current views with respect to future events and financial
performance. Forward-looking statements are often identified by words
like believe, expect, estimate, anticipate, intend, project and similar
expressions, or words which, by their nature, refer to future
events. You should not place undue certainty on these forward-looking
statements, which apply only as of the date of this report. These
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from historical results or our
predictions.
Background
and Recent Developments
We were
incorporated on June 24, 2005. We were originally in the business of
manufacturing, marketing and distributing soy-blend scented candles and oils but
we could not continue with those business operations because of a lack of
financial results and resources. We have redirected our focus,
therefore, towards identifying and pursuing options regarding the development of
a new business plan and direction.
We were
recently engaged in discussions with NanoDynamics, Inc., a Delaware corporation
(“Nanodynamics), regarding a possible business combination with NanoDynamics,
and with the permission of NanoDynamics, we changed our name to NanoDynamics
Holdings, Inc. to facilitate these discussions. We determined not to proceed
with that business combination, however.
On
October 19, 2009, we changed our name to Li3 Energy, Inc., to reflect our plans
to focus our business strategy on the energy sector and related lithium mining
opportunities in North and South America. On that date, we took the
following additional steps in furtherance of our new business
pursuit:
|
|
·
|
David
Rector resigned from his position as our Chief Executive Officer
(“CEO”). Mr. Rector remains our President, Treasurer, Secretary
and a director;
|
|
|
·
|
We
appointed Luis F. Saenz as our CEO and as a member of our Board of
Directors (the “Board”). As compensation for services to be rendered to
us, our Board approved the issuance, as of October 19, 2009, of 1,500,000
shares of our common stock, on a post-forward stock split basis (discussed
below), to Mr. Saenz;
|
|
|
·
|
Our
Board of Directors declared a 15.625 for 1 forward stock split in the form
of a dividend. The record date for this stock dividend was
November 6, 2009, and the payment and effective date is November 16, 2009;
and
|
|
|
·
|
Stockholders
representing approximately fifty-nine percent (59%) of our issued and
outstanding capital stock approved by written consent the creation of our
2009 Equity Incentive Plan (the “2009 Plan”). The 2009 Plan
provides for the issuance of both non-statutory and incentive stock
options and other awards to acquire in the aggregate up to 5,000,000
shares (calculated on a post-forward stock split basis) of our common
stock.
|
- 19
-
Since
October 2009, we have taken the following additional steps in the development of
our new business plan:
|
|
·
|
Completed
the split-off of our discontinued legacy business to our founding (and
former) stockholder.
|
|
|
·
|
Initiated
activities to establish and organize our operating presence in South
America and, to that end, opened and began staffing our executive office
in Lima, Peru;
|
|
|
·
|
Signed
a binding offer to acquire Next Lithium Corp. ("Next Lithium") on November
24, 2009. Next Lithium owns options to acquire 100% interests
in the BSV Placer, CSV Placer, LM Placer and MW Placer Mineral Claims,
comprising approximately 75,000 acres in total of lithium brine mineral
properties located in Big Smokey Valley near Tonopah,
Nevada.
|
|
|
·
|
Signed
a binding offer to acquire Puna Lithium Corporation ("Puna") on November
25, 2009. Puna owns an option to acquire up to an aggregate
eighty percent (80%) interest in 123,000 acres of prime Chilean salar
ground located across 9 Chilean salars, including the producing Salar de
Atacama. Puna also owns an option to acquire up to eighty five percent
(85%) of 90,000 acres of salar property in Argentina, in the Centenario,
Rincon, Pocitos and Cauchari
salars.
|
|
|
·
|
Appointed
Kjeld Thygesen, Anthony Hawkshaw, and Douglas Perkins as members of our
Board of Directors effective December 10,
2009;
|
|
|
·
|
Engaged
Rojas & Asociados as project manager for our planned exploration
programs in South America, in January
2010.
|
|
|
·
|
Appointed Eric E. Marin as our
Interim Chief Financial Officer as of January 13, 2010. Mr.
Rector resigned as our Chief Financial Officer as of that
date;
|
|
|
·
|
Engaged
GBH CPAs, PC in January 2010 to serve as our new independent registered
public accountants; and
|
|
|
·
|
Have
begun identifying and investigating additional lithium mining investment
opportunities in North and South
America.
|
Private
Placement
On
November 10, 2009, we completed an initial closing (the “Initial Closing”) of a
private placement (the “2009 Private Placement”) of units (the “Units”) of our
securities at a price of $0.25 per Unit. Each Unit consisted of one
share of our common stock, a five-year warrant to purchase one-half of one share
of our common stock at $0.50 per whole share, and a five-year warrant to
purchase one-half of one share of our common stock at $1.00 per whole
share. In the Initial Closing, we sold 6,400,000 Units for an
aggregate of $1,600,000.
- 20
-
We
conducted additional closings of the Private Placement on November 12, 2009,
closing on the sale of 2,120,000 Units for an aggregate of $530,000, on November
17, 2009, closing on 1,820,000 Units for an aggregate of $455,000, on December
15, 2009, closing on 1,900,000 Units for an aggregate of $475,000, and on
December 23, 2009, closing on 1,760,000 Units for an aggregate of
$440,000. In total, the Company sold 14,000,000 Units in the Private
Placement for gross proceeds of $3,500,000.
The
Private Placement was conducted pursuant to the exemption from the registration
requirements of the federal securities laws provided by Regulation D and
Regulation S promulgated under the Securities Act of 1933, as amended (the
“Securities Act”), and Section 4(2) of the Securities Act.
Results
of Operations
Three
Months Ended December 31, 2009 Compared with Three Months Ended December 31,
2008
Revenues
We are
still in our exploration stage and have generated no revenues to
date.
Operating
Expenses
We
incurred general and administrative expenses of $702,653 and $9,693 for the
three months ended December 31, 2009 and 2008, respectively. These expenses
mainly consisted of consultancy fees, travel expenses, and professional fees
incurred in connection with the day to day operation of our business and the
preparation and filing of our periodic reports. The increase of
$692,960 from the 2008 to the 2009 three month periods was due as a result of
the ramping up of our business, expenditures incurred in connection with our
review and analysis of prospective mining operation investment opportunities,
and hiring by the Company of a consultant, travel expenses incurred mainly
during the months of November and December 2009, and an increase of legal and
professional fees incurred in connection with the ramping up of our
business.
Other
Income (Expense)
Other
income (expense) for the three months ended December 31, 2009, was $(545,522)
compared to other income (expense) of $(991) for the three months ended
December 31, 2008. Interest income in the amount of $1,748 was earned on our
cash deposits resulting from our 2009 Private Placement for the three months
ended December 31, 2009 as compared to $11 during the three months ended
December 31, 2008. Interest expense amounted to $1,930 during the
three months ended December 31, 2008 as compared to $1,002 during the three
months ended December 31, 2008, and were incurred in connection with interest
bearing notes that we sold to finance our short term working capital
needs. Also, during the three months ended December 31, 2009,
we recognized an unrealized loss from the increase in the fair value of the
derivative liability related to our outstanding warrant instruments of
$545,340.
- 21
-
Net
Loss
Our net
loss for the three months ended December 31, 2009 was $1,248,175. Net
loss for the three months ended December 31, 2008 was $10,684.
Six
Months Ended December 31, 2009 Compared with Six Months Ended December 31,
2008
Revenues
We are
still in our exploration stage and have generated no revenues to
date.
Operating
Expenses
We
incurred general and administrative expenses of $717,418 and $25,853 for the six
months ended December 31, 2009 and 2008, respectively. These expenses mainly
consisted of consultancy fees, travel expenses, and professional fees incurred
in connection with the day to day operation of our business and the preparation
and filing of our periodic reports. The increase of $691,565 from the
2008 to the 2009 three month periods was due as a result of the ramping up of
our business, expenditures incurred in connection with our review and analysis
of prospective mining operation investment opportunities, and hiring by the
Company of a consultant, travel expenses incurred mainly during the months of
November and December 2009, and an increase of legal and professional fees
incurred in connection with the ramping up of our business.
Other
Income (Expense)
Other
income (expense) for the six months ended December 31, 2009, was $(547,479)
compared to other income (expense) of $(1,989) for the six months ended
December 31, 2008. Interest income in the amount of $1,749 was earned on our
cash deposits resulting from our 2009 Private Placement for the six months ended
December 31, 2009 as compared to $13 during the six months ended December 31,
2008. Interest expense amounted to $3,888 during the six months ended
December 31, 2009 as compared to $2,002 during the six months ended December 31,
2008, and were incurred in connection with interest bearing notes that we sold
to finance our short term working capital needs. Also, during
the six months ended December 31, 2009, we recognized an unrealized loss from
the increase in the fair value of the derivative liability related to our
outstanding warrant instruments of $545,340.
Net
Loss
Our net
losses for six months ended December 31, 2009 and 2008 were $1,264,897 and
$27,842, respectively.
- 22
-
Liquidity
and Capital Resources and Plan of Operation
Overview
Due to
our brief history and historical operating losses, our operations have not been
a source of liquidity, and our sources of liquidity primarily have been
debt and proceeds from the sale of Units in the 2009 Private Placement. Although
we have begun discussions regarding the acquisition of certain lithium mining
properties, any of such properties that we may acquire will require exploration
and development that could take years to complete before they begin to generate
revenues. There can be no assurances that we will be successful in
acquiring such properties or that if we do complete acquisitions, properties
acquired will be successfully developed to the revenue producing
stage. If we are not successful in our proposed lithium 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, overall market
and economic conditions, the downturn and volatility in the US equity markets
and the trading price of our common stock may limit our ability to raise the
capital needed to execute our plan of operations. We recognize that the US
economy is currently experiencing a period of uncertainty and that the capital
markets have been depressed from recent levels. 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.
Through
December 23, 2009, we have raised gross proceeds of $3,500,000 from the sale of
our Units in our 2009 Private Placement. We will apply the net
proceeds from the 2009 Private Placement towards the implementation of our
business development plan and for general working capital
purposes. We expect to acquire additional capital to execute
development plans for any lithium mining property that we are successful in
acquiring. We would plan to raise that capital through additional
sales of equity or debt securities later in 2010. There can be no assurance,
however, that such financing will be available to us or, if it is available,
that it will be available on terms acceptable to us and that it will be
sufficient to fund our expected needs. If we are unable to obtain this
financing, we may not be able to proceed with our development plans or meet our
ongoing operational working capital needs.
As of
December 31, 2009, we had a working capital surplus of $1,104,723 as compared to
a working capital deficit of $94,055 as of June 30, 2009. The creation of our
working capital surplus was directly attributable to our successful completion
of the 2009 Private Placement. Our current assets increased by $3,144,683 for
the period ended December 31, 2009, as compared to the period ended June 30,
2009. This increase in current assets was also attributable to the 2009 Private
Placement.
- 23
-
Cash
and Accounts Receivable
At
December 31, 2009, we had cash and cash equivalents in the bank of $3,154,386,
as compared to $9,703 at June 30, 2009. Cash increased by $3,144,683
to $3,154,386 at December 31, 2009 compared to June 30, 2009 primarily due to
the 2009 Private Placement.
Liabilities
Accounts
payable and accrued expenses increased by $55,237 to $63,995 at December 31,
2009, from $8,758 at June 30, 2009. The increase was attributable to the
additional legal and professional fees associated with the ramping up of our
business and costs related to the 2009 Private Placement.
Cash
Flows
For the
six months ended December 31, 2009, the net cash used by operating activities of
$194,840 reflected working capital requirements to fund operating, general and
administrative activities and our 2009 Private Placement. The net
cash used by operating activities was $24,669 for the six months ended December
31, 2008.
For the
six months ended December 31, 2009, net cash provided by financing activities
was $3,339,523, compared to net cash used by financing activities of $0 for the
six months ended December 31, 2008, primarily due to the net proceeds received
from completion of the 2009 Private Placement for the six months ended December
31, 2009 to fund ongoing operations.
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.
Item
4T. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rule 13a-15(f) or
15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process
designed by, or under the supervision of, the company's principal executive and
principal financial officers and effected by the company's board of directors,
management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America (“US GAAP”) and includes those policies
and procedures that:
- 24
-
|
|
-
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
company;
|
|
|
-
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America and that
receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and
|
|
|
-
|
Provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the company's assets that
could have a material effect on the financial
statements.
|
Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate. All internal control systems, no matter how well designed, have
inherent limitations. Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation. Because of the inherent limitations of internal
control, there is a risk that material misstatements may not be prevented or
detected on a timely basis by internal control over financial reporting.
However, these inherent limitations are known features of the financial
reporting process. Therefore, it is possible to design into the process
safeguards to reduce, though not eliminate, this risk.
As of December 31, 2009, management
assessed the effectiveness of our internal control over financial reporting
based on the criteria for effective internal control over financial reporting
established in Internal Control—Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on
conducting such assessments. Based on that evaluation, they concluded that,
during the period covered by this report, such internal controls and procedures
were not effective to detect the inappropriate application of US GAAP rules as
more fully described below. This was due to deficiencies that existed in the
design or operation of our internal controls over financial reporting that
adversely affected our internal controls and that may be considered to be
material weaknesses.
The matters involving internal controls
and procedures that our management considered to be material weaknesses under
the standards of the Public Company Accounting Oversight Board were: (1) lack of
a functioning audit committee due to a lack of a majority of independent members
and a lack of a majority of outside directors on our board of directors through
December 10, 2009, resulting in ineffective oversight in the establishment and
monitoring of required internal controls and procedures; (2) inadequate
segregation of duties consistent with control objectives; and (3) ineffective
controls over period end financial disclosure and reporting processes primarily
due to limited financial accounting staff resources. The aforementioned material
weaknesses were identified by our Chief Executive Officer in connection with the
review of our financial statements as of December 31, 2009.
- 25
-
Management believes that the material
weaknesses set forth in items (2) and (3) above did not have an effect on our
financial results. However, management believes that the lack of a functioning
audit committee and the lack of a majority of outside directors on our board of
directors resulted in ineffective oversight in the establishment and monitoring
of required internal controls and procedures, which could result in a material
misstatement in our financial statements in future periods.
Management's
Remediation Initiatives
In an effort to remediate the
identified material weaknesses and other deficiencies and enhance our internal
controls, we have initiated, or plan to initiate, the following series of
measures:
We have increased our personnel
resources and technical accounting expertise within the accounting function by
hiring an independent consulting firm to assist us in the preparation of our
financial statements and a new, experienced interim Chief Financial officer,
and, as a result of these hires, we expect to be able to create a segregation of
duties consistent with control objectives. We have appointed three outside
directors to our board of directors and expect to appoint at least one
additional outside director during the first quarter of 2010. We
expect to establish a fully functioning audit committee made up of outside
directors, including an “audit committee financial expert,” which will undertake
the oversight in the establishment and monitoring of required internal controls
and procedures such as reviewing and approving estimates and assumptions made by
management.
We anticipate that these additional
initiatives will be at least partially, if not fully, implemented by June 30,
2010, the end of our current fiscal year.
Changes
in internal controls over financial reporting
There was
no change in our internal controls over financial reporting that occurred during
the period covered by this report, which has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
PART
II – OTHER INFORMATION
Item
1. Legal Proceedings
From time
to time, we may become involved in various lawsuits and legal proceedings which
arise in the ordinary course of business. However, litigation is subject to
inherent uncertainties, and an adverse result in these or other matters may
arise from time to time that may harm business.
- 26
-
We are
currently not aware of any pending legal proceedings to which we are a party or
of which any of our property is the subject, nor are we aware of any such
proceedings that are contemplated by any governmental authority.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
See “Private Placement”
above.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Submission of Matters to a Vote of Security Holders
None.
Item
5. Other Information
None.
Item
6. Exhibits
|
Exhibit No.
|
Description
|
|
|
3.1
|
Certificate
of Amendment to Articles of Incorporation of the Registrant dated October
19, 2009 (1)
|
|
|
4.1
|
Form
of Investor A Warrant of the Registrant, issued in connection with the
initial closing of a private placement unit offering by the Registrant
(1)
|
|
|
4.2
|
Form
of Investor B Warrant of the Registrant, issued in connection with the
initial closing of a private placement unit offering by the Registrant
completed in September 2008 (1)
|
|
|
10.1
|
Registrant’s
2009 Stock Incentive Plan adopted October 19, 2009 (1)
|
|
|
10.2
|
Form
of Stock Option Agreement under the Registrant’s 2009 Equity Incentive
Plan (1)
|
|
|
10.3
|
Form
of unit offering Subscription Agreement (1)
|
|
|
31.1
|
Certification
of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and
15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
31.2
|
Certification
of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and
15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
|
32.1
|
Certification
of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
|
|
32.2
|
Certification
of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
|
- 27
-
* 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 to the extent that the Registrant specifically incorporates it by reference.
|
(1)
|
Incorporated
by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form
10-Q for the quarter ended September 30, 2009 filed with the SEC on
November 16, 2009.
|
In
reviewing the agreements included (or incorporated by reference) as exhibits to
this Form 10-Q, please remember that they are included to provide you with
information regarding their terms and are not intended to provide any other
factual or disclosure information about the Company or the other parties to the
agreements. The agreements may contain representations and warranties by each of
the parties to the applicable agreement. These representations and warranties
have been made solely for the benefit of the parties to the applicable agreement
and:
|
|
·
|
should
not in all instances be treated as categorical statements of fact, but
rather as a way of allocating the risk to one of the parties if those
statements prove to be inaccurate;
|
|
|
·
|
have
been qualified by disclosures that were made to the other party in
connection with the negotiation of the applicable agreement, which
disclosures are not necessarily reflected in the
agreement;
|
|
|
·
|
may
apply standards of materiality in a way that is different from what may be
viewed as material to you or other investors;
and
|
|
|
·
|
were
made only as of the date of the applicable agreement or such other date or
dates as may be specified in the agreement and are subject to more recent
developments.
|
Accordingly,
these representations and warranties may not describe the actual state of
affairs as of the date they were made or at any other time. Additional
information about the Company may be found elsewhere in this Form 10-Q and the
Company’s other public filings, which are available without charge through the
SEC’s website at http://www.sec.gov.
See “Available Information.”
- 28
-
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant has caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
Date: February
16, 2010
|
LI3
ENERGY, INC.
|
|
|
By:
|
/s/ Luis F. Saenz
|
|
|
Name:
Luis F. Saenz
|
||
|
Title:
Principal Executive Officer
|
||
|
By:
|
/s/ Eric E. Marin
|
|
|
Name: Eric
E. Marin
|
||
|
Title:
Interim Principal Financial
Officer
|
||