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, 2017
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
000-54881
LITHIUM EXPLORATION GROUP, INC.
(Exact name of registrant as specified in its charter)
|
Nevada
|
06-1781911
|
|
(State or other jurisdiction
|
(I.R.S. Employer
|
|
of incorporation or organization)
|
Identification No.)
|
4635 South Lakeshore Drive, Suite 200, Tempe, Arizona
85282
(Address of principal executive offices) (Zip Code)
(480) 641-4790
(Registrant’s telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
|
Title of Each Class
|
Name of each exchange on which
registered
|
|
None
|
N/A
|
Securities registered pursuant to section 12(g) of the Act:
Shares of common stock with a par value of $0.001
(Title of class)
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 Section 15(d) of the 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 Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
[ ]
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) 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, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
|
Large accelerated filer [ ]
|
Accelerated filer [ ]
|
|
Non-accelerated filer [ ]
|
Smaller reporting company [X]
|
|
(Do not check if a smaller reporting company)
|
Emerging growth company [ ]
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act. [ ]
The aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant’s most recently completed
second fiscal quarter was $852,275.
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
The number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date was 3,585,818,688
shares of common stock as of September 28, 2017.
DOCUMENTS INCORPORATED BY REFERENCE
None.
2
TABLE OF CONTENTS
3
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This Annual Report on Form 10-K
includes a number of forward-looking statements that reflect management's
current views with respect to future events and financial performance.
Forward-looking statements are projections in respect of future events or our
future financial performance. In some cases, you can identify forward-looking
statements by terminology such as “may,” “should,” “expects,” “plans,”
“anticipates,” “believes,” “estimates.” “predicts,” “potential” or “continue” or
the negative of these terms or other comparable terminology. Those statements
include statements regarding the intent, belief or current expectations of us
and members of our management team, as well as the assumptions on which such
statements are based. Prospective investors are cautioned that any such
forward-looking statements are not guarantees of future sperformance and involve
risk and uncertainties, and that actual results may differ materially from those
contemplated by such forward-looking statements. These statements are only
predictions and involve known and unknown risks, uncertainties and other
factors, including the risks in the section entitled “Risk Factors” set forth in
this Annual Report on Form 10-K for the year ended June 30, 2017, any of which
may cause our company’s or our industry’s actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by these
forward-looking statements. These risks include, by way of example and without
limitation:
|
•
|
our ability to successfully commercialize our SonCav
technology to produce a market-ready product in a timely manner and in
enough quantity;
|
|
•
|
our ability to successfully commercialize our oil and gas
assets, namely our assets located in the White Top Field in Southwest
Louisiana;
|
|
•
|
the absence of contracts with customers or suppliers;
|
|
•
|
our ability to maintain and develop relationships with
customers and suppliers;
|
|
•
|
our ability to successfully integrate our technology into
the competitive oil and gas industry and at a cost that is profitable to
the Company;
|
|
•
|
the retention and availability of key personnel;
|
|
•
|
general economic and business conditions;
|
|
•
|
substantial doubt about our ability to continue as a
going concern;
|
|
•
|
our need to raise additional funds in the future;
|
|
•
|
our ability to successfully recruit and retain qualified
personnel in order to continue our operations;
|
|
•
|
our ability to successfully implement our business plan;
|
|
•
|
our ability to successfully acquire, develop or
commercialize new products and equipment and acquire additional oil and
gas assets;
|
|
•
|
intellectual property claims brought by third parties;
and
|
|
•
|
the impact of any industry regulation.
|
Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, or performance. Except as
required by applicable law, including the securities laws of the United States,
we do not intend to update any of the forward-looking statements to conform
these statements to actual results.
Readers are urged to carefully
review and consider the various disclosures made by us in this report and in our
other reports filed with the Securities and Exchange Commission (the “SEC”). We
undertake no obligation to update or revise forward-looking statements to
reflect changed assumptions, the occurrence of unanticipated events or changes
in the future operating results over time except as required by law. We believe
that our assumptions are based upon reasonable data derived from and known about
our business and operations. No assurances are made that actual results of
operations or the results of our future activities will not differ materially
from our assumptions.
As used in this Annual Report on
Form 10-K and unless otherwise indicated, the terms “we,” “us,” “our” or the
“Company” refer to Lithium Exploration Group, Inc. a Nevada corporation,
including our wholly-owned subsidiaries, Alta Disposal Ltd., an Alberta, Canada
corporation (“Alta Disposal”), Black Box Energy, Inc., a Nevada corporation
(“Black Box Energy”), and our 51% owned subsidiary, Alta Disposal Morinville
Ltd., an Alberta, Canada corporation (“ADM”), unless otherwise indicated.
4
Unless otherwise specified, all
dollar amounts are expressed in United States dollars. Our common stock is
currently listed on the OTC Market, OTC Pink tier, under the symbol “LEXG”.
Corporate History and Overview
We are a U.S.-based exploration
and development company that had been focused on the acquisition and development
potential of lithium brines and other precious metals that demonstrate high
probability for near-term production. Currently the company is focused testing
its SonCav Technology for use in the oil and gas industry and the acquisition of
oil and gas related assets in Western Canada and Southwest Louisiana. We were
incorporated on May 31, 2006 in the State of Nevada under the name “Mariposa
Resources, Ltd.” Effective November 30, 2010, we changed our name to “Lithium
Exploration Group, Inc.,” by way of a merger with our wholly-owned subsidiary
Lithium Exploration Group, Inc., which was formed solely for the change of name.
Our executive offices are located
at 4635 South Lakeshore Drive, Suite 200, Tempe, AZ 85282-7127. The telephone
number for our Tempe office is (480) 641-4790.
On October 18, 2013, we
completed, through our then wholly owned subsidiary, Alta Disposal Ltd.
(formerly 1617437 Alberta Ltd.), an Alberta, Canada corporation, the acquisition
of 51% of the shares of Blue Tap Resources Inc. for total payment of
CAD$466,547. As of September 30, 2013, CAD$300,000 (US$294,908) was paid
regarding the acquisition. As a result of the acquisition, Blue Tap Resources
Inc. became a partially-owned subsidiary of our company through our wholly owned
subsidiary, Alta Disposal Ltd. On January 22, 2014, Blue Tap Resources Inc.
changed its name to Alta Disposal Morinville Ltd. Effective September 4, 2015,
we entered into an asset purchase agreement with Cancen Oil Canada whereby we
sold all right, title and interest of Alta Disposal Morinville Ltd. assets for
total purchase price of CAD$10,000 (approximately USD$7,531).
On August 20, 2013, we entered
into a letter of intent with Tero Oilfield Services Ltd. (“Tero”), a private
company, pursuant to which Tero agreed to sell up to 75% of the issued and
outstanding common shares of Tero to our company in exchange for payment in the
amount of $1,500,000.
On March 1, 2014, Alta Disposal,
our wholly-owned subsidiary, entered into a share purchase agreement with Tero
and Garry Hofmann, the sole shareholder of Tero. Pursuant to the agreement, Mr.
Hofmann agreed to sell and we agreed to purchase 50% of the issued and
outstanding common shares of Tero in exchange for an aggregate of CAD$1,000,000.
As part of the share purchase by Alta Disposal, on February 22, 2014, Tero
declared a dividend in the amount of $307,104, payable to Mr. Hofmann by way of
a promissory note. As a result of the share purchase agreement, Tero is now a
partially owned (50%) subsidiary of our company. Additionally, Alta Disposal,
Tero and Mr. Hofmann entered into an option agreement entitling Alta Disposal to
purchase up to an additional 25% of the issued and outstanding common shares of
Tero from Mr. Hofmann, exercisable at a price of $500,000 for a period of one
year. On May 1, 2015, our company entered into a share purchase agreement with
an individual and disposed of our 50% interest in Tero in consideration for
$300,000.
On October 17, 2014, we amended
our Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
our common shares from 500,000,000 common shares, par value $0.001, to
2,000,000,000 common shares, par value $0.001. Our authorized capital consists
of 2,000,000,000 common shares and 100,000,000 preferred shares, all with a par
value of $0.001.
On January 19, 2015, we received
written consent from our Board of Directors to implement a reverse stock split
of our issued and outstanding shares of common stock on a basis of 20 old shares
of common stock for 1 new share of common stock. Stockholders of our company
originally approved the reverse stock split on October 14, 2014 at a special
meeting. The reverse stock split was reviewed and approved for filing by FINRA,
effective February 25, 2015, and we were assigned CUSIP number 53680P209,
effective that same date. Our authorized capital was not affected by the reverse
stock split.
5
On June 22, 2015, in accordance
with our Articles of Incorporation, our Board of Directors designated 250,000 of
our 100,000,000 authorized shares of Preferred Stock as “Series A Preferred
Stock”, par value $0.001, (the “Series A Preferred”). The Series A Preferred
ranks senior to our common stock, carrying general voting rights with the common
stock at the rate of 62 votes per Series A Preferred share. The Series A
Preferred will be deemed cancelled within one year of issuance and are not
entitled to share in dividends or other distributions. So long as any shares of
Series A Preferred are outstanding, the affirmative vote of not less than 75% of
those outstanding shares of Series A Preferred will be required for any change
to our Articles of Incorporation. As of June 30, 2017, there are zero shares of
Series A Preferred outstanding.
On July 9, 2015, our Board of
Directors approved a settlement agreement dated June 25, 2015 among our company,
JDF Capital Inc., and our wholly-owned subsidiary, Alta Disposal Ltd.
Previously, pursuant to a general security agreement dated July 22, 2014, JDF
Capital Inc. was granted a first-ranking security interest over all current and
future assets of Alta Disposal Ltd., in full guarantee of a $708,000 loan to our
Company. Pursuant to the settlement agreement, JDF Capital Inc. and its assign,
Blue Citi LLC, agreed to release and discharge their general security interest
in consideration of the issuance of 130,000 shares of Series A Preferred. These
shares were subsequently cancelled on December 5, 2015.
On July 13, 2015, our Board of
Directors approved an increase in our authorized capital from 2,000,000,000
shares of common stock, par value $0.001, to 10,000,000,000 shares of common
stock, par value of $0.001 per share, and a reverse stock split on a basis of up
to 200 old shares of common stock for 1 share of common stock. The increase of
authorized capital and stock split was approved by shareholders on July 13,
2015. A Definitive Schedule 14C was filed with the Securities and Exchange
Commission (the “SEC”) on August 6, 2015. On September 9, 2015, we filed with
the Nevada Secretary of State a Certificate of Amendment to our Articles of
Incorporation increasing our authorized capital from 2,000,000,000 shares of
common stock, par value $0.001, to 10,000,000,000 shares of common stock, par
value of $0.001 per share. The reverse stock split was reviewed and approved for
filing by FINRA, effective September 30, 2015, and we were assigned CUSIP number
53680P308, effective that same date.
Other than as set out herein, we
have not been involved in any bankruptcy, receivership or similar proceedings,
nor have we been a party to any material reclassification, merger, consolidation
or purchase or sale of a significant amount of assets not in the ordinary course
of our business.
Disclosure Adjustments for Reverse Stock Split
On January 19, 2015, our board of
directors consented to effect a reverse stock split of our issued and
outstanding shares of common stock on a basis of 20 old shares of common stock
for one 1 new share of common stock. The reverse stock split was reviewed and
approved for filing by the Financial Industry Regulatory Authority (“FINRA”)
effective February 25, 2015. Our authorized capital was not affected by the
reverse stock split.
On July 13, 2015, our board of
directors consented to implement a reverse stock split of our issued and
outstanding shares of common stock on a basis of 200 old shares of common stock
for 1 new share of common stock. The reverse stock split was reviewed and
approved for filing by FINRA effective September 30, 2015. Our authorized
capital was not affected by the reverse stock split.
In this Annual Report on Form
10-K and in the accompanying audited financial statements and notes, the above
described reverse splits are reflected retroactively in the descriptions of
shares and warrants and their corresponding issuance and exercise prices, except
where otherwise indicated.
Our Business
We are a U.S.-based exploration
and development company that had been focused on the acquisition and development
potential of lithium brines and other precious metals that demonstrate high
probability for near-term production. Currently, the company is focused on
testing the SonCav Technology for potential use in mining, oil and gas and other
industrial applications in the future. In addition, the Company is focused on
the acquisition of oil and gas related assets in North America.
6
SonCav Technology
The SonCav technology uses a
patented process to mechanically induce an ultrasonic cavitation to superheat
fluid. Our testing and development has historically been focused solely on water
and crude oil, but technology is expected to have many other commercial uses
including mining, LNG, Ethanol, industrial and other chemical uses in the
pharmaceutical industry. A cavitation is the implosion of a microbubble in fluid
which causes an ultrasonic reaction capable of generating intense heat in a
millisecond and releasing ultrasonic soundwaves that have the ability to
actually break molecules down in the process. In a water application, the SonCav
technology can eliminate toxic organic compounds in brackish water or be used to
superheat fluid inducing a flash evaporation, separating suspended solids from
the fluid stock. In an oil application, the induced cavitation can be used to
heat an oil emulsion, separating trapped gas and water in the oil so that it can
be sold. Through harnessing the ultrasound released by the cavitation reaction,
the technology can also break the hydrocarbon chain assisting in forming new
lighter hydrocarbon compounds in the same body of fluid.
SonCav’s features and benefits include:
|
|
•
|
No combustion of natural gas, thereby limiting
on-site emissions and EPA regulatory hurdles;
|
|
|
•
|
Lower operating cost due to more efficient heat
transfer and circulation;
|
|
|
•
|
Ability to retrofit to any tank configuration
for addition of heat to separating operation;
|
|
|
•
|
Lower maintenance costs and extended life due
to reduction of corrosive compounds and waste build-up inside walls of
tank; and
|
|
|
•
|
Increased volume of salable oil due to
effective incorporation of carbon constituents.
|
There are three primary applications for the SonCav technology
in mining, oil and gas and other industrial applications.
Mining Exploration and Development
The first is simply assisting in
cleaning up water-based waste streams that are costly to transport to a place
where they can be appropriately handled or disposed. The technology can assist
by treating the waste on site by lowering the volume of fluid to be disposed and
reducing the environmental liability of transporting fluid waste as opposed to
dry waste.
We are presently focused on the
testing of the SonCav technology, but as we develop commercial units, we expect
to explore opportunities in Canada that can see the greatest benefit from the
use of SonCav. Using the technology for the extraction of lithium and other
minerals from existing underground brine is a focus of our mineral extraction
and mining goals. There are many known areas of Alberta that have mineral rich
brine that is being brought to the surface in the production of oil and that is
a waste by-product to the oil and gas producers. We believe we can find
opportunities to use the SonCav technology to treat economically viable waste
streams and to generate revenue from the sale of the extracted minerals.
We believe that solution mining
for potash and other valuable chlorides is also a target market. Solution mining
is the use of fresh water injection to underground salt beds to dissolve the
salts then bring the brine solution to the surface to extract the valuable
minerals. In many cases, the use of solution mining is significantly cheaper and
less risky than creating an underground mine using elevators and laborers. The
SonCav technology can significantly reduce the pipeline expense for solution
mining efforts because it enables the operator to recycle the water that is used
in the process in lieu of disposing it and having to bring in fresh water from
regional lakes and rivers.
The final target for our mining
efforts is to identify mining operations across Canada that have environmental
issues, either in the clean-up of fluid waste streams or in areas where they
cannot access enough fresh water to manage their mining and processing
activities. These operations generally are at significant risk of being shut
down and represent good market opportunities for SonCav to potentially solve
their operating problems.
7
Oil and Gas
A central application of SonCav
is the heating of produced crude oil before it reaches a refinery for further
processing and storage and transportation. Produced oil comes out of the ground
as an emulsion, which is comprised of a fluid that has oil, gas, and water all
mixed together. Producers use a combination of gravity separation, chemical
separation, and heat separation to capture the three streams, with the oil and
gas being sold and the water being disposed of generally in underground disposal
wells. All three of the separation techniques result in water falling to the
bottom, oil separating in the center, and the lighter natural gas settling on
top. The most efficient technique historically has been to speed up the natural
separation by inducing heat which forces the three streams to separate out more
quickly than just letting the gravity of the fluids break them apart over time.
This process speeds up production rates, thus allowing for quicker sales.
Chemically induced separation has come a long way over the past 20 years and,
while historically it has been very expensive, it is becoming a part of most oil
and gas production to assist in the separation process.
Traditionally the use of heat for
treating oil emulsion has been induced by the combustion of natural gas through
a metal tube that runs inside of the fluid body, then transferring that heat to
the fluid thereby heating it and speeding up the separation. The heating
application has been under a lot of scrutiny in recent years due to more
stringent environmental and safety regulations. Heating oil as part of
production has historically been overlooked as a cost of doing business but now,
due to regulation and technological advancements, producers are being forced to
look to other techniques in their day to day operations. Some of the new
environmental laws calculate emissions created from the combustion as part of a
producer’s carbon footprint. The SonCav technology uses grid electricity to
affect heat being created by the cavitation reaction inside of the body of fluid
and is considered to be zero emissions in all jurisdictions. It can also be
retrofitted to existing separation infrastructure, reducing the up-front expense
incurred by the operator.
The storage and transportation
companies, also known as midstreamers, that are responsible for collecting the
oil from producers and transporting it to the refineries have a very acute need
for a technology like SonCav. In many regions, they are forced to circulate,
heat, and add chemicals to crude oil to limit the paraffin waxes and heavier
parts of the hydrocarbon chain that will drop out of the oil. These paraffin
waxes and heavy oil particles are expensive to remove and can cause serious
issues with their tank and pipeline infrastructure. Most pipeline operators will
bring the oil out of the ground every 30 to 40 miles to heat the oil again
before sending it on to the next terminal. This constant heating of oil can
become very expensive and can cause them problems with emissions laws in certain
jurisdictions where their only other option is to add very cost prohibitive
chemicals. The SonCav technology can be used at tank farms and terminals to
reduce the need for combustion of natural gas and costly chemicals.
At the drill site, the SonCav
unit can be installed to intake the oil and frac-water mixture as it comes out
of the ground and separate it using a flash evaporation process. The goal is to
separate the sand, chemical and oil mixture from the flowback water that is a
waste byproduct in the fracturing process. By doing this, the fresh water can be
recycled and reused in future well-drilling efforts and take the dewatered
solids away to be disposed of. By dewatering solid waste, the trucking companies
are hauling significantly less solid waste that is a significantly less risky
product to move over the road. In some geographic locations, these waste sands
from oil and gas production contain valuable minerals like lithium, magnesium,
and potassium which can be further processed and sold.
Other Industrial Markets
In Canada, there are many regions
that have drought issues and struggle to provide enough fresh water to
accommodate residential, agricultural, industrial, and oil and gas industry
needs. These areas could use the technology simply to provide fresh water to
support all of these needs by treating brackish water that cannot otherwise be
used. The issues around drought conditions are the water levels of local rivers,
lakes, and underground fresh water aquifers. Nearly all of the regions affected
by these drought conditions have shallow aquifers of water but it has too much
salinity to be used in many necessary applications. Regional facilities could be
put in place to treat brackish water to eliminate some of the toxic organic
compounds and reduce the overall salinity to levels where it could be used to
water crops and potentially provide potable water for residential needs.
8
There are also significant needs
in an industrial setting to clean up waste that for years has been placed back
into local rivers or into underground disposal wells. The options for expanding
businesses that are not grandfathered into some of these older disposal
techniques are limited. We believe that the SonCav unit can solve acute waste
issues for these industrial settings. Even the companies that have licenses to
dump waste streams into fresh water river systems are constantly considering
eliminating this practice by looking at technologies like the one that SonCav
provides.
Acquisition of Oil and Gas Assets
Our current oil and gas activities are limited to the
following:
McKean County, Pennsylvania
On September 9, 2016, we
incorporated a wholly-owned subsidiary, Black Box Energy, Inc., in the State of
Nevada (“BBE”). On September 9, 2016, through BBE, we entered into a letter
agreement with PetroChase, Inc. pursuant to which we agreed to purchase 50% of a
70% net revenue interest held by PetroChase in a certain oil and gas lease known
as the McKean County Project, located in McKean County, Pennsylvania. In
consideration for the working interest, we paid $250,000 to PetroChase in equal
installments on September 9, 2016 and September 16, 2016. We were required, but
did not pay, an additional $30,000 to PetroChase for management fees by December
16, 2016.
Pursuant to the letter agreement,
we will be entitled to recoup 100% of net revenue derived from the lease until
we have recouped 100% of the $280,000 paid in consideration of the working
interest. The agreement provides that PetroChase will serve as the operator and
drill contractor for the project. The drilling of an initial well on the
property was scheduled for fall of 2016. As at the date of this report, we are
in dispute with PetroChase regarding its failure to drill a well in accordance
with the agreement, and have given PetroChase notice of breach of contract. We
have therefore indefinitely postponed delivery of the $30,000 management fee
until this issue has been resolved.
Sulphur, Louisiana
On April 13, 2017, BBE entered
into a Joint Development and Option Agreement with White Top Oil & Gas, LLC
(“White Top”), a Louisiana limited liability company (the “White Top
Agreement”), under which White Top is the designee to a funding agreement to
finance and participate in the completion of certain oil and gas development,
exploration and operating activities on certain lands located in Sulphur,
Louisiana (the “White Top Field”). Under the terms of the White Top Agreement,
BBE has advanced approximately $819,000 to White Top as consideration to White
Top for the option to convert those funds into a 3% gross royalty from the
future revenue at the Sulphur, Louisiana oil and gas property. BBE also has the
right to repayment of the advanced funds if it does not believe the revenue from
the royalty will be substantial enough. White Top’s rights to repayment of the
monies received from BBE expired on August 1, 2017.
White Top has until May 15, 2018
to acquire the field in Sulphur, LA. In the interim they have the option to
drill development wells on the property to prove up additional reserves in the
field before completing the acquisition. BBE has hired an independent seismic
analyst as well as a geophysical team to review the work by the White Top team
and is comfortable with how they are progressing. Ultimately the goal is to
bring a SonCav technology unit to the field in Sulphur for onsite testing of the
technology and to be used as a showroom for potential Canadian customers to see
the unit in operation.
Research and Development
We currently have no research and
development activities.
9
Competition
Production Technology/Liquid Heating Technology
There are many competitors in the
water treatment and production technology industry. It is a very fragmented and
competitive market where we compete with many small regional service providers
and a handful of multinational companies like General Electric, Schlumberger and
Baker Hughes. Every application of the technology noted above has an acute
regional need. Some of these needs are because of operational logistics and some
are created by regulatory mandates.
Because of this regional dynamic,
smaller companies are often able to provide a more specialized need for their
customers, although these needs generally do not involve high levels of
technological breakthroughs. Regional service providers generally can take other
“off the shelf” technologies and assemble them for a specific client’s needs. By
tailoring a solution for a client, smaller service providers can often provide
better overall service for a customer and still be price competitive with the
multinationals. Another reason for the fragmented regional market is because
many applications for which we are providing solutions have very high
transportation costs that make it cost prohibitive or logistically difficult to
build something and ship it more than a couple hundred miles.
Larger conglomerates have
substantial sales and marketing infrastructure with substantial R&D budgets
which allow them to be the leaders of innovation in the space. This can be seen
in the areas of water treatment as well as oil and gas production technology
development. When it comes to innovation, these larger companies dominate the
market but are limited by scale issues. For a new technology to make a
meaningful financial impact it has to sell these new advanced technologies to
large regional and multinational clients.
Our competitive advantage in both
of these markets is that we are innovating a technology that can be implemented
anywhere. Most of the applications for the technology simply utilize a generator
that can be shipped anywhere in Canada then inserted into existing
infrastructure. As a smaller company, we have limited R&D funds but also
have designed the technology so that we can sell it to smaller operators with
acute needs and still have good financial results.
Below is a list of existing
technology that is currently used to heat fluids and treat industrial waste
streams. These technological pieces can be used on their own or together
depending on the need of the end customer.
|
|
•
|
Natural Gas Combustion – This is where the combustion of
natural gas is used to transfer heat through a “fire tube” that runs
through a body of fluid which transfers heat to the fluid. This is not a
highly scientific process and is used by smaller and larger competitors.
|
|
|
•
|
Chemical Additives – Chemicals are used to induce
separation of compounds, neutralize organic impurities, and generally as a
catalyst for other types of separation or treatment applications.
|
|
|
•
|
Centrifuges – Centrifuges are used to spin fluid and use
the gravity of certain compounds to dewater or separate heavier compounds
from lighter ones.
|
|
|
•
|
Filtration Systems – Filters and reverse osmosis is also
generally used in conjunction with other applications and while it is
extremely expensive to replace and clean filters on a large scale they can
be built to target specific size impurities as part of a broader treatment
set up.
|
|
|
•
|
Steam Circulation – Steam has been used as a recycle heat
exchange tool to make other forms of heating water to make the overall
treatment more effective. This is generally used in conjunction with
natural gas combustion where the steam generated from the water heating is
recirculated back into the system to add heat and assist in separation or
concentration of the fluid stock.
|
|
|
•
|
Gravity Separation – Gravity separation is a simple form
of separation of oil or water where the heaviest compounds are dropped to
the bottom and the lighter ends are siphoned off over time and is
generally used in conjunction with smaller amounts of heat input or
chemical additives.
|
|
|
•
|
Evaporation – Evaporation is used in many rural areas or
arid climates where the waste stream can sit for a long period of time
allowing the waste stream to simply condense into a dewatered solid that
can be further treated or disposed.
|
Oil and Gas Industry
The oil and natural gas industry
is intensely competitive, and we compete with numerous other oil and natural gas
exploration and production companies. Some of these companies have substantially
greater resources than we have. Not only do they explore for and produce oil and
natural gas, but also many carry on midstream and refining operations and market petroleum and other products on
a regional, national or worldwide basis. The operations of other companies may
be able to pay more for exploratory prospects and productive oil and natural gas
properties. They may also have more resources to define, evaluate, bid for and
purchase a greater number of properties and prospects than our financial or
human resources permit.
10
Our larger or integrated
competitors may be better able to absorb the burden of existing, and any changes
to federal, state, and local laws and regulations than we can, which would
adversely affect our competitive position. Our ability to discover reserves and
acquire additional properties in the future will be dependent upon our ability
and resources to evaluate and select suitable properties and to consummate
transactions in this highly competitive environment. In addition, we may be at a
disadvantage in producing oil and natural gas properties and bidding for
exploratory prospects, because we have fewer and limited financial and human
resources than other companies in our industry. Should a larger and better
financed company decide to directly compete with us, and be successful in its
efforts, our business could be adversely affected.
The market for oil and natural
gas that will be produced from our properties depends on factors beyond our
control, including the extent of domestic production and imports of oil and
natural gas, the proximity and capacity of pipelines and other transportation
facilities, demand for oil and natural gas, the marketing of competitive fuels
and the effects of state and federal regulation. The oil and natural gas
industry also competes with other industries in supplying the energy and fuel
requirements of industrial, commercial and individual consumers.
Our oil production is expected to
be sold at prices tied to the spot oil markets. Our natural gas production is
expected to be sold under short-term contracts and priced based on first of the
month index prices or on daily spot market prices. We rely on our operating
partners to market and sell our production. Our operating partners include a
variety of exploration and production companies, from large publicly-traded
companies to small, privately-owned companies. We do not believe the loss of any
single operator would have a material adverse effect on our company as a whole.
Intellectual Property
We own the trademark “Lithium
Exploration Group” for the use of mining exploration, namely, lithium
exploration services, in class 42 (U.S. CLS. 100 and 101). The registration
number is 4,075,565 and was registered on December 20, 2011. We do not have any
other intellectual property.
Government Approvals and Regulations
Regulations Pertaining to Our Mining Operations
Any operations at our lithium
properties will be subject to various federal and state laws and regulations in
Canada which govern prospecting, development, mining, production, exports,
taxes, labor standards, occupational health, waste disposal, protection of the
environment, mine safety, hazardous substances and other matters. We will be
required to obtain those licenses, permits or other authorizations currently
required to conduct exploration and other programs. There are no current orders
or directions relating to us or to our lithium properties with respect to the
foregoing laws and regulations. Such compliance may include feasibility studies
on the surface impact of our proposed operations, costs associated with
minimizing surface impact, water treatment and protection, reclamation
activities, including rehabilitation of various sites, on-going efforts at
alleviating the mining impact on wildlife and permits or bonds as may be
required to ensure our compliance with applicable regulations. It is possible
that the costs and delays associated with such compliance could become so
prohibitive that we may decide to not proceed with exploration, development, or
mining operations on any of our mineral properties. We are not presently aware
of any specific material environmental constraints affecting our properties that
would preclude the economic development or operation of property in Canada.
Regulations Pertaining to Our Oil and Gas Operations
Our operations are subject to
various rules, regulations and limitations impacting the oil and natural gas
exploration and production industry as whole.
11
Regulation of Oil and Natural Gas Production
Our oil and natural gas
exploration, production and related operations are subject to extensive rules
and regulations promulgated by federal, state, tribal and local authorities and
agencies. For example, certain states such as North Dakota and Montana require
permits for drilling operations, drilling bonds and reports concerning
operations and impose other requirements relating to the exploration and
production of oil and natural gas. Such states may also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the location of wells,
the method of drilling and casing wells, the surface use and restoration of
properties upon which wells are drilled, the sourcing and disposal of water used
in the process of drilling, completion and abandonment, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells. The effect of these regulations is to limit the
amount of oil and natural gas that producers can produce from their wells and to
limit the number of wells or the locations at which they can drill. Moreover,
both states impose a production or severance tax with respect to the production
and sale of oil, natural gas and natural gas liquids within their jurisdictions.
Failure to comply with any such rules and regulations can result in substantial
penalties. The regulatory burden on the oil and natural gas industry will most
likely increase our cost of doing business and may affect our profitability.
Because such rules and regulations are frequently amended or reinterpreted, we
are unable to predict the future cost or impact of complying with such laws in
the areas in which we operate. Significant expenditures may be required to
comply with governmental laws and regulations and may have a material adverse
effect on our financial condition and results of operations. Additionally,
currently unforeseen environmental incidents may occur or past non-compliance
with environmental laws or regulations may be discovered. Therefore, we are
unable to predict the future costs or impact of compliance. Additional proposals
and proceedings that affect the oil and natural gas industry are regularly
considered by Congress, the states, the Federal Energy Regulatory Commission
(“FERC”) and the courts. We cannot predict when or whether any such proposals
may become effective.
Regulation of Transportation of Oil
Sales of crude oil, condensate
and natural gas liquids are not currently regulated and are made at negotiated
prices. Nevertheless, Congress could reenact price controls in the future.
Future sales of crude oil will be affected by the availability, terms and cost
of transportation. The transportation of oil by common carrier pipelines is also
subject to rate and access regulation. The FERC regulates interstate oil
pipeline transportation rates under the Interstate Commerce Act. In general,
interstate oil pipeline rates must be cost-based, although settlement rates
agreed to by all shippers are permitted and market-based rates may be permitted
in certain circumstances. Effective January 1, 1995, the FERC implemented
regulations establishing an indexing system (based on inflation) for
transportation rates for oil pipelines that allows a pipeline to increase its
rates annually up to a prescribed ceiling, without making a cost of service
filing. Every five years, the FERC reviews the appropriateness of the index
level in relation to changes in industry costs. On December 17, 2015, the FERC
established a new price index for the five-year period which commenced on July
1, 2016.
Intrastate oil pipeline
transportation rates are subject to regulation by state regulatory commissions.
The basis for intrastate oil pipeline regulation, and the degree of regulatory
oversight and scrutiny given to intrastate oil pipeline rates varies from state
to state. Insofar as effective interstate and intrastate rates are equally
applicable to all comparable shippers, we believe that the regulation of oil
transportation rates will not affect our operations in any way that is of
material difference from those of our competitors who are similarly situated.
Further, interstate and
intrastate common carrier oil pipelines must provide service on a
non-discriminatory basis. Under this open access standard, common carriers must
offer service to all similarly situated shippers requesting service on the same
terms and under the same rates. When oil pipelines operate at full capacity,
access is generally governed by pro-rationing provisions set forth in the
pipelines’ published tariffs. Accordingly, we believe that access to oil
pipeline transportation services generally will be available to us once we
commence revenues to the same extent as to our similarly situated competitors.
Regulation of Transportation and Sales of Natural Gas
Historically, the transportation
and sale for resale of natural gas in interstate commerce has been regulated by
the FERC under the Natural Gas Act of 1938 (“NGA”), the Natural Gas Policy Act
of 1978 (“NGPA”) and regulations issued under those statutes. In the past, the
federal government has regulated the prices at which natural gas could be sold.
While sales by producers of natural gas can currently be made at market prices,
Congress could reenact price controls in the future.
12
Onshore gathering services, which
occur upstream of FERC jurisdictional transmission services, are regulated by
the states. Although the FERC has set forth a general test for determining
whether facilities perform a non-jurisdictional gathering function or a
jurisdictional transmission function, the FERC’s determinations as to the
classification of facilities is done on a case-by-case basis. State regulation
of natural gas gathering facilities generally includes various safety,
environmental and, in some circumstances, nondiscriminatory take requirements.
Although such regulation has not generally been affirmatively applied by state
agencies, natural gas gathering may receive greater regulatory scrutiny in the
future.
Intrastate natural gas
transportation and facilities are also subject to regulation by state regulatory
agencies, and certain transportation services provided by intrastate pipelines
are also regulated by FERC. The basis for intrastate regulation of natural gas
transportation and the degree of regulatory oversight and scrutiny given to
intrastate natural gas pipeline rates and services varies from state to state.
Insofar as such regulation within a particular state will generally affect all
intrastate natural gas shippers within the state on a comparable basis, we
believe that the regulation of similarly situated intrastate natural gas
transportation in any states in which we operate and ship natural gas on an
intrastate basis will not affect our operations in any way that is of material
difference from those of our competitors. Like the regulation of interstate
transportation rates, the regulation of intrastate transportation rates affects
the marketing of natural gas that we produce, as well as the revenues we receive
for sales of our natural gas.
Environmental Matters
Our operations and properties are
subject to extensive and changing federal, state and local laws and regulations
relating to environmental protection, including the generation, storage,
handling, emission, transportation and discharge of materials into the
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may:
• require the acquisition of a permit
or other authorization before construction or drilling commences and for certain
other activities;
• limit or prohibit construction,
drilling and other activities on certain lands lying within wilderness and other
protected areas; and
• impose substantial liabilities for
pollution resulting from its operations.
The permits required for our
operations may be subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce their
regulations, and violations are subject to fines or injunctions, or both. Given
our limited operations to date, management believes that we are in compliance
with current applicable environmental laws and regulations, and have no material
commitments for capital expenditures to comply with existing environmental
requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on our
company, as well as the oil and natural gas industry in general.
The Comprehensive Environmental,
Response, Compensation, and Liability Act (“CERCLA”) and comparable state
statutes impose strict, joint and several liability on owners and operators of
sites and on persons who disposed of or arranged for the disposal of “hazardous
substances” found at such sites. It is not uncommon for the neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the hazardous substances released into the
environment. The Federal Resource Conservation and Recovery Act (“RCRA”) and
comparable state statutes govern the disposal of “solid waste” and “hazardous
waste” and authorize the imposition of substantial fines and penalties for
noncompliance. Although CERCLA currently excludes petroleum from its definition
of “hazardous substance,” state laws affecting our operations may impose
clean-up liability relating to petroleum and petroleum related products. In
addition, although RCRA classifies certain oil field wastes as “non-hazardous,”
such exploration and production wastes could be reclassified as hazardous wastes
thereby making such wastes subject to more stringent handling and disposal
requirements. Recent regulation and litigation that has been brought against others
in the industry under RCRA concern liability for earthquakes that were allegedly
caused by injection of oil field wastes.
13
The Endangered Species Act
(“ESA”) seeks to ensure that activities do not jeopardize endangered or
threatened animal, fish and plant species, nor destroy or modify the critical
habitat of such species. Under ESA, exploration and production operations, as
well as actions by federal agencies, may not significantly impair or jeopardize
the species or its habitat. ESA provides for criminal penalties for willful
violations of ESA. Other statutes that provide protection to animal and plant
species and that may apply to our operations include, but are not necessarily
limited to, the Fish and Wildlife Coordination Act, the Fishery Conservation and
Management Act, the Migratory Bird Treaty Act and the National Historic
Preservation Act. Given our limited operations to date, management believes that
we are in compliance with current applicable environmental laws and regulations,
although any change in these statutes or any reclassification of a species as
endangered could subject our company (directly or indirectly through our
operating partners) to significant expenses to modify our operations or could
force discontinuation of certain operations altogether.
On April 17, 2012, the U.S.
Environmental Protection Agency (the “EPA”) finalized rules proposed on July 28,
2011 that establish new air emission controls under the Clean Air Act (“CCA”)
for oil and natural gas production and natural gas processing operations.
Specifically, the EPA’s rule package includes New Source Performance Standards
(“NSPS”) for the oil and natural gas source category to address emissions of
sulfur dioxide and volatile organic compounds (“VOCs”) and a separate set of
emission standards to address hazardous air pollutants frequently associated
with oil and natural gas production and processing activities. On August 5,
2013, the EPA issued final updates to its 2012 VOC performance standards for
storage tanks. The rules establish specific new requirements regarding emissions
from compressors, dehydrators, storage tanks and other production equipment. In
addition, the rules revise leak detection requirements for natural gas
processing plants. These rules may require a number of modifications to the
operations of our third-party operating partners, including the installation of
new equipment to control emissions from compressors.
On September 18, 2015, the EPA
proposed to further amend the NSPS for the oil and natural gas source category
to set standards for methane and VOC emissions from new and modified oil and gas
production sources and natural gas-processing and transmission sources. These
regulations were finalized and published in the Federal Register on June 3,
2016. Although we cannot predict the cost to comply with these new requirements
at this point, compliance with these new rules could result in significant
costs, including increased capital expenditures and operating costs, and could
adversely impact our business.
These new regulations and
proposals and any other new regulations requiring the installation of more
sophisticated pollution control equipment could have a material adverse impact
on our business, results of operations and financial condition.
The Federal Water Pollution
Control Act of 1972, or the Clean Water Act (the “CWA”), imposes restrictions
and controls on the discharge of produced waters and other pollutants into
navigable waters. Permits must be obtained to discharge pollutants into state
and federal waters and to conduct construction activities in waters and
wetlands. The CWA and certain state regulations prohibit the discharge of
produced water, sand, drilling fluids, drill cuttings, sediment and certain
other substances related to the oil and gas industry into certain coastal and
offshore waters without an individual or general National Pollutant Discharge
Elimination System discharge permit. In addition, the Clean Water Act and
analogous state laws require individual permits or coverage under general
permits for discharges of storm water runoff from certain types of facilities.
Some states also maintain groundwater protection programs that require permits
for discharges or operations that may impact groundwater conditions. Costs may
be associated with the treatment of wastewater and/or developing and
implementing storm water pollution prevention plans. The CWA and comparable
state statutes provide for civil, criminal and administrative penalties for
unauthorized discharges of oil and other pollutants and impose liability on
parties responsible for those discharges, for the costs of cleaning up any
environmental damage caused by the release and for natural resource damages
resulting from the release.
The underground injection of oil
and natural gas wastes are regulated by the Underground Injection Control
program authorized by the Safe Drinking Water Act. The primary objective of
injection well operating requirements is to ensure the mechanical integrity of
the injection apparatus and to prevent migration of fluids from the injection
zone into underground sources of drinking water. Substantially
all of the oil and natural gas production in which we have interest is developed
from unconventional sources that require hydraulic fracturing as part of the
completion process. Hydraulic fracturing involves the injection of water, sand
and chemicals under pressure into the formation to stimulate gas production.
Legislation to amend the Safe Drinking Water Act to repeal the exemption for
hydraulic fracturing from the definition of “underground injection” and require
federal permitting and regulatory control of hydraulic fracturing, as well as
legislative proposals to require disclosure of the chemical constituents of the
fluids used in the fracturing process, were proposed in recent sessions of
Congress. The U.S. Congress continues to consider legislation to amend the Safe
Drinking Water Act to address hydraulic fracturing operations.
14
Scrutiny of hydraulic fracturing
activities continues in other ways. The federal government is currently
undertaking several studies of hydraulic fracturing’s potential impacts. Several
states, including Montana and North Dakota, have also proposed or adopted
legislative or regulatory restrictions on hydraulic fracturing. A number of
municipalities in other states, including Colorado and Texas, have enacted bans
on hydraulic fracturing. New York State’s ban on hydraulic fracturing was
recently upheld by the Courts. In Colorado, the Colorado Supreme Court has ruled
the municipal bans were preempted by state law. We cannot predict whether any
other legislation will ever be enacted and if so, what its provisions would be.
If additional levels of regulation and permits were required through the
adoption of new laws and regulations at the federal or state level, which could
lead to delays, increased operating costs and process prohibitions that would
materially adversely affect our potential for revenue and results of operations.
The National Environmental Policy
Act (“NEPA”) establishes a national environmental policy and goals for the
protection, maintenance and enhancement of the environment and provides a
process for implementing these goals within federal agencies. A major federal
agency action having the potential to significantly impact the environment
requires review under NEPA. Many of the activities of our third-party operating
partners are covered under categorical exclusions which results in a shorter
NEPA review process. The Council on Environmental Quality has announced an
intention to reinvigorate NEPA reviews and on March 12, 2012, issued final
guidance that may result in longer review processes that could lead to delays
and increased costs that could materially adversely affect our potential for
revenues and results of operations.
Climate Change
Significant studies and research
have been devoted to climate change, and climate change has developed into a
major political issue in the United States and globally. Certain research
suggests that greenhouse gas emissions contribute to climate change and pose a
threat to the environment. Recent scientific research and political debate has
focused in part on carbon dioxide and methane incidental to oil and natural gas
exploration and production.
In the United States, legislative
and regulatory initiatives are underway to limit greenhouse gas (“GHG”)
emissions. The U.S. Congress has considered legislation that would control GHG
emissions through a “cap and trade” program and several states have already
implemented programs to reduce GHG emissions. The U.S. Supreme Court determined
that GHG emissions fall within the federal Clean Air Act, or the CAA, definition
of an “air pollutant.” In response, the EPA promulgated an endangerment finding
paving the way for regulation of GHG emissions under the CAA. In 2010, the EPA
issued a final rule, known as the “Tailoring Rule,” that makes certain large
stationary sources and modification projects subject to permitting requirements
for greenhouse gas emissions under the Clean Air Act. On June 23, 2014, the U.S.
Supreme Court in Utility Air Regulatory Group v. EPA held that the EPA’s
“Tailoring Rule” was invalid, but held that if a source was subject to
Prevention of Significant Deterioration (“PSD”) or Title V based on emissions of
conventional pollutants like sulfur dioxide, particulates, nitrogen dioxide,
carbon monoxide, ozone or lead, then the EPA could also require the source to
control GHG emissions and the source would have to install Best Available
Control Technology to do so. As a result, a source no longer is required to meet
PSD and Title V permitting requirements based solely on its GHG emissions, but
may still have to control GHG emissions if it is an otherwise regulated source.
On February 23, 2014, Colorado
became the first state in the nation to adopt rules to control methane emissions
from oil and gas facilities. On June 3, 2016, EPA issued three final rules that
were intended to curb emissions of methane, VOCs and toxic air pollutants such
as benzene from new, reconstructed and modified oil and gas sources. These new
regulations include leak detection and repair provisions, and may require
controls to reduce methane emissions from certain oil and gas facilities. To the
extent our third party operating partners are required to further control
methane emissions, such controls could impact our business.
15
In addition, in September 2009,
the EPA issued a final rule requiring the reporting of GHGs from specified large
GHG emission sources in the United States beginning in 2011 for emissions in
2010. On November 30, 2010, the EPA published a final rule expanding its
existing GHG emissions reporting to include onshore and offshore oil and natural
gas systems beginning in 2012. Our third party operating partners are required
to report their greenhouse gas emissions under these rules. Because regulation
of GHG emissions is relatively new, further regulatory, legislative and judicial
developments are likely to occur. Such developments may affect how these GHG
initiatives will impact us. Moreover, while the U.S. Supreme Court held in its
June 2011 decision American Electric Power Co. v. Connecticut that, with respect
to claims concerning GHG emissions, the federal common law of nuisance was
displaced by the federal Clean Air Act, the Court left open the question of
whether tort claims against sources of GHG emissions alleging property damage
may proceed under state common law. There thus remains some litigation risk for
such claims. Due to the uncertainties surrounding the regulation of and other
risks associated with GHG emissions, we cannot predict the financial impact of
related developments on us.
Legislation or regulations that
may be adopted to address climate change could also affect the markets for our
products by making our products more or less desirable than competing sources of
energy. To the extent that our products are competing with higher greenhouse gas
emitting energy sources, our products would become more desirable in the market
with more stringent limitations on greenhouse gas emissions. To the extent that
our products are competing with lower GHG emitting energy sources such as solar
and wind, our products would become less desirable in the market with more
stringent limitations on greenhouse gas emissions. We cannot predict with any
certainty at this time how these possibilities may affect our operations.
The majority of scientific
studies on climate change suggest that stronger storms may occur in the future
in the areas where we operate, although the scientific studies are not
unanimous. Although operators may take steps to mitigate physical risks from
storms, no assurance can be given that future storms will not have a material
adverse effect on our business.
Subsidiaries
We have two wholly-owned
subsidiaries, Alta Disposal Ltd. (“Alta Disposal”) and Black Box Energy, Inc.
(“Black Box Energy”), and a 51% owned subsidiary, Alta Disposal Morinville Ltd.
(“ADM”). Alta Disposal was incorporated in the province of Alberta, Canada on
July 8, 2011. This subsidiary was formed to stake MAIM (Metallic and Industrial
Mineral) rights in Alberta which subsequently lapsed or were sold. Black Box
Energy was incorporated on September 9, 2016 in the State of Nevada for the
purposes of acquiring a 50% working interest in the McKean County Project. ADM
(formerly Blue Tap Resources, Inc.) is an Alberta, Canada corporation. On
September 4, 2015, we sold substantially all of the assets, business and
undertaking of ADM.
Employees
As of June 30, 2017, we had 2
full-time employees. We intend to hire additional staff and to engage
consultants in general administration on an as-needed basis. We also may engage
experts in general business to advise us in various capacities.
16
ITEM 1A. RISK FACTORS
You should carefully consider the
risks described below together with all of the other information included in our
public filings before making an investment decision with regard to our
securities. The statements contained in or incorporated into this document that
are not historic facts are forward-looking statements that are subject to risks
and uncertainties that could cause actual results to differ materially from
those set forth in or implied by forward-looking statements. If any of the
following events described in these risk factors actually occurs, our business,
financial condition or results of operations could be harmed. In that case, the
trading price of our common stock could decline, and you may lose all or part of
your investment. Moreover, additional risks not presently known to us or that we
currently deem less significant also may impact our business, financial
condition or results of operations, perhaps materially. For additional
information regarding risk factors, see Item 1 – “Forward-Looking Statements.”
17
Risks Related to Our Business
We have a limited operating
history and as a result there is no assurance we can operate on a profitable
basis.
We have a limited operating
history, and our operations will be subject to all the uncertainties arising
from the absence of a significant operating history. Potential investors should
be aware of the difficulties normally encountered by resource exploration
companies and the high rate of failure of such enterprises. The likelihood of
success must be considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the exploration of the
properties that we plan to undertake. These potential problems include, but are
not limited to, unanticipated problems relating to exploration, and additional
costs and expenses that may exceed current estimates. The expenditures to be
made by us in the exploration of our properties may not result in the discovery
of reserves. Problems such as unusual or unexpected formations of rock or land
and other conditions are involved in resource exploration and often result in
unsuccessful exploration efforts. If the results of our exploration do not
reveal viable commercial reserves, we may decide to abandon our claims and
acquire new claims for new exploration or cease operations. The acquisition of
additional claims will be dependent upon us possessing capital resources at the
time in order to purchase such claims. If no funding is available, we may be
forced to abandon our operations. There can be no assurance that we will be able
to operate on a profitable basis.
If we do not continue to
obtain additional financing, our business will fail and our investors could lose
their investment.
We had cash in the amount of
$33,136 and working capital deficiency (current liabilities exceeding current
assets) of $6,934,640 as of the year ended June 30, 2017. We currently do not
generate much revenue from our operations. Any direct acquisition of a claim
under lease or option is subject to our ability to obtain the financing
necessary for us to fund and carry out exploration programs on potential
properties. The requirements are substantial. Obtaining additional financing
would be subject to a number of factors, including market prices for resources,
investor acceptance of our properties and investor sentiment. These factors may
negatively affect the timing, amount, terms or conditions of any additional
financing available to us. The most likely source of future funds presently
available to us is through the sale of equity capital, convertible loans or
other equity-linked securities. Any sale of share capital will result in
dilution to existing shareholders.
Risks Related to Our Mineral Exploration Business
Because of the speculative
nature of exploration of mineral properties, we may never discover a
commercially exploitable quantity of minerals, our business may fail and
investors may lose their entire investment.
We are in the very early
exploration stage and cannot guarantee that our exploration work will be
successful, or that any minerals will be found, or that any production of
minerals will be realized. The search for valuable minerals as a business is
extremely risky. Substantial investment will be required to move our company
toward the production of minerals. This may require bringing in a partner to
make the necessary investment, but there are no plans at this time for any form
of partnership or merger. We can provide investors with no assurance that
exploration on our properties will establish that commercially exploitable
reserves of minerals exist on our property. Additional potential problems that
may prevent us from discovering any reserves of minerals on our property
include, but are not limited to, unanticipated problems relating to exploration
and additional costs and expenses that may exceed current estimates. If we are
unable to establish the presence of commercially exploitable reserves of
minerals on our property, our ability to fund future exploration activities will
be impeded, we will not be able to operate profitably and investors may lose all
of their investment in our company.
We have no known mineral
reserves and we may not find any lithium and, even if we find lithium, it may
not be in economic quantities. If we fail to find any lithium or if we are
unable to find lithium in economic quantities, we will have to suspend
operations.
We have no known mineral
reserves. Additionally, even if we find lithium in sufficient quantity to
warrant recovery, it ultimately may not be recoverable. Finally, even if any
lithium is recoverable, we do not know that this can be done at a profit. Failure to locate lithium in
economically recoverable quantities will cause us to suspend operations.
18
Supplies needed for
exploration may not always be available. If we are unable to secure exploration
supplies we may have to delay our anticipated business operations.
Competition and unforeseen
limited sources of supplies needed for our proposed exploration work could
result in occasional spot shortages of supplies of certain products, equipment
or materials. There is no guarantee we will be able to obtain certain products,
equipment and/or materials as and when needed, without interruption, or on
favorable terms. Such delays could affect our anticipated business operations
and increase our expenses.
Because of the unique
difficulties and uncertainties inherent in mineral exploration ventures, we face
a high risk of business failure.
Potential investors should be
aware of the difficulties normally encountered by new mineral exploration
companies and the high rate of failure of such enterprises. The likelihood of
success must be considered in light of the problems, expenses, difficulties,
complications and delays encountered in connection with the exploration of the
mineral properties that we plan to undertake. These potential problems include,
but are not limited to, unanticipated problems relating to exploration, and
additional costs and expenses that may exceed current estimates. The
expenditures to be made by us in the exploration of the mineral claim may not
result in the discovery of mineral deposits. Problems such as unusual or
unexpected formations and other conditions are involved in mineral exploration
and often result in unsuccessful exploration efforts. If the results of our
exploration do not reveal viable commercial mineralization, we may decide to
abandon our claims. If this happens, our business will likely fail.
The marketability of natural
resources will be affected by numerous factors beyond our control, which may
result in us not receiving an adequate return on invested capital to be
profitable or viable.
The marketability of natural
resources, which may be acquired or discovered by us, will be affected by
numerous factors beyond our control. These factors include market fluctuations
in lithium pricing and demand, the proximity and capacity of natural resource
markets and processing equipment, governmental regulations, land tenure, land
use, regulation concerning the importing and exporting of mineral resources and
environmental protection regulations. The exact effect of these factors cannot
be accurately predicted, but the combination of these factors may result in us
not receiving an adequate return on invested capital to be profitable or viable.
Exploration and production
activities are subject to certain environmental regulations, which may prevent
or delay the commencement or continuation of our operations.
In general, our exploration and
production activities are subject to certain federal, state and local laws and
regulations relating to environmental quality and pollution control. Such laws
and regulations increase the costs of these activities and may prevent or delay
the commencement or continuation of a given operation. Specifically, we may be
subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry.
Any change to government
regulation/administrative practices may have a negative impact on our ability to
operate and our profitability.
The business of mineral
exploration and development is subject to substantial regulation under various
countries’ laws relating to the exploration for, and the development, upgrading,
marketing, pricing, taxation, and transportation of mineral resources and
related products and other matters. Amendments to current laws and regulations
governing operations and activities of mineral exploration and development
operations could have a material adverse impact on our business. In addition,
there can be no assurance that income tax laws, royalty regulations and
government incentive programs related to the properties and the mineral
exploration industry generally will not be changed in a manner which may adversely
affect our progress and cause delays, inability to explore and develop or
abandonment of these interests.
19
Permits, leases, licenses, and
approvals are required from a variety of regulatory authorities at various
stages of exploration and development. There can be no assurance that the
various government permits, leases, licenses and approvals sought will be
granted in respect of our activities or, if granted, will not be cancelled or
will be renewed upon expiry. There is no assurance that such permits, leases,
licenses, and approvals will not contain terms and provisions, which may
adversely affect our exploration and development activities.
If we are unable to hire and
retain key personnel, we may not be able to implement our business plan.
Our success is largely dependent
on our ability to hire highly qualified personnel. This is particularly true in
highly technical businesses such as resource exploration. These individuals are
in high demand and we may not be able to attract the personnel we need. In
addition, we may not be able to afford the high salaries and fees demanded by
qualified personnel, or may lose such employees after they are hired. Failure to
hire key personnel when needed, or on acceptable terms, would have a significant
negative effect on our business.
Planned exploration, and if warranted, development and
mining activities involve a high degree of risk.
We cannot provide assurance of
the success of our planned operations. Exploration costs are not fixed, and
resources cannot be reliably identified until substantial development has taken
place, which entails high exploration and development costs. The costs of
mining, processing, development and exploitation activities are subject to
numerous variables, which could result in substantial cost overruns. Mining for
base or precious metals may involve unprofitable efforts, not only from dry
properties, but from properties that are productive but do not produce
sufficient net revenues to return a profit after accounting for mining,
operating and other costs.
Our operations may be curtailed,
delayed or cancelled as a result of numerous factors, many of which are beyond
our control, including economic conditions, mechanical problems, title problems,
weather conditions, compliance with governmental requirements and shortages or
delays of equipment and services.
We do not insure against all
risks associated with our business because insurance is either unavailable or
its cost of coverage is prohibitive. The occurrence of an event that is not
covered by insurance could have a material adverse effect on our financial
condition.
The impact of government regulation could adversely affect
our business.
Our business is subject to
applicable domestic and foreign laws and regulations, including laws and
regulations on taxation, exploration, and environmental and safety matters. Many
laws and regulations govern the spacing of mines, rates of production,
prevention of waste and other matters. These laws and regulations may increase
the costs and timing of planning, designing, drilling, installing, operating and
abandoning our mines and other facilities. In addition, our operations are
subject to complex environmental laws and regulations adopted by domestic and
foreign jurisdictions where we operate. We could incur liability to governments
or third parties for any unlawful discharge of pollutants into the air, soil or
water, including responsibility for remedial costs.
The submission and approval of environmental impact
assessments may be required.
Environmental legislation is
evolving in a manner which means stricter standards, enforcement, fines and
penalties for noncompliance are more stringent. Environmental assessments of
proposed projects carry a heightened degree of responsibility for companies and
directors, officers and employees. The cost of compliance with changes in
governmental regulations has a potential to reduce the profitability of
operations. Because the requirements imposed by these laws and regulations
frequently change, we cannot provide assurance that laws and regulations enacted
in the future, including changes to existing laws and regulations, will not
adversely affect our business.
20
Decline in mineral prices may
make it commercially infeasible for us to develop our property and may cause our
stock price to decline.
The value and price of an
investment in our common shares, our financial results, and our exploration,
development and mining activities may be significantly adversely affected by
declines in the price of minerals and other precious metals. Mineral prices
fluctuate widely and are affected by numerous factors beyond our control, such
as interest rates, exchange rates, inflation or deflation, fluctuation in the
value of the United States dollar and foreign currencies, global and regional
supply and demand, and the political and economic conditions of
mineral-producing countries throughout the world. The price of minerals
fluctuates in response to many factors, which are beyond anyone’s prediction
abilities. The prices used in making the estimates in our plans differ from
daily prices quoted in the news media. Because mining occurs over a number of
years, it may be prudent to continue mining for some periods during which cash
flows are temporarily negative for a variety of reasons. Such reasons include a
belief that the low price is temporary, and/or the expense incurred is greater
when permanently closing a mine.
We may not have access to all
of the supplies and materials we need to begin exploration, which could cause us
to delay or suspend operations.
Competition and unforeseen
limited sources of supplies in the industry could result in occasional spot
shortages of supplies such as dynamite as well as certain equipment like
bulldozers and excavators that we might need to conduct exploration. If we
cannot obtain the necessary supplies, we will have to suspend our exploration
plans until we do obtain such supplies.
Risks Related to Our SonCav Technology
The market for our product may be limited, and as a result
our business may be adversely affected.
The feasibility of marketing our
product has been assumed to this point and there can be no assurance that such
assumptions are correct. It is possible that the costs of development and
implementation of our SonCav technology may be too expensive to market at a
competitive price. It is likewise possible that competing technologies will be
introduced into the marketplace before or after the introduction of our product
to the market, which may affect our ability to market our product at a
competitive price.
Furthermore, there can be no
assurance that the prices we determine to charge for our product will be
commercially acceptable or that the prices that may be dictated by the market
will be sufficient to provide to us sufficient revenues to profitably operate
and provide a financial return to our investors.
Our success is dependent upon our ability to commercialize
our SonCav technology.
We have not commenced commercial
operations. Up through the date of this report, we have been engaged principally
in the research and development of the SonCav technology. Therefore, we have a
limited operating history upon which an evaluation of our prospects can be made.
Our prospects must be considered in light of the risk, uncertainties, expenses,
delays and difficulties associated with the establishment of a new business in
the oil and gas services industry, as well as those risks encountered in the
shift from development to commercialization of new technology and products or
services based upon such technology.
We have developed our first
commercial system, but additional work is required to incorporate that
technology into a system capable of accommodating hundreds of customers, which
is the minimum capability we believe is necessary to compete in the marketplace.
Our success is dependent upon our ability to protect our
intellectual property.
Our success will depend in part
on our ability to obtain and enforce protection for our intellectual property in
the United States and other countries. It is possible that our intellectual
property protection could fail. It is possible that the claims for patents or
other intellectual property protections could be denied or invalidated or that
our protections will not be sufficiently broad to protect our technology. It is
also possible that our intellectual property will not provide protection against
competitive products, or will not otherwise be commercially viable.
21
Our commercial success will
depend in part on our ability to commercialize the production of our technology
without infringing on patents or proprietary rights of others. We cannot
guarantee that other companies or individuals have not or will not independently
develop substantially equivalent proprietary rights or that other parties have
not or will not be issued patents that may prevent the sale of our products or
require licensing and the payment of significant fees or royalties in order for
us to be able to carry on our business.
Risks Related to Our Oil & Gas Exploration Business
Oil and natural gas prices are
volatile. The continuing and extended decline in oil and natural gas prices has
adversely affected, and could continue to adversely affect, our business,
financial position, results of operations and cash flow.
The oil and natural gas markets
are very volatile, and we cannot predict future oil and natural gas prices. Oil
and natural gas prices declined significantly and have remained depressed since
late 2014. The prices we expect to receive for our oil and natural gas
production in the future heavily influences our revenue, profitability, access
to capital and future rate of growth.
The prices we expect to receive
for our production and the levels of our production depend on numerous factors
beyond our control. These factors include, but are not limited to, the
following:
|
•
|
changes in global supply and demand for oil and
natural gas;
|
|
•
|
the actions of OPEC and other major oil
producing countries;
|
|
•
|
the price and quantity of imports of foreign
oil and natural gas;
|
|
•
|
political and economic conditions, including
embargoes, in oil-producing countries or affecting other oil- producing
activity;
|
|
•
|
the level of global oil and natural gas
exploration and production activity;
|
|
•
|
the level of global oil and natural gas
inventories;
|
|
•
|
changes in U.S. energy policy under the current
administration;
|
|
•
|
weather conditions;
|
|
•
|
technological advances affecting energy
consumption;
|
|
•
|
domestic and foreign governmental regulations;
|
|
•
|
proximity and capacity of oil and natural gas
pipelines and other transportation facilities;
|
|
•
|
the price and availability of competitors’
supplies of oil and natural gas in captive market areas; and
|
|
•
|
the price and availability of alternative
fuels.
|
Lower oil and natural gas prices
have and, if they continue, will have an impact on our future revenues, the
amount of oil and natural gas that our operators can produce economically, and
our potential reserve bookings.
Our estimated reserves are
based on many assumptions that may prove to be inaccurate. Any material
inaccuracies in these reserve estimates or underlying assumptions will
materially affect the quantities and present value of our reserves.
Determining the amount of oil and
natural gas recoverable from various formations involves significant complexity
and uncertainty. No one can measure underground accumulations of oil or natural
gas in an exact way. Oil and natural gas reserve engineering requires subjective
estimates of underground accumulations of oil and/or natural gas and assumptions
concerning future oil and natural gas prices, production levels, and operating,
exploration and development costs. Some of our reserve estimates are made
without the benefit of a lengthy or no production history, and are less reliable
than estimates based on a lengthy production history. As a result, estimated
quantities of proved reserves and projections of future production rates and the
timing of development expenditures may prove to be inaccurate.
In the future, we expect to make
estimates of oil and natural gas reserves in connection with managing our
business and preparing reports to our lenders and investors. Such reserve
estimates may use various assumptions, including assumptions as to oil and
natural gas prices, development schedules, drilling and operating expenses, capital expenditures, taxes and availability of funds. Some of
these assumptions are inherently subjective, and the accuracy of any reserve
estimates relies in part on the ability of our management team, reserve
engineers and other advisors to make accurate assumptions. Any significant
variance from these assumptions by actual figures could greatly affect our
estimates of reserves, the economically recoverable quantities of oil, natural
gas and NGLs attributable to any particular group of properties, the
classifications of reserves based on risk of recovery, and estimates of the
future net cash flows.
22
Drilling for and producing
oil, natural gas and NGLs are high risk activities with many uncertainties that
could adversely affect our financial condition or results of operations.
Our operators’ drilling
activities in the future are subject to many risks, including the risk that they
will not discover commercially productive reservoirs. Drilling for oil or
natural gas can be uneconomical, not only from dry holes, but also from
productive wells that do not produce sufficient revenues to be commercially
viable. In addition, drilling and producing operations on our acreage may be
curtailed, delayed or canceled by our operators as a result of other factors,
including:
|
•
|
declines in oil or natural gas prices;
|
|
•
|
the high cost, shortages or delivery delays of equipment
and services;
|
|
•
|
shortages of or delays in obtaining water for hydraulic
fracturing operations;
|
|
•
|
unexpected operational events;
|
|
•
|
adverse weather conditions;
|
|
•
|
facility or equipment malfunctions;
|
|
•
|
title problems;
|
|
•
|
pipeline ruptures or spills;
|
|
•
|
compliance with environmental and other governmental
requirements;
|
|
•
|
regulations, restrictions, moratoria and bans on
hydraulic fracturing;
|
|
•
|
unusual or unexpected geological formations;
|
|
•
|
loss of drilling fluid circulation;
|
|
•
|
formations with abnormal pressures;
|
|
•
|
environmental hazards, such as oil, natural gas or well
fluids spills or releases, pipeline or tank ruptures and discharges of
toxic gas;
|
|
•
|
fires;
|
|
•
|
blowouts, craterings and explosions;
|
|
•
|
uncontrollable flows of oil, natural gas or well fluids;
and
|
|
•
|
pipeline capacity curtailments.
|
Any of these events can cause
substantial losses, including personal injury or loss of life, damage to or
destruction of property, natural resources and equipment, pollution,
environmental contamination, loss of wells and regulatory penalties.
Our future success depends on our
ability to replace reserves that our operators produce.
Because the rate of production
from oil and natural gas properties generally declines as reserves are depleted,
our future success depends upon our ability to economically find or acquire and
produce additional oil and natural gas reserves. Except to the extent that we
acquire additional properties containing proved reserves, conduct successful
exploration and development activities or, through engineering studies, identify
additional behind-pipe zones or secondary recovery reserves, our proved reserves
will decline as our reserves are produced. Future oil and natural gas
production, therefore, is highly dependent upon our level of success in
acquiring or finding additional reserves that are economically recoverable. We
cannot assure you that we will be able to find or acquire and develop additional
reserves at an acceptable cost.
We may acquire significant
amounts of unproved property to further our development efforts. Development and
exploratory drilling and production activities are subject to many risks,
including the risk that no commercially productive reservoirs will be
discovered. We acquire both proved and producing properties as well as
undeveloped acreage that we believe will enhance growth potential and increase
our earnings over time. However, we cannot assure you that all of these properties will contain
economically viable reserves or that we will not abandon our initial
investments. Additionally, we cannot assure you that unproved reserves or
undeveloped acreage that we acquire will be profitably developed, that new wells
drilled on our properties will be productive or that we will recover all or any
portion of our investments in our properties and reserves.
23
Our lack of industry and
geographical diversification may increase the risk of an investment in our
company.
Our business focus is on the oil
and natural gas industry in a limited number of properties that are primarily in
the areas of McKean County, Pennsylvania and Sulphur, Louisiana. While other
companies may have the ability to manage their risk by diversification, the
narrow focus of our business, in terms of both the industry focus and geographic
scope of our business, means that we will likely be impacted more acutely by
factors affecting our industry or the region in which we operate than we would
if our business were more diversified. As a result of the narrow focus of our
business, we may be disproportionately exposed to the effects of regional supply
and demand factors, delays or interruptions of production from wells in this
area caused by governmental regulation, processing or transportation capacity
constraints, market limitations, weather events or interruption of the
processing or transportation of oil or natural gas. Additionally, we may be
exposed to further risks, such as changes in field-wide rules and regulations
that could cause us to permanently or temporarily shut-in all of our wells. We
do not currently intend to broaden either the nature or geographic scope of our
business.
Locations that the operators
of our properties decide to drill may not yield oil or natural gas in
commercially viable quantities.
The cost of drilling, completing
and operating a well is often uncertain, and cost factors can adversely affect
the economics of a well. Our efforts will be uneconomical if the operators of
our properties drill dry holes or wells that are productive but do not produce
enough to be commercially viable after drilling, operating and other costs. If
the operators of our properties drill future wells that are identified as dry
holes, the drilling success rate would decline and may adversely affect our
results of operations.
Our business depends on oil
and natural gas transportation and processing facilities and other assets that
are owned by third parties.
The marketability of our oil and
natural gas depends in part on the availability, proximity and capacity of
pipeline systems, processing facilities, oil trucking fleets and rail
transportation assets owned by third parties. The lack of available capacity on
these systems and facilities, whether as a result of proration, physical damage,
scheduled maintenance or other reasons, could result in a substantial increase
in costs, the shut-in of producing wells or the delay or discontinuance of
development plans for our properties. The negative effects arising from these
and similar circumstances may last for an extended period of time. In many
cases, operators are provided only with limited, if any, notice as to when these
circumstances will arise and their duration. In addition, many of our wells are
drilled in locations that are serviced only to a limited extent, if at all, by
gathering and transportation pipelines, which may or may not have sufficient
capacity to transport production from all of the wells in the area. As a result,
we rely on third party oil trucking to transport a significant portion of our
production to third party transportation pipelines, rail loading facilities and
other market access points. Any significant curtailment in gathering system or
pipeline capacity, or the unavailability of sufficient third party trucking or
rail capacity, could adversely affect our business, results of operations and
financial condition.
Seasonal weather conditions
adversely affect operators’ ability to conduct drilling activities in the areas
where our properties are located.
Seasonal weather conditions can
limit drilling and producing activities and other operations in our operating
areas and as a result, a majority of the drilling on our properties is generally
performed during the summer and fall months. These seasonal constraints can pose
challenges for meeting well drilling objectives and increase competition for
equipment, supplies and personnel during the summer and fall months, which could
lead to shortages and increase costs or delay operations. Additionally, many
municipalities impose weight restrictions on the paved roads that lead to
jobsites due to the muddy conditions caused by spring thaws. This could limit
access to jobsites and operators’ ability to service wells in these areas.
24
We may be unable to obtain additional capital that we will
require to implement our business plan.
Future acquisitions and future
exploration, development, production and marketing activities, will require a
substantial amount of capital. Borrowings under equity-linked securities may not
be sufficient to fund both our continuing operations and our planned growth. We
may require additional capital to continue to grow our business through
acquisitions and to further expand our exploration and development programs. We
may be unable to obtain additional capital if and when required.
We may pursue sources of
additional capital through various financing transactions or arrangements,
including joint venturing of projects, debt financing, equity financing or other
means. We may not be successful in consummating suitable financing transactions
in the time period required or at all, and we may not be able to obtain the
capital we require by other means. If the amount of capital we are able to raise
from financing activities, together with our cash from operations, is not
sufficient to satisfy our capital requirements, we may not be able to implement
our business plan and may be required to scale back our operations, sell assets
at unattractive prices or obtain financing on unattractive terms, any of which
could adversely affect our business, results of operations and financial
condition.
Our acquisition strategy will subject us to certain risks
associated with the inherent uncertainty in evaluating properties for which we
have limited information.
We have expanded our operations
in part through acquisitions. Our decision to acquire a property will depend in
part on the evaluation of data obtained from production reports and engineering
studies, geophysical and geological analyses and seismic and other information,
the results of which are often inconclusive and subject to various
interpretations. Also, our reviews of acquired properties are inherently
incomplete because it generally is not feasible to perform an in-depth review of
the individual properties involved in each acquisition. Even a detailed review
of records and properties may not necessarily reveal existing or potential
problems, nor will it permit us to become sufficiently familiar with the
properties to assess fully their deficiencies and potential. Inspections may not
always be performed on every well, and environmental problems, such as ground
water contamination, are not necessarily observable even when an inspection is
undertaken.
Any acquisition involves other
potential risks, including, among other things:
|
•
|
the validity of our assumptions about reserves, future
production, revenues and costs;
|
|
•
|
a significant increase in our interest expense or
financial leverage if we incur additional debt to finance acquisitions;
|
|
•
|
dilution to shareholders if we use equity as
consideration for, or to finance, acquisitions;
|
|
•
|
the assumption of unknown liabilities, losses or costs
for which we are not indemnified or for which our indemnity is inadequate;
|
|
•
|
an inability to hire, train or retain qualified personnel
to manage and operate our growing business and assets; and
|
|
•
|
an increase in our costs or a decrease in our revenues
associated with any potential royalty owner or landowner claims or
disputes.
|
The loss of any member of our
management team, upon whose knowledge, relationships with industry participants,
leadership and technical expertise we rely could diminish our ability to conduct
our operations, and harm our ability to execute our business plan.
Our success depends heavily upon
the continued contributions of those members of our management team whose
knowledge, relationships with industry participants, leadership and technical
expertise would be difficult to replace. In particular, our ability to
successfully acquire additional properties, to increase our reserves, to
participate in drilling opportunities and to identify and enter into commercial
arrangements depends on developing and maintaining close working relationships
with industry participants. In addition, our ability to select and evaluate
suitable properties and to consummate transactions in a highly competitive
environment is dependent on our management team’s knowledge and expertise in the
industry. To continue to develop our business, we rely on our management team’s knowledge and expertise in the industry and
will use our management team’s relationships with industry participants to enter
into strategic relationships, which may take the form of joint ventures with
other private parties and contractual arrangements with other oil and natural
gas companies.
25
Competition may limit our
ability to obtain rights to explore and develop oil and natural gas reserves.
The oil and natural gas industry
is highly competitive. Other oil and natural gas companies may seek to acquire
oil and natural gas leases and other properties and services we will need to
operate our business in the areas in which we expect to operate. This
competition is increasingly intense as prices of oil and natural gas on the
commodities markets have risen in recent years. Additionally, other companies
engaged in our line of business may compete with us from time to time in
obtaining capital from investors. Competitors include larger companies which, in
particular, may have access to greater resources, may be more successful in the
recruitment and retention of qualified employees and may conduct their own
refining and petroleum marketing operations, which may give them a competitive
advantage. In addition, actual or potential competitors may be strengthened
through the acquisition of additional assets and interests. If we are unable to
compete effectively or respond adequately to competitive pressures, our results
of operation and financial condition may be materially adversely affected.
Market conditions or
operational impediments may hinder our access to oil and natural gas markets or
delay our production.
Market conditions or the
unavailability of satisfactory oil and natural gas transportation arrangements
may hinder our access to oil and natural gas markets or delay our production.
The availability of a ready market for our oil and natural gas production
depends on a number of factors, including the demand for and supply of oil and
natural gas and the proximity of reserves to pipelines and terminal facilities.
Our ability to market our production depends, in substantial part, on the
availability and capacity of gathering systems, pipelines and processing
facilities owned and operated by third-parties. Our failure to obtain such
services on acceptable terms could materially harm our business. We may be
required to shut in wells due to lack of a market or inadequacy or
unavailability of crude oil or natural gas pipelines or gathering system
capacity. If our production becomes shut-in for any of these or other reasons,
we would be unable to realize revenue from those wells until other arrangements
were made to deliver the products to market.
Our business is subject to
complex federal, state, local and other laws and regulations that could
adversely affect the cost, manner or feasibility of doing business.
Our operational interests, as
operated by our third-party operating partners, are regulated extensively at the
federal, state, tribal and local levels. Environmental and other governmental
laws and regulations have increased the costs to plan, design, drill, install,
operate and abandon oil and natural gas wells. Under these laws and regulations,
our company (either directly or indirectly through our operating partners) could
also be liable for personal injuries, property and natural resource damage and
other damages. Failure to comply with these laws and regulations may result in
the suspension or termination of our business and subject us to administrative,
civil and criminal penalties. Moreover, public interest in environmental
protection has increased in recent years, and environmental organizations have
opposed, with some success, certain drilling projects.
Part of the regulatory
environment in which we do business includes, in some cases, legal requirements
for obtaining environmental assessments, environmental impact studies and/or
plans of development before commencing drilling and production activities. In
addition, our activities are subject to the regulations regarding conservation
practices and protection of correlative rights. These regulations affect our
business and limit the quantity of natural gas we may produce and sell. A major
risk inherent in the drilling plans in which we participate is the need for our
operators to obtain drilling permits from state and local authorities. Delays in
obtaining regulatory approvals or drilling permits, the failure to obtain a
drilling permit for a well or the receipt of a permit with unreasonable
conditions or costs could have a material adverse effect on the development of
our properties. Additionally, the oil and natural gas regulatory environment
could change in ways that might substantially increase the financial and
managerial costs of compliance with these laws and regulations and,
consequently, adversely affect our profitability. At this time, we cannot
predict the effect of this increase on our results of operations.Furthermore, we may be put at a competitive disadvantage to
larger companies in our industry that can spread these additional costs over a
greater number of wells and larger operating staff.
26
Environmental risks may adversely affect our business.
All phases of the oil and natural
gas business can present environmental risks and hazards and are subject to
environmental regulation pursuant to a variety of federal, state and municipal
laws and regulations. Environmental legislation provides for, among other
things, restrictions and prohibitions on spills, releases or emissions of
various substances produced in association with oil and natural gas operations.
The legislation also requires that wells and facility sites be operated,
maintained, abandoned and reclaimed to the satisfaction of applicable regulatory
authorities. There is risk of incurring significant environmental costs and
liabilities as a result of the handling of petroleum hydrocarbons and wastes,
air emissions and wastewater discharges related to our business, and historical
operations and waste disposal practices. Failure to comply with these laws and
regulations may result in the assessment of administrative, civil and criminal
penalties, loss of our leases, incurrence of investigatory or remedial
obligations and the imposition of injunctive relief.
Environmental legislation is
evolving in a manner we expect may result in stricter standards and enforcement,
larger fines and liability and potentially increased capital expenditures and
operating costs. The discharge of oil, natural gas or other pollutants into the
air, soil or water may give rise to liabilities to governments and third parties
and may require us to incur costs to remedy such discharge, regardless of
whether we were responsible for the release or contamination and regardless of
whether our operating partners met previous standards in the industry at the
time they were conducted. In addition, claims for damages to persons, property
or natural resources may result from environmental and other impacts of
operations on our properties. The application of environmental laws to our
business may cause us to curtail production or increase the costs of our
production, development or exploration activities.
Federal and state legislative
and regulatory initiatives relating to hydraulic fracturing could result in
increased costs and additional operating restrictions or delays.
Hydraulic fracturing is used
extensively by our third-party operating partners. The hydraulic fracturing
process is typically regulated by state oil and natural gas commissions.
Hydraulic fracturing involves the injection of water, sand and chemicals under
pressure into formations to fracture the surrounding rock and stimulate
production. The Safe Drinking Water Act (the “SDWA”) regulates the underground
injection of substances through the Underground Injection Control (“UIC”)
program. While hydraulic fracturing generally is exempt from regulation under
the UIC program, the EPA has taken the position that hydraulic fracturing with
fluids containing diesel fuel is subject to regulation under the UIC program as
“Class II” UIC wells. On October 21, 2011, the EPA announced its intention to
propose federal Clean Water Act regulations governing wastewater discharges from
hydraulic fracturing and certain other natural gas operations. In addition, the
Department of Interior (“DOI”) published a revised proposed rule on May 24, 2013
that would update existing regulation of hydraulic fracturing activities on
Federal and Indian lands, including requirements for disclosure, well bore
integrity and handling of flowback water. The final rule was issued on March 26,
2015.
The EPA has commenced a study of
the potential environmental impacts of hydraulic fracturing activities, and a
committee of the U.S. House of Representatives is also conducting an
investigation of hydraulic fracturing practices. The EPA issued a Progress
Report in December 2012. In March 2013, the EPA’s Scientific Advisory Board
(“SAB”) formed an ad hoc panel of experts who are reviewing the Progress Report
on the study. The draft assessment was released for public comment and peer
review on June 5, 2015 and a final assessment was released in December 2016
generally concluding that hydraulic fracturing activities can impact drinking
water resources in some circumstances and identifying factors that can influence
the impacts. As part of these studies, both the EPA and the House committee have
requested that certain companies provide them with information concerning the
chemicals used in the hydraulic fracturing process. These studies could spur
initiatives to regulate hydraulic fracturing under the SDWA or otherwise.
Congress has in recent legislative sessions considered legislation to amend the
SDWA, including legislation that would repeal the exemption for hydraulic
fracturing from the definition of “underground injection” and require federal
permitting and regulatory control of hydraulic fracturing, as well as
legislative proposals to require disclosure of the chemical constituents of the
fluids used in the fracturing process, were proposed in recent sessions of Congress. The U.S. Congress
may consider similar SDWA legislation in the future.
27
On August 16, 2012, the EPA
published final regulations under the Clean Air Act (“CAA”) that establish new
air emission controls for oil and natural gas production and natural gas
processing operations. Specifically, the EPA promulgated New Source Performance
Standards (“NSPS”) establishing emission limits for sulfur dioxide (SO2) and
volatile organic compounds (VOCs). The final rule requires a 95% reduction in
VOCs emitted by mandating the use of reduced emission completions or “green
completions” on all hydraulically-fractured gas wells constructed or refractured
after January 1, 2015. Until this date, emissions from fractured and refractured
gas wells must be reduced through reduced emission completions or combustion
devices. The rules also establish new requirements regarding emissions from
compressors, controllers, dehydrators, storage tanks and other production
equipment. In response to numerous requests for reconsideration of these rules
from both industry and the environmental community and court challenges to the
final rules, the EPA announced its intention to issue revised rules in 2013. The
EPA published revised portions of these rules on September 23, 2013 for VOC
emissions for production oil and gas storage tanks, in part phasing in emissions
controls on storage tanks past October 15, 2013. On December 19, 2014, the EPA
published updates to its NSPS for the oil and gas industry. The most recent
proposed update to the oil and gas NSPS came on June 3, 2016, when the EPA
finalized further amendments that address methane emissions from certain oil and
gas facilities.
A number of lawsuits and
enforcement actions have been initiated across the country alleging that
hydraulic fracturing practices have adversely impacted drinking water supplies,
use of surface water, and the environment generally. If new laws or regulations
that significantly restrict hydraulic fracturing, such as amendments to the
SDWA, are adopted, such laws could make it more costly for us and difficult for
our third party operating partners to perform fracturing to stimulate production
from tight formations as well as make it easier for third parties opposing the
hydraulic fracturing process to initiate legal proceedings based on allegations
that specific chemicals used in the fracturing process could adversely affect
groundwater. In addition, if hydraulic fracturing is further regulated at the
federal or state level, our third-party operating partners fracturing activities
could become subject to additional permitting and financial assurance
requirements, more stringent construction specifications, increased monitoring,
reporting and recordkeeping obligations, plugging and abandonment requirements
and also to attendant permitting delays and potential increases in costs.
Any such federal or state
legislative or regulatory changes with respect to hydraulic fracturing could
cause us to incur substantial compliance costs or result in operational delays,
and the consequences of any failure to comply by us or our third-party operating
partners could have a material adverse effect on our financial condition and
results of operations. Until such pending or threatened legislation or
regulations are finalized and implemented, it is not possible to estimate their
impact on our business.
Any of the above risks could
impair our ability to manage our business and have a material adverse effect on
our operations, cash flows and financial position.
Climate change legislation or
regulations restricting emissions of “greenhouse gases” could result in
increased operating costs and reduced demand for the oil and natural gas that we
produce.
The EPA has determined that
emissions of certain “greenhouse gases” (“GHG”) present an endangerment to
public health and the environment because emissions of such gases are, according
to the EPA, contributing to warming of the earth’s atmosphere and other climatic
changes. Based on its findings, the EPA has begun adopting and implementing
regulations to restrict emissions of greenhouse gases under existing provisions
of the Clean Air Act (the “CAA”). On September 22, 2009, the EPA issued a final
rule requiring the reporting of greenhouse gas emissions from specified large
greenhouse gas emission sources in the U.S. beginning in 2011 for emissions
occurring in 2010. On November 30, 2010, the EPA published a final rule
expanding its existing greenhouse gas emissions reporting rule to include
certain petroleum and natural gas facilities, which rule requires data
collection beginning in 2011 and reporting beginning in 2012. Our operating
partners were required to report certain of their greenhouse gas emissions under
this rule by September 28, 2012. On May 12, 2010, the EPA also issued a
“tailoring” rule, which makes certain large stationary sources and modification
projects subject to permitting requirements for greenhouse gas emissions under
the CAA. On June 23, 2014, the U.S. Supreme Court in Utility Air Regulatory
Group v. EPA held that the EPA’s “Tailoring Rule” was invalid, but held that if
a source was subject to PSD or Title V based on emissions of conventional pollutants
like sulfur dioxide, particulates, nitrogen or dioxide, carbon monoxide, ozone
and lead, then the EPA could also require the source to control GHGS and would
have to install Best Available Control Technology to do so. As a result, a
source no longer is required to meet PSD and Title V permitting requirements
based solely on its GHG emissions. On February 23, 2014, Colorado became the
first state in the nation to adopt rules to control methane emissions from
Colorado oil and gas facilities. Subsequently, the Obama administration has
approved rules that would require controls on methane emissions from oil and gas
facilities. In addition, the EPA has continued to adopt GHG regulations of other
industries, such as the October 23, 2015, promulgation of emission guidelines
for GHG emissions from existing electric utility generating units (the “Clean
Power Plan”). This plan requires states to regulate carbon dioxide emissions
from utility operations, with a long-term goal of 30% reduction below 2005 rates
of CO2 from electric utilities by the year 2030. An expected outcome of this
plan is that use of coal as a main fuel source for electric utilities would be
replaced by use of lower-emitting products, including natural gas and wind and
solar energy. Implementation of the Clean Power Plan is currently stayed pending
court review. As a result of this continued regulatory focus, future GHG
regulations of the oil and gas industry remain a possibility.
28
In addition, the U.S. Congress
has from time to time considered adopting legislation to reduce emissions of
greenhouse gases, though it is yet to do so, and almost one-half of the states
have already taken legal measures to reduce emissions of greenhouse gases
primarily through the planned development of greenhouse gas emission inventories
and/or regional greenhouse gas cap and trade programs. Most of these cap and
trade programs work by requiring major sources of emissions, such as electric
power plants or major producers of fuels, such as refineries and gas processing
plants, to acquire and surrender emission allowances that correspond to their
annual emissions of GHGs. The number of allowances available for purchase is
reduced each year in an effort to achieve the overall GHG reduction goal. As the
number of GHG emission allowances declines each year, the cost or value of such
allowances is expected to escalate significantly. The adoption of legislation or
regulatory programs to reduce emissions of greenhouse gases could require our
third-party operating partners, and indirectly us, to incur increased operating
costs, such as costs to purchase and operate emissions control systems, to
acquire emissions allowances or comply with new regulatory or reporting
requirements. Any such legislation or regulatory programs could also increase
the cost of consuming, and thereby reduce demand for, the oil and natural gas
produced by our operational interests. Consequently, legislation and regulatory
programs to reduce emissions of greenhouse gases could have an adverse effect on
our business, financial condition and results of operations.
Regulation of GHG emissions could
also result in reduced demand for our production, as oil and natural gas
consumers seek to reduce their own GHG emissions. Any regulation of GHG
emissions, including through a cap-and-trade system, technology mandate,
emissions tax, reporting requirement or other program, could have a material
adverse effect on our business, results of operations and financial condition.
In addition, to the extent climate change results in more severe weather and
significant physical effects, such as increased frequency and severity of
storms, floods, droughts and other climatic effects, our own, our third-party
operating partners or our customers’ operations may be disrupted, which could
result in a decrease in our available products or reduce our customers’ demand
for our products.
Further, there have been various
legislative and regulatory proposals at the federal and state levels to provide
incentives and subsidies to (i) shift more power generation to renewable energy
sources and (ii) support technological advances to drive less energy
consumption. These incentives and subsidies could have a negative impact on oil,
natural gas and NGL consumption.
Any of the above risks could
impair our ability to manage our business and have a material adverse effect on
our operations, cash flows and financial position.
Because we have no plans to
pay, and are currently restricted from paying dividends on our common stock,
investors must look solely to stock appreciation for a return on their
investment in us.
We do not anticipate paying any
cash dividends on our common stock in the foreseeable future. We currently
intend to retain all future earnings to fund the development and growth of our
business. Any payment of future dividends will be at the discretion of our board
of directors and will depend on, among other things, our earnings, financial
condition, capital requirements, level of indebtedness, statutory and
contractual restrictions applying to the payment of dividends and other
considerations that our board of directors deems relevant. Investors must rely on sales of their common stock after price
appreciation, which may never occur, as the only way to realize a return on
their investment.
29
Risks Related to Financing Our Business
Our independent registered
public accounting firm has issued its audit opinion on our consolidated
financial statements appearing in our annual report on Form 10-K, including an
explanatory paragraph as to substantial doubt with the respect to our ability to
continue as a going concern.
The accompanying consolidated financial statements have been
prepared in conformity with accounting principles generally accepted in the
United States of America, assuming we will continue as a going concern, which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. For the year ended June 30, 2017, we had net loss of
approximately $6.8 million. At June 30, 2017, we had an accumulated deficit of
approximately $57 million and a working capital deficit of approximately $7
million. These factors raise substantial doubt about our ability to continue as
a going concern, within one year from the issuance date of this filing. Our
ability to continue as a going concern is dependent on our ability to raise the
required additional capital or debt financing to meet short and long-term
operating requirements. We may also encounter business endeavors that require
significant cash commitments or unanticipated problems or expenses that could
result in a requirement for additional cash. If we raise additional funds
through the issuance of equity or convertible debt securities, the percentage
ownership of our current shareholders could be reduced, and such securities
might have rights, preferences or privileges senior to our common stock.
Additional financing may not be available upon acceptable terms, or at all. If
adequate funds are not available or are not available on acceptable terms, we
may not be able to take advantage of prospective business endeavors or
opportunities, which could significantly and materially restrict our operations.
If we are unable to obtain the necessary capital, we may have to cease
operations.
Expansion of our operations
will require significant capital expenditures for which we may be unable to
obtain sufficient financing.
Our need for additional capital
may adversely affect our financial condition. We have no sustained history of
earnings and have operated at a loss since we commenced business. We have
relied, and continue to rely, on external sources of financing to meet our
capital requirements, to continue developing our technology, acquire additional
oil and gas assets, and to otherwise implement our corporate development and
investment strategies.
We plan to obtain the future
funding that we will need through the debt and equity markets but there can be
no assurance that we will be able to obtain additional funding when it is
required. If we fail to obtain the funding that we need when it is required, we
may have to forego or delay potentially valuable opportunities or default on
existing funding commitments to third parties. Our limited operating history may
make it difficult to obtain future financing.
Our ability to generate positive cash flows is uncertain.
To develop and expand our
business, we will need to make significant up-front investments in our
technology and incur research and development, sales and marketing and general
and administrative expenses. In addition, our growth will require a significant
investment in working capital. We cannot provide any assurance that we will be
able to raise the capital necessary to meet these requirements. If adequate
funds are not available or are not available on satisfactory terms, we may be
required to significantly curtail our operations and may not be able to fund our
current production requirements - let alone fund expansion, take advantage of
unanticipated acquisition opportunities, develop or enhance our technology, or
respond to competitive pressures. Any failure to obtain such additional
financing could have a material adverse effect on our business, results of
operations and financial condition.
Because we may never have net income from our operations,
our business may fail.
We have no history of revenues
and profitability from operations. There can be no assurance that we will ever
operate profitably. Our success is significantly dependent on uncertain events,
including successful development of our technology, establishing satisfactory
manufacturing arrangements and processes, distributing and selling our products
and realizing returns on our oil and gas assets
30
Before receiving revenues from
sales to customers of our products or returns from our oil and gas assets, we
anticipate that we will incur increased operating expenses without realizing any
revenues. We therefore expect to incur significant losses. If we are unable to
generate significant revenues from sales of our products, we will not be able to
earn profits or continue operations. We can provide no assurance that we will
generate any revenues or ever achieve profitability. If we are unsuccessful in
addressing these risks, our business will fail and investors may lose all of
their investment in our Company.
We need to raise additional funds and such funds may not be
available on acceptable terms or at all.
We may consider issuing
additional debt or equity securities in the future to fund our business plan,
for potential acquisitions or investments, or for general corporate purposes. If
we issue equity or convertible debt securities to raise additional funds, our
existing stockholders may experience dilution, and the new equity or debt
securities may have rights, preferences and privileges senior to those of our
existing stockholders. If we incur additional debt, it may increase our leverage
relative to our earnings or to our equity capitalization, requiring us to pay
additional interest expenses. We may not be able to obtain financing on
favorable terms, or at all, in which case, we may not be able to develop or
enhance our products, execute our business plan, take advantage of future
opportunities or respond to competitive pressures.
Risks Related to Ownership of our Common Stock
Trading on the OTC Markets may
be volatile and sporadic, which could depress the market price of our common
stock and make it difficult for our stockholders to resell their shares.
Our common stock is quoted on the
OTC, Pink Tier, of the electronic quotation system operated by OTC Markets.
Trading in stock quoted on the OTC Markets is often thin and characterized by
wide fluctuations in trading prices, due to many factors that may have little to
do with our operations or business prospects. This volatility could depress the
market price of our common stock for reasons unrelated to operating performance.
Moreover, the OTC Markets is not a stock exchange, and trading of securities on
the OTC Markets is often more sporadic than the trading of securities listed on
a quotation system like NASDAQ or a stock exchange like NYSE. Accordingly,
shareholders may have difficulty reselling any of the shares.
We have limited capitalization and may require financing,
which may not be available.
We have limited capitalization,
which increases our vulnerability to general adverse economic and industry
conditions, limits our flexibility in planning for or reacting to changes in our
business and industry and may place us at a competitive disadvantage to
competitors with sufficient or excess capitalization. If we are unable to obtain
sufficient financing on satisfactory terms and conditions, we will be forced to
curtail or abandon our plans or operations. Our ability to obtain financing will
depend upon a number of factors, many of which are beyond our control.
Our stock price is volatile.
The market price of our common
stock is highly volatile and could fluctuate widely in price in response to
various factors, many of which are beyond our control, including the following:
|
•
|
our stock being held by a large number of
persons whose sales could result in positive or negative pricing pressure
on the market price for our common stock;
|
|
•
|
actual or anticipated variations in our
quarterly operating results;
|
|
•
|
our ability to obtain adequate working capital
financing;
|
|
•
|
changes in market valuations of similar
companies;
|
|
•
|
publication (or lack of publication) of
research reports about us;
|
|
•
|
changes in applicable laws or regulations,
court rulings, enforcement and legal actions;
|
31
|
•
|
loss of any strategic relationships;
|
|
•
|
additions or departures of key management
personnel;
|
|
•
|
actions by our stockholders (including
transactions in our shares);
|
|
•
|
speculation in the press or investment
community;
|
|
•
|
changes in our industry;
|
|
•
|
competitive pricing pressures;
|
|
•
|
our ability to execute our business plan; and
|
|
•
|
economic and other external factors.
|
In addition, the securities
markets have from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. These market fluctuations may also materially and adversely affect
the market price of our common stock.
Our stock is categorized as a
penny stock. Trading of our stock may be restricted by the SEC’s penny stock
regulations which may limit a stockholder’s ability to buy and sell our stock.
Our stock is categorized as a
“penny stock”, as that term is defined in SEC Rule 3a51-1, which generally
provides that “penny stock”, is any equity security that has a market price (as
defined) less than US$5.00 per share, subject to certain exceptions. Our
securities are covered by the penny stock rules, including Rule 15g-9, which
impose additional sales practice requirements on broker-dealers who sell to
persons other than established customers and accredited investors. The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer’s account. The bid and offer
quotations, and the broker-dealer and salesperson compensation information, must
be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer’s
confirmation. In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities and
reduces the number of potential investors. We believe that the penny stock rules
discourage investor interest in and limit the marketability of our common stock.
According to SEC Release No.
34-29093, the market for “penny stocks” has suffered in recent years from
patterns of fraud and abuse. Such patterns include: (1) control of the market
for the security by one or a few broker-dealers that are often related to the
promoter or issuer; (2) manipulation of prices through prearranged matching of
purchases and sales and false and misleading press releases; (3) boiler room
practices involving high-pressure sales tactics and unrealistic price
projections by inexperienced sales persons; (4) excessive and undisclosed
bid-ask differential and markups by selling broker-dealers; and (5) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor losses. The
occurrence of these patterns or practices could increase the future volatility
of our share price.
Because the SEC imposes
additional sales practice requirements on brokers who deal in shares of penny
stocks, some brokers may be unwilling to trade our securities. This means that
you may have difficulty reselling your shares, which may cause the value of your
investment to decline.
Our shares are classified as
penny stocks and are covered by Section 15(g) of the Securities Exchange Act of
1934 (the “Exchange Act”) which imposes additional sales practice requirements
on brokers-dealers who sell our securities in this offering or in the
aftermarket. For sales of our securities, broker-dealers must make a special
suitability determination and receive a written agreement from you prior to
making a sale on your behalf. Because of the imposition of the foregoing
additional sales practices, it is possible that broker-dealers will not want to
make a market in our common stock. This could prevent you from
reselling your shares and may cause the value of your investment to decline.
32
The existence of
indemnification rights to our directors, officers and employees may result in
substantial expenditures by our Company and may discourage lawsuits against our
directors, officers and employees.
Our bylaws contain
indemnification provisions for our directors, officers and employees, and we
have entered into indemnification agreements with our officer and directors. The
foregoing indemnification obligations could result in us incurring substantial
expenditures to cover the cost of settlement or damage awards against directors
and officers, which we may be unable to recoup. These provisions and resultant
costs may also discourage us from bringing a lawsuit against directors and
officers for breaches of their fiduciary duties, and may similarly discourage
the filing of derivative litigation by our stockholders against our directors
and officers even though such actions, if successful, might otherwise benefit us
and our stockholders.
If we fail to develop or
maintain an effective system of internal controls, we may not be able to
accurately report our financial results or prevent financial fraud. As a result,
current and potential stockholders could lose confidence in our financial
reporting.
We are subject to the risk that
sometime in the future, our independent registered public accounting firm could
communicate to the board of directors that we have deficiencies in our internal
control structure that they consider to be “significant deficiencies.” A
“significant deficiency” is defined as a deficiency, or a combination of
deficiencies, in internal controls over financial reporting such that there is
more than a remote likelihood that a material misstatement of the entity’s
financial statements will not be prevented or detected by the entity’s internal
controls.
Effective internal controls are
necessary for us to provide reliable financial reports and effectively prevent
fraud. If we cannot provide reliable financial reports or prevent fraud, we
could be subject to regulatory action or other litigation and our operating
results could be harmed. We are required to document and test our internal
control procedures to satisfy the requirements of Section 404 of the
Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act” or “SOX”), which requires
our management to annually assess the effectiveness of our internal control over
financial reporting.
We currently are not an
“accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act
of 1934, as amended. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section
404”) requires us to include an internal control report with our Annual Report
on Form 10-K. That report must include management’s assessment of the
effectiveness of our internal control over financial reporting as of the end of
the fiscal year. This report must also include disclosure of any material
weaknesses in internal control over financial reporting that we have identified.
As of June 30, 2017, the management of the Company assessed the effectiveness of
the Company’s 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. Management concluded, during the fiscal year ended June 30,
2017, that the Company’s internal controls and procedures were not effective to
detect the inappropriate application of U.S. GAAP rules. Management realized
there were deficiencies in the design or operation of the Company’s internal
control that adversely affected the Company’s internal controls which management
considers to be material weaknesses. A material weakness in the effectiveness of
our internal controls over financial reporting could result in an increased
chance of fraud and the loss of customers, reduce our ability to obtain
financing and require additional expenditures to comply with these requirements,
each of which could have a material adverse effect on our business, results of
operations and financial condition. For additional information, see Item 9A –
Controls and Procedures.
Our intended business, operations
and accounting are expected to be substantially more complex than they have been
in the past. It may be time consuming, difficult and costly for us to develop
and implement the internal controls and reporting procedures required by the
Sarbanes-Oxley Act. We may need to hire additional financial reporting, internal
controls and other finance personnel in order to develop and implement
appropriate internal controls and reporting procedures. If we are unable to
comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain the
independent accountant certifications required by such act, which may preclude
us from keeping our filings with the SEC current.
33
If we are unable to maintain the
adequacy of our internal controls, as those standards are modified,
supplemented, or amended from time to time, we may not be able to ensure that we
can conclude on an ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. Failure to achieve and
maintain an effective internal control environment could cause us to face
regulatory action and cause investors to lose confidence in our reported
financial information, either of which could adversely affect the value of our
common stock.
FINRA sales practice requirements
may also limit a stockholder’s ability to buy and sell our stock.
In addition to the “penny stock”
rules described above, 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. The FINRA 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 and have an
adverse effect on the market for our shares.
To date, we have not paid any
cash dividends and no cash dividends will be paid in the foreseeable future.
We do not anticipate paying cash
dividends on our common stock in the foreseeable future and we may not have
sufficient funds legally available to pay dividends. Even if the funds are
legally available for distribution, we may nevertheless decide not to pay any
dividends. We presently intend to retain all earnings for our operations.
As a public company, we will
incur significant increased operating costs and our management will be required
to devote substantial time to new compliance initiatives.
To operate effectively, we will
be required to continue to implement changes in certain aspects of our business
and develop, manage and train management level and other employees to comply
with on-going public company requirements. Failure to take such actions, or
delay in the implementation thereof, could have a material adverse effect on our
business, financial condition and results of operations.
The Sarbanes-Oxley Act, as well
as rules subsequently implemented by the SEC, imposes various requirements on
public companies, including requiring establishment and maintenance of effective
disclosure and financial controls and changes in corporate governance practices.
Our management and other personnel will need to devote a substantial amount of
time to these new compliance initiatives. Moreover, these rules and regulations
will increase our legal and financial compliance costs and will make some
activities more time-consuming and costly.
Our independent registered
public accounting firm has issued its audit opinion on our consolidated
financial statements appearing in our annual report on Form 10-K, including an
explanatory paragraph as to substantial doubt with the respect to our ability to
continue as a going concern.
The report of RBSM LLP, our
independent registered public accounting firm, with respect to our consolidated
financial statements and the related notes for the fiscal year ended June 30,
2017, indicates that there was substantial doubt about our ability to continue
as a going concern. Our financial statements do not include any adjustments that
might result from this uncertainty. For additional information, see Item 7 –
Management’s Discussion and Analysis of Financial Condition and Results of
Operations – “Going Concern.”
34
Other Risks
Trends, Risks and Uncertainties
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.
35
ITEM 1B. UNRESOLVED STAFF COMMENTS
As a “smaller reporting company,” we are not required to
provide the information required by this Item.
ITEM 2. PROPERTIES
Our principal offices are located
at 4635 South Lakeshore Drive, Suite 200, Tempe, Arizona 85282. On May 25, 2016,
we entered into a sublease agreement with Lakeshore Investment Group II, LLC to
lease the premises of our principal offices for a term of twelve months ending
May 30, 2017 for a monthly rate of $1,199, inclusive of internet and utilities,
and continues on a month-to-month basis thereafter.
Our telephone number in Tempe is (480)
641-4790.
We own no other properties.
Our registered agent is Corporate
Direct, Inc., 2248 Meridian Boulevard, Suite H, Minden, NV 89423.
ITEM 3. LEGAL PROCEEDINGS
Other than as set out below, we
know of no material, existing or pending legal proceedings against us, nor are
we involved as a plaintiff in any material proceeding or pending litigation. We
know of no material proceedings in which any of our directors, officers or
affiliates, or any registered or beneficial stockholder is a party adverse to
our company or our subsidiaries or has a material interest adverse to our
company or our subsidiaries.
Settlement with Union Capital LLC
On January 31, 2017, Union
Capital LLC (“Union”) filed a complaint against our company in the United States
District Court, Southern District of New York. The complaint was disclosed in
our Quarterly Report on Form 10-Q filed with the SEC on February 22, 2017. The
complaint related to the securities purchase agreement between Union and our
Company dated March 5, 2014. Pursuant to that agreement, we issued to Union a
$50,000 convertible promissory note and a share purchase warrant exercisable to
purchase of 941,619 shares of our common stock at a price of $0.531 per share
($49,999.96 in the aggregate), subject to adjustment.
The complaints alleged, among other facts, that:
• On January 5, 2017, Union sent our
company a notice of exercise to exercise 24,642,857 warrants pursuant to a
“cashless exercise” at an adjusted price of $0.0005;
• in
violation of the terms of the warrant, we failed to deliver the shares as set
forth in the notice of exercise; and
• we breached
the securities purchase agreement and the warrant by: (i) failing to honor
Union’s notice of exercise, (ii) failing to set aside shares sufficient to allow
for exercise of the shares under the terms of the warrant, and (iii) and failing
to notify Union of certain adjustment to the price of the warrant.
Accordingly, Union sought the following relief:
• that the court enter an order
requiring our Company to specifically perform the relevant agreements, including
the warrant, and to deliver immediately to Union 24,642,857 shares of our common
stock pursuant to pursuant to the notice of exercise;
• that our Company establish and increase our share
reserve, along with the necessary resolutions and acceptance of the legal
opinions furnished by Union, sufficient to enable Union to sell the shares
publicly without restriction;
• an award of damages
in an amount to be determined at trial but in any event in excess of $276,000;
and
• an award against our Company for costs and
expenses incurred in the prosecution of this lawsuit, including reasonable legal
fees.
36
On April 6, 2017, we achieved a
mutual release and settlement with Union regarding the January 31, 2017
complaint. Pursuant to the settlement, on April 6, 2017, we issued to Union
90,000,000 common shares of our capital stock. We completed the share issuance
in reliance on Rule 506 of Regulation D and Section 4(2) of the Securities Act
of 1933. As a result, on April 13, 2017, a notice of voluntary dismissal was
filed with the district court to end the proceedings against our company.
Complaint against Petro Chase, Inc. et al.
On March 22, 2017, our
wholly-owned subsidiary, Black Box Energy, Inc. (“BBE”), filed a complaint in
the Superior Court of the State of Arizona (Maricopa County) against PetroChase,
Inc., Warren County PC#1, LLC, Stephen R. Moore and Sheree Moore, as well as
certain unidentified, predecessor and success corporations, parent corporations
or subsidiaries of the defendants (collectively the “Defendants”).
Background
In 2016 the Defendant, Stephen R.
Moore, on behalf of PetroChase, solicited investment from our Company to
subscribe to a 50% (of 70%) working interest in the McKean County Project wells.
On September 9, 2016, BBE entered into a letter agreement with PetroChase to
acquire a 50% (of 70%) working interest in the wells, in addition access to the
wells for the purposes of the developing our mechanical ultrasound technology
for use in water purification. BBE paid $250,000 to PetroChase in consideration
of the rights granted, which funds were to be used for costs associated with
development of the wells. Drilling of the wells was to be commenced within a
reasonable time and was to continue until all the wells were completed. To date,
drilling of the wells has not been completed.
Allegations
The allegations made in our complaint include, but are not
limited to, the following:
• The defendants misrepresented the
financial condition of PetroChase, and that the $250,000 would be sufficient to
complete the wells;
• The defendants knew at all
relevant times that they would not be able to perform under the letter
agreement, and misrepresented their ability to perform;
• The defendants misrepresented and mislead BBE
regarding their rights to drill the wells on the subject property;
• On January 24, 2017, BBE sent a dispute notice to
Stephen R. Moore and PetroChase and demanded the return of the $250,000
investment, which funds have not been returned;
• On
February 7, 2017 BBE served Stephen R. Moore and PetroChase a demand for
arbitration. The defendants have failed to respond to the demand for
arbitration; and
• The defendants, either directly,
or acting in concert with each other, committed breach of contract, constructive
fraud, and patterns of unlawful activity, in soliciting, and absconding with,
the $250,000 investment from BBE.
The complaint seeks a return of
the $250,000 for breach of the letter agreement, treble damages ($750,000 in the
aggregate), plus attorney’s fees, costs, and punitive damages. The lawsuit
against PetroChase is pending in the Superior Court of Maricopa County, State of
Arizona, case number CV2017-003236. The Company has obtained default against
PetroChase and Warren County PC #1. The Company expects entry of judgment
against PetroChase and Warren County PC #1 within the coming weeks, but the
timing of said judgment is beyond the control of the Company. The litigation
against Stephen and Sheree Moore continues and is in its early stages.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
37
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the
OTC Markets, Pink Tier, under the symbol “LEXG”. The closing price of our common
stock on September 25, 2017 was $.0005 per share. Set forth below are the range
of high and low bid quotations for the period indicated as reported by the OTC
Markets Group (
www.otcmarkets.com)
. The market quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commissions and may
not necessarily represent actual transactions.
|
Period Ended
|
|
Bid
High
|
|
Bid
Low
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended June 30, 2017
|
|
|
|
|
|
|
|
June 30, 2017
|
|
$
|
0.0020
|
|
$
|
0.0006
|
|
March 31, 2017
|
|
$
|
0.0112
|
|
$
|
0.0015
|
|
December 31, 2016
|
|
$
|
0.0068
|
|
$
|
0.0013
|
|
September 30, 2016
|
|
$
|
0.0200
|
|
$
|
0.0026
|
|
Fiscal Year Ended June 30,
2016
|
|
|
|
|
|
|
|
June 30, 2016
|
|
$
|
0.0490
|
|
$
|
0.0010
|
|
March 31, 2016
|
|
$
|
0.1400
|
|
$
|
0.0400
|
|
December 31, 2015
|
|
$
|
0.4490
|
|
$
|
0.0200
|
|
September 30, 2015
|
|
$
|
0.1800
|
|
$
|
0.0200
|
Transfer Agent
Our transfer agent is V Stock
Transfer, LLC, 18 Lafayette Place, Woodmere, NY 11598. Their telephone number is
(212) 828-8436.
Holders of Common Stock
As of September 28, 2017, there
were 16 shareholders of record of our common stock. As of such date,
3,585,818,688 shares were issued and outstanding.
Dividends
We have never declared or paid
any cash dividends on our common stock. We currently intend to retain future
earnings, if any, to increase our working capital and do not anticipate paying
any cash dividends in the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation
Plans
There were no equity compensation
plans formally approved by the shareholders of the Company as of June 30, 2017.
Recent Sales of Unregistered Securities
During the year ended June 30,
2017, the Company issued 2,339,379,237 common shares at a deemed price ranging
from $0.0003 to $0.00075 per share for promissory note and interest conversion
valued at $1,266,819.
On April 4, 2017, the Company
issued 90,000,000 common shares for warrant settlement agreement as discussed in
note 12.
38
On May 12, 2017, the Company
issued 100,000,000 common shares to settle warrants under a warrant termination
agreement. No other consideration was paid as part of the settlement.
Issuer Purchases of Equity Securities
During the fiscal year ended June 30, 2017, we did not
repurchase any of our equity securities.
ITEM 6. SELECTED FINANCIAL DATA
As a “smaller reporting company”, we are not required to
provide the information required by this Item.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking Statements
The information contained in Item
7 contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. Actual results may materially differ from those
projected in the forward-looking statements as a result of certain risks and
uncertainties set forth in this report. Although management believes that the
assumptions made and expectations reflected in the forward-looking statements
are reasonable, there is no assurance that the underlying assumptions will, in
fact, prove to be correct or that actual results will not be different from
expectations expressed in this report.
We desire to take advantage of
the “safe harbor” provisions of the Private Securities Litigation Reform Act of
1995. This filing contains a number of forward-looking statements that reflect
management’s current views and expectations with respect to our business,
strategies, products, future results and events, and financial performance. All
statements made in this filing other than statements of historical fact,
including statements addressing operating performance, clinical developments
which management expects or anticipates will or may occur in the future,
including statements related to our technology, market expectations, future
revenues, financing alternatives, statements expressing general optimism about
future operating results, and non-historical information, are forward looking
statements. In particular, the words “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “may,” variations of such words, and similar
expressions identify forward-looking statements, but are not the exclusive means
of identifying such statements, and their absence does not mean that the
statement is not forward-looking. These forward-looking statements are subject
to certain risks and uncertainties, including those discussed below. Our actual
results, performance or achievements could differ materially from historical
results as well as those expressed in, anticipated, or implied by these
forward-looking statements. We do not undertake any obligation to revise these
forward-looking statements to reflect any future events or circumstances.
Readers should not place undue
reliance on these forward-looking statements, which are based on management’s
current expectations and projections about future events, are not guarantees of
future performance, are subject to risks, uncertainties and assumptions
(including those described below), and apply only as of the date of this filing.
Our actual results, performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements. Factors
which could cause or contribute to such differences include, but are not limited
to, the risks to be discussed in this Annual Report on Form 10-K and in the
press releases and other communications to shareholders issued by us from time
to time which attempt to advise interested parties of the risks and factors
which may affect our business. We undertake no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events, or otherwise. For additional information regarding
forward-looking statements, see Item 1 – Our Business – “Forward-Looking
Statements.”
Use of Generally Accepted Accounting Principles (“GAAP”)
Financial Measures
We use United States GAAP
financial measures in the section of this report captioned “Management’s
Discussion and Analysis or Plan of Operation” (MD&A), unless otherwise
noted. All of the GAAP financial measures used by us in this report relate to
the inclusion of financial information. This discussion and analysis should be read in conjunction with our financial statements and
the notes thereto included elsewhere in this annual report. All references to
dollar amounts in this section are in United States dollars, unless expressly
stated otherwise. Please see Item 1A – “Risk Factors” for a list of our risk
factors.
39
Overview
We are a U.S.-based exploration
and development company that had been focused on the acquisition and development
potential of lithium brines and other precious metals that demonstrate high
probability for near-term production. Currently the company is focused testing
its SonCav Technology for use in the oil and gas industry and the acquisition of
oil and gas related assets in Western Canada and Southwest Louisiana. We were
incorporated on May 31, 2006 in the State of Nevada under the name “Mariposa
Resources, Ltd.” Effective November 30, 2010, we changed our name to “Lithium
Exploration Group, Inc.,” by way of a merger with our wholly-owned subsidiary
Lithium Exploration Group, Inc., which was formed solely for the change of name.
Our executive offices are located
at 4635 South Lakeshore Drive, Suite 200, Tempe, AZ 85282-7127. The telephone
number for our Tempe office is (480) 641-4790.
On October 17, 2014, we amended
our Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
our common shares from 500,000,000 common shares, par value $0.001, to
2,000,000,000 common shares, par value $0.001. Our authorized capital consists
of 2,000,000,000 common shares and 100,000,000 preferred shares, all with a par
value of $0.001.
On January 19, 2015, we received
written consent from our Board of Directors to implement a reverse stock split
of our issued and outstanding shares of common stock on a basis of 20 old shares
of common stock for 1 new share of common stock. Stockholders of our company
originally approved the reverse stock split on October 14, 2014 at a special
meeting. The reverse stock split was reviewed and approved for filing by FINRA,
effective February 25, 2015, and we were assigned CUSIP number 53680P209,
effective that same date. Our authorized capital was not affected by the reverse
stock split.
On June 22, 2015, in accordance
with our Articles of Incorporation, our Board of Directors designated 250,000 of
our 100,000,000 authorized shares of Preferred Stock as “Series A Preferred
Stock”, par value $0.001, (the “Series A Preferred”). The Series A Preferred
ranks senior to our common stock, carrying general voting rights with the common
stock at the rate of 62 votes per Series A Preferred share. The Series A
Preferred will be deemed cancelled within one year of issuance and are not
entitled to share in dividends or other distributions. So long as any shares of
Series A Preferred are outstanding, the affirmative vote of not less than 75% of
those outstanding shares of Series A Preferred will be required for any change
to our Articles of Incorporation. As of March 31, 2017, there are zero shares of
Series A Preferred outstanding.
On July 13, 2015, our Board of
Directors approved an increase in our authorized capital from 2,000,000,000
shares of common stock, par value $0.001, to 10,000,000,000 shares of common
stock, par value of $0.001 per share, and a reverse stock split on a basis of up
to 200 old shares of common stock for 1 share of common stock. The increase of
authorized capital and stock split was approved by shareholders on July 13,
2015. A Definitive Schedule 14C was filed with the Securities and Exchange
Commission (the “SEC”) on August 6, 2015. On September 9, 2015, we filed with
the Nevada Secretary of State a Certificate of Amendment to our Articles of
Incorporation increasing our authorized capital from 2,000,000,000 shares of
common stock, par value $0.001, to 10,000,000,000 shares of common stock, par
value of $0.001 per share. The reverse stock split was reviewed and approved for
filing by FINRA, effective September 30, 2015, and we were assigned CUSIP number
53680P308, effective that same date.
Our executive offices are located
at 4635 South Lakeshore Drive, Suite 200, Tempe, AZ 85282-7127. The telephone
number for our Tempe office is (480) 641-4790.
Our Business
We are a U.S.-based exploration
and development company that had been focused on the acquisition and development
potential of lithium brines and other precious metals that demonstrate high
probability for near-term production. Currently, the company is focused on testing the
SonCav Technology for potential use in mining, oil and gas and other industrial
applications in the future. In addition, the Company is focused on the
acquisition of oil and gas related assets in North America.
40
Results of Operations
The following summary of our
results of operations should be read in conjunction with our audited financial
statements for the fiscal years ended June 30, 2017 and 2016. Our operating
results for the fiscal years ended June 30, 2017 and 2016 are summarized as
follows:
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
|
Operating expenses
|
|
1,010,218
|
|
|
548,217
|
|
|
Interest expense
|
|
2,863,042
|
|
|
781,107
|
|
|
Gain on change in the fair value of
derivative liability
|
|
(695,912
|
)
|
|
(595,512
|
)
|
|
Amortization of debt discount
|
|
1,879,437
|
|
|
515,942
|
|
|
Loss on settlement of warrants
|
|
42,944
|
|
|
-
|
|
|
Impairment of deposit
|
|
250,000
|
|
|
-
|
|
|
Bad-debt write off
|
|
-
|
|
|
20,000
|
|
|
Gain on disposal business
operations
|
|
-
|
|
|
7,761
|
|
|
Loss on extinguishment of liability
|
|
1,527,301
|
|
|
-
|
|
|
Loss from discontinued
operations
|
|
185
|
|
|
78,624
|
|
|
Net loss
|
$
|
6,877,215
|
|
$
|
1,340,617
|
|
Revenue
We have not earned any revenues
since our inception and we do not anticipate earning revenues in the near
future.
Operating Expenses
Our operating expenses for the
fiscal year ended June 30, 2017 are summarized as follows, in comparison to our
operating expenses for fiscal year ended June 30, 2016:
|
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Mining expenses
|
$
|
87,792
|
|
$
|
31,174
|
|
|
Salaries and related expenses
|
|
232,245
|
|
|
237,334
|
|
|
Professional fees
|
|
458,505
|
|
|
146,238
|
|
|
Legal fees
|
|
109,500
|
|
|
57,945
|
|
|
Other general and
administrative expenses
|
|
209,968
|
|
|
75,526
|
|
|
Total operating expenses
|
$
|
1,010,218
|
|
$
|
548,217
|
|
Operating expenses increased
$462,001 for the year ended June 30, 2017 to $1,010,2181 for the year ended June
30, 2017, an increase of 84%. The primary reason for the change is the increase
of $312,267 in professional fees due primarily to increases in finder’s’ fees
and use of outside consultants, and increase in other general and administrative
expenses of $134,442 due primarily to increases in marketing and travel
expenses.
Liquidity, Financial Condition and Capital Resources
As of June 30, 2017, we had cash
and cash equivalents on hand of $33,136 and a working capital deficiency of
$6,934,640, as compared to cash equivalents on hand of $25,208 and a working
capital deficiency of $2,473,600 as of June 30, 2016. The increase in working
capital deficiency is mainly due to the issuance of convertible notes during the
year ended June 30, 2017.
41
Convertible Promissory Notes
During the year ended June 30,
2017, the Company received net proceeds from issuance of convertible promissory
notes of $2,790,946.
Share Issuances to Settle Debt
During the year ended June 30, 2017, the Company issued
2,339,379,237 common shares at a deemed price ranging from $0.0003 to $0.00075
per share for promissory note and interest conversion valued at $1,266,819.
Going Concern
The audited consolidated
financial statements contained in this annual report on Form 10-K have been
prepared assuming that the Company will continue as a going concern. The Company
has accumulated losses from inception through the period ended June 30, 2017 of
$57,683,563 as well as negative cash flows from operating activities. Presently,
the Company does not have sufficient cash resources to meet its plans in the
twelve months following June 30, 2017. These factors raise substantial doubt
about the Company’s ability to continue as a going concern. Management is in the
process of working with existing lenders and evaluating various financing
alternatives in order to finance our product development and asset acquisition
activities and general and administrative expenses. These alternatives include
raising funds through the issuance of convertible debt or other equity-linked
securities through either institutional or retail investors. Although there is
no assurance that the Company will be successful with our fund-raising
initiatives, management believes that the Company will be able to secure the
necessary financing as a result of ongoing financing discussions with third
party investors and existing investors.
The consolidated financial
statements do not include any adjustments that may be necessary should the
Company be unable to continue as a going concern. The Company’s continuation as
a going concern is dependent on its ability to obtain additional financing as
may be required and ultimately to attain profitability. If the Company raises
additional funds through the issuance of equity, the percentage ownership of
current shareholders could be reduced, and such securities might have rights,
preferences or privileges senior to the rights, preferences and privileges of
the Company’s common stock. Additional financing may not be available upon
acceptable terms, or at all. If adequate funds are not available or are not
available on acceptable terms, the Company may not be able to take advantage of
prospective business endeavors or opportunities, which could significantly and
materially restrict its future plans for developing its business and achieving
commercial revenues. If the Company is unable to obtain the necessary capital,
the Company may have to cease operations.
Working Capital Deficiency
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Current assets
|
$
|
54,008
|
|
$
|
48,007
|
|
|
Current liabilities
|
|
6,988,728
|
|
|
2,521,607
|
|
|
Working capital deficiency
|
$
|
(6,934,640
|
)
|
$
|
(2,473,600
|
)
|
As of June 30, 2017, our total
current assets were $54,008, our total current liabilities were $6,988,728 and
we had a working capital deficit of $6,934,640 (June 30, 2016 - $2,473,600). Our
financial statements report a net loss of $6,877,215 for the year ended June 30,
2017 and an accumulated deficit of $57,683,563 for the period from May 31, 2006
(date of inception) to June 30, 2017 (June 30, 2016 - $50,806,439). We have
suffered recurring losses from operations. The continuation of our company is
dependent upon our company attaining and maintaining profitable operations and
raising additional capital as needed. In this regard we have raised additional
capital through equity offerings and loan transactions.
42
Cash Flows
|
|
|
Year Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Net cash used in operating
activities
|
$
|
(1,229,557
|
)
|
$
|
(402,644
|
)
|
|
Net cash used in investing activities
|
|
(1,033,620
|
)
|
|
-
|
|
|
Net cash provided by
financing activities
|
|
2,270,946
|
|
|
368,000
|
|
|
Effect of foreign currency exchange
|
|
159
|
|
|
(4,246
|
)
|
|
Increase (decrease) in cash
and cash equivalents
|
$
|
7,928
|
|
$
|
(38,890
|
)
|
The increase in net cash used in
operating activities in the year ended June 30, 2017 is mainly related to the
increase in operation expenses. The increase in cash used in investing
activities is due to the investments and advances to PetroChase and WhiteTop.
The increase in cash provided by financing activities is due increased issuances
of convertible debentures.
Future Financing
We will require additional funds
to implement our growth strategy for our business. In addition, while we have
received capital from various private placements that have enabled us to fund
our operations, these funds have been largely used to develop our processes,
although additional funds are needed for other corporate operational and working
capital purposes. Our principal sources of funds have been from sales of our
common stock and the issuance of convertible debentures. Not including funds
needed to pay down any convertible debt, we anticipate that we will need to
raise an additional $1,000,000 to cover all of our
operational expenses over the next 12 months. These funds may be raised through
equity financing, debt financing, or other sources, which may result in further
dilution in the equity ownership of our shares. There can be no assurance that
additional financing will be available to us when needed or, if available, that
such financing can be obtained on commercially reasonable terms. If we are not
able to obtain the additional necessary financing on a timely basis, or if we
are unable to generate significant revenues from operations, we will not be able
to meet our other obligations as they become due, and we will be forced to scale
down or perhaps even cease our operations.
Off-Balance Sheet Arrangements
We have no 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 stockholders.
Effects of Inflation
We do not believe that inflation
has had a material impact on our business, revenues or operating results during
the periods presented.
Critical Accounting Policies and Estimates
Our audited financial statements
and accompanying notes are prepared in accordance with generally accepted
accounting principles used in the United States. Preparing financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets, liabilities, revenue, and expenses. These estimates and
assumptions are affected by management's application of accounting policies. We
believe that understanding the basis and nature of the estimates and assumptions
involved with the following aspects of our financial statements is critical to
an understanding of our financial statements.
Principal of Consolidation
The consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiary Alta
Disposal Ltd. and its 51% owned subsidiary Alta Disposal Morinville Ltd.
(formerly Bluetap Resources Ltd.).Intercompany accounts and transactions have been eliminated in
consolidation in conformity with the applicable accounting framework. No
transactions occurred within Black Box Energy for the year ended June 30, 2017.
43
Use of Estimates
The preparation of consolidated
financial statements in conformity with United States 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 amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The Company’s periodic filings with
the Securities and Exchange Commission include, where applicable, disclosures of
estimates, assumptions, uncertainties and markets that could affect the
financial statements and future operations of the Company. Significant estimates
that may materially change in the near term include the valuation of derivative
liabilities and the underlying warrants, as well as fair value of investments.
Cash and Cash Equivalents
Cash and cash equivalents include
cash in banks, money market funds, and certificates of term deposits with
original maturities of less than three months, which are readily convertible to
known amounts of cash and which, in the opinion of management, are subject to an
insignificant risk of loss in value. We had $33,136 and $25,208 in cash and cash
equivalents at June 30, 2017 and 2016, respectively.
Concentration of Risk
The Company maintains cash
balances at a financial institution which, from time to time, may exceed Federal
Deposit Insurance Corporation insured limits for banks located in the US. As of
June 30, 2017 and 2016, the Company had no deposits in excess of federally
insured limits in its US bank. The Company has not experienced any losses with
regard to its bank accounts and believes it is not exposed to any risk of loss
on its cash in bank accounts.
Prepaid Expenses
Prepaid expenses consist of
security deposit for office lease which will be expensed or refunded at the end
of the lease period.
Start-Up Costs
In accordance with FASC 720-15-20
“Start-Up Costs,” the Company expenses all costs incurred in connection with the
start-up and organization of the Company.
Mineral Acquisition and Exploration Costs
The Company has been in the
exploration stage since its formation on May 31, 2006. Mineral property
acquisition and exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed as a result of
establishing proven and probable reserves, the costs incurred to develop such
property are capitalized. Such costs will be amortized using the
units-of-production method over the estimated life of the probable reserves.
Concentrations of Credit Risk
Our financial instruments that
are exposed to concentrations of credit risk primarily consist of our cash and
cash equivalents and related party payables we will likely incur in the near
future. Our company places our cash and cash equivalents with financial
institutions of high credit worthiness. At times, our cash and cash equivalents
with a particular financial institution may exceed any applicable government
insurance limits. Our company’s management plans to assess the financial
strength and credit worthiness of any parties to which we extend funds, and as
such, we believe that any associated credit risk exposures are limited.
44
Non-controlling Interest
The 49% third party ownership of
Alta Disposal Morinville Ltd. (formerly Blue Tap Resources Ltd.) at June 30,
2017 and 2016 are recorded as non-controlling interests in the consolidated
financial statements. Details of changes in the non-controlling interests during
the years ended June 30, 2017 and 2016 and are reflected in the consolidated
statement of deficit.
Related Parties
Parties are considered to be
related to the Company if the parties, directly or indirectly, through one or
more intermediaries, control, are controlled by, or are under common control
with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the
Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. The Company discloses
all related party transactions. All transactions shall be recorded at fair value
of the goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on behalf of the
related party in excess of the cost is reflected as a distribution to related
party.
Net Income or (Loss) per Share of Common Stock
The Company has adopted FASC
Topic No. 260, “Earnings Per Share,” (“EPS”) which requires presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. In the accompanying financial statements, basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Foreign Currency Translations
The Company’s functional and
reporting currency is the U.S. dollar. All transactions initiated in other
currencies are translated into U.S. dollars using the exchange rate prevailing
on the date of transaction. Monetary assets and liabilities denominated in
foreign currencies are translated into the US dollar at the rate of exchange in
effect at the balance sheet date. Unrealized exchange gains and losses arising
from such transactions are deferred until realization and are included as a
separate component of stockholders’ equity (deficit) as a component of
comprehensive income or loss. Upon realization, the amount deferred is
recognized in income in the period when it is realized.
Translation of Foreign Operations
The financial results and
position of foreign operations whose functional currency is different from the
Company’s presentation currency are translated as follows:
|
|
•
|
assets and liabilities are translated at
period-end exchange rates prevailing at that reporting date;
|
|
|
•
|
equity is translated at historical exchange
rates; and
|
|
|
•
|
income and expenses are translated at average
exchange rates for the period.
|
Exchange differences arising on
translation of foreign operations are transferred directly to the Company’s
accumulated other comprehensive loss in the consolidated financial statements.
Transaction gains and losses arising from exchange rate fluctuation on
transactions denominated in a currency other than the functional currency are
included in the consolidated statements of operations.
45
The relevant translation rates are as
follows:
|
|
|
Year Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Closing rate CDN$ to US$ as
of June 30, 2017
|
$
|
0.770
|
|
$
|
0.769
|
|
|
Average rate CDN$ to US $ for the period June
30, 2017
|
|
0.754
|
|
|
0.776
|
|
Comprehensive Income (Loss)
FASC Topic No. 220,
“Comprehensive Income,” establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. As of June 30, 2017 and 2016, the Company had no material
items of other comprehensive income except for the foreign currency translation
adjustment.
Risks and Uncertainties
Our company operates in the
resource exploration industry that is subject to significant risks and
uncertainties, including financial, operational, technological, and other risks
associated with operating a resource exploration business, including the
potential risk of business failure.
Environmental Expenditures
The operations of our company
have been, and may in the future be, affected from time to time in varying
degree by changes in environmental regulations, including those for future
reclamation and site restoration costs. Both the likelihood of new regulations
and their overall effect upon our company vary greatly and are not predictable.
Our company's policy is to meet or, if possible, surpass standards set by
relevant legislation by application of technically proven and economically
feasible measures.
Environmental expenditures that
relate to ongoing environmental and reclamation programs are charged against
earnings as incurred or capitalized and amortized depending on their future
economic benefits. All of these types of expenditures incurred since inception
have been charged against earnings due to the uncertainty of their future
recoverability. Estimated future reclamation and site restoration costs, when
the ultimate liability is reasonably determinable, are charged against earnings
over the estimated remaining life of the related business operation, net of
expected recoveries.
Warrants
The Company accounts for
currently outstanding detachable warrants to purchase common stock as derivative
liabilities as they are freestanding derivative financial instruments. The
warrants are recorded as derivative liabilities at fair value, estimated using a
Black-Scholes option pricing model, and marked to market at each balance sheet
date, with changes in the fair value of the derivative liabilities recorded in
the consolidated statements of operations and comprehensive loss. Upon exercise
of a derivative financial instrument, the instrument is marked to fair value at
the conversion date and is reclassified to equity.
Convertible Instruments
The Company evaluates and
accounts for conversion options embedded in its convertible instruments in
accordance with ASC 815 “Derivatives and Hedging”. It provides three criteria
that, if met, require companies to bifurcate conversion options from their host
instruments and account for them as free standing derivative financial
instruments. These three criteria include circumstances in which (a) the
economic characteristics and risks of the embedded derivative instrument are not
clearly and closely related to the economic characteristics and risks of the
host contract, (b) the hybrid instrument that embodies both the embedded
derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes
in fair value reported in earnings as they occur and (c) a separate instrument
with the same terms as the embedded derivative instrument would be considered a
derivative instrument. The result of this accounting treatment could be that the
fair value of a financial instrument is classified as a derivative financial
instrument and is marked-to-market at each balance sheet date and recorded as a liability. In the
event that the fair value is recorded as a liability, the change in fair value
is recorded in the statement of operations as other income or other expense.
Upon conversion or exercise of a derivative financial instrument, the instrument
is marked to fair value at the conversion date and is reclassified to equity.
The Company records, when necessary, discounts to convertible notes for the
intrinsic value of conversion options embedded in debt instruments based upon
the differences between the fair value of the underlying common stock at the
commitment date of the note transaction and the effective conversion price
embedded in the note. Debt discounts under these arrangements are amortized over
the term of the related debt to their earliest date of notes redemption.
46
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements
and Disclosures” requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 820
establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to measure fair value:
|
•
|
Level 1 - Quoted prices in active markets for
identical assets or liabilities;
|
|
•
|
Level 2 - Inputs other than quoted prices
included within Level 1 that are either directly or indirectly observable;
and
|
|
•
|
Level 3 - Unobservable inputs that are
supported by little or no market activity, therefore requiring an entity
to develop its own assumptions about the assumptions that market
participants would use in pricing.
|
The carrying amounts of our
company’s financial assets and liabilities, such as cash and cash equivalents,
prepaid expenses, deposit, accounts payable and accrued liabilities, and due to
a related party approximate their fair values because of the short maturity of
these instruments.
Our Level 3 financial liabilities
consist of the derivative liability of our company’s secured convertible
promissory notes and debentures issued to investors, and the derivative warrants
issued in connection with these convertible promissory notes and debentures.
There is no current market for these securities such that the determination of
fair value requires significant judgment or estimation. Our company used a
lattice model which incorporates transaction details such as company stock
price, contractual terms, maturity, risk free rates, as well as assumptions
about future financings, volatility, and holder behavior as of the date of
issuance and each balance sheet date.
Revenue Recognition
The Company has generated little
revenues to date. It is the Company’s policy that revenue from product sales or
services will be recognized in accordance with ASC 605 “Revenue Recognition”.
Four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's judgments
regarding the fixed nature of the selling prices of the products delivered and
the collectability of those amounts. Provisions for discounts and rebates to
customers, estimated returns and allowances, and other adjustments are provided
for in the same period the related sales are recorded. The Company will defer
any revenue for which the product/services was not delivered or is subject to
refund until such time that the Company and the customer jointly determine that
the product/service has been delivered or no refund will be required.
Sales comprise the fair value of
the consideration received or receivable for the sale of goods and rendering of
services in the ordinary course of the Company’s activities. Sales are
presented, net of tax, rebates and discounts, and after eliminating intercompany
sales. The Company recognizes revenue when the amount of revenue and related
cost can be reliably measured and it is probable that the collectability of the
related receivables is reasonably assured.
47
During the year ended June 30,
2017 and 2016, the Company recorded no revenue under continuing operation.
Receivables
Trade and other receivables are
customer obligations due under normal trade terms and are recorded at face value
less any provisions for uncollectible amounts considered necessary. The Company
includes any balances that are determined to be uncollectible in its overall
allowance for doubtful accounts. As of June 30, 2017, the Company recorded no
allowance for doubtful accounts.
Recent Accounting Pronouncements
In January 2016, the FASB issued
an accounting standard update which requires, among other things, that entities
measure equity investments (except those accounted for under the equity method
of accounting or those that result in consolidation of the investee) at fair
value, with changes in fair value recognized in earnings. Under the standard,
entities will no longer be able to recognize unrealized holding gains and losses
on equity securities classified today as available for sale as a component of
other comprehensive income. For equity investments without readily determinable
fair values the cost method of accounting is also eliminated, however subject to
certain exceptions, entities will be able to elect to record equity investments
without readily determinable fair values at cost, less impairment and plus or
minus adjustments for observable price changes, with all such changes recognized
in earnings. This new standard does not change the guidance for classifying and
measuring investments in debt securities and loans. The standard is effective
for us on July 1, 2018 (the first quarter of our 2019 fiscal year). The Company
is currently evaluating the anticipated impact of this standard on its
consolidated financial statements.
In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the
balance sheet and disclosing key information about leasing arrangements. Topic
842 affects any entity that enters into a lease, with some specified scope
exemptions. The guidance in this Update supersedes Topic 840, Leases. The core
principle of Topic 842 is that a lessee should recognize the assets and
liabilities that arise from leases. A lessee should recognize in the statement
of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for
the lease term. For public companies, the amendments in this Update are
effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. We are currently evaluating the impact of
adopting ASU No. 2016-02 on its consolidated financial statements.
In March 2016, the FASB issued
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to
apply revenue recognition guidance related to whether an entity is a principal
or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the
entity has control of the goods or services before they are transferred to the
customer and provides additional guidance about how to apply the control
principle when services are provided and when goods or services are combined
with other goods or services. The effective date for ASU 2016-08 is the same as
the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual
reporting periods beginning after December 15, 2017, including interim periods
within those years. The Company has not yet determined the impact of ASU 2016-08
on its consolidated financial statements.
In March 2016, the FASB issued
ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The
areas for simplification in this Update involve several aspects of the
accounting for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. For public entities, the
amendments in this Update are effective for annual periods beginning after
December 15, 2016, and interim periods within those annual periods. Early
adoption is permitted in any interim or annual period. If an entity early adopts
the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. An entity
that elects early adoption must adopt all of the amendments in the same period.
Amendments related to the timing of when excess tax benefits are recognized,
minimum statutory withholding requirements, forfeitures, and intrinsic value
should be applied using a modified retrospective transition method by means of a
cumulative-effect adjustment to equity as of the beginning of the period in
which the guidance is adopted. Amendments related to the presentation of employee taxes paid on the statement of cash
flows when an employer withholds shares to meet the minimum statutory
withholding requirement should be applied retrospectively. Amendments requiring
recognition of excess tax benefits and tax deficiencies in the income statement
and the practical expedient for estimating expected term should be applied
prospectively. An entity may elect to apply the amendments related to the
presentation of excess tax benefits on the statement of cash flows using either
a prospective transition method or a retrospective transition method. We are
currently evaluating the impact of adopting ASU No. 2016-09 on its consolidated
financial statements.
48
In April 2016, the FASB issued
ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing, which provides further guidance on
identifying performance obligations and improves the operability and
understandability of licensing implementation guidance. The effective date for
ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU
2015-14, for annual reporting periods beginning after December 15, 2017,
including interim periods within those years. The Company has not yet determined
the impact of ASU 2016-10 on its consolidated financial statements.
FASB ASU 2016-12, “Revenue from
Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical
Expedients” was issued in June 2016 and clarifies the objective of the
collectability criterion, presentation of taxes collected from customers,
non-cash consideration, contract modifications at transition, completed
contracts at transition and how guidance in Topic 606 is retrospectively
applied. The amendments do not change the core principle of the guidance in
Topic 606. The effective dates are the same as those for Topic 606.
Our significant accounting
policies are more fully described in the notes to our financial statements
included in this Annual Report on Form 10-K for the fiscal year ended June 30,
2017. We believe that the accounting policies below are critical for one to
fully understand and evaluate our financial condition and results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
As a “smaller reporting company,” we are not required to
provide the information required by this Item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information called for by
Item 8 is included following the "Index to Financial Statements" on page F-1
contained in this annual report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation,
under the supervision and with the participation of our management, including
our sole executive officer, Alexander Walsh, who is our Chief Executive Officer
(Principal Executive Officer) and Chief Financial Officer (Principal Financial
Officer and Principal Accounting Officer), of the effectiveness of the design of
our disclosure controls and procedures (as defined by Exchange Act Rules
13a-15(e) or 15d-15(e)) as of June 30, 2017 pursuant to Exchange Act Rule
13a-15. Based upon that evaluation, our Principal Executive and Financial
Officer concluded that our disclosure controls and procedures were not effective
as of June 30, 2017 in ensuring that information required to be disclosed by us
in reports that we file or submit under the Exchange Act is recorded, processed,
summarized, and reported within the time periods specified in the SEC’s rules
and forms. This conclusion is based on findings that constituted material
weaknesses. A material weakness is a deficiency, or a combination of control
deficiencies, in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the Company’s interim
financial statements will not be prevented or detected on a timely basis.
49
Management’s Report on Internal Control Over Financial
Reporting
Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the
supervision and with the participation of our management, which currently
consists of Alexander Walsh serving as our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the effectiveness of our
internal control over financial reporting based on criteria established in the
framework in Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (“COSO” - 2013) and SEC
guidance on conducting such assessments. Our management concluded, as of June
30, 2017, that our internal control over financial reporting was not effective.
Management realized there were deficiencies in the design or operation of the
Company’s internal control that adversely affected the Company’s internal
controls which management considers to be material weaknesses.
In performing the
above-referenced assessment, management had concluded that as of June 30, 2017,
there were deficiencies in the design or operation of our internal control that
adversely affected our internal controls, which management considers to be
material weaknesses, including those described below:
(i)
Lack of Formal Policies and Procedures
. We utilize a third party
independent contractor for the preparation of our financial statements. Although
the financial statements and footnotes are reviewed by our management, we do not
have a formal policy to review significant accounting transactions and the
accounting treatment of such transactions. The third party independent
contractor is not involved in the day to day operations of the Company and may
not be provided information from management on a timely basis to allow for
adequate reporting/consideration of certain transactions.
(ii)
Audit Committee and Financial Expert
. We do not have a formal audit
committee with a financial expert, and thus we lack the board oversight role
within the financial reporting process.
(iii)
Insufficient Resources
. We have insufficient quantity of dedicated
resources and experienced personnel involved in reviewing and designing internal
controls. As a result, a material misstatement of the interim and annual
financial statements could occur and not be prevented or detected on a timely
basis.
(iv)
Entity Level Risk Assessment
. We did not perform an entity level risk
assessment to evaluate the implication of relevant risks on financial reporting,
including the impact of potential fraud related risks and the risks related to
non-routine transactions, if any, on internal control over financial reporting.
Lack of an entity-level risk assessment constituted an internal control design
deficiency which resulted in more than a remote likelihood that a material error
would not have been prevented or detected, and constituted a material weakness.
Our management feels the
weaknesses identified above have not had any material effect on our financial
results. However, we are currently reviewing our disclosure controls and
procedures related to these material weaknesses and expect to implement changes
in the near term as resources permit, including identifying specific areas
within our governance, accounting and financial reporting processes to add
adequate resources to potentially mitigate these material weaknesses.
Our management will continue to
monitor and evaluate the effectiveness of our internal controls and procedures
and our internal controls over financial reporting on an ongoing basis and is
committed to taking further action and implementing additional enhancements or
improvements, as necessary and as funds allow.
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.
50
Changes in Internal Control Over Financial Reporting
There were no changes in our
internal control over financial reporting during the year ended June 30, 2017
that have materially affected, or are reasonably likely to materially affect our
internal control over financial reporting. We believe that a control system, no
matter how well designed and operated, cannot provide absolute assurance that
the objectives of the control system are met, and no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within any company have been detected.
ITEM 9B. OTHER INFORMATION
None.
51
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Set forth below are the present
directors and executive officers of the Company. Except as set forth below,
there are no other persons who have been nominated or chosen to become
directors, nor are there any other persons who have been chosen to become
executive officers. Other than as set forth below, there are no arrangements or
understandings between any of the directors, officers and other persons pursuant
to which such person was selected as a director or an officer.
|
Name
|
Age
|
Position
|
Since
|
|
|
|
|
|
|
Alexander Walsh
|
37
|
President, Chief Executive Officer,
|
November 4, 2010
|
|
|
|
Chief Financial Officer, Treasurer and
|
|
|
|
|
Director
|
|
The Board of Directors is
comprised of only one class. Our sole director, Mr. Walsh, serves for a term of
one year and until his successor(s) is/are elected at the Company’s annual
shareholders meeting and are qualified, subject to removal by the Company’s
shareholders. Our sole executive officer, Mr. Walsh, serves at the pleasure of
the Board of Directors, for a term of one year and until his successor is
elected at a meeting of the Board of Directors and is qualified.
Our Board of Directors believes
that all members of the Board and all executive officers encompass a range of
talent, skill, and experience sufficient to provide sound and prudent guidance
with respect to our operations and interests. The information below with respect
to our sole officer and director includes his experience, qualifications,
attributes, and skills necessary for him to serve as a director and/or executive
officer.
Biographies of Directors and Executive Officers
Set forth below are brief
accounts of the business experience during the past five years of our sole
director, executive officer and significant employee of the Company.
Alexander Walsh – President, Chief Executive Officer, Chief
Financial Officer, Treasurer and Director
Mr. Walsh was appointed
President, Chief Executive Officer, Secretary, Treasurer, and Director of our
company in November 2010. From May 2008 to November of 2010, Mr. Walsh was a
management consultant at AW Enterprises, LLC, a management consulting firm
assisting small and middle market businesses in expanding their revenue and
profits through strategic partnerships. Mr. Walsh’s efforts included strategic
planning for companies looking to raise capital and assisting clients with
forming strategic partnerships that could increase their revenue and profits.
From May 2006 to May 2008, Mr. Walsh was a small business consultant and
managing partner for Business Strategies Group, a specialized team focusing on
providing employee benefits, retirement programs, and insurance products to
small and middle market companies. Mr. Walsh attended DePauw University in
Greencastle, Indiana where he majored in economics and management. Mr. Walsh was
chosen as one of our directors due to his background in venture capital,
investor relations and corporate development.
We believe that Mr. Walsh’s experience relating to venture
capital, investor relations, corporate development and the public markets makes
him suitable to serve as a director of our company.
Family Relationships
There are no other family
relationships between or among any of our sole director and executive officer
and any incoming directors or executive officers.
52
Involvement in Certain Legal Proceedings
No director, executive officer,
significant employee or control person of the Company has been involved in any
legal proceeding listed in Item 401(f) of Regulation S-K in the past 10 years.
Committees of the Board
Our Board of Directors held no
formal meeting in the fiscal year-ended June 30, 2017. Otherwise, all
proceedings of the Board of Directors were conducted by resolutions consented to
in writing by the sole director and filed with the minutes of the Company.
Due to the limited size of our
Board of Directors, we do not currently have a standing Audit or Compensation
Committee. We hope to appoint new directors in the near future, however, and
expect to re-establish both an Audit Committee and Compensation Committee
promptly thereafter.
Board Nominations and Appointments
In considering whether to
nominate any particular candidate for election to the Board of Directors, we
will use various criteria to evaluate each candidate, including an evaluation of
each candidate’s integrity, business acumen, knowledge of our business and
industry, experience, diligence, conflicts of interest and the ability to act in
the interests of our stockholders. The Board of Directors plans to evaluate
biographical information and interview selected candidates in the next fiscal
year and also plans to consider whether a potential nominee would satisfy the
listing standards for “independence” of The Nasdaq Stock Market and the SEC’s
definition of “audit committee financial expert.” The Board of Directors does
not plan to assign specific weights to particular criteria and no particular
criterion will be a prerequisite for each prospective nominee.
We do not have a formal policy
with regard to the consideration of director candidates recommended by our
stockholders, however, stockholder recommendations relating to director nominees
may be submitted in accordance with the procedures set forth below under the
heading “Communicating with the Board of Directors”.
Communicating with the Board of Directors
Stockholders who wish to send
communications to the Board of Directors may do so by writing to Mr. Alexander
Walsh, Chief Executive Officer, Lithium Exploration Group, Inc., 4635 South
Lakeshore Drive, Suite 200, Tempe, Arizona 85282. The mailing envelope must
contain a clear notation indicating that the enclosed letter is a
“Stockholder-Board Communication.” All such letters must identify the author as
a stockholder and must include the stockholder’s full name, address and a valid
telephone number. The name of any specific intended recipient should be noted in
the communication. We will forward any such correspondence to the intended
recipients; however, prior to forwarding any such correspondence, and we will
review such correspondence, and in our discretion, may not forward
communications that relate to ordinary business affairs, communications that are
primarily commercial in nature, personal grievances or communications that
relate to an improper or irrelevant topic or are otherwise inappropriate for the
Board of Director’s consideration.
Compensation of Directors
We have no standard arrangement
to compensate directors for their services in their capacity as directors.
Directors are not paid for meetings attended. However, we intend to review and
consider future proposals regarding board compensation. All travel and lodging
expenses associated with corporate matters are reimbursed by us, if and when
incurred.
Compensation Committee Interlocks and Insider Participation
No interlocking relationship
exists between our Board of Directors and the board of directors or compensation
committee of any other company, nor has any interlocking relationship existed in
the past.
53
Code of Ethics
We have adopted a Code of Ethics
that applies to, among other persons, our company’s principal executive officers
and senior financial executives, as well as persons performing similar
functions. As adopted, our Code of Ethics sets forth written policies to
promote:
• honest and ethical conduct, including
the ethical handling of actual or apparent conflicts of interest between
personal and professional relationships;
• full,
fair, accurate, timely and understandable disclosure in all reports and
documents that the Corporation files with, or submits to, the Securities and
Exchange Commission ("SEC") and in other public communications made by the
Corporation that are within the Senior Officer’s area of responsibility;
• compliance with applicable governmental laws,
rules and regulations;
• the prompt internal
reporting of violations of the Code; and
•
accountability for adherence to the Code.
Our Code of Ethics and Business
Conduct was filed with the Securities and Exchange Commission as Exhibit 14.1 to
our annual report on Form 10-KSB on September 28, 2007. We will provide a copy
of the Code of Ethics and Business Conduct to any person without charge, upon
request. Requests can be sent to Lithium Exploration Group, Inc., 4635 South
Lakeshore Drive, Suite 200, Tempe, Arizona 85282.
Compliance with Section 16(a) of the Securities Exchange Act
of 1934
Section 16(a) of the Securities
Exchange Act requires our executive officers and directors, and persons who own
more than 10% of our common stock, to file reports regarding ownership of, and
transactions in, our securities with the Securities and Exchange Commission and
to provide us with copies of those filings. Based solely on our review of the
copies of such forms received by us, or written representations from certain
reporting persons, we believe that during the year ended June 30, 2017, all
filing requirements applicable to its officers, directors and greater than 10%
percent beneficial owners were complied with, with the exception of the
following:
|
|
|
Number of Transactions
|
|
|
|
|
Not Reported on a
|
Failure to File
|
|
Name
|
Number of Late Reports
|
Timely Basis
|
Requested Forms
|
|
|
|
|
|
|
Alexander Walsh
(1)
|
-
|
N/A
|
Nil
|
|
(1)
|
The named officer, director or greater than 10%
stockholder, as applicable, had not ownership activity during the fiscal
year ended June 30, 2017.
|
ITEM 11. EXECUTIVE COMPENSATION
General Philosophy
Our Board of Directors is
responsible for establishing and administering the Company’s executive and
director compensation.
Executive Compensation
The following summary
compensation table indicates the cash and non-cash compensation earned from the
Company during the fiscal years ended June 30, 2017 and 2016 for (i) our
principal executive officer; (ii) each of our two most highly compensated
executive officers who were serving as executive officers at the end of the
years ended June 30, 2017 and 2016; and (iii) up to two additional individuals
for whom disclosure would have been provided under (ii) but for the fact that
the individual was not serving as our executive officer at the end of the years
ended June 30, 2017 and 2016. There were no executive officers of the Company
whose total compensation exceeded $100,000 during those periods.
54
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
Name/
|
|
|
|
|
|
|
|
Deferred
|
|
|
Option
|
|
|
Other
|
|
|
Total
|
|
|
Principal
|
|
|
|
|
|
|
|
Salary
|
|
|
Award
|
|
|
Compen-
|
|
|
Compen-
|
|
|
Position
|
|
Year
|
|
|
Salary
|
|
|
Paid
|
|
|
(2
)
|
|
|
sation
|
|
|
sation
|
|
|
Alexander
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Walsh
(1)
|
|
2017
|
|
$
|
120,000
|
|
$
|
|
|
|
- $
|
|
|
-
|
|
$
|
2,000
|
|
$
|
122,000
|
|
|
President,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chief
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officer and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
2016
|
|
$
|
120,000
|
|
$
|
|
|
|
- $
|
|
|
-
|
|
$
|
-
|
|
$
|
120,000
|
|
|
(1)
|
Alexander Walsh was appointed president, chief executive
officer, chief financial officer and director on November 4,
2010.
|
|
|
|
|
(2)
|
Reflects the aggregate grant date fair value computed in
accordance with FASB ASC 718.
|
Employment Agreements
Effective January 12, 2014, we
entered into an employment agreement with Alexander Walsh for provision of
services as our President and Chief Executive Officer. Pursuant to the terms of
the employment agreement, Mr. Walsh will receive an annual salary of $120,000
payable in monthly cash installments or, in the event cash is unavailable, in
shares of our company’s common stock. The employment agreement also provides for
liability insurance and any travel and out-of-pocket expenses incurred and
approved by our company. The employment agreement expired on January 12, 2016,
following which Mr. Walsh has provided his services to the Company on a
month-to-month basis at the same rate of compensation. Determinations with
regard to bonus or option grants are made by Mr. Walsh, the Company's sole
director at this time.
Potential Payments Upon Termination or Change-in-Control
SEC regulations state that we
must disclose information regarding agreements, plans or arrangements that
provide for payments or benefits to our executive officers in connection with
any termination of employment or change in control of the Company. Our sole
executive officer and director has neither received, nor do we have any
arrangements to pay out, any bonus, stock awards, option awards, non-equity
incentive plan compensation, or non-qualified deferred compensation to him.
Equity Compensation Plans
2014 Stock Option Plan
On July 22, 2014, our directors
approved the adoption of the 2014 Stock Plan which permits our company to issue
up to 20,000,000 shares of our common stock to directors, officers, employees
and consultants of our company.
Stock Options/SAR Grants
During the period from inception
to June 30, 2017, we did not grant any stock options to our executive officers.
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Values
There were no options exercised during our fiscal year ended
June 30, 2017 and 2016 by any officer or director of our company.
55
Outstanding Equity Awards at Fiscal Year End
No equity awards were outstanding as of the year ended June 30,
2017.
Director Compensation
The following table sets forth
for each director certain information concerning his compensation for the year
ended June 30, 2017.
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
Value
|
|
|
|
|
|
|
|
|
and
|
|
|
|
|
|
|
|
Non-Equity
|
Nonqualified
|
|
|
|
|
Fees
|
|
|
Incentive
|
Deferred
|
|
|
|
|
Earned or
|
|
|
Plan
|
Compensa-
|
All other
|
|
|
|
Paid in
|
Stock
|
Option
|
Compensa-
|
tion
|
Compensa-
|
|
|
|
Cash
|
Awards
|
Awards
|
tion
|
Earnings
|
tion
|
Total
|
|
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
|
|
|
|
|
|
|
|
|
|
Alexander Walsh
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
We reimburse our directors for
expenses incurred in connection with attending board meetings. We did not pay
any directors fees during our fiscal years ending June 30, 2017 and 2016,
respectively. We have no formal plan for compensating our directors for their
service in their capacity as directors. Directors are entitled to reimbursement
for reasonable travel and other out-of-pocket expenses incurred in connection
with attendance at meetings of our board of directors. Our board of directors
may award special remuneration to any director undertaking any special services
on our behalf other than services ordinarily required of a director. Mr. Walsh
receives compensation for his services as an executive officer of the Company,
but not as a director.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Except as otherwise stated, the
table below sets forth information concerning the beneficial ownership of Common
Stock as of September 19, 2017 for: (1) each director currently serving on our
Board of Directors; (2) each of our named executive officers; (3) our directors
and executive officers as a group; and (4) each person known to the Company to
beneficially own more than 5% of the outstanding shares of Common Stock. As of
September 19, 2017, there were 3,585,818,688 shares of Common Stock outstanding.
Except as otherwise noted, each stockholder has sole voting and investment power
with respect to the shares beneficially owned.
56
|
|
Shares
|
Percentage
|
|
|
Beneficially
|
of Class
|
|
Name and
Address of Beneficial Owner
(1)
|
Owned
|
Owned
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
Alexander Walsh
|
-
(2)
|
- %
|
|
320 E. Fairmont Drive
|
|
|
|
Tempe, AZ 85282
|
|
|
|
|
|
|
|
All Officers and Directors as a Group
|
-
|
- %
|
|
|
|
|
|
5% Shareholders
|
|
|
|
|
|
|
|
Concord Holding Group, LLC
|
-
(3)
|
-%
|
|
1080 Bergen Street, Suite 240
|
|
|
|
Brooklyn, NY 11216
|
|
|
|
|
|
|
|
JDF Capital Inc.
|
-
(4)
|
-%
|
|
62 East Main Street
|
|
|
|
Freehold, NJ 07728
|
|
|
|
|
|
|
|
All 5% Shareholders as a Group
|
-
|
-%
|
|
(1)
|
Under Rule 13d-3, a beneficial owner of a security
includes any person who, directly or indirectly, through any contract,
arrangement, understanding, relationship, or otherwise has or shares: (i)
voting power, which includes the power to vote, or to direct the voting of
shares; and (ii) investment power, which includes the power to dispose or
direct the disposition of shares. Certain shares may be deemed to be
beneficially owned by more than one person (if, for example, persons share
the power to vote or the power to dispose of the shares). In addition,
shares are deemed to be beneficially owned by a person if the person has
the right to acquire the shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is provided. In
computing the percentage ownership of any person, the amount of shares
outstanding is deemed to include the amount of shares beneficially owned
by such person (and only such person) by reason of these acquisition
rights. As a result, the percentage of outstanding shares of any person as
shown in this table does not necessarily reflect the person’s actual
ownership or voting power with respect to the number of shares of common
stock actually outstanding on September 28, 2017. As of September 28,
2017, there were 3,585,818,688 shares of our company’s common stock issued
and outstanding.
|
|
|
|
|
(2)
|
Alexander Walsh is our company’s president, chief
executive officer, chief financial officer and director.
|
|
|
|
|
(3)
|
Concord Holding Group, LLC has rights to shares of the
Company’s common stock under a series of convertible notes, as more fully
described in the footnotes to our financial statements, up to an aggregate
number of shares of common stock not to exceed 9.99% percent of shares
outstanding.
|
|
|
|
|
(4)
|
JDF Capital Inc. has rights to shares of the Company’s
common stock under a series of convertible notes, as more fully described
in the footnotes to our financial statements, up to an aggregate number of
shares of common stock not to exceed 4.99% percent of shares
outstanding.
|
Changes in Control.
We are unaware of any contract or
other arrangement or provisions of our Articles or Bylaws the operation of which
may at a subsequent date result in a change of control of our company. There are
not any provisions in our Articles or Bylaws, the operation of which would
delay, defer, or prevent a change in control of our company.
57
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
Transactions with Related Persons
As of June 30, 2017, there have
been no transactions, or currently proposed transactions, in which we were or
are to be a participant and the amount involved exceeds the lesser of $120,000
or one percent of the average of our total assets at year-end for the last two
completed fiscal years, and in which any of the following persons had or will
have a direct or indirect material interest:
|
•
|
any director or executive officer of our company;
|
|
•
|
any person who beneficially owns, directly or indirectly,
shares carrying more than 5% of the voting rights attached to our
outstanding shares of common stock;
|
|
•
|
any promoters and control persons; and
|
|
•
|
any member of the immediate family (including spouse,
parents, children, siblings and in laws) of any of the foregoing persons.
|
Named Executive Officers and Current Directors
For information regarding
compensation for our named executive officers and current directors, see
“Executive Compensation”.
Director Independence
We currently act with one
director, consisting of Alexander Walsh. We have determined that we do not have
an “independent director” as defined in NASDAQ Marketplace Rule 4200(a)(15).
We do not have a standing audit,
compensation or nominating committee, but our entire board of directors act in
such capacity. We believe that our directors are capable of analyzing and
evaluating our financial statements and understanding internal controls and
procedures for financial reporting. Our directors do not believe that it is
necessary to have an audit committee because we believe that the functions of an
audit committee can be adequately performed by the board of directors. In
addition, we believe that retaining additional independent directors who would
qualify as an “audit committee financial expert” would be overly costly and
burdensome and is not warranted in our circumstances given the early stages of
our development.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit and Accounting Fees
The following tables set forth
the fees billed to the Company for professional services rendered by RBSM LLP
(“RBSM”) for the fiscal years ended June 30, 2017 and 2016:
|
Services
|
|
2017
|
|
|
2016
|
|
|
Audit fees
|
$
|
45,000
|
|
$
|
45,000
|
|
|
Audit related fees
|
|
-
|
|
|
-
|
|
|
Tax fees
|
|
-
|
|
|
-
|
|
|
All other fees
|
|
-
|
|
|
-
|
|
|
Total fees
|
$
|
45,000
|
|
$
|
45,000
|
|
Audit Fees
The aggregate audit fees billed
and unbilled for the fiscal years ended June 30, 2017 and 2016 were for
professional services rendered by RBSM for the audits of our annual financial
statements and the review of our financial statements included in our quarterly
reports on Form 10-Q.
58
Pre-Approval Policies and Procedures
We do not have an audit
committee. Our sole Chief Executive Office and sole director pre-approves all
services, including both audit and non-audit services, provided by our
independent accountants. For audit services, each year the independent auditor
provides our sole director with an engagement letter outlining the scope of the
audit services proposed to be performed during the year, which must be formally
accepted by the sole director before the audit commences.
59
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
|
Exhibit
|
|
|
Number
|
Description
|
|
(3)
|
(i) Articles of Incorporation; and (ii) Bylaws
|
|
3.1
|
Articles of Incorporation (incorporated by reference to
our Registration Statement on Form SB-2 filed on September 20, 2006)
|
|
3.2
|
Bylaws (incorporated by reference to our Registration
Statement on Form SB-2 filed on September 20, 2006)
|
|
3.3
|
Articles of Amendment dated May 31, 2006 (incorporated by
reference to our Current Report on Form 8-K filed on April 21, 2009)
|
|
3.4
|
Certificate of Amendment dated April 8, 2009
(incorporated by reference to our Current Report on Form 8- K/A filed on
April 23, 2009)
|
|
3.5
|
Articles of Merger dated November 17, 2010 (incorporated
by reference to our Current Report on Form 8-K filed on December 7, 2010)
|
|
3.6
|
Certificate of Amendment dated October 17, 2014
(incorporated by reference to our Quarterly Report on Form 10-Q/A filed on
December 2, 2014)
|
|
3.7
|
Articles of Incorporation of Alta Disposal Morinville
Ltd. (formerly Blue Tap Resources Inc.) (incorporated by reference to our
Current Report on Form 8-K filed on October 24, 2013)
|
|
3.8
|
Certificate of Amendment of Alta Disposal Morinville Ltd.
(formerly Blue Tap Resources Inc.) (incorporated by reference to our
Current Report on Form 8-K filed on October 24, 2013)
|
|
3.9
|
Bylaws of Alta Disposal Morinville Ltd. (formerly Blue
Tap Resources Inc.) (incorporated by reference to our Current Report on
Form 8-K filed on October 24, 2013)
|
|
3.10
|
Certificate of Incorporation of 1617437 Alberta Ltd.
(incorporated by reference to our Current Report on Form 8-K filed on
October 24, 2013)
|
|
3.11
|
Articles of Amendment of Alta Disposal Ltd. (incorporated
by reference to our Current Report on Form 8-K filed on October 24, 2013)
|
|
3.12
|
Bylaws of Alta Disposal Ltd. (incorporated by reference
to our Current Report on Form 8-K filed on October 24, 2013)
|
|
3.13
|
Certificate of Amendment filed September 9, 2015
(incorporated by reference to exhibit 4.1 of our Current Report on Form
8-K filed on September 15, 2015)
|
|
(4)
|
Instruments Defining the Rights of Security Holders,
Including Indentures
|
|
4.1
|
Certificate of Designation of Series B Preferred Stock
(incorporated by reference to our Current Report on Form 8-K filed on
January 9, 2014)
|
|
4.2
|
Certificate of Designation of Series A Preferred Stock
(incorporated by reference to exhibit 4.1 of our Current Report on Form
8-K filed July 15, 2015)
|
|
(10)
|
Material Contracts
|
|
10.1
|
Securities Purchase Agreement between our company and JMJ
Financial dated February 13, 2013 (incorporated by reference to our
Current Report on Form 8-K filed on February 15, 2013)
|
|
10.2
|
Amendment and Settlement Agreement dated January 3, 2014
between our company and JDF Capital Inc. (incorporated by reference to our
Current Report on Form 8-K filed on January 9, 2014)
|
|
10.3
|
Form of Common Stock Purchase Warrant between our company
and Centaurian Fund (incorporated by reference to our Current Report on
Form 8-K filed on April 3, 2014)
|
|
10.4
|
Form of Common Stock Purchase Warrant between our company
and Union Capital, LLC (incorporated by reference to our Current Report on
Form 8-K filed on April 3, 2014)
|
|
10.5
|
Form of Common Stock Purchase Warrant between our company
and Adar Bays, LLC (incorporated by reference to our Current Report on
Form 8-K filed on April 3, 2014)
|
|
10.6
|
Form of Common Stock Purchase Warrant between our company
and 514742 B.C. Ltd. (incorporated by reference to our Current Report on
Form 8-K filed on April 3, 2014)
|
60
|
10.7
|
Securities Purchase Agreement dated as of March 3, 2014
between our company and JDF Capital Inc. (incorporated by reference to our
Current Report on Form 8-K filed on April 3, 2014) September 7, 2016)
|
|
10.8
|
2014 Stock Option Plan (incorporated by reference to our
Current Report on Form 8-K filed on August 6, 2014)
|
|
10.9
|
Form of Stock Option Agreement (incorporated by reference
to our Current Report on Form 8- K filed on August 6, 2014)
|
|
10.10
|
Form of Stock Grant Agreement (incorporated by reference
to our Current Report on Form 8-K filed on August 6, 2014)
|
|
10.11
|
Securities Purchase Agreement dated July 22, 2014 between
our company and JDF Capital Inc. Agreement (incorporated by reference to
our Current Report on Form 8-K filed on August 7, 2014)
|
|
10.12
|
Convertible Promissory Note dated July 22, 2014 between
our company and JDF Capital Inc. (incorporated by reference to our Current
Report on Form 8-K filed on August 7, 2014)
|
|
10.13
|
Common Stock Purchase Warrant dated July 22, 2014 between
our company and JDF Capital Inc. (incorporated by reference to our Current
Report on Form 8-K filed on August 7, 2014)
|
|
10.14
|
Securities Purchase Agreement dated as of February 24,
2015 between our company and River North Equity LLC Debt Settlement
Agreement with Alexander R. Walsh dated December 23, 2014 (incorporated by
reference to our Quarterly Report on Form 10-Q filed on February 23, 2015)
|
|
10.15
|
Form of Convertible Promissory Note between our company
and River North Equity LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 23, 2015)
|
|
10.16
|
Loan Agreement dated April 15, 2015 with JDF Capital Inc.
(incorporated by reference to our Quarterly Report on Form 10-Q filed on
March 4, 2016)
|
|
10.17
|
Purchase Agreement dated November 6, 2015 with JDF
Capital Inc. (incorporated by reference to our Quarterly Report on Form
10-Q filed on March 4, 2016)
|
|
10.18
|
Convertible Promissory Note dated November 6, 2015 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on March 4, 2016)
|
|
10.19
|
Securities Purchase Agreement dated December 1, 2015 with
VES Investment Trust (incorporated by reference to our Quarterly Report on
Form 10-Q filed on March 4, 2016)
|
|
10.20
|
Convertible Promissory Note dated December 1, 2015 with
VES Investment Trust. (incorporated by reference to our Quarterly Report
on Form 10-Q filed on March 4, 2016)
|
|
10.21
|
Securities Purchase Agreement dated December 1, 2015 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on March 4, 2016)
|
|
10.22
|
Convertible Promissory Note dated December 1, 2015 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on March 4, 2016)
|
|
10.23
|
Securities Purchase Agreement dated December 3, 2015 with
LG Capital Funding, LLC. (incorporated by reference to our Quarterly
Report on Form 10-Q filed on March 4, 2016)
|
|
10.24
|
Convertible Promissory Note dated December 3, 2015 with
LG Capital Funding, LLC. (incorporated by reference to our Quarterly
Report on Form 10-Q filed on March 4, 2016)
|
|
10.25
|
Securities Purchase Agreement dated January 27, 2016 with
VES Investment Trust. (incorporated by reference to our Quarterly Report
on Form 10-Q filed on March 22, 2016)
|
|
10.26
|
Convertible Promissory Note dated January 27, 2016 with
VES Investment Trust. (incorporated by reference to our Quarterly Report
on Form 10-Q filed on March 22, 2016)
|
|
10.27
|
Securities Purchase Agreement dated January 27, 2016 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on March 22, 2016)
|
|
10.28
|
Convertible Promissory Note dated January 27, 2016 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on March 22, 2016)
|
|
10.29
|
Securities Purchase Agreement dated March 1, 2016 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on March 22, 2016)
|
|
10.30
|
Convertible Promissory Note dated March 1, 2016 with JDF
Capital Inc. (incorporated by reference to our Quarterly Report on Form
10-Q filed on March 22, 2016)
|
|
10.31
|
Partial replacement note issued to APG Capital Holdings,
LLC, originally issued on July 22, 2014 in the amount of $672,000
(incorporated by reference to our Quarterly Report on Form 10-Q filed on September 7, 2016)
|
61
|
10.32
|
Convertible Promissory Note dated April 19, 2016 with
Toledo Advisors LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed on September 7, 2016)
|
|
10.33
|
Convertible Promissory Note dated February 1, 2016 with
Vigere Capital LP (incorporated by reference to our Quarterly Report on
Form 10-Q filed on September 7, 2016)
|
|
10.34
|
Form of Convertible Promissory Note between our company
and JDF Capital Inc. (incorporated by reference to our Current Report on
Form 8-K filed on April 3, 2014)
|
|
10.35
|
Form of Common Stock Purchase Warrant between our company
and JDF Capital Inc. (incorporated by reference to our Current Report on
Form 8-K filed on April 3, 2014)
|
|
10.36
|
Employment Agreement with Alexander Walsh dated January
12, 2014 (incorporated by reference to our Current Report on Form 8-K
filed on April 4, 2014)
|
|
10.37
|
Letter Agreement dated September 9, 2016, between Black
Box Energy, Inc. and PetroChase Inc. (incorporated by reference to our
Annual Report on Form 10-K filed on October 18, 2016)
|
|
10.38
|
Lease Agreement dated May 25, 2016 with Lakeshore
Investment Group II, LLC (incorporated by reference to our Annual Report
on Form 10-K filed on October 18, 2016)
|
|
10.39
|
Exchange Agreement dated September 19, 2016 ($550,000)
with JDF Capital Inc. (incorporated by reference to our Annual Report on
Form 10-K filed on October 18, 2016)
|
|
10.40
|
Convertible Promissory Note ($550,000) dated September
19, 2016 with JDF Capital Inc. (incorporated by reference to our Annual
Report on Form 10-K filed on October 18, 2016)
|
|
10.41
|
Exchange Agreement dated September 19, 2016 ($708,000)
with JDF Capital Inc. (incorporated by reference to our Annual Report on
Form 10-K filed on October 18, 2016).
|
|
10.42
|
Convertible Promissory Note ($708,000) dated September
19, 2016 with JDF Capital Inc. (incorporated by reference to our Annual
Report on Form 10-K filed on October 18, 2016)
|
|
10.43
|
Exchange Agreement dated September 19, 2016 ($140,000)
with JDF Capital Inc. (incorporated by reference to our Annual Report on
Form 10-K filed on October 18, 2016)
|
|
10.44
|
Convertible Promissory Note ($140,000) dated September
19, 2016 with JDF Capital Inc. (incorporated by reference to our Annual
Report on Form 10-K filed on October 18, 2016)
|
|
10.45
|
Agreement for Purchase of Debt dated September 2, 2016
(executed September 7, 2016) with Concord Holding Group, LLC and APG
Capital Holdings, LLC (incorporated by reference to our Annual Report on
Form 10-K filed on October 18, 2016)
|
|
10.46
|
Convertible Promissory Note dated September 7, 2016
($53,919.68) with Concord Holding Group, LLC (incorporated by reference to
our Annual Report on Form 10-K filed on October 18, 2016)
|
|
10.47
|
Securities Purchase Agreement dated September 2, 2016
with Concord Holding Group, LLC (incorporated by reference to our Annual
Report on Form 10-K filed on October 18, 2016)
|
|
10.48
|
Convertible Promissory Note dated September 2, 2016
($116,000) with Concord Holding Group, LLC (incorporated by reference to
our Annual Report on Form 10-K filed on October 18, 2016)
|
|
10.49
|
Securities Purchase Agreement dated September 15, 2016
with Concord Holding Group, LLC (incorporated by reference to our Annual
Report on Form 10-K filed on October 18, 2016)
|
|
10.50
|
Convertible Promissory Note dated September 15, 2016
($257,778) with Concord Holding Group, LLC (incorporated by reference to
our Annual Report on Form 10-K filed on October 18, 2016)
|
|
10.51
|
Securities Purchase Agreement dated September 8, 2016
with Concord Holding Group, LLC (incorporated by reference to our Annual
Report on Form 10-K filed on October 18, 2016)
|
|
10.52
|
Convertible Promissory Note dated September 8, 2016
($27,777) with Concord Holding Group, LLC (incorporated by reference to
our Annual Report on Form 10-K filed on October 18, 2016)
|
|
10.53
|
Agreement for Purchase of Debt dated September 2, 2016
with Concord Holding Group, LLC and APG Capital Holdings, LLC
(incorporated by reference to our Annual Report on Form 10-K filed on
October 18, 2016)
|
|
10.54
|
Convertible Promissory Note dated September 2, 2016
($64,000) with Concord Holding Group, LLC (incorporated by reference to
our Annual Report on Form 10-K filed on October 18, 2016)
|
|
10.55
|
Securities Purchase Agreement dated August 12, 2016, 2016
with JDF Capital Inc. (incorporated by reference to our Quarterly Report
on Form 10-Q filed on February 22, 2017)
|
62
|
10.56
|
Convertible Promissory Note dated August 12, 2016 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.57
|
Securities Purchase Agreement dated September 27, 2016
with JDF Capital Inc (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.58
|
Convertible Promissory Note dated September 27, 2016 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.59
|
Securities Purchase Agreement dated October 10, 2016 with
JDF Capital Inc (incorporated by reference to our Quarterly Report on Form
10-Q filed on February 22, 2017)
|
|
10.60
|
Convertible Promissory Note dated October 10, 2016 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017).
|
|
10.61
|
Convertible Promissory Note dated October 19, 2016 to
Inlight Capital Partners. (incorporated by reference to our Quarterly
Report on Form 10-Q filed on November 14, 2016)
|
|
10.62
|
Securities Purchase Agreement dated October 27, 2016 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on November 14, 2016)
|
|
10.63
|
Securities Purchase Agreement dated October 31, 2016 with
Concord Holding Group, LLC. (incorporated by reference to our Quarterly
Report on Form 10-Q filed on November 14, 2016)
|
|
10.64
|
Convertible Promissory Note dated October 31, 2016 with
Concord Holding Group, LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 22, 2017)
|
|
10.65
|
Securities Purchase Agreement dated November 14, 2016
with Concord Holding Group, LLC (incorporated by reference to our
Quarterly Report on Form 10-Q filed on February 22, 2017)
|
|
10.66
|
Convertible Promissory Note dated November 14, 2016 with
Concord Holding Group, LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 22, 2017)
|
|
10.67
|
Securities Purchase Agreement dated November 22, 2016
with JDF Capital Inc, LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 22, 2017)
|
|
10.68
|
Convertible Promissory Note dated November 22, 2016 with
JDF Capital Inc, LLC (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.69
|
Securities Purchase Agreement dated November 30, 2016
with Concord Holding Group, LLC (incorporated by reference to our
Quarterly Report on Form 10-Q filed on February 22, 2017)
|
|
10.70
|
Convertible Promissory Note dated November 30, 2016 with
Concord Holding Group, LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 22, 2017)
|
|
10.71
|
Securities Purchase Agreement dated December 23, 2016
with JDF Capital Inc (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.72
|
Convertible Promissory Note dated December 23, 2016 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.73
|
Securities Purchase Agreement dated January 17, 2017 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.74
|
Convertible Promissory Note dated January 17, 2017 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.75
|
Securities Purchase Agreement dated January 25, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 22, 2017)
|
|
10.76
|
Convertible Promissory Note dated January 25, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 22, 2017)
|
|
10.77
|
Securities Purchase Agreement dated January 26, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 22, 2017)
|
|
10.78
|
Convertible Promissory Note dated January 26, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Quarterly
Report on Form 10-Q filed on February 22, 2017)
|
|
10.79
|
Securities Purchase Agreement dated January 27, 2017 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.80
|
Convertible Promissory Note dated January 27, 2017 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.81
|
Securities Purchase Agreement dated February 3, 2017 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
|
10.82
|
Convertible Promissory Note dated February 3, 2017 with
JDF Capital Inc. (incorporated by reference to our Quarterly Report on
Form 10-Q filed on February 22, 2017)
|
63
|
10.83
|
Securities Purchase Agreement dated February 3, 2017 with
JDF Capital Inc. (incorporated by reference to our Current Report on Form
8-K filed on April 24, 2017)
|
|
10.84
|
Convertible Promissory Note dated February 3, 2017 with
JDF Capital Inc. (incorporated by reference to our Current Report on Form
8-K filed on April 24, 2017)
|
|
10.85
|
Securities Purchase Agreement dated March 1, 2017 with
JDF Capital Inc. (incorporated by reference to our Current Report on Form
8-K filed on April 24, 2017)
|
|
10.86
|
Convertible Promissory Note dated March 1, 2017 with JDF
Capital Inc. (incorporated by reference to our Current Report on Form 8-K
filed on April 24, 2017)
|
|
10.87
|
Securities Purchase Agreement dated March 1, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Current
Report on Form 8-K filed on April 24, 2017)
|
|
10.88
|
Convertible Promissory Note dated March 1, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Current
Report on Form 8-K filed on April 24, 2017)
|
|
10.89
|
Securities Purchase Agreement dated March 13, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Current
Report on Form 8-K filed on April 24, 2017)
|
|
10.90
|
Convertible Promissory Note dated March 13, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Current
Report on Form 8-K filed on April 24, 2017)
|
|
10.91
|
Securities Purchase Agreement dated March 20, 2017 with
JDF Capital Inc. (incorporated by reference to our Current Report on Form
8-K filed on April 24, 2017)
|
|
10.92
|
Convertible Promissory Note dated March 20, 2017 with JDF
Capital Inc. (incorporated by reference to our Current Report on Form 8-K
filed on April 24, 2017)
|
|
10.93
|
Convertible Promissory Note dated March 28, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Current
Report on Form 8-K filed on April 24, 2017)
|
|
10.94
|
Securities Purchase Agreement dated March 28, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Current
Report on Form 8-K filed on April 24, 2017)
|
|
10.95
|
Convertible Promissory Note dated December 29, 2016 with
Concord Holding Group, LLC (incorporated by reference to our Form 10-Q filed on May 19, 2017)
|
|
10.96
|
Securities Purchase Agreement dated December 29, 2016
with Concord Holding Group, LLC (incorporated by reference to our Form 10-Q filed on May 19, 2017)
|
|
10.97
|
Securities Purchase Agreement dated April 4, 2017 with
JDF Capital Inc. (incorporated by reference to our Form
10-Q filed on May 19, 2017)
|
|
10.98
|
Convertible Promissory Note dated April 4, 2017 with JDF
Capital Inc. (incorporated by reference to our Form 10-Q
filed on May 19, 2017)
|
|
10.99
|
Securities Purchase Agreement dated May 2, 2017 with JDF
Capital Inc. (incorporated by reference to our Form 10-Q
filed on May 19, 2017)
|
|
10.100
|
Convertible Promissory Note dated May 2, 2017 with JDF
Capital Inc. (incorporated by reference to our Form 10-Q
filed on May 19, 2017)
|
|
10.101
|
Securities Purchase Agreement dated May 5, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Form 10-Q filed on May 19, 2017)
|
|
10.102
|
Convertible Promissory Note dated May 5, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Form 10-Q filed on May 19, 2017)
|
|
10.103
|
Securities Purchase Agreement dated May 15, 2017 with
Concord Holding Group, LLC (incorporated by reference to our Form 10-Q filed on May 19, 2017)
|
|
10.104
|
Collateralized Note dated May 15th, 2017 with Concord
Holding Group. LLC (incorporated by reference to our
Form 10-Q filed on May 19, 2017)
|
|
10.105
|
Backend Note dated May 15, 2017 with Concord Capital, LLC
(incorporated by reference to our Form 10-Q filed on May
19, 2017)
|
|
10.106
|
Securities Purchase Agreement dated May 17, 2017 with JDF
Capital, Inc (incorporated by reference to our Form 10-Q
filed on May 19, 2017)
|
|
10.107
|
Collateralized Note dated May 17, 2017 with JDF Capital,
Inc. (incorporated by reference to our Form 10-Q filed
on May 19, 2017)
|
|
10.108
|
Backend Note dated May 17, 2017 with JDF Capital, Inc.
(incorporated by reference to our Form 10-Q filed on May
19, 2017)
|
|
10.109
|
Joint Development and Option Agreement (incorporated by
reference to our Form 10-Q filed on May 19, 2017)
|
64
|
10.110*
|
Securities Purchase Agreement dated June
8, 2017 with JDF Capital, Inc.
|
|
10.111*
|
Convertible Promissory
Note dated June 8, 2017 with JDF Capital, Inc.
|
|
10.112*
|
Securities Purchase Agreement dated June 8,
2017 with Concord Holding Group, LLC
|
|
10.113*
|
Backend Note dated June 8, 2017
with Concord Holding Group, LLC
|
|
10.114*
|
Collateralized Note dated June 8, 2017 with
Concord Holding Group, LLC
|
|
10.115*
|
Convertible Promissory Note
dated June 8, 2017 with Concord Holding Group, LLC
|
|
10.116*
|
Convertible Promissory Note dated March 3, 2014
with JDF Capital, Inc.
|
|
10.117*
|
Convertible Promissory Note
dated September 9, 2015 with JDF Capital, Inc.
|
|
10.118
|
Debt Settlement and Subscription Agreement dated August 3, 2017 with JDF Capital, Inc. (incorporated by reference to our Form 8-K filed on August 24, 2017)
|
|
(31)
|
Rule 13a-14(a)/15d-14(a) Certification
|
|
31.1*
|
Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer
|
|
(32)
|
Section 1350 Certification
|
|
32.1*
|
Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer
|
|
(101)*
|
Interactive Data Files
|
|
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
|
|
*
|
Filed herewith.
|
|
|
|
|
**
|
Furnished herewith. Pursuant to Rule 406T of
Regulation S-T, the Interactive Data Files on Exhibit 101
hereto
are deemed not filed or part of any registration statement or prospectus
for purposes of Sections 11 or
12 of the Securities Act of 1933,
are deemed not filed for purposes of Section 18 of the Securities and
Exchange Act of 1934, and otherwise are not subject to liability under
those sections.
|
65
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LITHIUM EXPLORATION GROUP, INC.
By:
/s/ Alexander Walsh
Alexander Walsh
President, Chief Executive Officer,
Chief Financial Officer and
Treasurer
(Principal Executive Officer, Principal
Financial Officer and
Principal
Accounting Officer)
Date: September 28, 2017
Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
Signatures
|
Title(s)
|
Date
|
|
|
|
|
|
/s/ Alexander
Walsh
|
Sole Director
|
Date: September 28, 2017
|
|
Alexander Walsh
|
|
|
66
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
FINANCIAL STATEMENTS AS OF JUNE 30, 2017
TABLE OF CONTENTS
67
|
|
|
|
|
|
|
|
|
REPORT OF INDEPENDENT REGISTERED
|
|
PUBLIC ACCOUNTING FIRM
|
Board of Directors and Stockholders of Lithium Exploration
Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of
Lithium Exploration Group, Inc. and Subsidiaries (the “Company”) as of June 30,
2017 and 2016, and the related consolidated statements of operations,
comprehensive loss, stockholders’ deficit, and cash flows for the two years in
the period ended June 30, 2017. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
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 the Company’s
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, and 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 consolidated financial
position of the Company as of June 30, 2017 and 2016, and the results of its
operations and their cash flows for the two years in the period ended June 30,
2017, in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As more
fully described in Note 9, the Company has accumulated deficit, negative cash
flows from operations, incurred recurring operating losses and working capital
deficit which raises substantial doubt about the Company’s ability to continue
as a going concern. Management’s plans in regard to these matters are also
described in Note 9. The consolidated financial statements do not include any
adjustments that may result from the outcome of this uncertainty.
/s/ RBSM LLP
New York, NY
September 28, 2017
F-1
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Cash and cash
equivalents
|
$
|
33,136
|
|
$
|
25,208
|
|
|
Prepaid expenses
|
|
1,100
|
|
|
2,788
|
|
|
Current assets held for sale (Note
11)
|
|
19,852
|
|
|
20,011
|
|
|
Total current assets
|
|
54,088
|
|
|
48,007
|
|
|
|
|
|
|
|
|
|
|
Advances to WhiteTop (Note 5)
|
|
783,620
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
$
|
837,708
|
|
$
|
48,007
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
Accounts payable
and accrued liabilities
|
$
|
90,864
|
|
$
|
211,813
|
|
|
Derivative liability – convertible promissory notes (Note 7)
|
|
3,386,251
|
|
|
1,162,058
|
|
|
Derivative
liability – warrants (Note 7)
|
|
338,873
|
|
|
268,611
|
|
|
Due to related party (Note 6 and 8)
|
|
115,000
|
|
|
115,000
|
|
|
Convertible
promissory notes - net of unamortized debt discount (Note 7)
|
|
2,841,109
|
|
|
619,769
|
|
|
Accrued interest – convertible promissory notes (Note 7)
|
|
210,202
|
|
|
137,936
|
|
|
Current liabilities held for sale
(Note 11)
|
|
6,429
|
|
|
6,420
|
|
|
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
6,988,728
|
|
|
2,521,607
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFICIT
|
|
|
|
|
|
|
|
Lithium Explorations Group, Inc.
Stockholders’ Deficit
|
|
|
|
|
|
|
|
Capital stock (Note 3)
|
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
|
100,000,000
preferred shares, $0.001 par value
|
|
|
|
|
|
|
|
10,000,000,000 common
shares, $0.001 par value
|
|
|
|
|
|
|
|
Issued and outstanding:
|
|
|
|
|
|
|
|
Nil preferred
shares (June 30, 2016 – Nil)
|
|
-
|
|
|
-
|
|
|
2,649,152,021 common shares (June 30, 2016 – 119,772,784)
|
|
2,649,152
|
|
|
119,773
|
|
|
Additional paid-in capital
|
|
49,269,348
|
|
|
48,598,773
|
|
|
Accumulated other
comprehensive loss
|
|
(33,890
|
)
|
|
(33,731
|
)
|
|
Accumulated deficit
|
|
(57,683,563
|
)
|
|
(50,806,439
|
)
|
|
Total Lithium Exploration Group, Inc. Stockholders’
Deficit
|
|
(5,798,953
|
)
|
|
(2,121,624
|
)
|
|
Non-Controlling Interest
|
|
(352,067
|
)
|
|
(351,976
|
)
|
|
Total Deficit
|
|
(6,151,020
|
)
|
|
(2,473,600
|
)
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Deficit
|
$
|
837,708
|
|
$
|
48,007
|
|
The accompanying footnotes are in integral part of these
consolidated financial statements.
F-2
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
Mining expenses
|
|
87,792
|
|
|
31,174
|
|
|
Selling,
general and administrative
|
|
922,426
|
|
|
517,043
|
|
|
Total operating expenses
|
|
1,010,218
|
|
|
548,217
|
|
|
Loss from operations
|
|
(1,010,218
|
)
|
|
(548,217
|
)
|
|
|
|
|
|
|
|
|
|
Other income
(expenses)
|
|
|
|
|
|
|
|
Interest expense (Note 7)
|
|
(2,863,042
|
)
|
|
(781,107
|
)
|
|
Gain on change in the fair
value of derivative liability (Note 7)
|
|
695,912
|
|
|
595,512
|
|
|
Amortization of debt discount
|
|
(1,879,437
|
)
|
|
(515,942
|
)
|
|
Loss on settlement of
warrants
|
|
(42,944
|
)
|
|
-
|
|
|
Impairment of deposit (Note 5)
|
|
(250,000
|
)
|
|
-
|
|
|
Bad-debt write off
|
|
-
|
|
|
(20,000
|
)
|
|
Gain on disposal of business operations
|
|
-
|
|
|
7,761
|
|
|
Loss on extinguishment of
liability
|
|
(1,527,301
|
)
|
|
-
|
|
|
|
|
(5,866,812
|
)
|
|
(713,776
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
(6,877,030
|
)
|
|
(1,261,993
|
)
|
|
Provision for income taxes
(Note 4)
|
|
-
|
|
|
-
|
|
|
Net loss from continuing operations
|
|
(6,877,030
|
)
|
|
(1,261,993
|
)
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
(185
|
)
|
|
(78,624
|
)
|
|
Net loss
|
|
(6,877,215
|
)
|
|
(1,340,617
|
)
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable
to the non-controlling interest
|
|
(91
|
)
|
|
(38,526
|
)
|
|
|
|
|
|
|
|
|
|
Net income loss
attributable to Lithium Exploration Group, Inc. common shareholders
|
$
|
(6,877,124
|
)
|
$
|
(1,302,091
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Loss per Common Share
from continuing operations
|
$
|
(0.008
|
)
|
$
|
(0.046
|
)
|
|
Basic and Diluted Loss per
Common Share from discontinued operations
|
$
|
(0.000
|
)
|
$
|
(0.003
|
)
|
|
Basic and Diluted Weighted Average Number
of Common Shares Outstanding
|
|
835,752,071
|
|
|
28,018,300
|
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(6,877,215
|
)
|
$
|
(1,340,617
|
)
|
|
Foreign currency translation
adjustment
|
|
159
|
|
|
(4,248
|
)
|
|
Comprehensive loss:
|
|
(6,877,056
|
)
|
|
(1,344,865
|
)
|
|
Comprehensive loss
attributable to non-controlling interest
|
|
(91
|
)
|
|
(38,526
|
)
|
|
Comprehensive loss attributable to Lithium
Exploration Group, Inc. common shareholders
|
$
|
(6,876,965
|
)
|
$
|
(1,306,339
|
)
|
The accompanying footnotes are in integral part of these
consolidated financial statements.
F-3
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in
|
|
|
Comprehensive
|
|
|
Accumulated
|
|
|
controlling
|
|
|
Stockholders’
|
|
|
|
|
Common Shares
|
|
|
Amount $
|
|
|
Capital
|
|
|
Loss
|
|
|
Deficit
|
|
|
Interest
|
|
|
(Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – June 30,
2015
|
|
7,574,353
|
|
$
|
7,575
|
|
$
|
47,383,231
|
|
$
|
(29,484
|
)
|
$
|
(49,504,348
|
)
|
$
|
(313,450
|
)
|
$
|
(2,456,476
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for debt
conversion and interest
|
|
109,612,491
|
|
|
109,612
|
|
|
367,289
|
|
|
|
|
|
|
|
|
|
|
|
476,901
|
|
|
Derivative liability transferred to paid in
capital on conversion of note
|
|
-
|
|
|
-
|
|
|
768,175
|
|
|
|
|
|
|
|
|
|
|
|
768,175
|
|
|
Common shares issued for
cashless exercise of warrants
|
|
2,577,896
|
|
|
2,578
|
|
|
19,898
|
|
|
|
|
|
|
|
|
|
|
|
22,476
|
|
|
Common shares issued for fractional shares
adjustment
|
|
8,044
|
|
|
8
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
Disposal of business
operations
|
|
-
|
|
|
-
|
|
|
60,187
|
|
|
|
|
|
|
|
|
|
|
|
60,187
|
|
|
Foreign exchange translation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(4,247
|
)
|
|
|
|
|
|
|
|
(4,247
|
)
|
|
Net loss for the year
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(1,302,091
|
)
|
|
(38,526
|
)
|
|
(1,340,617
|
)
|
|
Balance – June 30, 2016
|
|
119,772,784
|
|
$
|
119,773
|
|
$
|
48,598,773
|
|
$
|
(33,731
|
)
|
$
|
(50,806,439
|
)
|
$
|
(351,976
|
)
|
$
|
(2,473,600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares issued for debt conversion and
interest
|
|
2,339,379,237
|
|
|
2,339,379
|
|
|
(1,072,560
|
)
|
|
|
|
|
|
|
|
|
|
|
1,266,819
|
|
|
Derivative liability
transferred to paid in capital on conversion of note
|
|
|
|
|
|
|
|
1,818,596
|
|
|
|
|
|
|
|
|
|
|
|
1,818,596
|
|
|
Common shares issued for exercise of warrants
|
|
190,000,000
|
|
|
190,000
|
|
|
(75,461
|
)
|
|
|
|
|
|
|
|
|
|
|
114,539
|
|
|
Foreign exchange translation
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(159
|
)
|
|
|
|
|
|
|
|
(159
|
)
|
|
Net loss for the period
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
(6,877,124
|
)
|
|
(91
|
)
|
|
(6,877,215
|
)
|
|
Balance – June 30,
2017
|
|
2,649,152,021
|
|
$
|
2,649,152
|
|
$
|
49,269,348
|
|
$
|
(33,890
|
)
|
$
|
(57,683,563
|
)
|
$
|
(352,067
|
)
|
$
|
(6,151,020
|
)
|
The accompanying footnotes are in integral part of these
consolidated financial statements.
F-4
LITHIUM EXPLORATION GROUP, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Operating
Activities
|
|
|
|
|
|
|
|
Net loss from
continuing operations
|
$
|
(6,877,030
|
)
|
$
|
(1,261,993
|
)
|
|
Loss from discontinued operations
|
|
(185
|
)
|
|
(78,624
|
)
|
|
Adjustments to
reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Gain on disposal of business operation
|
|
-
|
|
|
(7,761
|
)
|
|
Non-cash Interest expense
|
|
2,440,493
|
|
|
695,945
|
|
|
Common shares issued for interest
|
|
91,769
|
|
|
4,118
|
|
|
Loss on settlement of debt
|
|
42,944
|
|
|
-
|
|
|
Bad debt written-off
|
|
-
|
|
|
20,000
|
|
|
Impairment of deposit
|
|
250,000
|
|
|
-
|
|
|
Gain on change in the fair value of derivative
liability
|
|
(695,912
|
)
|
|
(595,512
|
)
|
|
Amortization of debt discount
|
|
1,879,437
|
|
|
515,942
|
|
|
Loss on extinguishment of debt and derivative
liabilities
|
|
1,527,301
|
|
|
-
|
|
|
Changes in
operating assets and liabilities:
|
|
|
|
|
|
|
|
Receivable, net
|
|
-
|
|
|
13,421
|
|
|
Prepaid expenses
|
|
1,688
|
|
|
-
|
|
|
Accrued interest
|
|
230,718
|
|
|
83,594
|
|
|
Accounts
payable and accrued liabilities
|
|
(120,949
|
)
|
|
145,851
|
|
|
Net cash used in operating
activities from continuing operations
|
|
(1,229,726
|
)
|
|
(465,019
|
)
|
|
Net
cash provided by operating activities from discontinued operations
|
|
169
|
|
|
62,375
|
|
|
Net cash used in operating activities
|
|
(1,229,557
|
)
|
|
(402,644
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing
Activities
|
|
|
|
|
|
|
|
Investment in
PetroChase, Inc.
|
|
(250,000
|
)
|
|
-
|
|
|
Advances to WhiteTop
|
|
(783,620
|
)
|
|
-
|
|
|
Net cash used in investing activities
|
|
(1,033,620
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing
Activities
|
|
|
|
|
|
|
|
Proceed from
issuance of convertible promissory notes, net
|
|
2,790,946
|
|
|
368,000
|
|
|
Repayment of notes payable
|
|
(520,000
|
)
|
|
-
|
|
|
Net cash provided by financing activities
|
|
2,270,946
|
|
|
368,000
|
|
|
|
|
|
|
|
|
|
|
Effect of foreign currency exchange
|
|
159
|
|
|
(4,246
|
)
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents
|
|
7,928
|
|
|
(38,890
|
)
|
|
Cash and cash equivalents - beginning of period
|
|
25,208
|
|
|
64,098
|
|
|
Cash and cash equivalents - end of period
|
$
|
33,136
|
|
$
|
25,208
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosure of cash flow
information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
Interest
|
$
|
-
|
|
$
|
-
|
|
|
Income taxes
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplementary non- cash Investing and
Financing Activities:
|
|
|
|
|
|
|
|
Non-cash investing and
financing activities:
|
|
|
|
|
|
|
|
Common stock
issued for debt conversion
|
$
|
1,175,055
|
|
$
|
476,901
|
|
|
Common stock issued on cashless exercise of warrants
|
$
|
71,595
|
|
$
|
22,476
|
|
|
Derivative
liability re-classed to additional paid in capital
|
$
|
1,818,596
|
|
$
|
768,175
|
|
|
Debt discount on issuance of convertible note and warrants
|
$
|
2,849,867
|
|
$
|
394,068
|
|
|
Initial derivative
liability on note issuance
|
$
|
5,290,360
|
|
$
|
1,027,009
|
|
|
Interest reclassed to convertible note
|
$
|
158,778
|
|
$
|
5,680
|
|
|
Reclassification
of discontinued assets and liabilities to additional paid in capital
|
$
|
-
|
|
$
|
60,187
|
|
The accompanying footnotes are in integral part of these
consolidated financial statements.
F-5
LITHIUM EXPLORATION GROUP, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30,
2017
NOTE 1 - ORGANIZATION
Lithium Exploration Group, Inc.
(the “Company”) is a U.S.-based exploration and development company that had
been focused on the acquisition and development potential of lithium brines and
other precious metals that demonstrate high probability for near-term
production. Currently the company is focused testing its SonCav Technology for
use in the oil and gas industry and the acquisition of oil and gas related
assets in Western Canada and Southwest Louisiana. The Company was incorporated
on May 31, 2006 in the State of Nevada under the name “Mariposa Resources, Ltd.”
Effective November 30, 2010, it changed its name to “Lithium Exploration Group,
Inc.,” by way of a merger with its wholly-owned subsidiary Lithium Exploration
Group, Inc., which was formed solely for the change of name.
As used in this Annual Report on
Form 10-K and the accompanying financial statements and notes, and unless
otherwise indicated, the terms “we,” “us,” “our” or the “Company” refer to
Lithium Exploration Group, Inc. a Nevada corporation, including our wholly-owned
subsidiaries, Alta Disposal Ltd., an Alberta, Canada corporation (“Alta
Disposal”), Black Box Energy, Inc., a Nevada corporation (“Black Box Energy”),
and our 51% owned subsidiary, Alta Disposal Morinville Ltd., (formerly Bluetap
Resources, Ltd.) an Alberta, Canada corporation (“ADM”), unless otherwise
indicated.
On October 17, 2014, the Company
amended its Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
common shares from 500,000,000 common shares, par value $0.001, to 2,000,000,000
common shares, par value $0.001. The then authorized capital consists of
2,000,000,000 common shares and 100,000,000 preferred shares, all with a par
value of $0.001.
On January 19, 2015, the Company
received written consent from its Board of Directors to implement a reverse
stock split of its issued and outstanding shares of common stock on a basis of
20 old shares of common stock for 1 new share of common stock. Stockholders of
the Company originally approved the reverse stock split on October 14, 2014 at a
special meeting. The reverse stock split was reviewed and approved for filing by
FINRA and made effective on February 25, 2015.
On July 13, 2015, the Board of
Directors approved an increase in authorized capital from 2,000,000,000 shares
of common stock, par value $0.001, to 10,000,000,000 shares of common stock, par
value of $0.001 per share, and a reverse stock split on a basis of up to 200 old
shares of common stock for 1 share of common stock. The increase of authorized
capital and stock split was approved by shareholders on July 13, 2015.
In this Annual Report on Form
10-K and in the accompanying audited financial statements and notes, the above
described reverse splits are reflected retroactively in the descriptions of
shares and warrants and their corresponding issuance and exercise prices, except
where otherwise indicated.
The Company’s executive offices
are located at 4635 South Lakeshore Drive, Suite 200, Tempe, AZ 85282-7127. The
telephone number for our Tempe office is (480) 641-4790.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and consolidation
The accompanying consolidated
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America.
F-6
Principal of Consolidation
The consolidated financial
statements include the accounts of the Company, its wholly-owned subsidiary Alta
Disposal and its 51% owned subsidiary ADM. Intercompany accounts and
transactions have been eliminated in consolidation in conformity with the
applicable accounting framework. No transactions occurred within Black Box
Energy for the year ended June 30, 2017.
Use of Estimates
The preparation of consolidated
financial statements in conformity with United States 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 amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates. The Company’s periodic filings with
the Securities and Exchange Commission include, where applicable, disclosures of
estimates, assumptions, uncertainties and markets that could affect the
financial statements and future operations of the Company. Significant estimates
that may materially change in the near term include the valuation of derivative
liabilities and the underlying warrants, as well as fair value of investments.
Cash and Cash Equivalents
Cash and cash equivalents include
cash in banks, money market funds, and certificates of term deposits with
original maturities of less than three months, which are readily convertible to
known amounts of cash and which, in the opinion of management, are subject to an
insignificant risk of loss in value. The Company had $33,136 and $25,208 in cash
and cash equivalents at June 30, 2017 and 2016, respectively.
Concentration of Risk
The Company maintains cash
balances at a financial institution which, from time to time, may exceed Federal
Deposit Insurance Corporation insured limits for banks located in the US. As of
June 30, 2017 and 2016, the Company had no deposits in excess of federally
insured limits in its US bank. The Company has not experienced any losses with
regard to its bank accounts and believes it is not exposed to any risk of loss
on its cash in bank accounts.
Prepaid Expenses
Prepaid expenses consist of
security deposit for office lease which will be expensed or refunded at the end
of the lease period.
Start-Up Costs
In accordance with FASC 720-15-20
“Start-Up Costs,” the Company expenses all costs incurred in connection with the
start-up and organization of the Company.
Mineral Acquisition and Exploration Costs
The Company has been in the
exploration stage since its formation on May 31, 2006. Mineral property
acquisition and exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed as a result of
establishing proven and probable reserves, the costs incurred to develop such
property are capitalized. Such costs will be amortized using the
units-of-production method over the estimated life of the probable reserves.
Concentrations of Credit Risk
The Company’s financial
instruments that are exposed to concentrations of credit risk primarily consist
of its cash and cash equivalents and related party payables it will likely incur
in the near future. The Company places its cash and cash equivalents with
financial institutions of high credit worthiness. At times, its cash and cash
equivalents with a particular financial institution may exceed any applicable
government insurance limits. The Company’s management plans to assess the financial strength and
credit worthiness of any parties to which it extends funds, and as such, it
believes that any associated credit risk exposures are limited.
F-7
Non-controlling Interest
The 49% third party ownership of
Alta Disposal Morinville Ltd. (formerly Blue Tap Resources Ltd.) at June 30,
2017 and 2016 are recorded as non-controlling interests in the consolidated
financial statements. Details of changes in the non-controlling interests during
the years ended June 30, 2017 and 2016 and are reflected in the consolidated
statement of deficit.
Related Parties
Parties are considered to be
related to the Company if the parties, directly or indirectly, through one or
more intermediaries, control, are controlled by, or are under common control
with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the
Company and its management and other parties with which the Company may deal if
one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. The Company discloses
all related party transactions. All transactions shall be recorded at fair value
of the goods or services exchanged. Property purchased from a related party is
recorded at the cost to the related party and any payment to or on behalf of the
related party in excess of the cost is reflected as a distribution to related
party.
Net Income or (Loss) per Share of Common Stock
The Company has adopted FASC
Topic No. 260, “Earnings Per Share,” (“EPS”) which requires presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. In the accompanying financial statements, basic
earnings (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Potentially dilutive securities
are not presented in the computation of EPS since their effects are
anti-dilutive. The total number of potential number of dilutive shares is
6,951,714,706 at the year ending June 30, 2017.
Foreign Currency Translations
The Company’s functional and
reporting currency is the U.S. dollar. All transactions initiated in other
currencies are translated into U.S. dollars using the exchange rate prevailing
on the date of transaction. Monetary assets and liabilities denominated in
foreign currencies are translated into the US dollar at the rate of exchange in
effect at the balance sheet date. Unrealized exchange gains and losses arising
from such transactions are deferred until realization and are included as a
separate component of stockholders’ equity (deficit) as a component of
comprehensive income or loss. Upon realization, the amount deferred is
recognized in income in the period when it is realized.
Translation of Foreign Operations
The financial results and
position of foreign operations whose functional currency is different from the
Company’s presentation currency are translated as follows:
|
|
•
|
assets and liabilities are translated at
period-end exchange rates prevailing at that reporting date;
|
|
|
•
|
equity is translated at historical exchange
rates; and
|
|
|
•
|
income and expenses are translated at average
exchange rates for the period.
|
Exchange differences arising on
translation of foreign operations are transferred directly to the Company’s
accumulated other comprehensive loss in the consolidated financial statements.
Transaction gains and losses arising from exchange rate fluctuation on transactions denominated in a
currency other than the functional currency are included in the consolidated
statements of operations.
F-8
The relevant translation rates are as
follows:
|
|
|
Year Ended June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Closing rate CDN$ to US$ as of June 30,
|
$
|
0.770
|
|
$
|
0.769
|
|
|
Average rate CDN$ to US $ for the period June 30,
|
|
0.754
|
|
|
0.776
|
|
Comprehensive Income (Loss)
FASC Topic No. 220,
“Comprehensive Income,” establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. As of June 30, 2017 and 2016, the Company had no material
items of other comprehensive income except for the foreign currency translation
adjustment.
Risks and Uncertainties
Our company operates in the
resource exploration industry that is subject to significant risks and
uncertainties, including financial, operational, technological, and other risks
associated with operating a resource exploration business, including the
potential risk of business failure.
Environmental Expenditures
The operations of our company
have been, and may in the future be, affected from time to time in varying
degree by changes in environmental regulations, including those for future
reclamation and site restoration costs. Both the likelihood of new regulations
and their overall effect upon our company vary greatly and are not predictable.
Our company's policy is to meet or, if possible, surpass standards set by
relevant legislation by application of technically proven and economically
feasible measures.
Environmental expenditures that
relate to ongoing environmental and reclamation programs are charged against
earnings as incurred or capitalized and amortized depending on their future
economic benefits. All of these types of expenditures incurred since inception
have been charged against earnings due to the uncertainty of their future
recoverability. Estimated future reclamation and site restoration costs, when
the ultimate liability is reasonably determinable, are charged against earnings
over the estimated remaining life of the related business operation, net of
expected recoveries.
Warrants
The Company accounts for
currently outstanding detachable warrants to purchase common stock as derivative
liabilities as they are freestanding derivative financial instruments. The
warrants are recorded as derivative liabilities at fair value, estimated using a
Black-Scholes option pricing model, and marked to market at each balance sheet
date, with changes in the fair value of the derivative liabilities recorded in
the consolidated statements of operations and comprehensive loss. Upon exercise
of a derivative financial instrument, the instrument is marked to fair value at
the conversion date and is reclassified to equity.
Convertible Instruments
The Company evaluates and
accounts for conversion options embedded in its convertible instruments in
accordance with ASC 815 “Derivatives and Hedging”. It provides three criteria
that, if met, require companies to bifurcate conversion options from their host
instruments and account for them as free standing derivative financial
instruments. These three criteria include circumstances in which (a) the
economic characteristics and risks of the embedded derivative instrument are not
clearly and closely related to the economic characteristics and risks of the
host contract, (b) the hybrid instrument that embodies both the embedded
derivative instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles with changes
in fair value reported in earnings as they occur and (c) a
separate instrument with the same terms as the embedded derivative instrument
would be considered a derivative instrument. The result of this accounting
treatment could be that the fair value of a financial instrument is classified
as a derivative financial instrument and is marked-to-market at each balance
sheet date and recorded as a liability. In the event that the fair value is
recorded as a liability, the change in fair value is recorded in the statement
of operations as other income or other expense. Upon conversion or exercise of a
derivative financial instrument, the instrument is marked to fair value at the
conversion date and is reclassified to equity. The Company records, when
necessary, discounts to convertible notes for the intrinsic value of conversion
options embedded in debt instruments based upon the differences between the fair
value of the underlying common stock at the commitment date of the note
transaction and the effective conversion price embedded in the note. Debt
discounts under these arrangements are amortized over the term of the related
debt to their earliest date of notes redemption.
F-9
Fair Value of Financial Instruments
ASC 820, “Fair Value Measurements
and Disclosures” requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair value. ASC 820
establishes a fair value hierarchy based on the level of independent, objective
evidence surrounding the inputs used to measure fair value. A financial
instrument’s categorization within the fair value hierarchy is based upon the
lowest level of input that is significant to the fair value measurement. ASC 820
prioritizes the inputs into three levels that may be used to measure fair value:
|
•
|
Level 1 - Quoted prices in active markets for
identical assets or liabilities;
|
|
•
|
Level 2 - Inputs other than quoted prices
included within Level 1 that are either directly or indirectly observable;
and
|
|
•
|
Level 3 - Unobservable inputs that are
supported by little or no market activity, therefore requiring an entity
to develop its own assumptions about the assumptions that market
participants would use in pricing.
|
The carrying amounts of our
company’s financial assets and liabilities, such as cash and cash equivalents,
prepaid expenses, deposit, accounts payable and accrued liabilities, and due to
a related party approximate their fair values because of the short maturity of
these instruments.
Our Level 3 financial liabilities
consist of the derivative liability of our company’s secured convertible
promissory notes and debentures issued to investors, and the derivative warrants
issued in connection with these convertible promissory notes and debentures.
There is no current market for these securities such that the determination of
fair value requires significant judgment or estimation. Our company used a
lattice model which incorporates transaction details such as company stock
price, contractual terms, maturity, risk free rates, as well as assumptions
about future financings, volatility, and holder behavior as of the date of
issuance and each balance sheet date.
Revenue Recognition
The Company has generated little
revenues to date. It is the Company’s policy that revenue from product sales or
services will be recognized in accordance with ASC 605 “Revenue Recognition”.
Four basic criteria must be met before revenue can be recognized: (1) persuasive
evidence of an arrangement exists; (2) delivery has occurred; (3) the selling
price is fixed and determinable; and (4) collectability is reasonably assured.
Determination of criteria (3) and (4) are based on management's judgments
regarding the fixed nature of the selling prices of the products delivered and
the collectability of those amounts. Provisions for discounts and rebates to
customers, estimated returns and allowances, and other adjustments are provided
for in the same period the related sales are recorded. The Company will defer
any revenue for which the product/services was not delivered or is subject to
refund until such time that the Company and the customer jointly determine that
the product/service has been delivered or no refund will be required.
Sales comprise the fair value of
the consideration received or receivable for the sale of goods and rendering of
services in the ordinary course of the Company’s activities. Sales are
presented, net of tax, rebates and discounts, and after eliminating intercompany
sales. The Company recognizes revenue when the amount of revenue and related cost can be reliably measured and it is probable that
the collectability of the related receivables is reasonably assured.
F-10
During the year ended June 30,
2017 and 2016, the Company didn’t record any revenue under continuing operation.
Income Taxes
The Company accounts for income
taxes pursuant to the provisions of ASC 740-10, “Income Taxes” which requires,
among other things, an asset and liability approach to calculating deferred
income taxes. The asset and liability approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets
and liabilities. A valuation allowance is provided to offset any net deferred
tax assets for which management believes it is more likely than not that the net
deferred asset will not be realized.
The Company also follows the
provisions of ASC 740-10 related to accounting for uncertain income tax
positions. When tax returns are filed, some positions taken may be sustained
upon examination by the taxing authorities, while others may be subject to
uncertainty about the merits of the position taken or the amount of the position
that would be ultimately sustained. In accordance with the guidance of ASC
740-10, the benefit of a tax position is recognized in the financial statements
in the period during which, based on all available evidence, management believes
it is more likely than not that the position will be sustained upon examination,
including the resolution of appeals or litigation processes, if any. Tax
positions taken are not offset or aggregated with other positions. As of June
30, 2017 and 2016, the Company has had no uncertain tax positions. The Company
recognizes interest and penalties, if any, related to uncertain tax positions as
general and administrative expenses. The Company currently has no federal or
state tax examinations nor has it had any federal or state examinations since
its inception.
Receivables
Trade and other receivables are
customer obligations due under normal trade terms and are recorded at face value
less any provisions for uncollectible amounts considered necessary. The Company
includes any balances that are determined to be uncollectible in its overall
allowance for doubtful accounts. The Company recorded $Nil (June 30, 2016 -
$Nil) in allowance for doubtful accounts.
Recent Accounting Pronouncements
On May 10, 2017, the Financial
Accounting Standards Board (“FASB”) issued an Accounting Standards Update
(“ASU”) 2017-09 “Compensation—Stock Compensation (Topic 718): Scope of
Modification Accounting”, which provides guidance to clarify when to account for
a change to the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is required only
if the fair value, the vesting conditions, or the classification of the award
(as equity or liability) changes as a result of the change in terms or
conditions. The guidance is effective prospectively for all companies for annual
periods beginning on or after December 15, 2017. Early adoption is permitted.
The Company is currently evaluating the impact of adopting this guidance.
In March 2017, the Financial
Accounting Standards Board (“FASB”) issued ASU 2017-08,
“Receivables—Nonrefundable Fees and Other Costs”. The Board is issuing this
update to amend the amortization period for certain purchased callable debt
securities held at a premium, the Board is shortening the amortization period
for the premium to the earliest call date. For public business entities, the
amendments in this update are effective for fiscal years, and interim periods
within those fiscal years, beginning after December 15, 2018. For all other
entities, the amendments are effective for fiscal years beginning after December
15, 2019, and interim periods within fiscal years beginning after December 15,
2020. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, the FASB issued
Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill
Impairment ("ASU 2017-04"). ASU 2017-04 simplifies the accounting for goodwill
impairment by removing Step 2 of the goodwill impairment test, which requires a
hypothetical purchase price allocation. ASU 2017-04 is effective for annual or interim goodwill impairment
tests in fiscal years beginning after December 15, 2019, and should be applied
on a prospective basis. Early adoption is permitted for interim or annual
goodwill impairment tests performed on testing dates after January 1, 2017. The
Company does not anticipate the adoption of ASU 2017-04 will have a material
impact on its consolidated financial statements.
F-11
In January 2017, the FASB issued
Accounting Standards Update No. 2017-01, Clarifying the Definition of a Business
("ASU 2017-01"). The standard clarifies the definition of a business by adding
guidance to assist entities in evaluating whether transactions should be
accounted for as acquisitions of assets or businesses. ASU 2017-01 is effective
for fiscal years beginning after December 15, 2017, and interim periods within
those fiscal years. Under ASU 2017-01, to be considered a business, the assets
in the transaction need to include an input and a substantive process that
together significantly contribute to the ability to create outputs. Prior to the
adoption of the new guidance, an acquisition or disposition would be considered
a business if there were inputs, as well as processes that when applied to those
inputs had the ability to create outputs. Early adoption is permitted for
certain transactions. The Company does not anticipate the adoption of ASU
2017-01 will have a material impact on its consolidated financial statements.
In November 2016, the FASB issued
Accounting Standards Update No. 2016-18, Restricted Cash (a consensus of the
FASB Emerging Issue Task Force) ("ASU 2016-18"). This new standard addresses the
diversity that exists in the classification and presentation of changes in
restricted cash on the statement of cash flows. The amendments in ASU 2016-18
require that a statement of cash flows explain the change during the period in
the total of cash, cash equivalents, and amounts generally described as
restricted cash or restricted cash equivalents. Therefore, amounts generally
described as restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows. This guidance
is effective for fiscal years beginning after December 15, 2017, including
interim periods within the year of adoption, with early adoption permitted. The
Company does not expect that the adoption of ASU 2016-18 will have a material
impact on its consolidated financial statements.
In August, 2016, the FASB issued
Accounting Standards Update No. 2016-15, Classification of Certain Cash Receipts
and Cash Payments (a consensus of the Emerging Issues Task Force) ("ASU
2016-15"). The amendments in ASU 2016-15 address eight specific cash flow issues
and apply to all entities that are required to present a statement of cash flows
under ASC Topic 230, Statement of Cash Flows. The amendments in ASU 2016-15 are
effective for public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. Early adoption is
permitted, including adoption during an interim period. The Company has not yet
completed the analysis of how adopting this guidance will affect its
consolidated financial statements.
In October 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-16 - Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory.
ASU 2016-16 will require the tax effects of intercompany transactions, other
than sales of inventory, to be recognized currently, eliminating an exception
under current GAAP in which the tax effects of intra-entity asset transfers are
deferred until the transferred asset is sold to a third party or otherwise
recovered through use. The guidance will be effective for the first interim
period of our 2019 fiscal year, with early adoption permitted. The Company does
not anticipate the adoption of ASU 2016-16 will have a material impact on its
consolidated financial statements.
In connection with its financial
instruments project, the FASB issued ASU 2016-13 - Financial Instruments -
Credit Losses: Measurement of Credit Losses on Financial Instruments in June
2016 and ASU 2016-01 - Financial Instruments - Overall: Recognition and
Measurement of Financial Assets and Financial Liabilities in January 2016. ASU
2016-13 introduces a new impairment model for most financial assets and certain
other instruments. For trade and other receivables, held-to-maturity debt
securities, loans and other instruments, entities will be required to use a
forward-looking “expected loss” model that will replace the current “incurred
loss” model and generally will result in earlier recognition of allowances for
losses. The guidance will be effective for the first interim period of our 2021
fiscal year, with early adoption in fiscal year 2020 permitted.
ASU 2016-01 addresses certain
aspects of recognition, measurement, presentation, and disclosure of financial
instruments. Among other provisions, the new guidance requires the fair value
measurement of investments in certain equity securities. For investments without
readily determinable fair values, entities have the option to either measure
these investments at fair value or at cost adjusted for changes in observable
prices minus impairment. All changes in measurement will be recognized in
net income. The guidance will be effective for the first interim period of our
2019 fiscal year. Early adoption is not permitted, except for certain provisions
relating to financial liabilities.
F-12
In January 2016, the FASB issued
an accounting standard update which requires, among other things, that entities
measure equity investments (except those accounted for under the equity method
of accounting or those that result in consolidation of the investee) at fair
value, with changes in fair value recognized in earnings. Under the standard,
entities will no longer be able to recognize unrealized holding gains and losses
on equity securities classified today as available for sale as a component of
other comprehensive income. For equity investments without readily determinable
fair values the cost method of accounting is also eliminated, however subject to
certain exceptions, entities will be able to elect to record equity investments
without readily determinable fair values at cost, less impairment and plus or
minus adjustments for observable price changes, with all such changes recognized
in earnings. This new standard does not change the guidance for classifying and
measuring investments in debt securities and loans. The standard is effective
for us on July 1, 2018 (the first quarter of our 2019 fiscal year). The Company
is currently evaluating the anticipated impact of this standard on its
consolidated financial statements.
In February 2016, the FASB issued
ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability
among organizations by recognizing lease assets and lease liabilities on the
balance sheet and disclosing key information about leasing arrangements. Topic
842 affects any entity that enters into a lease, with some specified scope
exemptions. The guidance in this Update supersedes Topic 840, Leases. The core
principle of Topic 842 is that a lessee should recognize the assets and
liabilities that arise from leases. A lessee should recognize in the statement
of financial position a liability to make lease payments (the lease liability)
and a right-of-use asset representing its right to use the underlying asset for
the lease term. For public companies, the amendments in this Update are
effective for fiscal years beginning after December 15, 2018, including interim
periods within those fiscal years. The Company is currently evaluating the
impact of adopting ASU No. 2016-02 on its consolidated financial statements.
In March 2016, the FASB issued
ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus
Agent Considerations (Reporting Revenue Gross versus Net) that clarifies how to
apply revenue recognition guidance related to whether an entity is a principal
or an agent. ASU 2016-08 clarifies that the analysis must focus on whether the
entity has control of the goods or services before they are transferred to the
customer and provides additional guidance about how to apply the control
principle when services are provided and when goods or services are combined
with other goods or services. The effective date for ASU 2016-08 is the same as
the effective date of ASU 2014-09 as amended by ASU 2015-14, for annual
reporting periods beginning after December 15, 2017, including interim periods
within those years. The Company has not yet determined the impact of ASU 2016-08
on its consolidated financial statements.
In March 2016, the FASB issued
ASU No. 2016-09, Compensation – Stock Compensation, or ASU No. 2016-09. The
areas for simplification in this Update involve several aspects of the
accounting for share-based payment transactions, including the income tax
consequences, classification of awards as either equity or liabilities, and
classification on the statement of cash flows. For public entities, the
amendments in this Update are effective for annual periods beginning after
December 15, 2016, and interim periods within those annual periods. Early
adoption is permitted in any interim or annual period. If an entity early adopts
the amendments in an interim period, any adjustments should be reflected as of
the beginning of the fiscal year that includes that interim period. An entity
that elects early adoption must adopt all of the amendments in the same period.
Amendments related to the timing of when excess tax benefits are recognized,
minimum statutory withholding requirements, forfeitures, and intrinsic value
should be applied using a modified retrospective transition method by means of a
cumulative-effect adjustment to equity as of the beginning of the period in
which the guidance is adopted. Amendments related to the presentation of
employee taxes paid on the statement of cash flows when an employer withholds
shares to meet the minimum statutory withholding requirement should be applied
retrospectively. Amendments requiring recognition of excess tax benefits and tax
deficiencies in the income statement and the practical expedient for estimating
expected term should be applied prospectively. An entity may elect to apply the
amendments related to the presentation of excess tax benefits on the statement
of cash flows using either a prospective transition method or a retrospective
transition method. The Company is currently evaluating the impact of adopting
ASU No. 2016-09 on its consolidated financial statements.
F-13
In April 2016, the FASB issued
ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying
Performance Obligations and Licensing, which provides further guidance on
identifying performance obligations and improves the operability and
understandability of licensing implementation guidance. The effective date for
ASU 2016-10 is the same as the effective date of ASU 2014-09 as amended by ASU
2015-14, for annual reporting periods beginning after December 15, 2017,
including interim periods within those years. The Company has not yet determined
the impact of ASU 2016-10 on its consolidated financial statements.
FASB ASU 2016-12, “Revenue from Contracts with Customers (Topic
606): Narrow-Scope Improvements and Practical Expedients” was issued in June
2016 and clarifies the objective of the collectability criterion, presentation
of taxes collected from customers, non-cash consideration, contract
modifications at transition, completed contracts at transition and how guidance
in Topic 606 is retrospectively applied. The amendments do not change the core
principle of the guidance in Topic 606. The effective dates are the same as
those for Topic 606.
NOTE 3 – CAPITAL STOCK
Reverse Stock Splits
On January 19, 2015, the
Company's board of directors consented to effect a reverse stock split of the
Company’s issued and outstanding shares of common stock on a basis of 20 old
shares of common stock for one 1 new share of common stock. The reverse stock
split was reviewed and approved for filing by the FNRA effective February 25,
2015.
On July 13, 2015, the Company's
board of directors consented to effect a reverse stock split of the Company’s
issued and outstanding shares of common stock on a basis of 200 old shares of
common stock for one 1 new share of common stock. The reverse stock split was
reviewed and approved for filing by the FNRA effective September 30, 2015. The
Company’s authorized capital will not be affected by the reverse stock split.
The split is reflected retrospectively in the accompanying financial statements.
Authorized Stock
At inception, the Company
authorized 100,000,000 common shares and 100,000,000 preferred shares, both with
a par value of $0.001 per share. Each common share entitles the holder to one
vote, in person or proxy, on any matter on which action of the stockholders of
the corporation is sought.
On April 8, 2009, the Company
increased the number of authorized shares to 600,000,000 shares, of which
500,000,000 shares are designated as common stock par value $0.001 per share,
and 100,000,000 shares are designated as preferred stock, par value $0.001 per
share.
On October 25, 2012, the Company
designated 20,000,000 series A convertible preferred stock with a par value of
$0.001 per share and stated value of $100 per share. The designated preferred
stock is convertible at the option of the holder, at any time beginning one year
from the date such shares are issued, into common stock of the Company with a
par value of $0.001. All shares of common stock of the Company, shall be of
junior rank to all series A preferred stock in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. All other shares of preferred stock shall be of junior rank to all
series A preferred shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company.
On January 3, 2014, the Company
designated 2,000,000 series B convertible preferred stock with a par value
$0.001 per share, issuable only in consideration of the extinguishment of
existing debt convertible in to the Company’s common stock with a par value of
$0.001. The designated preferred stock shall be issued on the basis of 1
preferred stock for each $1 of convertible debt. The series B convertible
preferred stock shall be subordinate to and rank junior to all indebtedness of
the Company now or hereafter outstanding.
On October 17, 2014, the Company
amended its Articles of Incorporation, which amendment was filed with the Nevada
Secretary of State on October 17, 2014, to increase the authorized capital of
its common shares from 500,000,000 common shares, par value $0.001 to
2,000,000,000 common shares, par value $0.001.
F-14
The Company's authorized capital
consists of 2,000,000,000 common shares and 100,000,000 preferred shares, all
with a par value of $0.001.
Effective June 22, 2015, the
Company designated 50,000,000 of its 100,000,000 authorized shares of preferred
stock as series A preferred stock. The series A preferred stock, par value
$0.001, will rank senior to the Company’s common stock, carrying general voting
rights with the common stock at the rate of 62 votes per share. The series A
preferred stock will be deemed cancelled within 1 year of issuance and are not
entitled to share in dividends or other distributions. So long as any shares of
series A preferred stock are outstanding, the affirmative vote of not less than
75% of those outstanding shares of series A preferred stock will be required for
any change to the Company’s Articles of Incorporation.
Effective September 9, 2015, the
Company increase the authorized capital of its common shares from 2,000,000,000
common shares, par value $0.001 to 10,000,000,000 common shares, par value
$0.001.
Share Issuances
Common Stock Issuance
For the year ended June 30, 2016:
During the year ended June 30,
2016, the Company issued 109,612,491 shares upon conversion of the convertible
promissory notes and accrued interest, valued at $476,901.
The Company also issued 2,577,896
shares, valued at $22,476 on cashless exercise of warrants during the year ended
June 30, 2016.
For the year ended June 30, 2017:
During the year ended June 30,
2017, the Company issued 2,339,379,237 common shares at a deemed price ranging
from $0.0003 to $0.00075 per share for promissory note and interest conversion
valued at $1,266,819.
On April 4, 2017, the Company
issued 90,000,000 common shares for warrant settlement agreement $42,944
recorded as loss on settlement with derivative liability on date of settlement
recorded as change in fair value of derivative liability (discussed in Note 12).
On May 12, 2017, the Company
issued 100,000,000 common shares to settle warrants under a warrant termination
agreement, resulting in a cashless exercise of the warrants. No other
consideration was paid as part of the settlement.
NOTE 4 – PROVISION FOR INCOME TAXES
The Company recognizes the tax
effects of transactions in the year in which such transactions enter into the
determination of net income, regardless of when reported for tax purposes.
Deferred taxes are provided in the financial statements under FASC 740-20-20 to
give effect to the resulting temporary differences which may arise from
differences in the bases of fixed assets, depreciation methods, allowances, and
start-up costs based on the income taxes expected to be payable in future years.
Exploration stage deferred tax assets arising as a result of net operating loss carryforwards have been offset completely by a valuation allowance due to the uncertainty of their utilization in future periods based upon management’s evaluation that such losses will more likely than not be utilized in future periods. Operating loss carryforwards generated during the period from May 31, 2006 (date of inception) through June 30, 2017 of approximately $15 million will begin to expire in 2026. Accordingly, deferred tax assets were offset by the valuation allowance that increased by $795,992 and $795,006 during the years ended June 30, 2017 and 2016 respectively.
F-15
The Company follows the
provisions of uncertain tax positions as addressed in FASC 740-10-65-1. The
Company recognized approximately no increase in the liability for unrecognized
tax benefits.
The Company has no tax position
at June 30, 2017 for which the ultimate deductibility is highly certain but for
which there is uncertainty about the timing of such deductibility. The Company
recognizes interest accrued related to unrecognized tax benefits in interest
expense and penalties in operating expenses. No such interest or penalties were
recognized during the periods presented. The Company had no accruals for
interest and penalties at June 30, 2017. The Company’s utilization of any net
operating loss carry forward may be unlikely as a result of its intended
exploration stage activities. The tax years for June 30, 2016, June 30, 2015,
June 30, 2014, and June 30, 2013 are still open for examination by the Internal
Revenue Service (IRS).
|
|
|
For the
Year Ended June 30, 2017
|
|
|
|
|
Amount
|
|
|
Tax Effect
(35%)
|
|
|
Loss before income tax
|
$
|
6,877,030
|
|
$
|
2,406,961
|
|
|
Shares issued for interest expenses
|
|
(91,769
|
)
|
|
(32,119
|
)
|
|
Non-cash interest expense
|
|
(2,440,493
|
)
|
|
(854,173
|
)
|
|
Loss on change in fair value of derivative
liability and extinguishment of debt
|
|
(831,389
|
)
|
|
(290,986
|
)
|
|
Amortization of debt discount
|
|
(1,879,437
|
)
|
|
(657,803
|
)
|
|
Loss on settlement of debt
|
|
(42,944
|
)
|
|
(15,030
|
)
|
|
Total
|
|
1,590,998
|
|
|
556,849
|
|
|
Valuation allowance
|
|
(1,590,998
|
)
|
|
(556,849
|
)
|
|
Net deferred tax asset
(liability)
|
$
|
-
|
|
$
|
-
|
|
|
|
|
For the
Year Ended June 30,
|
|
|
|
|
2016
|
|
|
|
|
Amount
|
|
|
Tax Effect (35%)
|
|
|
Loss before income tax
|
$
|
1,340,617
|
|
$
|
469,216
|
|
|
Non-cash interest expense
|
|
(632,942
|
)
|
|
(221,530
|
)
|
|
Gain on change in fair value of derivative
liability
|
|
595,512
|
|
|
208,429
|
|
|
Amortization of debt discount
|
|
(515,942
|
)
|
|
(180,580
|
)
|
|
Gain on disposal of business operation
|
|
7,761
|
|
|
2,716
|
|
|
Total
|
|
795,006
|
|
|
278,252
|
|
|
Valuation allowance
|
|
(795,006
|
)
|
|
(278,252
|
)
|
|
Net deferred tax asset
(liability)
|
$
|
-
|
|
$
|
-
|
|
The utilization of net operating losses may be limited by change of control provisions under IRC section 382 of the Internal Revenue code. Management has not evaluated if a change of control has taken place as of the dates of these statements.
NOTE 5 – DEPOSITS AND ADVANCES
Deposits with PetroChase
On September 9, 2016, the Company
acquired 100% interest in Black Box Energy, Inc. a company incorporated in the
State of Nevada. Black Box Energy will purchase 50% of the working interest in
the McKean County Project from PetroChase, Inc. (“PetroChase”) The consideration
paid for the 50% interest in McKean County Project, is in the following amounts:
|
•
|
First Payment made on 09/09/2016 for an amount
of $125,000;
|
|
•
|
Second Payment made on 09/16/2016 for an amount
of $125,000; and
|
|
•
|
Management Fees Payment for an amount of
$30,000 within 90 days after the Second Payment.
|
The first two payments totaling
$250,000 were made to PetroChase in September 2016 and were reflected as a
Deposit on the Company’s balance sheet. The Company is currently in dispute with
PetroChase regarding the well that was not drilled in accordance with the
agreement, and has filed a complaint against PetroChase in the Superior Court of
the State of Arizona on March 22, 2017. The management fee payments have been
postponed until this issue has been resolved (See Note 10).
F-16
The Company assessed the deposits
for impairment and determined that the full amount was impaired as of June 30,
2017, and is reflected as impairment of deposit of $250,000 on the Company’s
consolidated statement of operations.
Joint Development and Option Agreement with White Top
On April 13, 2017, the Company’s
wholly-owned subsidiary, BBE, entered into a Joint Development and Option
Agreement with White Top Oil & Gas, LLC (“White Top”), a Louisiana limited
liability company (the “White Top Agreement”), under which White Top is the
designee to a funding agreement to finance and participate in the completion of
certain oil and gas development, exploration and operating activities on certain
lands located in Sulphur, Louisiana. Under the terms of the White Top Agreement,
BBE has advanced $783,620 as of June 30, 2017 to White Top as consideration,
which is reflected as Advances to White Top on the Company’s balance sheet (see
Note 10).
In August 2017, the Company made additional payments of $45,000
under the White Top Agreement.
NOTE 6 – PROMISSORY NOTES
Summary of promissory notes at June 30, 2017 and 2016 is as
follows:
|
|
|
|
|
|
Reclassification
|
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
|
(Transfer)
|
|
|
(Payments)
|
|
|
June 30,
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 16, 2016
|
$
|
- $
|
|
|
460,000
|
|
$
|
(460,000
|
)
|
$
|
-
|
|
|
October 18, 2016
|
|
-
|
|
|
60,000
|
|
|
(60,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
$
|
- $
|
|
|
520,000
|
|
$
|
(520,000
|
)
|
$
|
-
|
|
The above promissory notes are
short-term notes that carry no interest. All of the promissory notes were
settled by the end of fiscal year 2017.
NOTE 7 – CONVERTIBLE PROMISSORY NOTES
Summary of convertible promissory notes at June 30, 2017 and
2016 is as follows:
|
|
|
|
|
|
|
|
|
Accretion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of
|
|
|
|
|
|
|
|
|
Transfer
|
|
|
|
|
|
|
|
June 30,
|
|
|
Principal
|
|
|
Issuance
|
|
|
Total
|
|
|
|
|
|
(Loan
|
|
|
June 30,
|
|
|
|
|
2016
|
|
|
Issued
|
|
|
Cost
|
|
|
Converted
|
|
|
Repaid
|
|
|
Extinguished)
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 13, 2013
|
$
|
21,908
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(10,954
|
)
|
$
|
-
|
|
$
|
10,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 22, 2014
|
|
185,315
|
|
|
-
|
|
|
-
|
|
|
(162,789
|
)
|
|
-
|
|
|
(15,304
|
)
|
|
7,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 22, 2014
|
|
15,768
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(15,768
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 6, 2015
|
|
7,150
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
7,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 9, 2015
|
|
10,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,220
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 24, 2015
|
|
76,239
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(76,239
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 3, 2015
|
|
36,000
|
|
|
-
|
|
|
-
|
|
|
(36,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 9, 2015
|
|
30,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
30,000
|
|
F-17
|
September 30, 2015
|
|
20,800
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(20,800
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 6, 2015
|
|
12,000
|
|
|
-
|
|
|
-
|
|
|
(12,000
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1, 2015
|
|
36,000
|
|
|
-
|
|
|
-
|
|
|
(18,000
|
)
|
|
-
|
|
|
(18,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 3, 2015
|
|
17,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(17,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2016
|
|
29,750
|
|
|
-
|
|
|
-
|
|
|
(24,750
|
)
|
|
-
|
|
|
(5,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2016
|
|
49,197
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(49,197
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2016
|
|
13,200
|
|
|
-
|
|
|
-
|
|
|
(13,200
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 24, 2016
|
|
12,100
|
|
|
-
|
|
|
-
|
|
|
(12,100
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 28, 2016
|
|
42,986
|
|
|
-
|
|
|
-
|
|
|
(2,216
|
)
|
|
-
|
|
|
(40,770
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 19, 2016
|
|
197,067
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(197,067
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 16, 2016
|
|
30,250
|
|
|
-
|
|
|
-
|
|
|
(30,250
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 12, 2016
|
|
-
|
|
|
40,000
|
|
|
5,712
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,712
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 7, 2016
|
|
-
|
|
|
100,000
|
|
|
16,000
|
|
|
(169,920
|
)
|
|
-
|
|
|
53,920
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 8, 2016
|
|
-
|
|
|
25,000
|
|
|
2,201
|
|
|
(120,000
|
)
|
|
-
|
|
|
120,000
|
|
|
27,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 9, 2016
|
|
-
|
|
|
125,000
|
|
|
14,810
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
139,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 9, 2016
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(87,772
|
)
|
|
-
|
|
|
108,697
|
|
|
20,925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 15, 2016
|
|
-
|
|
|
232,000
|
|
|
21,059
|
|
|
(253,059
|
)
|
|
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 16, 2016
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(232,500
|
)
|
|
232,500
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 19, 2016
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(233,000
|
)
|
|
|
|
|
1,398,000
|
|
|
1,165,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 27, 2016
|
|
-
|
|
|
110,000
|
|
|
11,655
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
121,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 10, 2016
|
|
-
|
|
|
-
|
|
|
6,677
|
|
|
-
|
|
|
-
|
|
|
93,063
|
|
|
99,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 19, 2016
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(35,000
|
)
|
|
35,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 27, 2016
|
|
-
|
|
|
40,000
|
|
|
5,365
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
45,365
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31, 2016
|
|
-
|
|
|
147,000
|
|
|
10,594
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
157,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 14, 2016
|
|
-
|
|
|
25,000
|
|
|
3,569
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
28,569
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 22, 2016
|
|
-
|
|
|
25,000
|
|
|
2,693
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
27,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2016
|
|
-
|
|
|
87,000
|
|
|
7,215
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
94,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 23, 2016
|
|
-
|
|
|
37,500
|
|
|
3,721
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
41,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 29, 2016
|
|
-
|
|
|
82,000
|
|
|
4,432
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
86,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 17, 2017
|
|
-
|
|
|
42,500
|
|
|
3,679
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
46,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 25, 2017
|
|
-
|
|
|
100,000
|
|
|
12,735
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
112,735
|
|
F-18
|
January 26, 2017
|
|
-
|
|
|
68,500
|
|
|
12,207
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
80,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 27, 2017
|
|
-
|
|
|
100,000
|
|
|
6,680
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
106,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 3, 2017
|
|
-
|
|
|
68,500
|
|
|
4,723
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
73,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, 2017
|
|
-
|
|
|
316,800
|
|
|
14,954
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
331,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 13, 2017
|
|
-
|
|
|
75,000
|
|
|
3,074
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
78,074
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 20, 2017
|
|
-
|
|
|
198,800
|
|
|
7,237
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
206,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 4, 2017
|
|
-
|
|
|
123,800
|
|
|
4,158
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
127,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2, 2017
|
|
-
|
|
|
25,000
|
|
|
763
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,763
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 5, 2017
|
|
-
|
|
|
25,000
|
|
|
755
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
25,755
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 15, 2017
|
|
-
|
|
|
300,000
|
|
|
8,729
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
308,729
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 17, 2017
|
|
-
|
|
|
300,000
|
|
|
9,655
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
309,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 8, 2017
|
|
-
|
|
|
75,000
|
|
|
1,985
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
76,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 8, 2017
|
|
-
|
|
|
75,000
|
|
|
1,985
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
76,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
|
-
|
|
|
100,063
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
100,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
842,950
|
|
$
|
3,069,463
|
|
$
|
209,022
|
|
$
|
(1,175,056
|
)
|
$
|
(278,454
|
)
|
$
|
1,575,815
|
|
$
|
4,243,740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Unamortized debt discount
|
$
|
(223,181
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,402,631
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total note payable, net of debt discount
|
$
|
619,769
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
2,841,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
$
|
619,769
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
2,841,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long term portion
|
$
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
$
|
-
|
|
On August 12, 2016 Company issued an aggregate of $46,750
Convertible Promissory Notes with an issuance discount of $4,250 and $2,500 for
legal fees that matures on August 12, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $64,723 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-19
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.56%
|
|
The initial fair values of the
embedded debt derivative $46,750 was allocated as a debt discount up to the
proceeds of the note with the remainder $17,973 was charged to current period
operations as interest expense.
On September 7, 2016 Company
issued an aggregate of $116,000 Convertible Promissory Notes with an issuance
cost of $16,000 that matures on September 7, 2017. These notes bear 10% interest
per annum and the Holder of this Note is entitled, at its option, at any time,
to convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $122,726 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.57%
|
|
The initial fair values of the
embedded debt derivative $116,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $6,726 was charged to current period
operations as interest expense.
On September 7, 2016 Company had
transferred an aggregate of $50,000 plus accrued interest of $3,919 in
Convertible Promissory Notes from one debt holder to another. The transfer was
treated as a modification of the Convertible Promissory Notes. The Convertible
Promissory Notes matures on September 7, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
On September 7, 2016 Company
issued an aggregate of $32,500 Convertible Promissory Notes that matures on
September 16, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for maturing in total $37,800 of Convertible Promissory
Notes and $2,827 of accrued interest. The Company also agreed to pay $50,000 in
cash which is included under non-convertible promissory notes as described in
Note 6.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $53,765 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-20
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.57%
|
|
The initial fair values of the
embedded debt derivative $23,816 was allocated as a debt discount towards the
proceeds of the note with the remainder $29,949 was charged to current period
operations as interest expense.
On September 7, 2016 Company
issued an aggregate of $75,000 Convertible Promissory Notes that matures on
September 16, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for maturing in total $99,239 of Convertible Promissory
Notes and $14,925 of accrued interest. The Company also agreed to pay $160,000
in cash which is included under with the non-convertible promissory notes as
described in Note 6.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $121,129 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.57%
|
|
The initial fair values of the
embedded debt derivative $54,960 was allocated as a debt discount towards the
proceeds of the note with the remainder $66,170 was charged to current period
operations as interest expense
On September 8, 2016 Company had
transferred an aggregate of $15,304 plus accrued interest of $104,696 in
Convertible Promissory Notes from one debt holder to another. The transfer was
treated as a modification of the Convertible Promissory Notes. The Convertible
Promissory Notes matures on September 8, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $90,498 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
.85%
|
|
The initial fair values of the
embedded debt derivative $78,957 was allocated as a debt discount of the note
with the remainder $11,542 was charged to current period operations as interest
expense.
F-21
On September 8, 2016 Company
issued an aggregate of $27,778 Convertible Promissory Notes with issuance cost
of $2,778 that matures on September 8, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $59,408 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.57%
|
|
The initial fair values of the
embedded debt derivative $27,778 was allocated as a debt discount up to the
proceeds of the note with the remainder $31,630 was charged to current period
operations as interest expense.
On September 9, 2016 Company
issued an aggregate of $144,100 Convertible Promissory Notes with issuance cost
of $19,100 that matures on September 9, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $47,089 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.58%
|
|
The initial fair values of the
embedded debt derivative $47,089 was allocated as a debt discount towards the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 15, 2016 Company
issued an aggregate of $257,778 Convertible Promissory Notes with issuance cost
of $25,778 that matures on September 15, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value of
the derivatives as of the inception date of the Convertible Promissory Note and
to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $88,122 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-22
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.60%
|
|
The initial fair values of the
embedded debt derivative $88,122 was allocated as a debt discount towards the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 16, 2016 Company
issued an aggregate of $25,000 Convertible Promissory Notes that matures on
September 16, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for maturing Convertible Promissory Notes and accrued
interest. The Company also agreed to pay $50,000 in cash which is included under
the non-convertible promissory notes as described in Note 6.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $36,510 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.61%
|
|
The initial fair values of the
embedded debt derivative $13,462 was allocated as a debt discount up to the
proceeds of the note with the remainder $23,048 was charged to current period
operations as interest expense.
On September 16, 2016 Company
issued an aggregate of $100,000 Convertible Promissory Notes that matures on
September 16, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for maturing in total $49,197 of Convertible Promissory
Notes, $2,426 of accrued interest and warrants. The Company also agreed to pay
$50,000 in cash which is included under in conjunctions with the non-convertible
promissory notes as described in Note 6.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $75,414 of the embedded derivative.
F-23
The fair value of the embedded derivative was determined using
the Black Scholes Model based on the following assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.61%
|
|
The initial fair values of the
embedded debt derivative $53,846 was allocated as a debt discount towards the
proceeds of the note with the remainder $21,568 was charged to current period
operations as interest expense.
On September 19, 2016 Company
issued an aggregate of $708,000 Convertible Promissory Notes that matures on
September 19, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for cancellation of outstanding warrants.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 60% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $82,535 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.60%
|
|
The initial fair values of the
embedded debt derivative $82,535 was allocated as a debt discount up to the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 19, 2016 Company
issued an aggregate of $550,000 Convertible Promissory Notes that matures on
September 19, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for cancellation of outstanding Warrants.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $82,361 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.60%
|
|
F-24
The initial fair values of the
embedded debt derivative $82,361 was allocated as a debt discount up to the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 19, 2016 Company
issued an aggregate of $140,000 Convertible Promissory Notes that matures on
September 19, 2017. These Convertible Promissory Notes were issued as a part of
settlement agreement for cancellation of outstanding Warrants.
These notes bear 8% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $82,361 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.60%
|
|
The initial fair values of the
embedded debt derivative $82,361 was allocated as a debt discount up to the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 27, 2016 Company
issued an aggregate of $64,900 Convertible Promissory Notes with issuance cost
of $9,900 that matures on September 27, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 65% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $23,828 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.58%
|
|
The initial fair values of the
embedded debt derivative $23,828 was allocated as a debt discount wards the
proceeds of the note with the remainder $0.00 was charged to current period
operations as interest expense.
On September 29, 2016 Company
issued an aggregate of $61,112 Convertible Promissory Notes with issuance cost
of $6,112 that matures on September 29, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common
stock at a price equal to 50% discount of the lowest trading price of the Common
Stock as reported on the OTC Markets for the twenty prior trading days including
the day upon which a Notice of Conversion is received.
F-25
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $63,730 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
371.21%
|
|
|
Risk free rate:
|
|
0.59%
|
|
The initial fair values of the
embedded debt derivative $61,112 was allocated as a debt discount up to the
proceeds of the note with the remainder $2,618 was charged to current period
operations as interest expense.
As a part of settlement agreement
for maturing in total $15,768 of Convertible Promissory Notes, $4,505 of accrued
interest and warrants valuing $120,500, the Company agreed to pay $150,000 in
cash which is included under in conjunctions with the non-convertible promissory
notes as described in Note 6.
On October 10, 2016 Company
issued an aggregate of $102,369 Convertible Promissory Notes with no issuance
costs that matures on October 10, 2017. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to 50% discount of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $74,334 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the
embedded debt derivative $74,334 was allocated as a debt discount and no amounts
allocated to interest expense.
On October 19, 2016 Company
issued an aggregate of $35,000 Convertible Promissory Notes with no issuance
costs that matures on October 19, 2017. These notes bear 8% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to 65% discount of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value of
the derivatives as of the inception date of the Convertible Promissory Note and
to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $44,093 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-26
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the
embedded debt derivative $18,846 was allocated as a debt discount of the note
with the remainder $25,247 was charged to current period operations as interest
expense.
On October 27, 2016 Company
issued an aggregate of $48,400 Convertible Promissory Notes with issuance cost
of $8,400 that matures on October 27, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $27,583 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241,19%
|
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the
embedded debt derivative $27,583 was allocated as a debt discount up to the
proceeds of the note and no amounts allocated to interest expense.
On October 31, 2016 Company
issued an aggregate of $163,334 Convertible Promissory Notes with issuance cost
of $16,334 that matures on October 31, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $63,303 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
0.85%
|
|
F-27
The initial fair values of the
embedded debt derivative $63,303 was allocated as a debt discount and no amounts
allocated to interest expense.
On November 14, 2016 Company
issued an aggregate of $31,111 Convertible Promissory Notes with issuance cost
of $6,111 that matures on November 14, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $47,670 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the
embedded debt derivative $25,000 was allocated as a debt discount of the note
with the remainder $22,670 was charged to current period operations as interest
expense.
On November 22, 2016 Company
issued an aggregate of $29,700 Convertible Promissory Notes with issuance cost
of $4,700 that matures on November 22, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $19,950 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
0.59%
|
|
The initial fair values of the embedded debt derivative $19,950
was allocated as a debt discount.
On November 30, 2016 Company
issued an aggregate of $100,000 Convertible Promissory Notes with issuance cost
of $13,000 that matures on November 30, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value of
the derivatives as of the inception date of the Convertible Promissory Note and
to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $63,665 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-28
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
0.59%
|
|
The initial fair values of the
embedded debt derivative $63,665 was allocated as a debt discount and no amounts
allocated to interest expense.
On December 23, 2016 Company
issued an aggregate of $45,100 Convertible Promissory Notes with issuance cost
of $7,600 that matures on December 23, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $22,112 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
0.85%
|
|
The initial fair values of the embedded debt derivative $22,112
was allocated as a debt discount.
On December 29, 2016 Company
issued an aggregate of $91,111 Convertible Promissory Notes with issuance cost
of $9,111 that matures on December 29, 2017. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet* date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $68,524 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
241.19%
|
|
|
Risk free rate:
|
|
0.85%
|
|
F-29
The initial fair values of the
embedded debt derivative $68,524 was allocated as a debt discount up to the
proceeds of the note and no amounts allocated to interest expense.
On January 17, 2017 Company
issued an aggregate of $51,150 Convertible Promissory Notes with issuance cost
of $8,650 that matures on January 17, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $218,566 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $42,500 was allocated as a debt discount up to the
proceeds of the note with the remainder $176,066 charged to current period
operations as interest expense.
On January 25, 2017 Company
issued an aggregate of $132,222 Convertible Promissory Notes with issuance cost
of $32,222 that matures on January 25, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $594,279 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $100,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $494,279 charged to current period
operations as interest expense.
On January 26, 2017 Company
issued an aggregate of $99,833 Convertible Promissory Notes with issuance cost
of $31,333 that matures on January 26, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to lesser
of $0.005 or 50% discount of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
F-30
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $552,754 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $68,500 was allocated as a debt discount up to the
proceeds of the note with the remainder $484,254 charged to current period
operations as interest expense.
On January 27, 2017 Company
issued an aggregate of $116,600 Convertible Promissory Notes with issuance cost
of $16,600 that matures on January 27, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $269,317 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $100,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $169,317 charged to current period
operations as interest expense.
On February 3, 2017 Company
issued an aggregate of $80,850 Convertible Promissory Notes with issuance cost
of $12,350 that matures on February 3, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50%
discount of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $241,447 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
F-31
The initial fair values of the
embedded debt derivative $68,500 was allocated as a debt discount up to the
proceeds of the note with the remainder $172,947 charged to current period
operations as interest expense.
On March 1, 2017 Company issued an aggregate of $181,209
Convertible Promissory Notes with issuance cost of $22,809 that matures on March
1, 2018. These notes bear 10% interest per annum and the Holder of this Note is
entitled, at its option, at any time, to convert all or any amount of the
principal face amount of this Note then outstanding into shares of the Company's
common stock at a price equal to 50% discount of the lowest trading price of the
Common Stock as reported on the OTC Markets for the twenty prior trading days
including the day upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $130,829 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $130,829 was allocated as a debt discount up to the
proceeds of the note and no amounts allocated to interest expense.
On March 1, 2017 Company issued
an aggregate of $183,056 Convertible Promissory Notes with issuance cost of
$24,656 that matures on March 1, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to lesser of $0.005
or 50% discount of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $261,920 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $158,400 was allocated as a debt discount up to the
proceeds of the note with the remainder $103,520 charged to current period
operations as interest expense.
On March 13, 2017 Company issued
an aggregate of $85,800 Convertible Promissory Notes with issuance cost of
$10,800 that matures on March 13, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to lesser of $0.005
or 50% discount of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
F-32
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $153,245 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $75,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $78,245 charged to current period
operations as interest expense.
On March 20, 2017 Company issued
an aggregate of $85,800 Convertible Promissory Notes with issuance cost of
$10,800 that matures on March 20, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to 50% discount of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $119,337 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $75,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $44,337 charged to current period
operations as interest expense.
On March 28, 2017 Company issued
an aggregate of $141,680 Convertible Promissory Notes with issuance cost of
$17,880 that matures on March 28, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to lesser of $0.005
or 50% discount of the lowest trading price of the Common Stock as reported on
the OTC Markets for the twenty prior trading days including the day upon which a
Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $226,203 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-33
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
284.38%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $123,800 was allocated as a debt discount up to the
proceeds of the note with the remainder $102,403 charged to current period
operations as interest expense.
On April 4, 2017, the Company
issued an aggregate of $141,627 Convertible Secured Redeemable Note with
issuance cost of $17,827 that matures on April 4, 2018. These notes bear 10%
interest per annum and the Holder of this Note is entitled, at its option, at
any time, to convert all or any amount of the principal face amount of this Note
then outstanding into shares of the Company's common stock at a price equal to
50% of the lowest trading price of the Common Stock as reported on the OTC
Markets for the twenty prior trading days including the day upon which a Notice
of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $94,779 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
261.15%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the embedded debt derivative $94,779
was allocated as a debt discount.
On May 2, 2017, the Company
issued an aggregate of $28,600 Convertible Secured Redeemable Note with issuance
cost of $3,600 that matures on May 2, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $58,674 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
261.15%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $25,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $33,674 charged to current period
operations as interest expense.
On May 5, 2017, the Company
issued an aggregate of $28,600 Convertible Secured Redeemable Note with issuance
cost of $3,600 that matures on May 5, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50% of
the lowest trading price of the Common Stock as reported on the OTC Markets for the twenty
prior trading days including the day upon which a Notice of Conversion is
received.
F-34
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $67,746 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
261.15%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $25,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $42,746 charged to current period
operations as interest expense.
On May 17, 2017, the Company
issued an aggregate of $687,850 Convertible Promissory Notes with issuance cost
of $87,850 that mature on May 15, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at the lesser of $0.005 per share or
at a price equal to 50% of the lowest trading price of the Common Stock as
reported on the OTC Markets for the twenty prior trading days including the day
upon which a Notice of Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $242,348 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
261.15%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the embedded debt derivative
$242,348 was allocated as a debt discount.
On June 8, 2017, the Company
issued an aggregate of $171,600 Convertible Promissory Notes that with issuance
cost of $21,600 that mature on June 8, 2018. These notes bear 10% interest per
annum and the Holder of this Note is entitled, at its option, at any time, to
convert all or any amount of the principal face amount of this Note then
outstanding into shares of the Company's common stock at a price equal to 50% of
the lowest trading price of the Common Stock as reported on the OTC Markets for
the twenty prior trading days including the day upon which a Notice of
Conversion is received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $218,694 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
F-35
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
261.15%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $144,720 was allocated as a debt discount with the
remainder $73,974 charged to current period operations as interest expense.
On June 30, 2017, the Company
issued an aggregate of $114,400 Convertible Promissory Notes with issuance cost
of $14,400 that mature on May 18, 2018. These notes bear 10% interest per annum
and the Holder of this Note is entitled, at its option, at any time, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock at a price equal to 50% of the lowest
trading price of the Common Stock as reported on the OTC Markets for the twenty
prior trading days including the day upon which a Notice of Conversion is
received.
The Company identified embedded
derivatives related to the Convertible Promissory Notes. These embedded
derivatives included certain conversion features. The accounting treatment of
derivative financial instruments requires that the Company record the fair value
of the derivatives as of the inception date of the Convertible Promissory Note
and to adjust the fair value as of each subsequent balance sheet date. At the
inception of the Convertible Promissory Note, the Company determined a fair
value of $160,829 of the embedded derivative. The fair value of the embedded
derivative was determined using the Black Scholes Model based on the following
assumptions:
|
Dividend yield:
|
|
0.00%
|
|
|
Volatility
|
|
261.15%
|
|
|
Risk free rate:
|
|
1.03%
|
|
The initial fair values of the
embedded debt derivative $100,000 was allocated as a debt discount up to the
proceeds of the note with the remainder $60,829 charged to current period
operations as interest expense.
The modification of the Notes was
evaluated under FASB Accounting Standards Codification (“ASC”) Topic No.
470-50-40, “Debt Modification and Extinguishments”. Therefore, according to the
guidance, the instruments were determined to be substantially different, and the
transaction qualified for extinguishment accounting. During the year ended June
30, 2017, $1,527,301 was recorded as loss on extinguishment of debt due to
settlement agreement with note holders. The $1,527,301 consists of net increase
in principal of convertible promissory notes of $1,417,101 (net of extinguished
interests of $158,778), increase in principal of non-convertible promissory
notes of $520,000, extinguished derivative liabilities for debt and warrants
with fair values on date of conversion was $298,728 and $111,072 respectively.
On June 28, 2017, the Company
entered into a Note and Warrant Repayment and Repurchase Agreement whereby the
Company agreed to repurchase 1,011 warrants and settle an outstanding
convertible note payable from the holder totaling $21,908 for two payments to
the holder of $100,000. The first $100,000 payment was made on June 30, 2017
resulting in the repurchase of 506 warrants and a $10,954 reduction of the note.
The portion of the payment allocated to the warrant repurchase $89,046 was
recorded as a loss on settlement and is included in interest expense for the
year ended June 30, 2017. The second and final $100,000 payment was made to the
holder on July 3, 2017, resulting in the repurchase of the remaining 505
warrants and settlement of the remaining balance of the note of $10,954.
During the year ended June 30,
2017 and 2016 the Company amortized the debt discount on all the notes of
$1,879,437 and $515,942, respectively to operations as expense including
$209,023 and $0, respectively, for accretion expenses.
During the year ended June 30,
2017, $278,454 cash was paid to note holders and the change in derivative
liability on date of payment of such notes were charged to gain or loss on
change in fair value of derivative liability under statement of operation. No
cash payments were made to note holders for the year ended June 30, 2016
F-36
Derivative Liability - Debt
The fair value of the described
embedded derivative on all debt was valued at $3,386,252 and $1,162,058 at June
30, 2017 and 2016, respectively, which was determined using the Black Scholes
Model with the following assumptions:
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
Dividend yield:
|
|
0 %
|
|
|
0%
|
|
|
Volatility
|
|
247.5 – 284.4 %
|
|
|
346.6 – 453.3%
|
|
|
Risk free rate:
|
|
1.03 – 1.89 %
|
|
|
0.39%-0.66%
|
|
The Company recorded change in
fair value of the derivative liability on debt to market resulting in non-cash,
non-operating gain of $948,842 and $743,224 for the year ended June 30,
2017 and 2016, respectively.
During the year ended June 30,
2017 and 2016 the Company issued 2,339,379,237 and 109,612,491 shares of the
Company’s common stock in settlement of $1,266,819 and $476,901, respectively,
of convertible note and interest.
During the year ended June 30,
2017 and 2016 the Company reclassed the derivative liability of $1,818,596 and
$768,175, respectively, to additional paid in capital on conversion of
convertible note.
The following table provides a
summary of changes in fair value of the Company’s Level 3 financial liabilities
as of June 30, 2017 and 2016:
|
|
|
Derivative
|
|
|
|
|
Liability
(convertible
|
|
|
|
|
promissory notes)
|
|
|
Balance, June 30, 2015
|
$
|
1,646,448
|
|
|
Initial fair value at note issuances
|
|
1,027,009
|
|
|
Fair value of liability at
note conversion
|
|
(768,175
|
)
|
|
Mark-to-market at June 30, 2016
|
|
(743,224
|
)
|
|
Balance, June 30, 2016
|
$
|
1,162,058
|
|
|
Initial fair value at note issuances
|
|
5,290,359
|
|
|
Fair value of liability at
note conversion
|
|
(1,818,596
|
)
|
|
Extinguishment of derivative liability
|
|
(298,728
|
)
|
|
Mark-to-market at June 30,
2017
|
|
(948,842
|
)
|
|
|
|
|
|
|
Balance, June 30, 2017
|
$
|
3,386,251
|
|
|
Net gain for the period included in earnings
relating to the liabilities held at June 30, 2017
|
$
|
948,842
|
|
Derivative Liability- Warrants
Along with the promissory notes,
the Company issued warrants that bear a cashless exercise provision. The
warrants also include anti-dilution protection with respect to lower priced
issuances of common stock or securities convertible or exchangeable into common
stock, which provision resulted in derivative liability treatment under ASC 480.
The warrants are recorded at fair value using the Black-Scholes option pricing
model and marked-to-market at each reporting period, with the changes in the
fair value recorded in the consolidated statement of operations and
comprehensive income (loss).
During the year ended June 30, 2017 and 2016 no warrants were
issued along with convertible notes.
F-37
The fair value of the described
embedded derivative on all warrants was valued at $338,873 at June 30, 2017 and
$268,611 at June 30, 2016 which was determined using the Black Scholes Model
with the following assumptions:
|
|
|
June 30, 2017
|
|
|
June 30, 2016
|
|
|
Dividend yield:
|
|
0 %
|
|
|
0%
|
|
|
Volatility
|
|
247.5 %
|
|
|
229.1 – 275.4%
|
|
|
Risk free rate:
|
|
1.89 %
|
|
|
0.71 – 1.01%
|
|
|
|
|
Warrants
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
Exercise
|
|
|
Remaining
|
|
|
|
|
|
|
|
Price
|
|
|
life
|
|
|
Balance, June 30, 2015
|
|
27,092
|
|
$
|
100.98
|
|
|
3.79 years
|
|
|
Exercised
|
|
(120
|
)
|
|
280.00
|
|
|
-
|
|
|
Issued
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Expired
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Cancelled
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Balance, June 30, 2016
|
|
26,972
|
|
$
|
100.20
|
|
|
2.79 years
|
|
|
Exercised
|
|
(117
|
)
|
|
212.40
|
|
|
-
|
|
|
Issued
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Expired
|
|
(550
|
)
|
|
280.00
|
|
|
-
|
|
|
Cancelled
|
|
(11,575
|
)
|
|
190.80
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2017
|
|
14,730
|
|
$
|
213.76
|
|
|
2.55 years
|
|
The following table provides a
summary of changes in fair value of the Company’s Level 3 financial liabilities
as of June 30, 2017 and 2016:
|
|
|
Derivative
|
|
|
|
|
Liability (warrants)
|
|
|
Balance, June 30, 2015
|
$
|
143,375
|
|
|
Initial fair value of warrant derivatives at
note issuances
|
|
-
|
|
|
Fair value of warrant
exercised
|
|
(22,476
|
)
|
|
Mark-to-market at June 30, 2016 – warrant
liability
|
|
147,712
|
|
|
Balance, June 30, 2016
|
$
|
268,611
|
|
|
Fair value of warrant cancelled
|
|
(111,073
|
)
|
|
Fair value of warrant
exercised
|
|
(71,595
|
)
|
|
Mark-to-market at June 30, 2017 – warrant liability
|
|
252,931
|
|
|
Balance, June 30, 2017
|
$
|
338,874
|
|
|
|
|
|
|
|
Net loss for the year included in earnings relating to the
liabilities held at June 30, 2017
|
$
|
252,931
|
|
The Company recorded change in
fair value of the derivative liability on warrants to market resulting in
non-cash, non-operating loss of $252,931 and $147,712 for the year ended June
30, 2017 and 2016, respectively. During the year ended June 30, 2017 and 2016
the Company reclassed the derivative liability on warrants of $71,595 and
$22,476, respectively, to additional paid in capital on exercise of warrants.
F-38
NOTE 8 – RELATED PARTY TRANSACTIONS
During the year ended June 30,
2017, the Company incurred consulting fees of $97,000 (June 30, 2016 - $9,115)
with directors and officers (including directors and officers of our
subsidiaries) out of which there were no stock payments.
As of June 30, 2017, the Company
repaid to a director for a non-interest bearing demand loan of $nil (June 30,
2016 – payable $nil). The balance outstanding for this loan is $115,000.
These transactions are in the
normal course of operations and are measured at the exchange amount of
consideration established and agreed to by the related parties.
NOTE 9 – GOING CONCERN AND LIQUIDITY CONSIDERATIONS
The accompanying audited
consolidated financial statements have been prepared assuming that the Company
will continue as a going concern, which contemplates, among other things, the
realization of assets and satisfaction of liabilities in the normal course of
business. As of June 30, 2017, the Company had a working capital deficiency of
$6,934,640 (June 30, 2016 - $2,473,600) and an accumulated deficit of
$57,683,563 (June 30, 2016 - $50,806,439). The Company intends to fund
operations through equity financing arrangements, which may be insufficient to
fund its capital expenditures, working capital and other cash requirements for
the next twelve months.
The ability of the Company to
emerge from the exploration stage is dependent upon, among other things,
obtaining additional financing to continue operations, explore and develop the
mineral properties and the discovery, development and sale of ore reserves.
In response to these problems,
management intends to raise additional funds through public or private placement
offerings.
These factors, among others,
raise substantial doubt about the Company’s ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
NOTE 10 – COMMITMENTS AND CONTINGENCIES
Employment Agreements
On January 12, 2014, the Company entered into an employment agreement with a director and officer. Commencing on January 12, 2014, the director and officer will be employed for 24 months ending on January 12, 2016. Pursuant to the agreement, annual salary of US$120,000 is payable monthly in cash or if the Company does not have available cash, in shares of the Company’s common stock. The Company is currently in the process of renewing this agreement.
Lease Commitment
On May 25, 2016, the Company
entered into a sublease agreement for a term of twelve months and expired on May
30, 2017. The sublease agreement is on a month-to-month basis for $1,199 per
month beginning June 1, 2017.
Litigation
On March 22, 2017, our
wholly-owned subsidiary, Black Box Energy, Inc. (“BBE”), filed a complaint in
the Superior Court of the State of Arizona (Maricopa County) against PetroChase,
Inc., Warren County PC#1, LLC, Stephen R. Moore and Sheree Moore, as well as
certain unidentified, predecessor and success corporations, parent corporations
or subsidiaries of the defendants (collectively the “Defendants”).
F-39
In 2016 the Defendant, Stephen R.
Moore, on behalf of PetroChase, solicited investment from our Company to
subscribe to a 50% (of 70%) working interest in the McKean County Project wells.
On September 9, 2016, BBE entered into a letter agreement with PetroChase to
acquire a 50% (of 70%) working interest in the wells, in addition access to the
wells for the purposes of the developing our mechanical ultrasound technology
for use in water purification. BBE paid $250,000 to PetroChase in consideration
of the rights granted, which funds were to be used for costs associated with
development of the wells. Drilling of the wells was to be commenced within a
reasonable time and was to continue until all the wells were completed. To date,
drilling of the wells has not been completed.
The complaint seeks a return of
the $250,000 for breach of the letter agreement, treble damages ($750,000 in the
aggregate), plus attorney’s fees, costs, and punitive damages. The Company has
engaged legal counsel and intends to respond to the complaint with an answer or
motion in due course.
From time to time we may be a
defendant and plaintiff in various other legal proceedings arising in the normal
course of our business. Except as disclosed above, we are currently not a party
to any material legal proceedings or government actions, including any
bankruptcy, receivership, or similar proceedings. In addition, we are not aware
of any known litigation or liabilities involving the operators of our properties
that could affect our operations. Furthermore, as of the date of this Quarterly
Report, our management is not aware of any proceedings to which any of our
directors, officers, or affiliates, or any associate of any such director,
officer, affiliate, or security holder is a party adverse to our company or has
a material interest adverse to us.
Joint Development and Option Agreement
On April 13, 2017, the Company’s
wholly-owned subsidiary, Black Box Energy, Inc. (“BBE”), entered into a Joint
Development and Option Agreement with White Top Oil & Gas, LLC (“White
Top”), a Louisiana limited liability company (the “White Top Agreement”), under
which White Top is the designee to a funding agreement to finance and
participate in the completion of certain oil and gas development, exploration
and operating activities on certain lands located in Sulphur, Louisiana (the
“White Top Field”). Under the terms of the White Top Agreement, BBE has advanced
approximately $783,620 as of June 30, 2017 to White Top as consideration to
White Top for the option to convert and the right to repayment of payouts for
the necessary capital, overrating, technical, and related support costs
necessary to further develop the White Top Field. White Top’s rights to
repayment of the monies received from BBE shall be limited to funding from
certain payouts received under terms agreed by the parties under such joint
development project, as mutually agreed. In August 2017, the Company made
additional payments of $45,000 under the White Top Agreement.
NOTE 11 – DISCONTINUED OPERATIONS
On September 4, 2015, the Company
entered into an Asset Purchase agreement whereby the Company sells the net
assets of Alta Disposal Morinville Ltd. (of which the Company had acquired 51%
interest on October 18, 2013) for total purchase price of CDN$10,000.
Operating results for the year
ended June 30, 2017 and 2016 for Alta Disposal Morinville Ltd. are presented as
discontinued operations and the assets and liabilities classified as held for
sale are presented separately in the unaudited condensed balance sheet.
A breakdown of the discontinued operations is presented as
follow:
Consolidated Statements of Operations and Comprehensive
Loss
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
|
Selling, general and administrative
|
$
|
(185
|
)
|
|
(78,624
|
)
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
$
|
(185
|
)
|
$
|
(78,624
|
)
|
F-40
|
Consolidated Balance Sheets
|
|
June 30,
|
|
|
June 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
1,115
|
|
$
|
1,301
|
|
|
Receivable, net
|
|
652
|
|
|
651
|
|
|
Prepaid expenses
|
|
1,824
|
|
|
1,822
|
|
|
GST Receivable
|
|
16,260
|
|
|
16,237
|
|
|
|
|
|
|
|
|
|
|
|
$
|
19,852
|
|
$
|
20,011
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
6,429
|
|
$
|
6,420
|
|
NOTE 12 – SETTLEMENT
On January 5, 2017, a warrant
holder exercised warrants to acquire 24,642,857 shares at an adjusted price of
$0.0005. The Company did not have sufficient authorized and allotted shares to
meet the obligation. A lawsuit was filed on January 31, 2017 by the warrant
holder against the Company.
The lawsuit was subsequently
settled on April 6, 2017 for 90,000,000 shares of the Company’s common stock.
Under the terms of ASC 450-20,
management must assess the likelihood of loss and determine whether any
liability should be accrued with connection to the lawsuit. The Company
evaluated the terms and determined that the most representative accrual was the
fair value of the settled shares, less the fair value of the related warrant
liability, resulting in a net expense of $42,944 recorded on the statement of
operations.
NOTE 13 – SUBSEQUENT EVENTS
Convertible Secured Redeemable Notes
In July, August and September
2017, the Company issued an aggregate of $335,500 Convertible Promissory Notes
that mature on various dates in May through September 2018, resulting in cash
proceeds totaling $305,000. These notes bear 10% interest per annum and the
Holder of this Note is entitled, at its option, at any time, to convert all or
any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock at the lesser of $0.005 per share or at a
price equal to 50% of the lowest trading price of the Common Stock as reported
on the OTC Markets for the twenty prior trading days including the day upon
which a Notice of Conversion is received.
Conversions
In July, August and September
2017, the Company issued an aggregate of 925,000,000 common shares at deemed
prices ranging from of $0.0003 to $0.00038 per share for promissory note and
interest conversions totaling approximately $304,125.
Shares Issued for Services
On July 31, 2017, the Company
issued 11,666,667 common shares in payment for past legal services at a deemed
value of $10,500.
F-41
Debt Settlements and Class C Preferred Shares
Effective August 11, 2017, the
Company entered into a Debt Settlement Agreement with each Blue Citi, LLC and
Concord Holding Group, LLC. On August 11, 2017, the Company was indebted to Blue
Citi and Concord in the aggregate principal amounts of $2,419,206.95 and
$1,670,450.91, respectively (exclusive of accrued interest and penalties),
pursuant to various convertible promissory notes issued to Blue Citi and Concord
between March, 2014 and June, 2017. Pursuant to the Debt Settlement Agreements,
each Blue Citi and Concord has agreed to indefinitely forbear from enforcing its
rights pursuant to the promissory notes. In consideration, the Company has
issued to each Blue Citi and Concord warrants to purchase up to $400,000 in
shares of our common stock ($800,000 in the aggregate), with 50% of the warrants
exercisable at $0.0025 per share, and 50% exercisable at $0.0035 per share. The
warrants are exercisable until August 11, 2022 and may also be exercised on a
cashless basis. In the event that the closing price of the Company’s common
stock falls to $0.0005 or less for a period of 3 days during the warrant
exercise period, the exercise price of the $0.0025 per share warrants shall
adjust to 300% of the lowest trading price during such 3-day period, and the
exercise price of the $0.0035 warrants will adjust to 400% of the lowest trading
during the 3-day period. As additional consideration for the issuance of
securities to Blue Citi and Concord, promissory notes held by them that were
convertible into the Company’s common stock at 50% discount to market price will
instead be subject to a 25% discount to market price.
On August 3, 2017, the Company
entered into a debt settlement subscription agreement with a creditor for
settlement of amounts owed relating to an outstanding convertible note in the
principal amount of $708,000, inclusive of accrued interest. In lieu of
receiving cash as payment, the creditor has agreed to accept 70,000,000 Class C
Convertible Preferred Shares of the Company as payment of the indebtedness,
pursuant to the terms of the settlement agreement. Thereafter, on August 23,
2017, Company issued an aggregate of 70,000,000 Class C Convertible Preferred
Shares at the deemed price of $0.0101 per share. The Company has issued all of
the shares to one U.S. person (as that term is defined in Regulation S of the
Securities Act of 1933), relying on Rule 506 promulgated under Regulation D of
the Securities Act of 1933, as amended.
On August 22, 2017, the Board of
Directors approved a Certificate of Designation authorizing the creation of
70,000,000 Class C Preferred Shares. The Class C Shares are convertible,
redeemable and have certain enhanced voting rights.
F-42
Exhibit 31.1
LITHIUM EXPLORATION GROUP, INC.
CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alexander Walsh, certify that:
|
1.
|
I have reviewed this Annual Report on Form 10-K of
Lithium Exploration Group, Inc.;
|
|
|
|
|
2.
|
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report;
|
|
|
|
|
3.
|
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
|
|
|
|
|
4.
|
The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a–15(f) and 15d–15(f)) for the registrant and
have:
|
|
|
(a)
|
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
|
|
|
|
|
|
|
(b)
|
designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
|
|
|
|
|
|
|
(c)
|
evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and
|
|
|
|
|
|
|
(d)
|
disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the
equivalent functions):
|
|
|
(a)
|
all significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
|
|
|
|
|
|
|
(b)
|
any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant’s internal control over financial
reporting.
|
|
By:
|
/s/ Alexander Walsh
|
|
Alexander Walsh
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
Date: September 28, 2017
|
Exhibit 31.2
LITHIUM EXPLORATION GROUP, INC.
CERTIFICATION
PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Alexander Walsh, certify that:
|
1.
|
I have reviewed this Annual Report on Form 10-K of
Lithium Exploration Group, Inc.;
|
|
|
|
|
2.
|
Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report;
|
|
|
|
|
3.
|
Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
report;
|
|
|
|
|
4.
|
The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and
internal control over financial reporting (as defined in Exchange Act
Rules 13a–15(f) and 15d–15(f)) for the registrant and
have:
|
|
|
(a)
|
designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
|
|
|
|
|
|
|
(b)
|
designed such internal control over financial reporting,
or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
|
|
|
|
|
|
|
(c)
|
evaluated the effectiveness of the registrant’s
disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluation; and
|
|
|
|
|
|
|
(d)
|
disclosed in this report any change in the registrant’s
internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the registrant’s internal
control over financial reporting; and
|
|
5.
|
The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the
equivalent functions):
|
|
|
(a)
|
all significant deficiencies and material weaknesses in
the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
|
|
|
|
|
|
|
(b)
|
any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrant’s internal control over financial
reporting.
|
|
By:
|
/s/ Alexander Walsh
|
|
Alexander Walsh
|
|
Chief Financial Officer
|
|
(Principal Financial Officer and Principal
Accounting Officer)
|
|
Date: September 28, 2017
|
Exhibit 32.1
LITHIUM EXPLORATION GROUP, INC.
CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual
Report on Form 10-K of Lithium Exploration Group, Inc. (the “Company”) as filed
with the Securities and Exchange Commission on the date hereof (the “Report”),
the undersigned, in the capacity and on the date indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operation of the Company.
|
By:
|
/s/ Alexander Walsh
|
|
Alexander Walsh
|
|
Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
Date: September 28, 2017
|
Exhibit 32.2
LITHIUM EXPLORATION GROUP, INC.
CERTIFICATION
PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with this Annual
Report on Form 10-K of Lithium Exploration Group, Inc. (the “Company”) as filed
with the Securities and Exchange Commission on the date hereof (the “Report”),
the undersigned, in the capacity and on the date indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934;
and
2. The information contained in the
Report fairly presents, in all material respects, the financial condition and
results of operation of the Company.
|
By:
|
/s/ Alexander Walsh
|
|
Alexander Walsh
|
|
Chief Financial Officer
|
|
(Principal Financial Officer and Principal
Accounting Officer)
|
|
Date: September 28, 2017
|
10.110
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT,
dated as of June 8, 2017, is entered into by and among Lithium Exploration
Group, Inc., a Nevada corporation (the "Company"), and JDF Capital Inc. (the
"Purchaser").
WITNESSETH:
WHEREAS,
the Company and
the Purchaser are executing and delivering this Agreement in accordance with and
in reliance upon the exemption from securities registration for offers and sales
to accredited investors afforded,
inter
alia
, by Rule 506 under
Regulation D ("Regulation D") as promulgated by the United States Securities and
Exchange Commission (the "SEC") under the Securities Act of l 933, as amended
(the "1933 Act"), and/or Section 4(2) of the 1933 Act; and
WHEREAS,
the Purchaser
wishes to purchase a 10% Original Issue Discount (“OID) Convertible Promissory
Note of the Company (the "Note"), i n t h e o r i g i n a l p r i n c i p a l a
m o u n t o f $ 8 5 , 8 0 0 . 0 0 , subject to and upon the terms and conditions
of this Agreement and acceptance of this Agreement by the Company, on the terms
and conditions referred to herein.
NOW THEREFORE,
in
consideration of the premises and the mutual covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1.
AGREEMENT TO PURCHASE; PURCHASE PRICE.
a.
Purchase.
(i)
Subject to the terms and conditions of this Agreement and the other Transaction
Documents, the Purchaser hereby agrees to purchase a Note in the aggregate
amount of $78,000.00 (the "Purchase Amount"), which Note shall be funded on the
Closing Date as described therein.
$75,000.00 of the Note shall be funded directly to the company
($78,000.00 minus $3,000.00 document prep fees) and issued by June 8, 2017 (the
“Closing Date”)
(ii) The
Note referred to herein shall be in the form of
Annex I
annexed hereto.
(iii) The
purchase of the Note by the Purchaser and the other transactions contemplated
hereby are sometimes referred to herein and in the other Transaction Documents
as the purchase and sale of the Securities (as defined below), and are referred
to collectively as the "Transactions".
1
10.110
(iv) The
Purchaser shall deliver the Purchase Amount to counsel for the Company, which
Purchase Amount shall be held in trust until authorized for release to the
Company by written instruction of the Purchaser. The Purchase Amount shall be
promptly returned to the Purchaser if not authorized for release by the
Purchaser by the Closing Date.
b.
Certain Definitions.
As used herein, each of the following terms has
the meaning set forth below, unless the context otherwise requires:
"Affiliate" means, with respect
to a specific Person referred to in the relevant provision, another Person who
or which controls or is controlled by or is under common control with such
specified Person.
"Certificate" means the original
signed Note duly executed by the Company.
"Closing Date" means the date of
the closing of the issuance of Note.
"Common Stock Equivalents" means
any securities of the Company or the Subsidiaries which would entitle the holder
thereof to acquire at any time Common Stock, including without limitation, any
debt, preferred stock, rights, options, warrants or other instrument that is at
any time convertible into or exchangeable for, or otherwise entitles the holder
thereof to receive, Common Stock.
"Company Control Person" means
each director, executive officer, promoter, and such other Persons as may be
deemed in control of the Company pursuant to Rule 405 under the 1933 Act or
Section 20 of the 1934 Act (as defined below).
"Conversion Shares" means shares
of Common Stock underlying and issuable upon conversions of the Note funded
herein and to be funded pursuant to the second tranche in Section 1a.(v).
"Exchange Act" means the
Securities Exchange Act of 1934, as amended.
"Holder" means the Person holding
the relevant Securities at the relevant time. "Last Audited Date" means December
31 , 2014.
"Purchaser Control Person" means
each director, executive officer, promoter, and such other Persons as may be
deemed in control of the Purchaser pursuant to Rule 405 under the 1933 Act or
Section 20 of the 1934 Act.
"Material Adverse Effect" means
an event or combination of events, which individually or in the aggregate, would
reasonably be expected to (w) adversely affect the legality, validity or
enforceability of the Securities or any of the Transaction Documents, (x) have
or result in a material adverse effect on the results of operations, assets,
prospects, or condition (financial or otherwise) of the Company and its
subsidiaries, taken as a whole, (y) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents or the transactions contemplated thereby, or (z) materially and
adversely affect the value of the rights granted to the Purchaser in the Transaction
Documents.
2
10.110
"Person" means any living person
or any entity, such as, but not necessarily limited to, a corporation,
partnership or trust.
"Principal Trading Market" means
the Over the Counter Bulletin Board or such other market on which the Common
Stock is principally traded at the relevant time.
"Securities" means the Note, the
Conversion Shares, the Warrants and the Warrant Shares, and any shares of common
stock of the Company that may be issued to the Purchaser in connection with any
other agreements between the parties.
"Shares" means the shares of
representing any or all of the Conversion Shares.
"State of Incorporation" means
Nevada.
"Subsidiary" means any subsidiary
of the Company.
"Trading Day" means any day
during which the Principal Trading Market shall be open for business.
"Transfer Agent" means, at any
time, the transfer agent for the Company's Common Stock.
"Transaction Documents" means
this Purchase Agreement and the Note, and includes all ancillary documents
referred to in those agreements.
c.
Form of Payment; Delivery of Certificates.
(i) The
Purchaser shall pay the Purchase Amount payable under the Note by delivering
immediately available good funds in United States Dollars to the Company on the
applicable Closing Date.
(ii) On
the applicable Closing Date, the Company shall deliver the Note duly executed on
behalf of the Company to the Purchaser.
(iii) By
signing this Agreement, each of the Purchaser and the Company agrees to all of
the terms and conditions of the Transaction Documents, all of the provisions of
which are incorporated herein by this reference as if set forth in full.
3
10.110
2.
PURCHASER REPRESENTATIONS, ETC.;
ACCESS
TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Purchaser represents and
warrants to, and covenants and agrees with, the Company as follows:
a.
Without limiting Purchaser's right to sell the Securities pursuant to an
effective registration statement or otherwise in compliance with the 1933 Act,
the Purchaser is purchasing the Securities for its own account for investment
only and not with a view towards the public sale or distribution thereof and not
with a view to or for sale in connection with any distribution thereof.
b.
The Purchaser is (i) an "accredited investor" as that term is defined in
Rule 501 of the General Rules and Regulations under the 1933 Act by reason of
Rule 501(a)(3), (ii) experienced in making investments of the kind described in
this Agreement and the related documents, (iii) able, by reason of the business
and financial experience of its officers (if an entity) and professional
advisors (who are not affiliated with or compensated in any way by the Company
or any of its Affiliates or selling agents), to protect its own interests in
connection with the transactions described in this Agreement, and the related
documents, and to evaluate the merits and risks of an investment in the
Securities, and (iv) able to afford the entire loss of its investment in the
Securities.
c.
All
subsequent offers and sales of the Securities by the Purchaser shall be made
pursuant to registration of the relevant Securities under the 1933 Act or
pursuant to an exemption from registration.
d.
The Purchaser understands that the Securities are being offered and sold to
it in reliance on specific exemptions from the registration requirements of the
1933 Act and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Securities.
e.
The
Purchaser and its advisors, if any, have been furnished with or have been given
access to all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Securities which
have been req uested by the Purchaser, including those set forth on i n any
annex attached hereto. The Purchaser and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and its management and
have received complete and satisfactory answers to any such inquiries. Without
limiting the generality of the foregoing, the Purchaser has also had the
opportunity to obtain and to review the Company's filings on EDGAR
(collectively, the "Company's SEC Documents").
f.
The Purchaser understands that its investment in the Securities involves a
high degree of risk.
g.
The
Purchaser hereby represents that, in connection with its purchase of the Securities, it has not relied on any statement or
representation by the Company or any of its officers, directors and employees or
any of their respective attorneys or agents, except as specifically set forth
herein.
4
10.110
h.
The Purchaser understands that no United States federal or state agency or
any other government or governmental agency has passed on or made any
recommendation or endorsement of the Securities.
i.
This Agreement and the
other Transaction Documents to which the Purchaser is a party, and the
transactions contemplated thereby, have been duly and validly authorized,
executed and delivered on behalf of the Purchaser and are valid and binding
agreements of the Purchaser enforceable in accordance with their respective
terms, subject as to enforceability to general principles of equity and to
bankruptcy, insolvency, moratorium and other similar laws affecting the
enforcement of creditors' rights generally.
3.
COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to
the Purchaser as of the date hereof and as of the Closing Date.
a.
Rights of Others Affecting the Transactions.
There are no preemptive
rights of any shareholder of the Company, as such, to acquire the Note, or any
shares of the Company's common stock that may be issued to the Purchaser in
connection with any other agreements between the parties, in the event such
shares are issued. No party other than a Purchaser has a currently exercisable
right of first refusal which would be applicable to any or all of the
transactions contemplated by the Transaction Documents.
b.
Status.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Incorporation and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted. The Company is duly qualified as a foreign corporation to
do business and is in good standing in each jurisdiction where the nature of the
business conducted or property owned by it makes such qualification necessary,
other than those jurisdictions in which the failure to so qualify would not have
or result in a Material Adverse Effect. The Company has registered its stock and
is obligated to file reports pursuant to Section 12 or Section 15(d) of the Securities Exchange Act of
1934, as amended (the "1934 Act"). The Common Stock is, or immediately following
the Closing Date will be, quoted on the Principal Trading Market. The Company
has received no notice, either oral or written, with respect to the continued
eligibility of the Common Stock for such quotation on the Principal Trading
Market, and the Company has maintained all req uirements on its part for the
continuation of such quotation.
5
10.110
c.
Authorized Shares.
(i) The authorized capital stock
of the Company consists of 1 0 , 0 00,000,000 shares of Common Stock, $0.001 par
value.
(ii) The Company has sufficient
authorized and unissued shares of Common Stock as may be necessary to effect the
issuance of the Shares on the Closing Date.
(iii) As of the Closing Date, the
Shares shall have been duly authorized by all necessary corporate action on the
part of the Company, and, when issued pursuant to the relevant provisions of the
Transaction Documents, in each case in accordance with their respective terms,
will be duly and validly issued, fully paid and non-assessable and will not
subject the Holder thereof to personal liability by reason of being such Holder.
d.
Transaction Documents and Stock.
This Agreement and each of the other
Transaction Documents, and the transactions contemplated thereby, have been duly
and validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Note and each of the
other Transaction Documents, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally.
e.
Non-contravention.
The execution and delivery of this Agreement and
each of the other Transaction Documents by the Company, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated by this Agreement, each of the Notes and the other Transaction
Documents do not and will not conflict with or result in a breach by the Company
of any of the terms or provisions of, or constitute a default under (i) the
certificate of incorporation or by-laws of the Company, each as currently in
effect, (ii) any indenture, mortgage, deed of trust, or other material agreement
or instrument to which the Company is a party or by which it or any of its
properties or assets are bound, including any listing agreement for the Common
Stock except as herein set forth, or (ii i) to its knowledge, any existing
applicable law, rule, or regulation or any applicable decree, judgment, or order
of any court, United States federal or state regulatory body, administrative
agency, or other governmental body having jurisdiction over the Company or any
of its properties or assets, except such conflict, breach or default which would
not have or result in a Material Adverse Effect.
f.
Approvals.
No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained by
the Company for the issuance and sale of the Securities to the Purchaser as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained.
6
10.110
g.
Filings.
None of the Company's SEC Documents contained, at the time
they were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein in light of the circumstances u nder which they were made, not
misleading.
h.
Absence of Certain Changes.
Since the Last Audited Date, there has
been no material adverse change and no Material Adverse Effect, except as
disclosed in the Company's SEC Documents. Since the Last Audited Date, except as
provided in the Company's SEC Documents, the Company has not (i) incurred or
become subject to any material liabilities (absolute or contingent) except
liabilities incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or encumbrance or paid
any material obligation or liability (absolute or contingent), other than
current liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to shareholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible assets, or
canceled any debts owed to the Company by any third party or claims of the
Company against any third party, except in the ordinary course of business
consistent with past practices; (v) waived any rights of material value, whether
or not in the ordinary course of business, or suffered the loss of any material
amount of existing business; (vi) made any increases in employee compensation,
except in the ordinary course of business consistent with past practices; or
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.
i.
Full Disclosure.
To the best of the Company's knowledge, there is no
fact known to the Company (other than general economic conditions known to the
public generally or as disclosed in the Company's SEC Documents) that has not
been disclosed in writing to the Purchaser that would reasonably be expected to
have or result in a Material Adverse Effect.
j.
Absence of Litigation.
Except as disclosed in the SEC Reports, there is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board or body pending or, to the knowledge of the Company, threatened
against or affecting the Company before or by any governmental authority or
nongovernmental department, commission, board, bureau, agency or instrumentality
or any other person, wherein an unfavorable decision, ruling or finding would
have a Material Adverse Effect or which would adversely affect the validity or
enforceability of, or the authority or ability of the Company to perform its
obligations under, any of the Transaction Documents. The Company is not aware of
any valid basis for any such claim that (either individually or in the aggregate
with all other such events and circumstances) could reasonably be expected to
have a Material Adverse Effect. There are no outstanding or unsatisfied
judgments, orders, decrees, writs, injunctions or stipulations to which the
Company is a party or by which it or any of its properties is bound, that
involve the transaction contemplated herein or that, alone or i n the aggregate,
could reasonably be expect to have a Material Adverse Effect.
7
10.110
k.
Absence
of Events of Default.
Except as set forth in Section 3(e) and 3(g) hereof,
(i) neither the Company nor any of its subsidiaries is in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material indenture, mortgage, deed of trust or other
material agreement to which it is a party or by which its property is bound, and
(ii) no Event of Default (or its equivalent term), as defined in the respective
agreement to which the Company or its subsidiary is a party, and no event which,
with the giving of notice or the passage of time or both, would become an Event
of Default (or its equivalent term) (as so defined in such agreement), has
occurred and is continuing, which would have a Material Adverse Effect.
I.
No
Undisclosed Liabilities or Events.
To the best of the Company's knowledge,
the Company has no liabilities or obligations other than those disclosed in the
Transaction Documents or the Company's SEC Documents or those incurred in the
ordinary course of the Company's business since the Last Audited Date, or which
individually or in the aggregate, do not or would not have a Material Adverse
Effect. No event or circumstances has occurred or exists with respect to the
Company or its properties, business, operations, condition (financial or
otherwise), or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed. There
are no proposals currently under consideration or currently anticipated to be
under consideration by the Board of Directors or the executive officers of the
Company which proposal would (x) change the articles or certificate of
incorporation or other charter document or by-laws of the Company, each as
currently in effect, with or without shareholder approval, which change would
reduce or otherwise adversely affect the rights and powers of the shareholders
of the Common Stock or (y) materially or substantially change the business,
assets or capital of the Company, including its interests in subsidiaries.
m.
No Integrated Offering.
Neither the Company nor any of its Affiliates
nor any Person acting on its or their behalf has, directly or indirectly, at any
time since December 31 , 2007 , made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under
Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
n.
Dilution.
Any shares of the Company's common stock issued to the
Purchaser in connection with any agreements between the parties hereto, in the
event such shares are issued may have a dilutive effect on the ownership
interests of the other shareholders (and Persons having the right to become
shareholders) of the Company. The Company's executive officers and directors
have studied and fully understand the nature of the Securities being sold hereby
and recognize that they have such a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business judgment that
such issuance is in the best interests of the Company.
o.
Confirmation.
The Company confirms that all statements of the Company
contained herein shall survive acceptance of this Agreement by the Purchaser.
The Company agrees that, if any events occur or circumstances exist prior to the
Closing Date or the release of the Purchase Amount to the Company which would
make any of the Company's representations, warranties, agreements or other
information set forth herein materially untrue or materially inaccurate as of
such date, the Company shall immediately notify the Purchaser (directly or
through its counsel, if any) in writing prior to such date of such fact,
specifying which representation, warranty or covenant is affected and the reasons therefor.
10.110
p.
Authorization; Enforcement.
The Company has the requisite corporate
power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company in
connection therewith. Each Transaction Agreement has been (or upon delivery will
have been) duly executed by the Company and, when delivered in accordance with
the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company i n accordance with its terms except (i)
as li mited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
q.
SEC Reports; Financial Statements.
Other than as previously disclosed
to the Purchaser, the Company has filed all reports required to be filed by it
under the Exchange Act, including pursuant to Section l 3(a) or 15(d) thereof,
for the two years preceding the date hereof (or such shorter period as the
Company was required by law to file such material) (the foregoing materials,
including the exhibits thereto, being collectively referred to herein as the
"SEC Reports") on a timely basis or has received a valid extension of such time
of filing and has filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Reports, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company comply
in all material respects with applicable accounting requirements and the rules
and regulations of the Commission with respect thereto as in effect at the time
of filing. Such financial statements have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto and except that unaudited
financial statements may not contain all footnotes required by GAAP, and fairly
present in all material respects the financial position of the Company and its
consolidated subsidiaries as of and for the dates thereof and the results of
operations and cash flows for the periods then ended, subject, in the case of
unaudited statements, to normal, immaterial, year-end audit adjustments.
r.
Sarbanes-Oxley; Internal Accounting Controls.
Except as disclosed in
the SEC Reports, the Company is in material compliance with all provisions of
the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing
Date. The Company and the Subsidiaries maintain a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has established disclosure
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such
disclosure controls and procedures to ensure that material information relating
to the Company, including its Subsidiaries, is made known to the certifying
officers by others within those entities, particularly during the period in
which the Company's most recently filed periodic report under the Exchange Act,
as the case may be, is being prepared. The Company's certifying officers have
evaluated the effectiveness of the Company's controls and procedures as of the
date prior to the filing date of the most recently filed periodic report under
the Exchange Act (such date, the "Evaluation Date"). The Company presented in
its most recently filed periodic report under the Exchange Act the conclusions
of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since the
Evaluation Date, there have been no significant changes in the Company's
internal controls (as such term is defined in Item 307(b) of Regulation S-K u
nder the Exchange Act) or, to the Company's knowledge, in other factors that
could significantly affect the Company's internal controls.
10.110
s.
Tax Status. Except for matters that would not, individually or in the aggregate,
have or reasonably be expected to result in a Material Adverse Effect, the
Company and each Subsidiary has filed all necessary federal, state and foreign
income and franchise tax returns and has paid or accrued all taxes shown as due
thereon, and the Company has no knowledge of a tax deficiency which has been
asserted or threatened against the Company or any Subsidiary, has no knowledge
of a tax deficiency which has been asserted
orthreatenedagainsttheCompanyoranySubsidiary.
t. No
Disagreements with Accountants and Lawyers.
There are no disagreements of
any kind presently existing, or reasonably anticipated by the Company to arise,
between the accountants and lawyers formerly or presently employed by the
Company and the Company is current with respect to any fees owed to its
accountants and lawyers. By making this representation the Company does not, in
any manner, waive the attorney/client privilege or the confidentiality of the
communications between the Company and its lawyers.
4.
CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a.
Transfer Restrictions.
The Purchaser acknowledges that (I ) the
Securities have not been and are not being registered under the provisions of
the 1933 Act and, the Shares have not been and are not being registered under
the 1933 Act, and may not be transferred unless (A) subsequently registered
thereunder or (B) the Purchaser shall have delivered to the Company an opinion
of counsel, reasonably satisfactory in form, scope and substance to the Company,
to the effect that the Securities to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration; (2) any sale of the
Securities made in reliance on Rule 144 promulgated under the 1933 Act ("Rule
144") may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such Securities under circumstances
in which the seller, or the Person through whom the sale is made, may be deemed
to be an underwriter, as that term is used in the 1933 Act, may req uire
compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (3) neither the Company nor any other
Person is under any obligation to register the Securities under the 1933 Act or
to comply with the terms and conditions of any exemption thereunder.
b.
Restrictive Legend.
The Purchaser acknowledges and agrees that the
certificates and other instruments representing any of the Securities shall bear
a restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of any such Securities):
10.110
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
c.
Filings.
The Company undertakes and agrees to make all necessary filings
in connection with the sale of the Securities to the Purchaser under any United
States laws and regulations applicable to the Company, or by any domestic
securities exchange or trading market, and to provide a copy thereof to the
Purchaser promptly after such fi ling.
d.
Reporting Status.
So long as the Purchaser beneficially owns any of
the Securities, the Company shall file all reports required to be filed with the
SEC pursuant to Section 13 or l 5(d) of the 1934 Act, shall take all reasonable
action under its control to ensure that adequate current public information with
respect to the Company, as required in accordance with Rule 144(c)(2) of the
1933 Act, is publicly available, and shall not terminate its status as an issuer
required to fi le reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would permit such termination. The Company will take
all reasonable action under its control to maintain the continued listing and
quotation and trading of its Common Stock on the Principal Trading Market or a
listing on the NASDAQ/Small Cap or National Markets and, to the extent
applicable to it, will comply in all material respects with the Company's
reporting, filing and other obligations under the by-laws or rules of the
Principal Trading Market and/or the National Association of Securities Dealers,
Inc., as the case may be, applicable to it for so long as the Purchaser
beneficially owns any of the Securities.
e.
Use
of Proceeds.
The Company will use the proceeds received hereunder (excluding
amounts paid by the Company for legal fees in connection with the sale of the
Securities) for working capital.
f.
Publicity, Filings, Releases, Etc.
Each of the parties agrees that it
will not disseminate any information relating to the Transaction Documents or
the transactions contemplated thereby, including issuing any press releases,
holding any press conferences or other forums, or filing any reports
(collectively, "Publicity"), without giving the other party reasonable advance
notice and an opportunity to comment on the contents thereof. Neither party will
include in any such Publicity any statement or statements or other material to
which the other party reasonably objects, unless i n the reasonable opinion of
counsel to the party proposing such statement, such statement is legally
required to be included. In furtherance of the foregoing, the Company will
provide to the Purchaser drafts of the applicable text of the first filing of a
Current Report on Form 8-K or a Quarterly or Annual Report on Form 10-Q or 10-K
intended to be made with the SEC which refers to the Transaction Documents or
the transactions contemplated thereby as soon as practicable (but at least two
(2) Trading Days before such filing will be made) will not include in such
filing any statement or statements or other material to which the other party
reasonably objects, unless in the reasonable opinion of counsel to the party
proposing such statement, such statement is legally required to be included.
Notwithstanding the foregoing, each of the parties hereby consents to the
inclusion of the text of the Transaction Documents in filings made with the SEC
as well as any descriptive text accompanying or part of such filing which is accurate and
reasonably determined by the Company's counsel to be legally required.
Notwithstanding, but subject to, the foregoing provisions of this Section 4(i),
the Company will, after the Closing Date, promptly file a Current Report on Form
8-K or, if appropriate, a quarterly or annual report on the appropriate form,
referring to the transactions contemplated by the Transaction Documents.
10.110
5.
TRANSFER AGENT INSTRUCTIONS.
a.
The Company warrants that, with respect to the Securities, other than the
stop transfer instructions to give effect to Section 4(a) hereof, it will give
its transfer agent no instructions inconsistent with instructions to issue the
Shares to the Holder as contemplated in the Transaction Documents. Nothing in
this Section shall affect i n any way the Purchaser's obligations and agreement
to comply with all applicable securities laws upon resale of the Securities. If
the Purchaser provides the Company with an opinion of counsel reasonably
satisfactory to the Company that registration of a resale by the Purchaser of
any of the Securities in accordance with clause ( 1)(B) of Section 4(a) of this
Agreement is not required under the 1933 Act, the Company shall (except as
provided in clause (2) of Section 4(a) of this Agreement) permit the transfer or
issue of the Shares represented by one or more certificates for Common Stock
without legend (or where applicable, by electronic registration) in such name
and in such denominations as specified by the Purchaser.
b.
The Company will authorize the Transfer Agent to give information relating
to the Company directly to the Holder or the Holder's representatives upon the
request of the Holder or any such representative, to the extent such information
relates to (i) the status of shares of Common Stock issued or claimed to be
issued to the Holder in connection with a Notice of Exercise, or (ii) the
aggregate number of outstanding shares of Common Stock of all shareholders (as a
group, and not individually) as of a current or other specified date. At the
request of the Holder, the Company will provide the Holder with a copy of the
authorization so given to the Transfer Agent.
6.
CLOSING DATE.
a.
The respective Closing Date shall occur as indicated in Section 1(a)(1)
after each of the conditions contemplated by Sections 7 and 8 hereof shall have
either been satisfied or been waived by the party in whose favor such conditions
run.
b.
The closing of the Transactions shall occur on the respective Closing Date
at the offices of the Purchaser and shall take place no later than 3:00 P.M.,
PST, on such day or such other time as is mutually agreed upon by the Company
and the Purchaser.
7.
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Purchaser understands that
the Company's obligation to sell the Note to the Purchaser pursuant to this
Agreement on the Closing Date is conditioned upon:
a.
The execution and delivery of this Agreement by the Purchaser; and
b.
Delivery by the Purchaser to the Company of good funds as payment in
full of an amount equal to the Purchase Amount in accordance with this
Agreement;
10.110
c.
The accuracy on such Closing Date of the representations and warranties
of the Purchaser contained in this Agreement, each as if made on such date, and
the performance by the Purchaser on or before such date of all covenants and
agreements of the Purchaser by the Purchaser required to be performed on or
before such date; and
d.
There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
10.110
8.
CONDITIONS TO THE PURCHASER’S OBLIGATION TO PURCHASE
The Company understands that the
Purchaser's obligation to purchase any Notes and its acceptance of any shares of
the Company's common stock that may be issued in connection with any agreements
between the parties hereto on a Closing Date is conditioned upon:
a.
The
execution and delivery of this Agreement and the other Transaction Documents by
the Company;
b.
Delivery by the Company to the Purchaser of the Note in accordance with
this Agreement or any other agreements between the parties;
c.
The accuracy in all material respects on the Closing Date of the representations
and warranties of the Company contained in this Agreement, each as if made on
such date, and the performance by the Company on or before such date of all
covenants and agreements of the Company req uired to be performed on or before
such date;
d.
The Company must be current with all required Exchange Act filings.
e
.
There shall not be in effect any law, rule or regulation prohibiting or
restricting the transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained; and
f.
From and after the date hereof to and including the Closing Date, each of
the following conditions will remain in effect: (i) the trading of the Common
Stock shall not have been suspended by the SEC or on the Principal Trading
Market; (ii) trading in securities generally on the Principal Trading Market
shall not have been suspended or limited; (iii ) no minim um prices shall been
established for securities traded on the Principal Trading Market; and (iv)
there shall not have been any Material Adverse Effect in regards to the Company.
9.
INDEMNIFICATION AND REIMBURSEMENT.
a. (i)
The Company agrees to indemnify and hold harmless the Purchaser and its
officers, directors, employees, and agents, and each Purchaser Control Person
from and against any losses, claims, damages, liabilities or expenses incurred
(collectively, "Damages"), joint or several, and any action in respect thereof
to which the Purchaser, its partners, Affiliates, officers, directors,
employees, and duly authorized agents, and any such Purchaser Control Person
becomes subject to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or failure to perform
any covenant or agreement on the part of Company contained in this Agreement, as
such Damages are incurred, except to the extent such Damages result primarily
from Purchaser's failure to perform any covenant or agreement contained in this
Agreement or the Purchaser's or its officer's, director's, employee's, agent's
or Purchaser Control Person's negligence, recklessness or bad faith in
performing its obligations under this Agreement.
(ii) The
Company hereby agrees that, if the Purchaser, other than by reason of its
negligence, illegal or willful misconduct (in each case, as determined by a non-
appealable judgment to such effect), (x) becomes involved in any capacity in any
action, proceeding or investigation brought by any shareholder of the Company,
in connection with or as a result of the consummation of the transactions
contemplated by this Agreement or the other Transaction Documents, or if the
Purchaser is impleaded in any such action, proceeding or investigation by any
Person, or (y) becomes involved in any capacity in any action, proceeding or
investigation brought by the SEC, any self-regulatory organization or other body
having jurisdiction, against or involving the Company or in connection with or
as a result of the consummation of the transactions contemplated by this Agreement or the other Transaction
Documents, or (z) is impleaded in any such action, proceeding or investigation
by any Person, then in any such case, the Company shall indemnify, defend and
hold harmless the Purchaser from and against and in respect of all losses,
claims, liabilities, damages or expenses resulting from, imposed upon or
incurred by the Purchaser, directly or indirectly, and reimburse such Purchaser
for its reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith, as such
expenses are incurred. The indemnification and reimbursement obligations of the
Company under this paragraph shall be in addition to any liability which the
Company may otherwise have, shall extend upon the same terms and conditions to
any Affiliates of the Purchaser who are actually named in such action,
proceeding or investigation, and partners, directors, agents, employees and
Purchaser Control Persons (if any), as the case may be, of the Purchaser and any
such Affiliate, and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of the Company, the
Purchaser, any such Affiliate and any such Person. The Company also agrees that
neither the Purchaser nor any such Affiliate, partner, director, agent, employee
or Purchaser Control Person shall have any liability to the Company or any
Person asserting claims on behalf of or in right of the Company in connection
with or as a result of the consummation of this Agreement or the other
Transaction Documents, except as may be expressly and specifically provided in
or contemplated by this Agreement.
10.110
b. All
claims for indemnification by any Indemnified Party (as defined below) under
this Section shall be asserted and resolved as follows:
(i) In
the event any claim or demand in respect of which any Person claiming
indemnification under any provision of this Section (an "Indemnified Party")
might seek indemnity under paragraph (a) of this Section is asserted against or
sought to be collected from such Indemnified Party by a Person other than a
party hereto or an Affiliate thereof (a "Third Party Claim"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all papers
served, if any, and specifying the nature of and basis for such Third Party
Claim and for the Indemnified Party's claim for indemnification that is being
asserted under any provision of this Section against any Person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been prejudiced by such failure of
the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party
as soon as practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice or an
Indemnity Notice (as defined below) (the "Dispute Period") whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party under this Section and whether the Indemnifying Party desires,
at its sole cost and expense, to defend the Indemnified Party against such Third
Party Claim. The following provisions shall also apply.
(ii) If
the Indemnifying Party notifies the Indemnified Party within the Dispute Period
that the Indemnifying Party desires to defend the Indemnified Party with respect
to the Third Party Claim pursuant to this paragraph (b) of this Section, then
the Indemnifying Party shall have the right to defend, with counsel reasonably
satisfactory to the Indemnified Party, at the sole cost and expense of the
Indemnifying Party, such Third Party Claim by all appropriate proceedings, which
proceedings shall be vigorously and diligently prosecuted by the Indemnifying
Party to a final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified Party in the
case of any settlement that provides for any relief other than the payment of
monetary damages or that provides for the payment of monetary damages as to
which the Indemnified Party shall not be indemnified in full pursuant to
paragraph (a) of this Section). The Indemnifying Party shall have full control
of such defense and proceedings, including any compromise or settlement thereof; provided, however, that
the Indemnified Party may, at the sole cost and expense of the Indemnified
Party, at any time prior to the Indemnifying Party's delivery of the notice
referred to in the first sentence of this subparagraph (x), file any motion,
answer or other pleadings or take any other action that the Indemnified Party
reasonably believes to be necessary or appropriate protect its interests; and
provided further, that if requested by the Indemnifying Party, the Indemnified
Party will, at the sole cost and expense of the Indemnifying Party, provide
reasonable cooperation to the Indemnifying Party in contesting any Third Party
Claim that the Indemnifying Party elects to contest. The Indemnified Party may
participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant to this subparagraph (x),
and except as provided in the preceding sentence, the Indemnified Party shall
bear its own costs and expenses with respect to such participation.
Notwithstanding the foregoi ng, the Indemnified Party may take over the control
of the defense or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under paragraph (a) of this Section
with respect to such Third Party Claim.
10.110
(iii) If
the Indemnifying Party fails to notify the Indemnified Party within the Dispute
Period that the Indemnifying Party desires to defend the Third Party Claim
pursuant to paragraph (b) of this Section, or if the Indemnifying Party gives
such notice but fails to prosecute vigorously and diligently or settle the Third
Party Claim, or if the Indemnifying Party fails to give any notice whatsoever
within the Dispute Period, then the Indemnified Party shall have the right to
defend, at the sole cost and expense of the Indemnifying Party, the Third Party
Claim by all appropriate proceedings, which proceedings shall be prosecuted by
the I ndemnified Party in a reasonable manner and in good faith or will be
settled at the discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this subparagraph (y), if the Indemnifying Party has notified the Indemnified
Party within the Dispute Period that the Indemnifying Party disputes its
liability or the amount of its liability hereunder to the Indemnified Party with
respect to such Third Party Claim and if such dispute is resolved in favor of
the Indemnifying Party in the manner provided in subparagraph (z)
below, the Indemnifying Party will not be required to bear the costs and
expenses of the Indemnified Party's defense pursuant to this subparagraph (y) or
of the Indemnifying Party's participation therein at the Indemnified Party's
request, and the Indemnified Party shall reimburse the Indemnifying Party in
full for all reasonable costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may participate in, but
not control, any defense or settlement controlled by the Indemnified Party
pursuant to this subparagraph (y), and the Indemnifying Party shall bear its own
costs and expenses with respect to such participation.
10.110
(iv) If
the Indemnifying Party notifies the Indemnified Party that it does not dispute
its liability or the amount of its liability to the Indemnified Party with
respect to the Third Party Claim under paragraph (a) of this Section or fails to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes its liability or the amount of its liability to the Indemnified
Party with respect to such Third Party Claim, the amount of Damages specified in
the Claim Notice shall be conclusively deemed a liability of the Indemnifying
Party under paragraph (a) of this Section and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute;
provided, however, that if the dispute is not resolved within thirty (30) days
after the Claim Notice, the Indemnifying Party shall be entitled to institute
such legal action as it deems appropriate.
(v) In
the event any Indemnified Party should have a claim under paragraph (a) of this
Section against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under paragraph (a) of this Section specifying the nature of and basis
for such claim, together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such claim (an
"Indemnity Notice") with reasonable promptness to the Indemnifying Party. The
failure by any Indemnified Party to give the Indemnity Notice shall not impair
such party's rights hereunder except to the extent that the Indemnifying Party
demonstrates that it has been irreparably prejudiced thereby. If the
Indemnifying Party notifies the Indemnified Party that it does not dispute the
claim or the amount of the claim described in such Indemnity Notice or fails to
notify the Indemnified Party within the Dispute Period whether the Indemnifying
Party disputes the claim or the amount of the claim described in such Indemnity
Notice, the amount of Damages specified in the Indemnity Notice will be
conclusively deemed a liability of the Indemnifying Party under paragraph (a) of
this Section and the Indemnifying Party shall pay the amount of such Damages to
the Indemnified Party on demand. If the Indemnifying Party has timely disputed
its liability or the amount of its l iability with respect to such claim, the
Indemnifying Party and the Indemnified Party shall proceed in good faith to
negotiate a resolution of such dispute; provided, however, that it the dispute
is not resolved within thirty (30) days after the Claim Notice, the I
ndemnifying Party shall be entitled to institute such legal action as it deems
appropriate.
c. The
indemnity agreements contained herein shall be in addition to (i) any cause of
action or similar rights of the indemnified party against the indemnifying party
or others, and (ii) any liabilities the indemnifying party may be subject to.
10.110
10.
JURY TRIAL WAIVER.
The Company and the Purchaser hereby waive a trial
by jury in any action, proceeding or counterclaim brought by either of the
Parties hereto against the other in respect of any matter arising out or in
connection with the Transaction Documents.
11.
GOVERNING LAW: MISCELLANEOUS.
a. (i)
This Agreement shall be governed by and interpreted in accordance with the laws
of the State of Nevada for contracts to be wholly performed in such state and
without giving effect to the principles thereof regarding the conflict of laws.
Each of the parties consents to the exclusive jurisdiction of the federal courts
whose districts encompass any part of the state courts of the State of Nevada as
in connection with any dispute arising under this Agreement or any of the other
Transaction Documents and hereby waives, to the maximum extent permitted by law,
any objection, including any objection based on
forum non conveniens,
to
the bringing of any such proceeding in such jurisdictions or to any claim that
such venue of the suit, action or proceeding is improper. To the extent
determined by such court, the Company shall reimburse the Purchaser for any
reasonable legal fees and disbursements incurred by the Purchaser in enforcement
of or protection of any of its rights under any of the Transaction Documents.
Nothing in this Section shall affect or limit any right to serve process in any
other manner permitted by law.
(ii) The
Company and the Purchaser acknowledge and agree that irreparable damage would
occur in the event that any of the provisions of this Agreement or the other
Transaction Documents were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and the other Transaction Documents and to enforce
specifically the terms and provisions hereof and thereof, this being in addition
to any other remedy to which any of them may be entitled by law or equity.
b. Failure of any party to
exercise any right or remedy under this Agreement or otherwise, or delay by a
party in exercising such right or remedy, shall not operate as a waiver thereof.
c. This Agreement shall inure to
the benefit of and be binding upon the successors and assigns of each of the
parties hereto.
d. All pronouns and any
variations thereof refer to the masculine, feminine or neuter, singular or
plural, as the context may require.
e. An e m a i l of this signed
Agreement shall be legal and binding on all parties hereto.
f. This Agreement may be
signed in one or more counterparts, each of which shall be deemed an original.
g. The headings of this Agreement
are for convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
10.110
h. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.
i. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement thereof.
j. This
Agreement supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof.
13.
NOTICES
. Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be deemed effectively
given on the earliest of
(a) the
date delivered, if delivered by personal delivery as against written receipt
therefor or by confirmed email,
(b) the fifth
Trading Day after deposit, postage prepaid, in the United States Postal Service
by registered or certified mail, or
(c) the
third Trading Day after mailing by domestic or international express courier,
with delivery costs and fees prepaid,
in each case, addressed to each of the other parties thereunto
entitled at the following addresses (or at such other addresses as such party
may designate by ten (10) days' advance written notice similarly given to each
of the other parties hereto):
|
COMPANY:
|
Lithium Exploration Group Inc.
|
|
|
4635 S Lakeshore Drive
|
|
|
Tempe, AZ 85282
|
|
|
Attn: Alex Walsh
|
|
|
|
|
PURCHASER:
|
JDF CAPITAL INC.
|
|
|
62 E Main Street
|
|
|
Freehold, NJ 07728
|
|
|
Attn: John Fierro
|
|
|
Telephone No.: 718-290-4058
|
14.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The Company's and the Purchaser's
representations and warranties herein shall survive the execution and delivery
of this Agreement and the delivery of the Certificates and the payment of the
Purchase Amount, and shall inure to the benefit of the Purchaser and the Company
and their respective successors and assigns.
[Balance of page intentionally left blank]
10.110
IN WITNESS WHEREOF,
this
Agreement has been duly executed by the Purchaser and the Company as of the date
set first above written.
JDF CAPITAL INC
___________________________
Name: John Fierro
Title:
President
LITHIUM EXPLORATION GROUP, INC.
By:
_______________________________________________
|
|
|
|
|
|
|
|
|
(Signature of Authorized Person)
|
|
|
|
|
|
|
|
|
Alexander Walsh, Chief Executive Officer
|
|
10.111
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
LITHIUM EXPLORATION GROUP, INC.
10% OID Convertible
Promissory Note
Due June 8, 2018
June 8, 2017
|
|
Purchase Price:
|
USD $78,000.00
|
|
|
Principal Price:
|
$85,800.00
|
For value received,
Lithium
Exploration Group, Inc.,
a Nevada corporation (the "Company"), hereby
promises to pay to the order of
JDF Capital Inc.
(together with its
successors, representatives, and permitted assigns, the "Holder"), in accordance
with the terms hereinafter provided, up to an aggregate of $85,800.00(Eighty
-five thousand and Eight Hundred Dollars) the (the
"Principal Amount"),
which includes the aggregate principal sum of $78,000.00 (Seventy-five
Thousand Dollars) advanced by the Holder, $ 3 , 0 0 0 . 0 0 (Three Thousand
Dollars) document prep fees (deducted from the amount funded) and $7,800.00
(Seventy-eight Hundred Dollars) Original Issue Discount incurred by the Holder
shall be due and payable on June 8, 2018.
The due dates of any outstanding
principal balance are referred to herein as the "Maturity Date".
All payments under or pursuant to
this Note refer to and shall be made in United States Dollars in immediately
available funds to the Holder at the address of the Holder first set forth above
or at such other place as the Holder may designate from time to time in writing
to the Company or by wire transfer of funds to the Holder's account,
instructions for which are attached hereto as
Exhibit A
.
ARTICLE I
Section 1.1
Purchase Agreement
. This Note has been executed and delivered
pursuant to the Security Purchase Agreement dated as of June 8, 2017 (the
"Purchase Agreement'') by and among the Company and the purchasers listed
therein. Capitalized terms used and not otherwise defined herein shall have the
meanings set forth for such terms in the Purchase Agreement.
Section
1.2
Interest.
(a)
Beginning on the issuance date of this Note (the "Issuance Date"), the
outstanding principal balance of this Note shall bear interest at a rate per
annum equal to 10 percent (10%) accruing on a 12 month basis, which shall
consist of the pre-paid interest referred to above, which may be converted to
shares of the Company's common stock, par value $0.001 per share (the "Common
Stock") at the option of the Holder on the same terms as the Note.
1
10.111
Section 1.3
Payment on Non-Business Days
. Whenever any payment to be made shall
be due on a Saturday, Sunday or a public holiday under the laws of the State of
Nevada, such payment may be due on the next succeeding business day and such
next succeeding day shall be included in the calculation of the amount of
accrued interest payable on such date.
Section
1.4
Transfer
. This Note may be transferred or
sold, subject to the provisions of Section 4.8 of this Note, or pledged,
hypothecated or otherwise granted as security by the Holder.
Section 1.5
Replacement.
Upon receipt of a duly executed, notarized and
unsecured written statement from the Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof), and without requiring an
indemnity bond or other security, or, in the case of a mutilation of this Note,
upon surrender and cancellation of such Note, the Company shall issue a new
Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section
2.1
Events of Default
. The occurrence of any of
the following events shall be an "Event of Default" under this Note:
(a) the
Company shall fail to make the payment of any amount of principal outstanding on
the date such payment is due hereunder;
(b) the
Company shall fail to make any payment of interest in shares of Common Stock for
a period of three (3) days after the date such interest is due;
(c) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, Nasdaq Small Cap Market, Nasdaq National Market, American Stock Exchange
or The New York Stock Exchange, Inc. for a period of five (5) consecutive
Trading Days;
(d) the
Company's notice to the Holder, including by way of public announcement, at any
time, of its inability to comply or its intention not to comply with proper
requests for conversion of this Note into shares of Common Stock;
(e) the
Company shall fail to (i) timely deliver the shares of Common Stock upon
conversion of the Note or any accrued and unpaid interest, or (ii) make the
payment of any fees and/or liquidated damages under this Note or the Purchase
Agreement, which failure in the case of items (i) and (ii) of this Section
2.1(e) is not remedied within three (3) business days after the incurrence
thereof;
(f)
default shall be made in the performance or observance of (i) any material
covenant, condition or agreement contained in this Note (other than as set forth
in clause (e) of this Section 2.1) and such default is not fully cured within
five (5) business days after the occurrence thereof or (ii) any material
covenant, condition or agreement contained in the Purchase Agreement or any
other Transaction Document which is not covered by any other provisions of this
Section 2.1 and such default is not fully cured within five (5) business days
after the occurrence thereof;
2
10.111
(g) any
material representation or warranty made by the Company herein or in the
Purchase Agreement or any other Transaction Document shall prove to have been
false or incorrect or breached in a material respect on the date as of which
made;
(h)
the Company shall (A) default in any payment of any amount or amounts of
principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$50,000 or (B) default in the observance or performance of any other agreement
or condition relating to any Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to perm it the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity;
(i) the
Company shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property or assets, (ii) make a general assignment
for the benefit of its creditors, (iii) commence a voluntary case under the
United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic), (iv) file a petition
seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing;
(j) a
proceeding or case shall be commenced in respect of the Company, without its
application or consent, in any court of competent jurisdiction, seeking (i) the
l iquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or of all or any substantial
part of its assets in connection with the liquidation or dissolution of the
Company or (iii) similar relief in respect of it under any law providing for the
relief of debtors, and such proceeding or case described in clause (i), (ii) or
(iii) shall continue undismissed, or unstayed and in effect, for a period of
sixty (60) days or any order for relief shall be entered in an involuntary case
under United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic) against the Company or
action under the laws of any jurisdiction (foreign or domestic) analogous to any
of the foregoing shall be taken with respect to the Company and shall continue
undismissed, or unstayed and in effect for a period of sixty (60) days; or
(k) the
failure of the Company to instruct its transfer agent to remove any legends from
shares of Common Stock eligible to be sold under Rule 144 of the Securities Act
and issue such unlegended certificates to the Holder within five (5) business
days of the Holder's request so long as the Holder has provided reasonable
assurances and opinions of counsel to the Company that such shares of Common
Stock can be resold pursuant to Rule 144; or
(I) the
failure of the Company to pay any amounts due to the Holder herein within three
(3) business days of receipt of notice to the Company.
Section
2.2
Remedies Upon An Event of Default
. If an
Event of Default shall have occurred and shall be continuing, the Holder of this
Note may at any time at its option, (a) declare the entire unpaid principal
balance of this Note, together with all interest accrued hereon, due and
payable, and thereupon, the same shall be accelerated and so due and payable,
without presentment, demand, protest, or notice, all of which are hereby
expressly unconditionally and irrevocably waived by the Company; provided,
however, that upon the occurrence of an Event of Default described in (i) Sections (k) or (I), the outstanding principal balance and
interest hereunder shall be automatically due and payable and (ii) Sections 2.1
(a)-(j) and 2.l (m)-(n), demand the prepayment of this Note pursuant to Section
3.6 hereof, (b) subject to Section 3.4 hereof, demand that the principal amount
of this Note then outstanding shall be converted into shares of Common Stock at
a Conversion Price (as defined in Section 3.2(a) hereof) per share calculated
pursuant to Section 3.1 hereof assuming that the date that the Event of Default
occurs is the Conversion Date and demand that all accrued and unpaid interest
under this Note shall be converted into shares of Common Stock in accordance
with Section 1 .2 hereof, or (c) exercise or otherwise enforce any one or more
of the Holder's rights, powers, privileges, remedies and interests under this
Note, the Purchase Agreement, other Transaction Document or applicable law. No
course of delay on the part of the Holder shall operate as a waiver thereof or
otherwise prejudice the right of the Holder. No remedy conferred hereby shall be
exclusive of any other remedy referred to herein or now or hereafter available
at law, in equity, by statute or otherwise.
3
10.111
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1
Conversion Option
.
(a) At
any time on or after the Issuance Date, this Note shall be convertible (in whole
or in part), at the option of the Holder (the
"Conversion Option
"), into
such number of fully paid and non- assessable shares of Common Stock (the
"
Conversion Rate
") as is determined by dividing that portion of the
outstanding principal balance under this Note as of such date that the Holder
elects to convert by the Conversion Price (as defined in Section 3.2(a) hereof)
then in effect on the date on which the Holder faxes a notice of conversion (the
"Conversion Notice
"), duly executed, to the Company (the "Voluntary
Conversion Date
"), provided, however, that the Conversion Price shall be
subject to adjustment as described in Section 3.5 below. The Holder shall
deliver this Note to the Company at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Company shall keep written records of the
amount of this Note converted as of each Conversion Date.
(b) On
any Voluntary Conversion Date, the Holder may cause the any outstanding
Principal Amount of this Note plus all accrued and unpaid interest to convert
into a number of fully paid and non-assessable shares of Common Stock equal to
the quotient of the elected outstanding principal amount of this Note plus all
accrued interest on the elected outstanding on the Voluntary Conversion Date (as
described in this Section below) divided by the Conversion Price as described in
Section 3.2(a) below.
Furthermore, upon the occurrence of an Event of Default
(as defined in Section 2.1 hereof), then to the extent permitted by law, the
Company will pay interest to the Holder, payable on demand, on the outstanding
principal balance of the Note from the date of the Event of Default until such
Event of Default is cured at the rate of the lesser of fifteen percent (15%) and
the maximum applicable legal rate per annum.
(B)
Conversion Limitations
;
Holder's Restriction on Conversion
. The
Company shall not effect any conversion of this Note, and the Holder shall not
have the right to convert any portion of this Note, to the extent that after
giving effect to such conversion, the Holder (together with the Holder's
affiliates), as set forth on the applicable Conversion Notice, would
beneficially own in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned
by the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder or
any of its affiliates and (B) Exercise or conversion of the unexercised or nonconverted
portion of any other securities of the Company (including, without limitation,
any other Notes or the Warrants) subject to a limitation on conversion or
exercise analogous to the limitation contained herein beneficially owned by the
Holder or any of its affiliates. Except as set forth in the preceding sentence,
for purposes of this Section, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this section applies, the determination of whether this
Note is convertible (in relation to other securities owned by the Holder) and of
which a portion of this Note is convertible shall be in the sole discretion of
such Holder. To ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a Conversion Notice
that such Conversion Notice has not violated the restrictions set forth in this
paragraph and the Company shall have no obligation to verify or confirm the
accuracy of such determination. For purposes of this Section, in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (x) the Company's most
recent Form 10-Q or Form 10-K (or such related form), as the case may be, (y) a
more recent public announcement by the Company or (z) any other notice by the
Company or the Company's Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of the Holder, the
Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Note, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The provisions of
this Section may be waived by the Holder upon, at the election of the Holder,
not less than 61 days' prior notice to the Company, and the provisions of this
Section shall continue to apply until such 61st day (or such later date, as
determined by the Holder, as may be specified in such notice of waiver).
4
10.111
Section 3.2
Conversion Price.
The Holder of this Note is
entitled, at its option, at any time, to convert all or any amount of the
principal face amount of this Note then outstanding into shares of the Company's
common stock (the "
Common Stock
") at a price ("
Conversion Price
")
for each share of Common Stock equal to
50%
of the
lowest trading
price
of the Common Stock as reported on the OTC Markets
electronic quotation service or such marketplace upon which the Company’s shares
are traded or any exchange upon which the Common Stock may be traded in the
future ("
Exchange
"), for the
twenty
prior
trading days including the day upon which a Notice of Conversion is received
by the Company or its transfer agent (provided such Notice of Conversion is
delivered by fax or other electronic method of communication to the Company or
its transfer agent after 4 P.M. Eastern Standard or Daylight Savings Time if the
Holder wishes to include the same day closing price). No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded to the nearest whole share
.
To
the extent the Conversion Price of the Company’s Common Stock closes below the
par value per share, the Company will take all steps necessary to solicit the
consent of the stockholders to reduce the par value to the lowest value possible
under law. The Company agrees to honor all conversions submitted pending this
increase
. In the event the Company experiences a DTC “Chill” on its shares,
the conversion price shall be decreased by 10% while that “Chill” is in
effect.
Section 3.3
Mechanics of Conversion
.
(a) Not
later than three (3) Trading Days after any Conversion Date, the Company or its
designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust Company ("DTC") account on the Holder's behalf via the Deposit
Withdrawal Agent Commission System ("DWAC") as specified in the Conversion
Notice, registered in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder shall be entitled. I n
the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Company shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5. l of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon the conversion of
this Note (the
"Delivery Date
"). Notwithstanding the foregoing to the
contrary, the Company or its transfer agent shall only be obligated to issue and
deliver the shares to the OTC on the Holder's behalf via DWAC (or certificates
free of restrictive legends) if such conversion is in connection with a sale and
the Holder has complied with the applicable prospectus delivery requirements. lf
in the case of any Conversion Notice such certificate or certificates are not
delivered to or as directed by the applicable Holder by the Delivery Date, the
Holder shall be entitled by written notice to the Company at any time on or
before its receipt of such certificate or certificates thereafter, to rescind
such conversion, in which event the Company shall immediately return this Note
if tendered for conversion, whereupon the Company and the Holder shall each be
restored to their respective positions immediately prior to the delivery of such
notice of revocation, except that any amounts described in Sections 3.3(b) and
(c) shall be payable through the date notice of rescission is given to the
Company.
5
10.111
(b) The
Company understands that a delay in the delivery of the shares of Common Stock
upon conversion of this Note beyond the Delivery Date could result in economic
loss to the Holder. If the Company fails to deliver to the Holder such shares
via DWAC or a certificate or certificates pursuant to this Section hereunder by
the Delivery Date, the Company shall pay to such Holder, in cash, an amount per
Trading Day for each Trading Day until such shares are delivered via DWAC or
certificates are delivered, together with interest on such amount at a rate of l
0% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 1% of the aggregate principal
amount of the Note requested to be converted for the first five (5) Trading Days
after the Delivery Date and (ii) 2% of the aggregate principal amount of the
Note requested to be converted for each Trading Day thereafter and (B) $2,000
per day (which amount shall be paid as liquidated damages and not as a penalty).
Nothing herein shall limit a Holder's right to pursue actual damages for the
Company's failure to deliver certificates representing shares of Common Stock
upon conversion within the period specified herein and such Holder shall have
the right to pursue all remedies available to it at law or in equity (including,
without limitation, a decree of specific performance and/or injunctive relief).
Notwithstanding anything to the contrary contained herein, the Holder shall be
entitled to withdraw a Conversion Notice, and upon such withdrawal the Company
shall only be obligated to pay the liquidated damages accrued in accordance with
this Section 3.3(b) through the date the Conversion Notice is withdrawn.
(c) ln
addition to any other
rights available to the Holder, if the Company fails to cause its transfer agent
to transmit to the Holder a certificate or certificates representing the shares
of Common Stock issuable upon conversion of this Note on or before the Delivery
Date, and if after such date the Holder is required by its broker to purchase
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the shares of Common Stock issuable
upon conversion of this Note which the Holder anticipated receiving upon such
exercise (a "
Buy-
In"
), then the Company shall ( 1) pay in cash to
the Holder the amount by which (x) the Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
exceeds (y) the amount obtained by multi plying (A) the number of shares of
Common Stock issuable upon conversion of this Note that the Company was required
to deliver to the Holder in connection with the conversion at issue times (B)
the price at which the sell order giving rise to such purchase obligation was
executed, and (2) at the option of the Holder, either reinstate the portion of
the Note and equivalent number of shares of Common Stock for which such
conversion was not honored or deliver to the Holder the number of shares of
Common Stock that would have been issued had the Company timely complied with
its conversion and delivery obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000 to cover a
Buy-In with respect to an attempted conversion of shares of Common Stock with an
aggregate sale price giving rise to such purchase obligation of $10,000, under
clause (1) of the immediately preceding sentence the Company shall be required
to pay the Holder $1,000. The Holder shall provide the Company written notice
indicating the amounts payable to the Holder in respect of the Buy-In, together
with applicable confirmations and other evidence reasonably requested by the
Company. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof.
6
10.111
Section 3.4
Ownership Cap and Certain Conversion Restrictions
.
Notwithstanding anything to the
contrary set forth in Section 3 of this Note, at no time may the Holder convert
all or a portion of this Note if the number of shares of Common Stock to be
issued pursuant to such conversion would exceed, when aggregated with all other
shares of Common Stock owned by the Holder at such time, the number of shares of
Common Stock which would result in the Holder beneficially owning (as determined
in accordance with Section l3(d) of the Exchange Act and the rules thereunder)
more than 9.9% of all of the Common Stock outstanding at such time; provided,
however, that upon the Holder providing the Company with sixty-one (61) days
notice (pursuant to Section 4.1 hereof) (the "Waiver Notice") that the Holder
would like to waive this Section 3.4 with regard to any or all shares of Common
Stock issuable upon conversion of this Note, this Section 3.4 will be of no
force or effect with regard to all or a portion of the Note referenced in the
Waiver Notice; provided, further, that this provision shall be of no further
force or effect during the sixty-one (61) days immediately preceding the
Maturity Date.
Section 3.5
Adjustment of Conversion P
rice.
(a) The
Conversion Price shall be subject to adjustment from time to time as follows:
(i)
Adjustments for Stock Splits and Combinations
. If the Company shall at
any time or from time to time after the Issuance Date, effect a stock split of
the outstanding Common Stock, the applicable Conversion Price in effect
immediately prior to the stock split shall be proportionately decreased. If the
Company shall at any time or from time to time after the Issuance Date, combine
the outstanding shares of Common Stock, the applicable Conversion Price in
effect immediately prior to the combination shall be proportionately increased.
Any adjustments u nder this Section 3.5(a)(i) shall be effective at the close of
business on the date the stock split or combination occurs.
(ii)
Adjustments for Certain Dividends and Distributions
. If the Company
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in shares of Common Stock,
then, and in each event, the applicable Conversion Price in effect immediately
prior to such event shall be decreased as of the time of such issuance or, in
the event such record date shall have been fixed, as of the close of business on
such record date, by multiplying, the applicable Conversion Price then in effect
by a fraction:
(1) the
numerator of which shall be the total n umber of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; and
(2) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.
(iii)
Adjustment for Other Dividends and Distributions
. If the Company
shall at any time or from time to time after the Issuance Date, make or issue or
set a record date for the determination of holders of Common Stock entitled to
receive a dividend or other distribution payable in other than shares of Common Stock, then, and in each event, an
appropriate revision to the applicable Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the holders of this Note shall receive upon conversions thereof, in
addition to the number of shares of Common Stock receivable thereon, the number
of securities of the Company which they would have received had this Note been
converted into Common Stock on the date of such event and had thereafter, during
the period from the date of such event to and including the Conversion Date,
retained such securities (together with any distributions payable thereon during
such period), giving application to all adjustments called for during such
period under this Section 3.5(a)(iii ) with respect to the rights of the holders
of this Note; provided, however, that if such record date shall have been fixed
and such dividend is not fully paid or if such distribution is not fully made on
the date fixed therefor, the Conversion Price shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or distributions.
7
10.111
(iv)
Adjustments for Reclassification, Exchange or Substitution
. If the Common
Stock issuable upon conversion of this Note at any time or from time to time
after the Issuance Date shall be changed to the same or different n umber of
shares of any class or classes of stock, whether by reclassification, exchange,
substitution or otherwise (other than by way of a stock split or combination of
shares or stock dividends provided for in Sections 3.5(a)(i), (ii) and (iii), or
a reorganization, merger, consolidation, or sale of assets provided for in
Section 3.5(a)(v)), then, and in each event, an appropriate revision to the
Conversion Price shall be made and provisions shall be made (by adjustments of
the Conversion Price or otherwise) so that the Holder shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into which such
Note might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.
(v)
Adjustments for Reorganization, Merger, Consolidation or Sales of Assets
.
If at any time or from time to time after the Issuance Date there shall be a
capital reorganization of the Company (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 3.5(a)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 3.5(a)(iv)), or a merger or
consolidation of the Company with or into another corporation where the holders
of outstanding voting securities prior to such merger or consolidation do not
own over fifty percent (50%) of the outstanding voting securities of the merged
or consolidated entity, immediately after such merger or consolidation, or the
sale of all or substantially all of the Company's properties or assets to any
other person (an "
Organic
Change
"), then as a part of such Organic
Change an appropriate revision to the Conversion Price shall be made and
provision shall be made (by adjustments of the Conversion Price or otherwise) so
that the Holder shall have the right thereafter to convert such Note into the
kind and amount of shares of stock and other securities or property of the
Company or any successor corporation resulting from Organic Change. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Section 3.5(a)(v) with respect to the rights of the Holder after the
Organic Change to the end that the provisions of this Section 3.5(a)(v)
(including any adjustment in the applicable Conversion Price then in effect and
the number of shares of stock or other securities deliverable upon conversion of
this Note) shall be applied after that event in as nearly an equivalent manner
as may be practicable.
(vi)
Issuance of Common Stock Equivalents
. If the Company, at any time after
the Issuance Date, shall issue any securities convertible into or exchangeable
for, directly or indirectly, Common Stock ("
Convertible Securities
"),
other than the Note, or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities, shall be issued or sold (collectively,
the "
Common Stock Equivalents
") and the aggregate of the price per share
for which Additional Shares of Common Stock may be issuable thereafter pursuant
to such Common Stock Equivalent, plus the consideration received by the Company for
issuance of such Common Stock Equivalent divided by the number of shares of
Common Stock issuable pursuant to such Common Stock Equivalent (the
"Aggregate Per Common Share Price
") shall be less than the applicable
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall make the Aggregate Per Share Common Price be less than the applicable
Conversion Price in effect at the time of such amendment or adjustment, then the
applicable Conversion Price upon each such issuance or amendment shall be
adjusted as provided in the first sentence of subsection (vi) of this Section
3.5(a) on the basis that (1) the maximum number of Additional Shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to
have been issued (whether or not such Common Stock Equivalents are actually then
exercisable, convertible or exchangeable in whole or in part) as of the earlier
of (A) the date on which the Company shall enter into a firm contract for the
issuance of such Common Stock Equivalent, or (B) the date of actual issuance of
such Common Stock Equivalent. No adjustment of the applicable Conversion Price
shall be made under this subsection (vii) upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment shall previously
have been made to the exercise price of such warrants then in effect upon the
issuance of such warrants or other rights pursuant to this subsection (vii). No
adjustment shall be made to the Conversion Price upon the issuance of Common
Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent.
8
10.111
(vii)
Consideration for Stock
. In case any shares of Common Stock or any Common
Stock Equivalents shall be issued or sold:
(1) in
connection with any merger or consolidation in which the Company is the
surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefor shall be, deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or
(2) in
the event of any consolidation or merger of the Company in which the Company is
not the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other
corporation computed on The basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Note, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Note immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Note. In the event Common Stock is
issued with other shares or securities or other assets of the Company for
consideration which covers both, the consideration computed as provided in this
Section 3.5(viii) shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the Company.
9
10.111
(b)
Record Date.
In case the Company shall take record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.
(c)
Certain Issues Excepted
Anything herein to the contrary notwithstanding,
the Company shall not be required to make any adjustment to the Conversion Price
in connection with (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's securities, (iii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to the Purchase Agreement, (iv) the shares of Common Stock
issuable upon the exercise of Warrants, (v) securities issued i n connection
with strategic license agreements or other partnering arrangements so long as
such issuances are not for the purpose of raising capital, (vi) Common Stock
issued or options to purchase Common Stock granted or issued pursuant to the
Company's stock option plans and employee stock purchase plans as they now
exist, (vii) the payment of any accrued interest in shares of Common Stock
pursuant to this Note.
(d)
No
Impairment
. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 3.5 and
in the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the Holder against impairment. In the event a
Holder shall elect to convert any Note as provided herein, the Company cannot
refuse conversion based on any claim that such Holder or anyo ne associated or
affiliated with such Holder has been engaged in any violation of law, violation
of an agreement to which such Holder is a party or for any reason whatsoever,
unless, an injunction from a court, or notice, restraining and or adjoining
conversion of all or of said Note shall have issued and the Company posts a
surety bond for the benefit of such Holder in an amount equal to one hundred
thirty percent ( 130%) of the amount of the Note the Holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
(e)
Certificates as to Adjustments
. Upon occurrence of each adjustment or
readjustment of the Conversion Price or n umber of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.5, the Company
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing i n detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon written
request of the Holder, at any time, furnish or cause to be furnished to the
Holder a like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless
such certificate would reflect an increase or decrease of at least one percent
(1%) of such adjusted amount.
(f)
Issue Taxes
. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto; provided, however, that the Company shall not be obligated to
pay any transfer taxes resulting from any transfer requested by the Holder in
connection with any such conversion.
10
10.111
(g)
Fractional Shares
. No fractional shares of Common Stock shall be issued
upon conversion of this Note. In lieu of any fractional shares to which the
Holder would otherwise be entitled, the Company shall pay cash equal to the
product of such fraction multiplied by the average of the Closing Bid Prices of
the Common Stock for the five (5) consecutive Trading Days immediately preceding
the Conversion Date.
(h)
Reservation of Common Stock
. The Company shall at all times when this
Note shall be outstanding, reserve and keep available out of its authorized but
unissued Common Stock, such number of shares of Common Stock as shall from time
to time be sufficient to effect the conversion of this Note and all interest
accrued thereon;
provided
that the number of shares of Common Stock so
reserved shall at no time be less than one hundred twenty percent ( 120%) of the
number of shares of Common Stock for which this Note and all interest accrued
thereon are at any time convertible. The Company shall, from time to time in
accordance with Nevada corporate law, increase the authorized number of shares
of Common Stock if at any time the unissued number of authorized shares shall
not be sufficient to satisfy the Company's obligations under this Section 3.5(h)
.
(i)
Regulatory Compliance
. If any shares of Common Stock to be reserved for
the purpose of conversion of this Note or any interest accrued thereon require
registration or listing with or approval of any governmental authority, stock
exchange or other regulatory body under any federal or state law or regulation
or otherwise before such shares may be validly issued or delivered upon
conversion, the Company shall, at its sole cost and expense, i n good faith and
as expeditiously as possible, endeavor to secure such registration, listing or
approval, as the case may be.
Section 3.6
Prepayment
.
(a)
Prepayment Upon an Event of Defaul
t. Notwithstanding anything to the
contrary contained herein, upon the occurrence of an Event of Default described
i n Sections 2.1 (a)-(j)) and 2.1 (m)- (o) hereof, the Holder shall have the
right, at such Holder's option, to require the Company to prepay in cash all or
a portion of this Note at a price equal to one hundred twenty percent (120%) of
the aggregate principal amount of this Note plus all accrued and unpaid interest
applicable at the time of such request (the
"Event of Default Prepayment
Price
"). Nothing i n this Section 3.6(a) shall limit the Holder's rights
under Section 2.2 hereof.
(b)
Prepayment Option Upon Major Transaction
. In addition to all other rights
of the Holder contained herein, simultaneous with the occurrence of a Major
Transaction (as defined in Section 3.6(e) hereof), the Holder shall have the
right, at the Holder's option, to require the Company to prepay all or a portion
of the Holder's Note at a price equal to one hundred ten percent (110%) of the
aggregate principal amount of this Note plus all accrued and unpaid interest
(the "
Major Transaction Prepayment
Price
").
(c)
Prepayment Option Upon Triggering Event
. In addition to all other
rights of the Holder contained herein, after a Triggering Event (as defined
below), the Holder shall have the right, at the Holder's option, to require the
Company to prepay all or a portion of this Note in cash at a price equal to the
sum of (i) the greater of (A) one hundred twenty percent (120%) of the aggregate
principal amount of this Note plus all accrued and un paid interest and (B) in
the event at such time the Holder is unable to obtain the benefit of its
conversion rights through the conversion of this Note and resale of the shares
of Common Stock issuable upon conversion hereof in accordance with the terms of
this Note and the other Transaction Documents, the aggregate principal amount of
this Note plus all accrued but unpaid interest hereon, divided by the Conversion
Price on (x) the date the Prepayment Price (as defined below) is demanded or
otherwise due or (y) the date the Prepayment Price is paid in full, whichever is
less, multiplied by the VWAP on (x) the date the Prepayment Price is demanded or
otherwise due, and (y) the date the Prepayment Price is paid in full, whichever
is greater, and (ii) all other amounts, costs, expenses and liquidated damages
due in respect of this Note and the other Transaction Documents (the "Triggering
Event Prepayment Price," and, collectively with the "Major Transaction
Prepayment Price," the "Prepayment Price").
11
10.111
(d)
Major Transaction
. A "Major Transaction" shall be deemed to have occurred
at such time as any of the following events:
(i) the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the
board of directors (or their equivalent if other than a corporation) of such
entity or entities); or
(ii) the
sale or transfer of more than fifty percent (50%) of the Company's assets (based
on the fair market value as determined in good faith by the Company's Board of
Directors) other than inventory in the ordinary course of business in one or a
related series of transactions; or
(iii) closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.
(e)
Triggering Event
. A "Triggering Event" shall be deemed to have
occurred at such time as any of the following events:
(i) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, Nasdaq SmallCap Market, Nasdaq National Market, American Stock Exchange
or The New York Stock Exchange, Inc. for a period of five (5) consecutive
Trading Days;
(ii) the
Company's notice to any holder of the Note, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8) or its intention not to comply with proper
requests for conversion of any Note into shares of Common Stock; or
(iii) the
Company's failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Note within ten (10) business days after the receipt by
the Company of the Conversion Notice; or
(iv) the
Company deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or
(v) the
Company consummates a ''going private" transaction and as a result the Common
Stock is no longer registered under Sections l 2(b) or 12(g) of the Exchange
Act.
(f)
Mechanics of Prepayment at Option of Holder Upon Major Transaction
. No
sooner than fifteen (15) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier ("Notice of Major Transaction") to the Holder of
this Note. At any time after receipt of a Notice of Major Transaction (or, in
the event a Notice of Major Transaction is not delivered at least ten (10) days
prior to a Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any holder of the Notes then outstanding may require the Company
to prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier ("Notice of Prepayment at
Option of Holder Upon Major Transaction") to the Company, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
number of Notes that such holder is electing to prepay and (ii) the applicable
Major Transaction Prepayment Price, as calculated pursuant to Section 3.6(b)
above.
12
10.111
(g)
Mechanics of Prepayment at Option of Holder Upon Triggering Event
. Within
one (1) business day after the occurrence of a Triggering Event, the Company
shall deliver written notice thereof via facsimile and overnight courier
("Notice of Triggering Event") to each holder of the Notes. At any time after
the earlier of a holder's receipt of a Notice of Triggering Event and such
holder becoming aware of a Triggering Event, any holder of this Note may require
the Company to prepay all of the Notes on a pro rata basis by delivering written
notice thereof via facsimile and overnight courier (
"Notice of Prepayment at
Option of Holder Upon Triggering Event
") to the Company, which Notice of
Prepayment at Option of Holder Upon Triggering Event shall indicate (i) the
amount of the Note that such holder is electing to have prepaid and (ii) the
applicable Triggering Event Prepayment Price, as calculated pursuant to Section
3.6(c) above. A holder shall only be permitted to require the Company to prepay
the Note pursuant to Section 3.6 hereof for the greater of a period of ten (10)
days after receipt by such holder of a Notice of Triggering Event or for so long
as such Triggering Event is continuing.
(h)
Payment of Prepayment Price.
Upon the Company's receipt of a
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a Notice(s)
of Prepayment at Option of Holder Upon Major Transaction from any holder of the
Notes, the Company shall immediately notify each holder of the Notes by
facsimile of the Company's receipt of such Notice(s) of Prepayment at Option of
Holder Upon Triggering Event or Notice(s) of Prepayment at Option of Holder Upon
Major Transaction and each holder which has sent such a notice shall promptly
submit to the Company such holder's certificates representing the Notes which
such holder has elected to have prepaid. The Company shall deliver the
applicable Triggering Event Prepayment Price, in the case of a prepayment
pursuant to Section 3.6(i), to such holder within five (5) business days after
the Company's receipt of a Notice of Prepayment at Option of Holder Upon
Triggering Event and, in the case of a prepayment pursuant to Section 3.6(f),
the Company shall deliver the applicable Major Transaction Prepayment Price
immediately prior to the consummation of the Major Transaction; provided that a
holder's original Note shall have been so delivered to the Company; provided
further that if the Company is u nable to prepay all of the Notes to be prepaid,
the Company shall prepay an amount from each holder of the Notes being prepaid
equal to such holder's pro-rata amount (based on the number of Notes held by
such holder relative to the number of Notes outstanding) of all Notes being
prepaid. If the Company shall fail to prepay all of the Notes submitted for
prepayment (other than pursuant to a dispute as to the arithmetic calculation of
the Prepayment Price), in addition to any remedy such holder of the Notes may
have under this Note and the Purchase Agreement, the applicable Prepayment Price
payable in respect of such Notes not prepaid shall bear interest at the rate of
two percent (2%) per month (prorated for partial months) until paid in full.
Until the Company pays such unpaid applicable Prepayment Price in full to a
holder of the Notes submitted for prepayment, such holder shall have the option
(the "Void Optional Prepayment Option") to, in lieu of prepayment, require the
Company to promptly return to such holder(s) all of the Notes that were
submitted for prepayment by such holder(s) under this Section 3.6 and for which
the applicable Prepayment Price has not been paid, by sending written notice
thereof to the Company via facsimile (the "Void Optional Prepayment Notice").
Upon the Company's receipt of such Void Optional Prepayment Notice(s) and prior
to payment of the full applicable Prepayment Price to such holder, (i) the
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction, as the case may be, shall be
null and void with respect to those Notes submitted for prepayment and for which
the applicable Prepayment Price has not been paid, (ii) the Company shall
immediately return any Notes submitted to the Company by each holder for
prepayment under this Section 3.6(h) and for which the applicable Prepayment
Price has not been paid and (iii) the Conversion Price of such returned Notes
shall be adjusted to the lesser of (A) the Conversion Price as in effect on the
date on which the Void Optional Prepayment Notice(s) is delivered to the Company
and (B) the lowest Closing Bid Price during the period beginning on the date on
which the Notice(s) of Prepayment of Option of Holder Upon Major Transaction or
the Notice(s) of Prepayment at Option of Holder Upon Triggering Event, as the
case may be, is delivered to the Company and ending on the date on which the
Void Optional Prepayment Notice(s) is delivered to the Company; provided that no
adjustment shall be made if such adjustment would result in an increase of the
Conversion Price then in effect. A holder's delivery of a Void Optional
Prepayment Notice and exercise of its rights following such notice shall not
effect the Company's obligations to make any payments which have accrued prior
to the date of such notice. Payments provided for in this Section 3.6 shall have
priority to payments to other stockholders in connection with a Major
Transaction.
13
10.111
(i)
Company Prepayment Option upon Major Transaction
. Upon the consummation
of a Major Transaction, the Company may prepay in cash all or any portion of the
outstanding principal amount of this Note together with all accrued and unpaid
interest thereon upon at least thirty (30) days prior written notice to the
Holder (the "
Company's Prepayment Notice
") at a price equal to one
hundred twenty percent (120%) of the aggregate principal amount of this Note
plus any accrued but unpaid interest (the
"Company's Prepayment Price
");
provided, however, that if a holder has delivered a Conversion Notice to the
Company or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Company's Prepayment Notice, the principal amount of
the Notes plus any accrued but unpaid interest designated to be converted may
not be prepaid by the Company and shall be converted in accordance with Section
3.3 hereof; provided further that if during the period between delivery of the
Company's Prepayment Notice and the Company's Prepayment Date (as defined
below), a holder shall become entitled and elects to deliver a Notice of
Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at
Option of Holder upon Triggering Event, then such rights of the holders shall
take precedence over the previously delivered Company Prepayment Notice if the
holder so elects. The Company's Prepayment Notice shall state the date of
prepayment which date shall be the date of the consummation of the Major
Transaction (the "Company's Prepayment Date"), the Company's Prepayment Price
and the principal amount of Notes plus any accrued but unpaid interest to be
prepaid by the Company. The Company shall deliver the Company's Prepayment Price
on the Company's Prepayment Date, provided, that if the holder(s) delivers a
Conversion Notice before the Company's Prepayment Date, then the portion of the
Company's Prepayment Price which would be paid to prepay the Notes covered by
such Conversion Notice shall be returned to the Company upon delivery of the
Common Stock issuable i n connection with such Conversion Notice to the
holder(s). On the Company's Prepayment Date, the Company shall pay the Company's
Prepayment Price, subject to any adjustment pursuant to the immediately
preceding sentence, to the holder(s) on a pro rata basis. If the Company fails
to pay the Company's Prepayment Price by the third (3rd) business day after the
Company's Prepayment Date, the prepayment will be declared null and void and the
Company shall lose its right to serve a Company's Prepayment Notice pursuant to
this Section 3.6(i) in the future. Notwithstanding the foregoing to the
contrary, the Company may effect a prepayment pursuant to this Section 3.6(i)
only if trading in the Common Stock shall not have been suspended by the
Securities and Exchange Commission or the Nasdaq SmallCap Market (or other
exchange or market on which the Common Stock is trading), and and the Company is
in material compliance with the terms and conditions of this Note and the other
Transaction Documents.
Section 3.7
Inability to Fully Convert
.
(a)
Holder's Option if Company Cannot Fully Convert
. If, upon the Company's
receipt of a Conversion Notice, the Company cannot issue shares of Common Stock
for any reason, including, without limitation, because the Company (w) does not
have a sufficient number of shares of Common Stock authorized and available, or
(x) is otherwise prohibited by applicable law or by the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities from
issuing all of the Common Stock which is to be issued to the Holder pursuant to
a Conversion Notice, then the Company shall issue as many shares of Common Stock
as it is able to issue in accordance with the Holder's Conversion Notice and,
with respect to the unconverted portion of this Note, the Holder, solely at
Holder's option, can elect to:
14
10.111
(i)
require the Company to prepay that portion of this Note for which the
Company is unable to issue Common Stock in accordance with the Holder's
Conversion Notice (the
"
Mandatory
P
repayment") at a price per
share equal to the Triggering Event Prepayment Price as of such Conversion Date
(the "Mandatory Prepayment Price");
(ii) void its
Conversion Notice and retain or have returned, as the case may be, this Note
that was to be converted pursuant to the Conversion Notice (provided that the
Holder's voiding its Conversion Notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of such
notice).
In the event a Holder shall elect to convert any portion of its
Notes as provided herein, the Company cannot refuse conversion based on any
claim that such Holder or anyone associated or affiliated with such Holder has
been engaged in any violation of law, violation of an agreement to which such
Holder is a party or for any reason whatsoever, unless, an injunction from a
court, on notice, restraining and or adjoining conversion of all or of said
Notes shall have been issued and the Company posts a surety bond for the benefit
of such Holder in an amount equal to 130% of the principal amount of the Notes
the Holder has elected to convert, which bond shall remain i n effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder in the event it obtains judgment.
(b)
Mechanics of Fulfilling Holder's Election
. The Company shall immediately
send via facsimile to the Holder, upon receipt of a facsimile copy of a
Conversion Notice from the Holder which cannot be fully satisfied as described
in Section 3.7(a) above, a notice of the Company's inability to fully satisfy
the Conversion Notice (the
"Inability to Fully Convert Notice
"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Company
is unable to fully satisfy such holder's Conversion Notice, (ii) the amount of
this Note which cannot be converted and (iii) the applicable Mandatory
Prepayment Price. The Holder shall notify the Company of its election pursuant
to Section 3.7(a) above by delivering written notice via facsimile to the
Company (
"Notice in Response to
Inability to Convert
").
(c)
Payment of Prepayment
Price
. If the Holder shall elect to have its Notes prepaid pursuant to
Section 3.7(a)(i) above, the Company shall pay the Mandatory Prepayment Price to
the Holder within thirty (30) days of the Company's receipt of the Holder's
Notice in Response to Inability to Convert, provided that prior to the Company's
receipt of the Holder's Notice in Response to Inability to Convert the Company
has not delivered a notice to the Holder stating, to the satisfaction of the
Holder, that the event or condition resulting i n the Mandatory Prepayment has
been cured and all Conversion Shares issuable to the Holder can and will be
delivered to the Holder in accordance with the terms of this Note. If the
Company shall fail to pay the applicable Mandatory Prepayment Price to the
Holder on a timely basis as described in this Section 3.7(c) (other than
pursuant to a dispute as to the determination of the arithmetic calculation of
the Prepayment Price), in addition to any remedy the Holder may have under this
Note and the Purchase Agreement, such unpaid amount shall bear interest at the
rate of two percent (2%) per month (prorated for partial months) until paid in
full. Until the full Mandatory Prepayment Price is paid in full to the Holder,
the Holder may (i) void the Mandatory Prepayment with respect to that portion of
the Note for which the full Mandatory Prepayment Price has not been paid, (ii)
receive back such Note, and (iii) require that the Conversion Price of such
returned Note be adjusted to the lesser of (A) the Conversion Price as in effect on the date on which the
Holder voided the Mandatory Prepayment and (B) the lowest Closing Bid Price
during the period beginning on the Conversion Date and ending on the date the
Holder voided the Mandatory Prepayment.
15
10.111
(d)
Pro-rata Conversion and Prepayment
. In the event the Company
receives a Conversion Notice from more than one holder of the Notes on the same
day and the Company can convert and prepay some, but not all, of the Notes
pursuant to this Section 3.7, the Company shall convert and prepay from each
holder of the Notes electing to have its Notes converted and prepaid at such
time an amount equal to such holder's pro-rata amount (based on the principal
amount of the Notes held by such holder relative to the principal amount of the
Notes outstanding) of all the Notes being converted and prepaid at such time.
Section
3.8
No Rights as Shareholder.
Nothing contained
in this Note shall be construed as conferring upon the Holder, prior to the
conversion of this Note, the right to vote or to receive dividends or to consent
or to receive notice as a shareholder in respect of any meeting of shareholders
for the election of directors of the Company or of any other matter, or any
other rights as a shareholder of the Company.
ARTICLE IV
MISCELLANEOUS
Section 4.1
Notices
. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated in the Purchase
Agreement (if delivered on a business day during normal business hours where
such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business day following
the date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The Company will give written notice to the Holder at least ten (10) days prior
to the date on which the Company takes a record (x) with respect to any dividend
or distribution upon the Common Stock, (y) with respect to any pro rata
subscription offer to holders of Common Stock or (z) for determining rights to
vote with respect to any Organic Change, dissolution, liquidation or winding-up
and in no event shall such notice be provided to such holder prior to such
information being made known to the public. The Company will also give written
notice to the Holder at least ten (10) days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and in no
event shall such notice be provided to the Holder prior to such information
being made known to the public.
Section
4.2
Governing Law
. This Note shall be governed by
and construed in accordance with the internal laws of the State of Nevada,
without giving effect to any of the conflicts of law principles which would
result in the application of the substantive law of another jurisdiction. This
Note shall not be interpreted or construed with any presumption against the
party causing this Note to be drafted.
Section 4.3
Headings.
Article and section headings in this Note are included
herein for purposes of convenience of reference only and shall not constitute a
part of this Note for any other purpose.
Section
4.4
Remedies, Characterizations, Other Obligations,
Breaches and Injunctive
Relief
. The remedies provided in this Note
shall be cumulative and in addition to all other remedies available under this
Note, at law or in equity (including, without limitation, a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Note. Amounts set forth
or provided for herein with respect to payments, conversion and the like (and
the computation thereof) shall be the amounts to be received by the holder
thereof and shall not, except as expressly provided herein, be subject to any
other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable and material harm to the Holder and that the remedy at law for any
such breach may be inadequate. Therefore the Company agrees that, in the event
of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available rights and remedies, at law or in equity, to
seek and obtain such equitable relief, including but not limited to an
injunction restraining any such breach or threatened breach, without the
necessity of showing economic loss and without any bond or other security being
required.
16
10.111
Section
4.5
Enforcement Expenses.
The Company agrees to
pay all costs and expenses of enforcement of this Note, including, without
limitation, reasonable attorneys' fees and expenses.
Section
4.6
Binding Effect
. The obligations of the
Company and the Holder set forth herein shall be binding upon the successors and
assigns of each such party, whether or not such successors or assigns are
permitted by the terms hereof.
Section
4.7
Amendments
. This Note may not be modified or
amended many manner except in writing executed by the Company and the Holder.
Section
4.8
Compliance with Securities Laws
. The Holder
of this Note acknowledges that this Note is being acquired solely for the
Holder's own account and not as a nominee for any other party, and for
investment, and that the Holder shall not offer, sell or otherwise dispose of
this Note. This Note and any Note issued in substitution or replacement therefor
shall be stamped or imprinted with a legend in substantially the following form:
|
|
"THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS,
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND
SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE SOLD,
TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS."
|
|
Section
4.9
Consent to Jurisdiction
. Each of the Company
and the Holder (i) hereby irrevocably submits to the exclusive jurisdiction of
the State of Nevada for the purposes of any suit, action or proceeding arising
out of or relating to this Note and (ii) hereby waives, and agrees not to assert
in any such suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or proceeding
is brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Holder consents to process
being served in any such suit, action or proceeding by mailing a copy thereof to
such party at the address in effect for notices to it under the Purchase
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this Section 4.9 shall affect
or limit any right to serve process in any other manner permitted by law. Each
of the Company and the Holder hereby agree that the prevailing party in any
suit, action or proceeding arising out of or relating to this Note shall be
entitled to reimbursement for reasonable legal fees from the non-prevailing
party.
17
10.111
Section
4.10
Parties in Interest
. This Note shall be
binding upon, inure to the benefit of and be enforceable by the Company, the
Holder and their respective successors and permitted assigns.
Section 4.1
1
Failure or Indulgence Not Waiver
. No failure or
delay on the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
Section
4.12
Company Waivers
. Except as otherwise
specifically provided herein, the Company and all others that may become liable
for all or any part of the obligations evidenced by this Note, hereby waive
presentment, demand, notice of nonpayment, protest and all other demands' and
notices in connection with the delivery, acceptance, performance and enforcement
of this Note, and do hereby consent to any number of renewals of extensions of
the time or payment hereof and agree that any such renewals or extensions may be
made without notice to any such persons and without affecting their liability
herein and do further consent to the release of any person liable hereon, all
without affecting the liability of the other persons, firms or Company liable
for the payment of this Note, AND DO HEREBY WAIVE TRlAL BY JURY.
(a) No
delay or omission on the part of the Holder in exercising its rights under this
Note, or course of conduct relating hereto, shall operate as a waiver of such
rights or any other right of the Holder, nor shall any waiver by the Holder of
any such right or rights on any one occasion be deemed a waiver of the same
right or rights on any future occasion.
(b) THE
COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A
COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICA BLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AN D HEA R ING WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS
SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
18
10.111
WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
LITHIUM EXPLORATION GROUP, INC.
|
|
By:
_________________________________________________________________
|
|
|
|
|
|
|
|
|
Name: Alexander Walsh
|
|
|
Title: Chief
Executive Officer
|
10.111
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Note)
The undersigned hereby irrevocably elects to convert $ of the
principal amount of the above Note No. __ into shares of Common Stock of Lithium
Exploration Group, Inc. (the "Company") according to the conditions hereof, as
of the date written below.
Date of Conversion:
________________________________________________________________
ApplicableConversion Price:
__________________________________________________________
Number of shares of Common Stock beneficially owned or deemed
beneficially owned by the Holder on the Date of Conversion:
____________________________
|
Signature:
|
|
|
|
|
|
|
|
Print Name:
|
|
|
|
|
|
|
|
Address:
|
|
|
|
|
|
|
|
|
|
|
10.112
SECURITIES
PURCHASE
AGREEMENT
This
SECURITIES
PURCHASE
AGREEMENT
(the “Agreement”), dated as of June 8, 2017, by and between
Lithium
Exploration
Group,
Inc.,
a Nevada corporation, with headquarters located at 3800
North Central Avenue, Suite 820, Phoenix, AZ 85012, (the “Company”), and Concord
Holding Group, LLC, A New York limited liability company with its executive
offices located at 1080 Bergen St., Suite 240, Brooklyn, NY 11216 (the “Buyer).
WHEREAS
:
A. The
Company and the Buyer are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”);
B. Buyer
desires to purchase and the Company desires to issue and sell, upon the terms
and conditions set forth in this Agreement two (2) 10% convertible notes of the
Company, in the forms attached hereto as Exhibit A and B in the aggregate
principal amount of $171,600.00 (each in the amount of $85,800.00 which shall
contain a $7,800 OID such that the issuance price shall be $78,000.00 plus
interest and penalties if any become due and payable on June 8, 2018, (together
with any note(s) issued in replacement thereof or as a dividend thereon or
otherwise with respect thereto in accordance with the terms thereof,
collectively the “Notes”), convertible into shares of common stock, $«par_value»
par value per share, of the Company (the “Common Stock”), upon the terms and
subject to the limitations and conditions set forth in such Note. . The first of
the two notes (the “First Note”) shall be paid for by the Buyer as set forth
herein. The second note (the “Second Note”) shall initially be paid for by the
issuance of an offsetting $85,800.00 secured note issued to the Company by the
Buyer (“Buyer Note”). The Buyer and the Company must agree to the funding of the
Second Note, before it can be funded with cash. The Second Note will be secured
by assets of the Buyer having a fair market value of at least $85,800.00 and
provided that prior to conversion of the Second Note, the Buyer must have paid
off the Buyer Note
in cash such that the Second Note may not be converted
until it has been paid for in cash. The portion of the Second Note that has not
been paid for in cash may not be converted.
C. The
Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, such principal amount of Note as is set forth immediately below its
name on the signature pages hereto; and
NOW
THEREFORE
, the Company and the Buyer severally (and not jointly)
hereby agree as follows:
1.
Purchase and Sale of Note.
_____
Company Initials
a.
Purchase of Note
. On the Closing Date (as defined below), the Company
shall issue and sell to the Buyer and the Buyer agrees to purchase from the
Company such principal amount of the Note as is set forth immediately below the
Buyer’s name on the signature pages hereto.
b.
Form of Payment
. On the Closing Date (as defined below), the (A) Buyer
shall (i) pay the purchase price for the Note to be issued and sold to it at the
Closing (as defined below) (the “Purchase Price”) by wire transfer of
immediately available funds to the Company, in accordance with the Company’s
written wiring instructions, against delivery of the Note in the principal
amount equal to the Purchase Price as is set forth immediately below the Buyer’s
name on the signature pages hereto and (B) the Company shall deliver such duly
executed Note on behalf of the Company, to the Buyer, against delivery of such
Purchase Price and Buyer Note.
c.
Closing Date
. The date and time of the first issuance and sale of the
Note pursuant to this Agreement (the “Closing Date”) shall be on or about June
8, 2017, or such other mutually agreed upon time.
2.
Buyer’s Representations and Warranties.
The Buyer represents and warrants
to the Company that:
a.
Investment Purpose
. As of the date hereof, the
Buyer is purchasing the Note and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Note, such shares of Common Stock
being collectively referred to herein as the “Conversion Shares” and,
collectively with the Note, the “Securities”) for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted from registration under the 1933 Act;
provided
,
however
, that by making the representations herein, the
Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b.
Accredited Investor Status
. The Buyer is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
c.
Reliance on Exemptions
. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
2
d.
Information
. The Buyer and its advisors, if any, have been, and for
so long as the Note remain outstanding will continue to be, furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
requested by the Buyer or its advisors. The Buyer and its advisors, if any, have
been, and for so long as the Note remain outstanding will continue to be,
afforded the opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material nonpublic
information and will not disclose such information unless such information is
disclosed to the public prior to or promptly following such disclosure to the
Buyer. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer’s right to rely on the Company’s representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk. The Buyer is not aware of any
facts that may constitute a breach of any of the Company's representations and
warranties made herein.
e.
Governmental Review
. The Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed upon
or made any recommendation or endorsement of the Securities.
f.
Transfer or Re–sale
. The Buyer understands that (i) the sale or
re–sale of the Securities has not been and is not being registered under the
1933 Act or any applicable state securities laws, and the Securities may not be
transferred unless (a) the Securities are sold pursuant to an effective
registration statement under the 1933 Act, (b) the Buyer shall have delivered to
the Company, at the cost of the Buyer, an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration, which
opinion shall be accepted by the Company, (c) the Securities are sold or
transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933
Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or
otherwise transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144,
or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a
successor rule) (“Regulation S”), and the Buyer shall have delivered to the
Company, at the cost of the Buyer, an opinion of counsel that shall be in form,
substance and scope customary for opinions of counsel in corporate transactions,
which opinion shall be accepted by the Company; (ii) any sale of such Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
said Rule and further, if said Rule is not applicable, any re–sale of such
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder; and (iii) neither the
Company nor any other person is under any obligation to register such Securities
under the 1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder (in each case). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may be pledged as
collateral in connection with a
bona
fide
margin account or other
lending arrangement.
3
g.
Legends
. The Buyer understands that the Note and, until such time as the
Conversion Shares have been registered under the 1933 Act may be sold pursuant
to Rule 144 or Regulation S without any restriction as to the number of
securities as of a particular date that can then be immediately sold, the
Conversion Shares may bear a restrictive legend in substantially the following
form (and a stop–transfer order may be placed against transfer of the
certificates for such Securities):
|
|
“NEITHER
THE
ISSUANCE
AND
SALE
OF
THE
SECURITIES
REPRESENTED
BY
THIS
CERTIFICATE
NOR
THE
SECURITIES
INTO
WHICH
THESE
SECURITIES
ARE
EXERCISABLE
HAVE
BEEN
REGISTERED
UNDER
THE
SECURITIES
ACT
OF
1933,
AS
AMENDED,
OR
APPLICABLE
STATE
SECURITIES
LAWS.
THE
SECURITIES
MAY
NOT
BE
OFFERED
FOR
SALE,
SOLD,
TRANSFERRED
OR
ASSIGNED
(I)
IN
THE
ABSENCE
OF
(A)
AN
EFFECTIVE
REGISTRATION
STATEMENT
FOR
THE
SECURITIES
UNDER
THE
SECURITIES
ACT
OF
1933,
AS
AMENDED,
OR
(B)
AN
OPINION
OF
COUNSEL
(WHICH
COUNSEL
SHALL
BE
SELECTED
BY
THE
HOLDER),
IN
A
GENERALLY
ACCEPTABLE
FORM,
THAT
REGISTRATION
IS
NOT
REQUIRED
UNDER
SAID
ACT
OR
(II)
UNLESS
SOLD
PURSUANT
TO
RULE
144
OR
RULE
144A
UNDER
SAID
ACT.
NOTWITHSTANDING
THE
FOREGOING,
THE
SECURITIES
MAY
BE
PLEDGED
IN
CONNECTION
WITH
A
BONA
FIDE
MARGIN
ACCOUNT
OR
OTHER
LOAN
OR
FINANCING
ARRANGEMENT
SECURED
BY
THE
SECURITIES.”
|
|
The legend set forth above shall
be removed and the Company shall issue a certificate without such legend to the
holder of any Security upon which it is stamped, if, unless otherwise required
by applicable state securities laws, (a) such Security is registered for sale
under an effective registration statement filed under the 1933 Act or otherwise
may be sold pursuant to Rule 144 or Regulation S without any restriction as to
the number of securities as of a particular date that can then be immediately
sold, or (b) such holder provides the Company with an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Security may
be made without registration under the 1933 Act, which opinion shall be accepted
by the Company so that the sale or transfer is effected. The Buyer agrees to
sell all Securities, including those represented by a certificate(s) from which
the legend has been removed, in compliance with applicable prospectus delivery
requirements, if any. In the event that the Company does not accept the opinion
of counsel provided by the Buyer with respect to the transfer of Securities
pursuant to an exemption from registration, such as Rule 144 or Regulation S,
within 2 business days, it will be considered an Event of Default under the
Note.
4
h.
Authorization; Enforcement
. This Agreement has been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf of the
Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer
enforceable in accordance with its terms.
i.
Residency
. The Buyer is a resident of the jurisdiction set forth
immediately below the Buyer’s name on the signature pages hereto.
3.
Representations and Warranties of the Company
. The Company represents and
warrants to the Buyer that:
a.
Organization and Qualification
. The Company and each of its subsidiaries,
if any, is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is incorporated, with full power
and authority (corporate and other) to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted.
b.
Authorization; Enforcement
. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the Note
and to consummate the transactions contemplated hereby and thereby and to issue
the Securities, in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Note by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Note and the issuance and
reservation for issuance of the Conversion Shares issuable upon conversion or
exercise thereof) have been duly authorized by the Company’s Board of Directors
and no further consent or authorization of the Company, its Board of Directors,
or its shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Note, each of such instruments will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
c.
Issuance of Shares
. The Conversion Shares are duly authorized and
reserved for issuance and, upon conversion of the Note in accordance with its
respective terms, will be validly issued, fully paid and non–assessable, and
free from all taxes, liens, claims and encumbrances with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights of
shareholders of the Company and will not impose personal liability upon the
holder thereof.
d.
Acknowledgment of Dilution
. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of the Note. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of
the Note in accordance with this Agreement, the Note is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other shareholders of the Company.
e.
No
Conflicts
. The execution, delivery and performance of this Agreement, the
Note by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance of the Conversion Shares) will not (i) conflict with or
result in a violation of any provision of the Certificate of Incorporation or
By–laws, or (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse of
time or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture, patent, patent license or instrument to which the Company or any of
its subsidiaries is a party, or (iii) result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and regulations of any self–regulatory organizations to
which the Company or its securities are subject) applicable to the Company or
any of its subsidiaries or by which any property or asset of the Company or any
of its subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a material adverse effect). All
consents, authorizations, orders, filings and registrations which the Company is
required to obtain pursuant to the preceding sentence have been obtained or
effected on or prior to the date hereof. The Company is not in violation of the
listing requirements of the Over–the–Counter Quotations Bureau (the “OTCQB”) and
does not reasonably anticipate that the Common Stock will be delisted by the
OTCQB in the foreseeable future, nor are the Company’s securities “chilled” by
FINRA. The Company and its subsidiaries are unaware of any facts or
circumstances, which might give rise to any of the foregoing.
f.
Absence of Litigation
. Except as disclosed in the Company’s public
filings, there is no action, suit, claim, proceeding, inquiry or investigation
before or by any court, public board, government agency, self–regulatory
organization or body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or any of its
subsidiaries, or their officers or directors in their capacity as such, that
could have a material adverse effect. Schedule 3(f) contains a complete list and
summary description of any pending or, to the knowledge of the Company,
threatened proceeding against or affecting the Company or any of its
subsidiaries, without regard to whether it would have a material adverse effect.
The Company and its subsidiaries are unaware of any facts or circumstances,
which might give rise to any of the foregoing.
g.
Acknowledgment Regarding Buyer’ Purchase of Securities
. The Company
acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s
length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that the Buyer is not
acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated hereby and any
statement made by the Buyer or any of its respective representatives or agents
in connection with this Agreement and the transactions contemplated hereby is
not advice or a recommendation and is merely incidental to the Buyer’ purchase
of the Securities. The Company further represents to the Buyer that the
Company’s decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
6
h.
No
Integrated Offering
. Neither the Company, nor any of its affiliates, nor any
person acting on its or their behalf, has directly or indirectly made any offers
or sales in any security or solicited any offers to buy any security under
circumstances that would require registration under the 1933 Act of the issuance
of the Securities to the Buyer. The issuance of the Securities to the Buyer will
not be integrated with any other issuance of the Company’s securities (past,
current or future) for purposes of any shareholder approval provisions
applicable to the Company or its securities.
i.
Title to Property
. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(i) or such
as would not have a material adverse effect. Any real property and facilities
held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a material adverse effect.
j.
Bad
Actor
. No officer or director of the Company would be disqualified under
Rule 506(d) of the Securities Act as amended on the basis of being a "bad actor"
as that term is established in the September 19, 2013 Small Entity Compliance
Guide published by the Securities and Exchange Commission.
k.
Breach of
Representations and Warranties by the Company
. If the Company breaches any
of the representations or warranties set forth in this Section 3, and in
addition to any other remedies available to the Buyer pursuant to this
Agreement, it will be considered an Event of default under the Note.
4.
COVENANTS
.
a.
Expenses
. At the Closing, the Company shall reimburse Buyer for expenses
incurred by them in connection with the negotiation, preparation, execution,
delivery and performance of this Agreement and the other agreements to be
executed in connection herewith (“Documents”), including, without limitation,
reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees,
fees for stock quotation services, fees relating to any amendments or
modifications of the Documents or any consents or waivers of provisions in the
Documents, fees for the preparation of opinions of counsel, escrow fees, and
costs of restructuring the transactions contemplated by the Documents. When possible, the Company must pay these fees directly,
otherwise the Company must make immediate payment for reimbursement to the Buyer
for all fees and expenses immediately upon written notice by the Buyer or the
submission of an invoice by the Buyer. The Company’s obligation with respect to
this transaction is to reimburse Buyer’s expenses shall be $3,000 in legal fees,
which shall be deducted from the Note when funded.
7
b.
Listing
. The Company shall promptly secure the listing of the Conversion
Shares upon each national securities exchange or automated quotation system, if
any, upon which shares of Common Stock are then listed (subject to official
notice of issuance) and, so long as the Buyer owns any of the Securities, shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable upon conversion of
the Note. The Company will obtain and, so long as the Buyer owns any of the
Securities, maintain the listing and trading of its Common Stock on the OTCQB,
OTC Pink, or any equivalent replacement exchange, the Nasdaq National Market
(“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock
Exchange (“NYSE”), or the American Stock Exchange (“AMEX”) and will comply in
all respects with the Company’s reporting, filing and other obligations under
the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and
such exchanges, as applicable. The Company shall promptly provide to the Buyer
copies of any notices it receives from the OTCQB, OTC Pink, and any other
exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems.
c.
Corporate Existence
. So long as the Buyer beneficially owns any Note, the
Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company’s assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company’s assets, where
the surviving or successor entity in such transaction (i) assumes the Company’s
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose Common Stock
is listed for trading on the OTC Pink, OTCQB, Nasdaq, Nasdaq SmallCap, NYSE or
AMEX.
d.
No
Integration
. The Company shall not make any offers or sales of any security
(other than the Securities) under circumstances that would require registration
of the Securities being offered or sold hereunder under the 1933 Act or cause
the offering of the Securities to be integrated with any other offering of
securities by the Company for the purpose of any stockholder approval provision
applicable to the Company or its securities.
e.
Registration Rights
. With respect to any Company issued note owned by the
Buyer, in the event the Company completes a registration statement for its
securities prior to the date on which that particular note is eligible for
conversion into legend free shares under Rule 144, the shares issuable upon
conversion of that particular note shall be “piggybacked” onto the registration
statement.
8
f.
Breach of Covenants
. If the Company breaches any of the covenants set
forth in this Section 4, and in addition to any other remedies available to the
Buyer pursuant to this Agreement, it will be considered an event of default
under the Note.
5.
Governing Law; Miscellaneous
.
a.
Governing Law
. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state
and county of New York. The parties to this Agreement hereby irrevocably waive
any objection to jurisdiction and venue of any action instituted hereunder and
shall not assert any defense based on lack of jurisdiction or venue or based
upon
forum
non
conveniens
. The Company and
Buyer waive trial by jury. The prevailing party shall be entitled to recover
from the other party its reasonable attorney's fees and costs. In the event that
any provision of this Agreement or any other agreement delivered in connection
herewith is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision, which may prove invalid or unenforceable under
any law, shall not affect the validity or enforceability of any other provision
of any agreement. Each party hereby irrevocably waives personal service of
process and consents to process being served in any suit, action or proceeding
in connection with this Agreement or any other Transaction Document by mailing a
copy thereof via registered or certified mail or overnight delivery (with
evidence of delivery) to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law.
b.
Counterparts; Signatures by Facsimile
. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original but all of
which shall constitute one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to the other
party. This Agreement, once executed by a party, may be delivered to the other
party hereto by facsimile transmission of a copy of this Agreement bearing the
signature of the party so delivering this Agreement.
c.
Headings
. The headings of this Agreement are for convenience of reference
only and shall not form part of, or affect the interpretation of, this
Agreement.
9
d.
Severability
. In the event that any provision of this Agreement is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision hereof.
e.
Entire Agreement; Amendments
. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the majority in interest of the Buyer.
f.
Notices
. All notices, demands, requests, consents, approvals, and other
communications required or permitted hereunder shall be in writing and, unless
otherwise specified herein, shall be (i) personally served, (ii) deposited in
the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by hand delivery, telegram, or facsimile, addressed as set forth
below or to such other address as such party shall have specified most recently
by written notice. Any notice or other communication required or permitted to be
given hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the second business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company, to:
Lithium Exploration Group, Inc.
3800 North Central Avenue, Suite 820
Phoenix, AZ 85012
Attn: Alex
Walsh– CEO
If to the Buyer:
Concord Holding Group, LLC
1080 Bergen St., Suite 240
Brooklyn, NY 11216
Attn: Manager
10
Each party shall provide notice
to the other party of any change in address.
g.
Successors and Assigns
. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. Neither the Company
nor the Buyer shall assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other. Notwithstanding the foregoing,
the Buyer may assign its rights hereunder to any person that purchases
Securities in a private transaction from the Buyer or to any of its
“affiliates,” as that term is defined under the 1934 Act, without the consent of
the Company.
h.
Third Party Beneficiaries
. This Agreement is intended for the benefit of
the parties hereto and their respective permitted successors and assigns, and is
not for the benefit of, nor may any provision hereof be enforced by, any other
person.
i.
Survival
. The representations and warranties of the Company and the
agreements and covenants set forth in this Agreement shall survive the closing
hereunder notwithstanding any due diligence investigation conducted by or on
behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer
and all their officers, directors, employees and agents for loss or damage
arising as a result of or related to any breach or alleged breach by the Company
of any of its representations, warranties and covenants set forth in this
Agreement or any of its covenants and obligations under this Agreement,
including advancement of expenses as they are incurred.
j.
Further Assurances
. Each party shall do and perform, or cause to be done
and performed, all such further acts and things, and shall execute and deliver
all such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
k.
No
Strict Construction
. The language used in this Agreement will be deemed to
be the language chosen by the parties to express their mutual intent, and no
rules of strict construction will be applied against any party.
l.
Remedies
. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the Buyer shall
be entitled, in addition to all other available remedies at law or in equity,
and in addition to the penalties assessable herein, to an injunction or
injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions
hereof, without the necessity of showing economic loss and without any bond or
other security being required.
11
IN WITNESS WHEREOF, the undersigned Buyer and the Company have
caused this Agreement to be duly executed as of the date first above written.
Lithium
Exploration
Group,
Inc.
By:
__________________________________________
|
|
|
|
|
|
|
|
|
Name:
Alex Walsh
|
|
|
Title: CEO
|
|
Concord
Holding
Group,
LLC.
By: ____________________________________________
Name:
Manager
|
Aggregate Principal Amount of Notes:
|
$171,600.00
|
Convertible Note $85,800.00 less $7,800.00 in OID, less
$3,000.00 in legal fees, attached as Exhibit A, hereto
Backend Note $85,800.00 less $7,800.00 in OID, less $3,000.00
in legal fees, attached as Exhibit B, hereto
12
EXHIBIT
A
144
NOTE
–
$85,800
13
14
10.113
THIS NOTE AND THE COMMON STOCK
ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER (THE "1933 ACT”)
LITHIUM
EXPLORATION
GROUP,
INC.
10%
CONVERTIBLE
PROMISSORY
NOTE
DUE
June
8,
2018
BACK
END
NOTE
|
Effective
Date
June
8,
2017
|
US
$85,800.00
|
Due
June
8,
2018
THIS
NOTE
AND
THE
COMMON
STOCK
ISSUABLE
UPON
CONVERSION
OF
THIS
NOTE
HAVE
NOT
BEEN
AND
WILL
NOT
BE
REGISTERED
WITH
THE
UNITED
STATES
SECURITIES
AND
EXCHANGE
COMMISSION
OR
THE
SECURITIES
COMMISSION
OF
ANY
STATE
PURSUANT
TO
AN
EXEMPTION
FROM
REGISTRATION
PROVIDED
UNDER
THE
SECURITIES
ACT
OF
1933,
AS
AMENDED,
AND
THE
RULES
AND
REGULATIONS
PROMULGATED
THEREUNDER
(THE
"1933
ACT”)
FOR VALUE RECEIVED
Lithium
Exploration
Group,
Inc.
(the “Company”) promises to pay to
the order of
Concord
Holding
Group,
LLC
, and its authorized successors and permitted assigns
("
Holder
"), the aggregate principal face amount of Eighty Five Thousand
Eight Hundred Dollars exactly (U.S. $85,800.00) on June 8, 2018 ("
Maturity
Date
"). The Company will pay interest on the principal amount outstanding at
the rate of 10% per annum, which will commence on June 8, 2017. The Company
acknowledges that this Note was issued with a $7,800.00 original issue discount
(“OID”) such that the issuance price was $78,000.00 as well as document prep
fees of $3,000.00 (deducted from the amount funded) . The interest will be paid
to the Holder in whose name this Note is registered on the records of the Com–
pany regarding registration and transfers of this Note. The principal of, and
interest on, this Note are payable at 1080 Bergen St., Suite 240, Brooklyn, NY
11216, initially, and if changed, last appearing on the records of the Company
as designated in writing by the Holder hereof from time to time. The Company will pay each
interest payment and the out– standing principal due upon this Note before or on
the Maturity Date, less any amounts re– quired by law to be deducted or
withheld, to the Holder of this Note by check or wire trans– fer addressed to
such Holder at the last address appearing on the records of the Company. The
forwarding of such check or wire transfer shall constitute a payment of
outstanding principal hereunder and shall satisfy and discharge the liability
for principal on this Note to the extent of the sum represented by such check or
wire transfer. Interest shall be payable in Common Stock (as defined below)
pursuant to paragraph 4(b) herein.
This
Note is subject to the following additional provisions:
1. This Note is
exchangeable for an equal aggregate principal amount of Notes of different
authorized denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration or transfer or exchange,
except that Holder shall pay any tax or other governmental charges payable in
connection there– with.
2. Under all
applicable laws, the Company shall be entitled to withhold any amounts from all
payments it is entitled to.
3. This Note may
only be transferred or exchanged in compliance with the Securities Act of 1933,
as amended ("
Act
") and any applicable state securities laws. All attempts
transfer to a non–qualifying party shall be treated by the Company as void.
Prior to due presentment for transfer of this Note, the Company and any agent of
the Company may treat the person in whose name this Note is duly registered on
the Company's records as the owner hereof for all other purposes, whether or not
this Note be overdue, and nei– ther the Company nor any such agent shall be
affected or bound by notice to the contrary. Any Holder of this Note electing to
exercise the right of conversion set forth in Section 4(a) hereof, in addition
to the requirements set forth in Section 4(a), and any prospective trans– feree
of this Note, also is required to give the Company written confirmation that
this Note is being converted ("
Notice of Conversion
") in the form annexed
hereto as
Exhibit A
. The date of receipt (including receipt by telecopy)
of such Notice of Conversion shall be the Conversion Date.
1. 4. (a) The Holder
of this Note has the option, upon the issu– ance date of the stock, to convert
all or any amount of the principal face amount of this Note then outstanding
into shares of the Company's common stock (the "
Common Stock
") at a price
("C
onversion Price"
) for each share of Common Stock equal to the lesser
of $0.005 or 50% discount of the
lowest
trading
price
of the
Common Stock as reported on the National Quotations Bureau OTC Markets exchange
which the Company’s shares are traded or any exchange upon which the Common
Stock may be traded in the future ("
Ex– change
"), for the (i)
twenty
prior
trading days, including the day
upon which a Notice of Conversion is received by the Company (provided such
Notice of Conversion is delivered by fax or other electronic method of
communication to the Company after 4 P.M. Eastern Standard or Daylight Savings
Time if the Holder wishes to include the same day closing price), or (ii) the
twenty
prior trading
days immediately preceding the issuance date of this Note. The Notice of
Conversion may be rescinded if the shares have not been delivered within 3
business days. The Company shall deliver the shares of Common Stock to the
Holder within 3 business days of receipt by the Company of the Notice of
Conversion. The Holder shall surrender this Note to the Company upon receipt of
the shares of Common Stock, executed by the Holder. This will make clear the
Holder's intention to convert this Note or a specified portion hereof, and
accompanied by proper assignment hereof in blank. Accrued but unpaid interest
shall be subject to conversion. The number of issuable shares will be rounded to
the nearest whole share, and no fractional shares or scrip repre– senting
fractions of shares will be issued on conversion. To the extent the Conversion
Price of the Company’s Common Stock closes below the par value per share, the
Company will take all steps necessary to solicit the consent of the stockholders
to reduce the par value to the lowest value possible under law. The Company
agrees to honor all conver– sions submitted pending this increase
.
In
the
event
the
Company
experiences
a
DTC
“Chill”
on
its
shares,
the
conversion
price
discount
shall
be
increased
to
60%
whil e
that
“Chill”
is
in
effect.
Notwithstanding anything to the contrary contained in
the Note (except as set forth below in this Section), the Note shall not be
convertible by Investor, and Company shall not effect any conversion of the Note
or otherwise issue any shares of Common Stock to the extent (but only to the
extent) that Investor together with any of its affiliates would beneficially own
in excess of 9.99% (the “
Maximum
Percentage
”) of the
Common Stock outstanding. To the extent the foregoing limitation applies, the
determination of whether a Note shall be convertible (vis–à–vis other
convertible, exercisable or exchangeable secu– rities owned by Investor or any
of its affiliates) and of which such securities shall be con– vertible,
exercisable or exchangeable (as among all such securities owned by Investor and
its affiliates) shall, subject to such Maximum Percentage limitation, be
determined on the basis of the first submission to Company for conversion,
exercise or exchange (as the case may be). No prior inability to convert a Note,
or to issue shares of Common Stock, pursu– ant to this Section shall have any
effect on the applicability of the provisions of this Section with respect to
any subsequent determination of convertibility. For purposes of this Sec– tion,
beneficial ownership and all determinations and calculations (including, without
lim– itation, with respect to calculations of percentage ownership) shall be
determined in ac– cordance with Section 13(e) of the 1934 Act (as defined below)
and the rules and regula– tions promulgated thereunder. The provisions of this
Section shall be implemented in a manner otherwise than in strict conformity
with the terms of this Section to correct this Section (or any portion hereof)
which may be defective or inconsistent with the intended Maximum Percentage
beneficial ownership limitation herein contained or to make chang– es or
supplements necessary or desirable to properly give effect to such Maximum Per–
centage limitation. The limitations contained in this Section shall apply to a
successor holder of this Note and shall be unconditional, irrevocable and
non–waivable. For any rea– son at any time, upon the written or oral request of
Investor, Company shall within one (1) business day confirm orally and in
writing to Investor the number of shares of Com– mon Stock then outstanding,
including by virtue of any prior conversion or exercise of convertible or
exercisable securities into Common Stock, including, without limitation,
pursuant to this Note. During the first six months, this Note is in effect, the
Investor may not convert this Note pursuant to this paragraph. The conversion
discount and look–back period will be adjusted downward (i.e. for the benefit of the
Holder) if the Company offers a more favorable conversion discount (whether via
interest rate, OID, lower ceiling price or otherwise) or look–back period to
another party while this note is in effect and the Holder will also get the
benefit of any other term (for a example a higher prepay) granted to any third
party while this Note is in effect.
(b) Interest on any
unpaid principal balance of this Note shall be paid at the rate of 10% per
annum. Interest shall be paid, by the Company, in Common Stock ("Interest
Shares"). Holder may send in a Notice of Conversion to the Company for Interest
Shares based on the formula provided in Section 4(a) above. The dollar amount
converted into Interest Shares shall be all or a portion of the accrued interest
calculated on the unpaid principal balance of this Note to the date of such
notice.
(c) This Note may
not be prepaid.
(d) Upon (i) a
transfer of all or substantially all of the assets of the Company to any person
in a single transaction or series of related transactions, (ii) a re–
classification, capital reorganization or other change or exchange of
outstanding shares of the Common Stock, other than a forward or reverse stock
split or stock dividend, or (iii) any consolidation or merger of the Company
with or into another person or entity in which the Company is not the surviving
entity (other than a merger which is effected solely to change the jurisdiction
of incorporation of the Company and results in a reclassification, conversion or
exchange of outstanding shares of Common Stock solely into shares of Com– mon
Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"),
then, in each case, the Company shall, upon request of the Holder, redeem this
Note in cash for 150% of the principal amount, plus accrued but unpaid interest
through the date of redemption, or at the election of the Holder, such Holder
may convert the unpaid principal amount of this Note (together with the amount
of accrued but unpaid interest) into shares of Common Stock immediately prior to
such Sale Event at the Conversion Price.
(e) In case of any
Sale Event (not to include a sale of all or substan– tially all of the Company’s
assets) in connection with which this Note is not redeemed or converted, the
Company shall cause effective provision to be made so that the Holder of this
Note shall have the right thereafter, by converting this Note, to purchase or
convert this Note into the kind and number of shares of stock or other
securities or property (in– cluding cash) receivable upon such reclassification,
capital reorganization or other change, consolidation or merger by a holder of
the number of shares of Common Stock that could have been purchased upon
exercise of the Note and at the same Conversion Price, as de– fined in this
Note, immediately prior to such Sale Event. The foregoing provisions shall sim–
ilarly apply to successive Sale Events. If the consideration received by the
holders of Com– mon Stock is other than cash, the value shall be as determined
by the Board of Directors of the Company or successor person or entity acting in
good faith.
5. No provision of
this Note shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein
prescribed.
6. The Company
hereby expressly waives demand and presentment for payment, notice of
non–payment, protest, notice of protest, notice of dishonor, notice of ac–
celeration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereto.
7. The Company
agrees to pay all costs and expenses, including reasona– ble attorneys' fees and
expenses, which may be incurred by the Holder in collecting any amount due under
this Note.
8. While this Note is outstanding and to the extent the Company
grants any other party more favorable investment terms (whether via interest
rate, original issue discount, conversion discount or look–back period), the
terms of the Note shall automati– cally adjust to match those more favorable
terms.
9.
I f one or more of the
following described "Events of Default" shall occur:
(a) The Company
shall default in the payment of principal or in– terest on this Note or any
other note issued to the Holder by the Company; or
(b) Any of the
representations or warranties made by the Compa– ny herein or in any certificate
or financial or other written statements heretofore or hereaf– ter furnished by
or on behalf of the Company in connection with the execution and delivery of
this Note, or the Securities Purchase Agreement under which this note was issued
shall be false or misleading in any respect; or
(c) The Company
shall fail to perform or observe, in any respect, any covenant, term, provision,
condition, agreement or obligation of the Company under this Note or any other
note issued to the Holder; or
(d) The Company
shall (1) become insolvent; (2) admit in writing its inability to pay its debts
generally as they mature; (3) make an assignment for the bene– fit of creditors
or commence proceedings for its dissolution; (4) apply for or consent to the
appointment of a trustee, liquidator or receiver for its or for a substantial
part of its proper– ty or business; (5) file a petition for relief, consent to
the filing of such petition or have filed against it an involuntary petition for
bankruptcy relief, all under federal or state laws as applicable; or
(e) A trustee,
liquidator or receiver shall be appointed for the Company or for a substantial
part of its property or business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
(f) Any governmental
agency or any court of competent jurisdiction at the instance of any
governmental agency shall assume custody or control of the whole or any
substantial portion of the properties or assets of the Company; or
(g) One or more
money judgments, writs or warrants of attachment, or similar process, in excess
of Hundred Eighty Five Thousand and Eight Hundred dollars ($85,800.00) in the
aggregate, shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of fifteen (15) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or
(h) The Company
shall have defaulted on or breached any term of any other note of similar debt
instrument into which the Company has entered and failed to cure such default
within the appropriate grace period; or
(i) The Company
shall have its Common Stock delisted from an exchange (including the OTCBB
exchange) or, if the Common Stock trades on an exchange, then trading in the
Common Stock shall be suspended for more than 10 consecutive days;
(j) If a majority of
the members of the Board of Directors of the Company on the date hereof are no
longer serving as members of the Board;
(k) The Company
shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein
without restrictive legend within 3 business days of its receipt of a Notice of
Conversion; or
(l) The Company
shall not replenish the reserve set forth in Section 13, within 3 business days
of the request of the Holder. If the Company does not re– plenish, the request
of the Holder then the conversion discount set forth in Section 4(a) shall be
increased from a 50% conversion discount to a 60% conversion discount; or
(m) The Company
shall not be “current” in its filings with the Securities and Exchange
Commission; or
(n) The Company
shall lose the “bid” price for its stock in a market (including the OTC
marketplace or other exchange).
(o) The Company is
in arrears for more than 30 days with its Transfer Agent, the conversion
discount shall be increased from 50% to 60%.
(p) A default has
been declared against the Company, which has not been cured in any other loan or
Note agreement.
(q) The Company’s
Common Stock has a closing bid price of less than $0.0006 per share for at least 5 consecutive trading days.
(r) The aggregate
dollar trading volume of the Company’s Com– mon Stock is less than forty
thousand dollars ($40,000.00) in any 5 consecutive trading days.
Then, or at any time thereafter, unless cured within 5 days,
(except for 9(q) and 9(r) which are incurable defaults, the sole remedy of which
is to allow the Holder to cancel both this Note and the Holder Issued Note), and
in each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder's sole
discretion, the Holder may consider this Note immediately due and payable,
without presentment, demand, protest or (further) notice of any kind (other than
notice of accelera– tion), all of which are hereby expressly waived, anything
herein or in any note or other in– struments contained to the contrary
notwithstanding, and the Holder may immediately, and without expiration of any
period of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law. Upon an Event
of Default, interest shall accrue at a default interest rate of 24% per annum
or, if such rate is usurious or not permitted by current law, then at the
highest rate of interest permitted by law. In the event of a breach of Section
8(k) the penalty shall be $250 per day the shares are not issued beginning on
the 4th day after the conversion notice was delivered to the Company. This
penalty shall increase to $500 per day beginning on the 10th day. The pen– alty
for a breach of Section 8(n) shall be an increase of the outstanding principal
amounts by 20%. In case of a breach of Section 8(i), (k), or (l) the outstanding
principal due under this Note shall increase by 50%. If this Note is not paid at
maturity, the outstanding princi– pal due under this Note shall increase by 10%.
If the Holder shall commence an action or proceeding to enforce any provisions
of this Note, including, without limitation, engaging an attorney, then if the
Holder prevails in such action, the Holder shall be reimbursed by the Company
for its attorneys’ fees and other costs and expenses incurred in the
investigation, preparation and prosecution of such action or proceeding.
At the Holder’s election, if the Company fails for any reason
to deliver to the Holder the conversion shares by the 3rd business day following
the delivery of a Notice of Conversion to the Company and if the Holder incurs a
Failure to Deliver Loss, then at any time the Holder may provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Failure to Deliver Loss and the Company must make the Holder whole as follows:
Failure to Deliver Loss = [(High trade
price at any time on or after the day of exercise) x (Number of conversion
shares)]
The Company must pay the Failure to Deliver Loss by cash
payment, and any such cash payment must be made by the third business day from
the time of the Holder’s written no– tice to the Company.
10. In case any
provision of this Note is held by a court of competent ju– risdiction to be
excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it
is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby.
11. Neither this
Note nor any term hereof may be amended, waived, dis– charged or terminated
other than by a written instrument signed by the Company and the Holder.
12. The Company
represents that it is not a “shell” issuer and has never been a “shell” issuer
or that if it previously has been a “shell” issuer that at least 12 months have
passed since the Company has reported form 10 type information indicating it is
no longer a “shell issuer. Further. The Company will instruct its counsel to
either (i) write a 144– 3(a)(9) opinion to allow for salability of the
conversion shares or (ii) accept such opinion from Holder’s counsel.
13. The Company
shall reserve 66,000,000 shares of Common Stock for conversions under this Note
(the “Share Reserve”). The investor shall have the right to pe– riodically
request that the number of Reserved Shares be increased so that the number of
Reserved Shares at least equals 400%
of the number of shares of Company
common stock issuable upon conversion of the Note. The Company shall pay all
costs associated with issu– ing and delivering the shares. At all times, the
reserve shall be maintained with the Trans– fer Agent at four times the amount
of shares required if the Note would be fully converted. If the Company defaults
on these terms, the conversion discount will increase to 60%.
14. The Company will
give the Holder direct notice of any corporate ac– tions, including but not
limited to name changes, stock splits, recapitalizations etc. This no– tice
shall be given to the Holder as soon as possible under law.
15. This Note shall
be governed by and construed in accordance with the laws of New York applicable
to contracts made and wholly to be performed within the State of New York and
shall be binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and consent to
exclusive jurisdiction and venue in the courts of the State of New York. This
Agreement may be exe– cuted in counterparts, and the facsimile transmission of
an executed counterpart to this Agreement shall be effective as an original.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by an of– ficer thereunto duly authorized.
Dated:
June
8
th
, 2017
|
LITHIUM EXPLORATION GROUP, INC.
|
|
By:
|
|
|
|
Title: CEO
|
EXHIBIT
A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Note)
The
undersigned hereby irrevocably elects to convert $___________ of the above Note
into _________Shares of Common Stock of Lithium Exploration Group, Inc.
(“Shares”) according to the conditions set forth in such Note, as of the date
written below.
If
Shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer and other taxes and charges payable with
respect thereto.
|
Date
of Conversion:
|
|
|
Applicable Conversion Price:
|
|
|
Signature:
|
|
|
|
[Print Name of Holder and Title of Signer]
|
|
Address:
|
|
|
|
|
|
|
|
|
SSN or EIN:
|
|
|
Shares are to be registered in the following
name:
|
|
|
|
|
Name:
|
|
|
Address:
|
|
|
Tel:
|
|
|
Fax:
|
|
|
SSN or EIN:
|
|
|
|
|
|
Shares are to be sent or delivered to the
following account:
|
|
|
|
|
Account Name:
|
|
|
Address:
|
|
|
|
|
10.114
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES.
THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND
MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. LENDERS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER
OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS
IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
CONCORD HOLDING GROUP, LLC
COLLATERALIZED SECURED PROMISSORY
NOTE
BACK END NOTE
|
$78,000.00
|
New York, New York
|
|
|
June 8, 2017
|
1.
Principal
and Interest
FOR VALUE RECEIVED, Concord
Holding Group, LLC, a New York Limited Liability Company (the "Company") hereby
absolutely and unconditionally promises to pay to Lithium Exploration Group,
Inc., a Nevada Corporation (the "Lender"), or order, the principal amount of
Seventy Eight Thousand Dollars ($78,000.00) no later than March 8, 2018, unless
the Lender does not meet the "current information requirements" required under
Rule 144 of the Securities Act of 1933, as amended, in which case the Company
may declare the offsetting note issued by the Lender on the same date herewith
to be in Default (as defined in that note) and cross cancel its payment
obligations under this Note as well as the Lenders payment obligations under the
offsetting note. This Full Recourse Note shall bear simple interest at the rate
of 10%.
2.
Repayments and Prepayments; Security
.
a. All
principal under this Note shall be due and payable no later than March 8, 2018,
unless the Lender does not meet the "current information requirements" required
under Rule 144 of the Securities Act of 1933, as amended, in which case the
Company may declare the offsetting note issued by the Lender on the same date
herewith to be in Default (as defined in that note) and cross cancel its payment
obligations under this Note as well as the Lenders payment obligations under the
offsetting note.
b. The
Company may pay this Note at any time. This note may not be assigned by the
Lender, except by operation of law.
10.114
c. This
Note shall initially be secured by the pledge of the $85,800, 10%, convertible
promissory note issued to the Company by the Lender on even date herewith, (the
“Lender Note”).
10.114
The Company may exchange this collateral for other
collateral with an appraised value of at least $78,000.00, by providing 3 days
prior written notice to the Lender.
If
the Lender does not object
to the substitution of collateral in that 3-day period, such substitution of
collateral shall be deemed to have been accepted by the Lender. Notwithstanding
the foregoing, an exchange of collateral for $78,000.00 in cash shall not
require the approval of the Lender.
All collateral shall be retained by
Cassi Olson, Esq., which shall act as the escrow agent for the collateral for
the benefit of the Lender. The Company may not effect any conversions under the
Lender Note until it has made full cash payment for the portion of the Lender
Note being converted.
3.
Events
of Default; Acceleration
.
a. The
principal amount of this Note is subject to prepayment, in whole or in part,
upon the occurrence and during the continuance of any of the following events
(each, an "Event of Default"): the initiation of any bankruptcy, insolvency ,
moratorium, receivership or reorganization by or against the Company, or a
general assignment of assets by the Company for the benefit of creditors. Upon
the occurrence of any Event of Default, the entire unpaid principal balance of
this Note and all of the unpaid interest accrued thereon shall be immediately
due and payable. The Company may offset amounts due to the Lender under this
Note by similar amounts that may be due to the Company by the Lender resulting
from breaches under the Lender Note.
b. No
remedy herein conferred upon the Lender is intended to be exclusive of any other
remedy and each and every remedy shall be cumulative and in addition to every
other remedy hereunder , now or hereafter existing at law or in equity or
otherwise. The Company accepts and agrees that this Note is a full recourse note
and that the Holder may exercise any and all remedies available to it under law.
4.
Notices
.
a. All
notices, reports and other communications required or permitted hereunder shall
be in writing and may be delivered in person, by telecopy with written
confirmation, overnight delivery service or U.S. mail, in which event it may be
mailed by first-class, certified or registered , postage prepaid, addressed (i)
if to a Lender, at such Lender's address as the Lender shall have furnished the
Company in writing and (ii) if to the Company at such address as the Company
shall have furnished the Lender(s) in writing.
b. Each
such notice, report or other communication shall, for all purposes, under this
Note be treated as effective or having been given when delivered if delivered
personally or, if sent by mail, at the earlier of its receipt or 72 hours after
the same has been deposited in a regularly maintained receptacle for the deposit
of the United States mail, addressed and mailed as aforesaid, or, if sent by
electronic communication with confirmation, upon the delivery of electronic
communication.
2
10.114
5.
Miscellaneous.
a. Neither
this Note nor any provisions hereof may be changed, waived, discharged or
terminated orally, but only by a signed statement in writing.
b. No
failure or delay by the Lender to exercise any right hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege preclude any other right, power or privilege. The provisions of
this Note are severable and if any one provision hereof shall be held invalid or
unenforceable, in whole or in part, in any jurisdiction, such invalidity or
unenforceability shall affect only such provision in such jurisdiction. This
Note expresses the entire understanding of the parties with respect to the
transactions contemplated hereby. The Company and every endorser and guarantor
of this Note regardless of the time, order or place of signing hereby waives
presentment, demand, protest and notice of every kind, and assents to any
extension or postponement of the time for payment or any other indulgence, to
any substitution, exchange or release of collateral, and to the addition or
release of any other party or person primarily or secondarily liable.
c. While
this Note is outstanding and to the extent the Company grant any other party
more favorable investment terms (whether via interest rate, original issue
discount, conversion discount or look-back period), the terms of the Note shall
automatically adjust to match those more favorable terms.
d. If
Lender retains an attorney for collection of this Note, or if any suit or
proceeding is brought for the recovery of all, or any part of, or for protection
of the indebtedness respected by this Note, then the Company agrees to pay all
costs and expenses of the suit or proceeding, or any appeal thereof, incurred by
the Lender, including without limitation, reasonable attorneys' fees.
e. This
Note shall for all purposes be governed by, and construed in accordance with the
laws of the State of New York (without reference to conflict of laws).
f. This
Note shall be binding upon the Company's successors and assigns, and shall inure
to the benefit of the Lender's successors and assigns.
3
10.114
IN WITNESS WHEREOF, the Company has caused this Note to be
executed by its duly authorized officer to take effect as of the date
herein above written.
|
CONCORD HOLDING GROUP LLC
|
|
|
|
|
By:
|
|
|
Title:
|
|
|
|
|
|
|
APPROVED:
|
|
|
|
|
LITIHIUM EXPLORATION GROUP, INC.
|
|
By:
|
|
|
Title:
|
CEO
|
4
10.115
LITHIUM
EXPLORATION
GROUP,
INC.
10%
CONVERTIBLE
PROMISSORY
NOTE
|
Effective
Date
June
8,
2017
|
US
$85,800.00
|
Due
June
8,
2018
THIS
NOTE
AND
THE
COMMON
STOCK
ISSUABLE
UPON
CONVERSION
OF
THIS
NOTE
HAVE
NOT
BEEN
AND
WILL
NOT
BE
REGISTERED
WITH
THE
UNITED
STATES
SECURITIES
AND
EXCHANGE
COMMISSION
OR
THE
SECURITIES
COMMISSION
OF
ANY
STATE
PURSUANT
TO
AN
EXEMPTION
FROM
REGISTRATION
PROVIDED
UNDER
THE
SECURITIES
ACT
OF
1933,
AS
AMENDED,
AND
THE
RULES
AND
REGULATIONS
PROMULGATED
THEREUNDER
(THE
"1933
ACT”)
FOR VALUE RECEIVED
Lithium
Exploration
Group,
Inc.
(the “Company”) promises to pay to
the order of
Concord
Holding
Group,
LLC
, and its authorized successors and permitted assigns
("
Holder
"), the aggregate principal face amount of Eighty Five Thousand
Eight Hundred Dollars exactly (U.S. $85,800.00) on June 8, 2018 ("
Maturity
Date
"). The Company will pay interest on the principal amount outstanding at
the rate of 10% per annum, which will commence on June 8, 2017. The Company
acknowledges that this Note was issued with a $7,800.00 original issue discount
(“OID”) such that the issuance price was $78,000.00 as well as document prep
fees of $3,000.00 (deducted from the amount funded) . The interest will be paid
to the Holder in whose name this Note is registered on the records of the Com–
pany regarding registration and transfers of this Note. The principal of, and
interest on, this Note are payable at 1080 Bergen St., Suite 240, Brooklyn, NY
11216, initially, and if changed, last appearing on the records of the Company
as designated in writing by the Holder hereof from time to time. The Company
will pay each interest payment and the out– standing principal due upon this
Note before or on the Maturity Date, less any amounts re– quired by law to be
deducted or withheld, to the Holder of this Note by check or wire trans– fer
addressed to such Holder at the last address appearing on the records of the
Company. The forwarding of such check or wire transfer shall constitute a
payment of outstanding principal hereunder and shall satisfy and discharge the
liability for principal on this Note to the extent of the sum represented by
such check or wire transfer. Interest shall be payable in Common Stock (as
defined below) pursuant to paragraph 4(b) herein.
This
Note is subject to the following additional provisions:
1. This Note is
exchangeable for an equal aggregate principal amount of Notes of different
authorized denominations, as requested by the Holder surrendering the same. No
service charge will be made for such registration or transfer or exchange,
except that Holder shall pay any tax or other governmental charges
payable in connection there– with.
2. Under all
applicable laws, the Company shall be entitled to withhold any amounts from all
payments it is entitled to.
3. This Note may
only be transferred or exchanged in compliance with the Securities Act of 1933,
as amended ("
Act
") and any applicable state securities laws. All attempts
transfer to a non–qualifying party shall be treated by the Company as void.
Prior to due presentment for transfer of this Note, the Company and any agent of
the Company may treat the person in whose name this Note is duly registered on
the Company's records as the owner hereof for all other purposes, whether or not
this Note be overdue, and nei– ther the Company nor any such agent shall be
affected or bound by notice to the contrary. Any Holder of this Note electing to
exercise the right of conversion set forth in Section 4(a) hereof, in addition
to the requirements set forth in Section 4(a), and any prospective trans– feree
of this Note, also is required to give the Company written confirmation that
this Note is being converted ("
Notice of Conversion
") in the form annexed
hereto as
Exhibit A
. The date of receipt (including receipt by telecopy)
of such Notice of Conversion shall be the Conversion Date.
1.
4. (a) The Holder of
this Note has the option, upon the issu– ance date of the stock, to convert all
or any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock (the "
Common Stock
") at a price
("C
onversion Price"
) for each share of Common Stock equal to the lesser
of $0.005 or 50% discount of the
lowest
trading
price
of the
Common Stock as reported on the National Quotations Bureau OTC Markets exchange
which the Company’s shares are traded or any exchange upon which the Common
Stock may be traded in the future ("
Ex– change
"), for the (i)
twenty
prior
trading days, including the day
upon which a Notice of Conversion is received by the Company (provided such
Notice of Conversion is delivered by fax or other electronic method of
communication to the Company after 4 P.M. Eastern Standard or Daylight Savings
Time if the Holder wishes to include the same day closing price), or (ii) the
twenty
prior trading days immediately preceding the
issuance date of this Note. The Notice of Conversion may be rescinded if the
shares have not been delivered within 3 business days. The Company shall deliver
the shares of Common Stock to the Holder within 3 business days of receipt by
the Company of the Notice of Conversion. The Holder shall surrender this Note to
the Company upon receipt of the shares of Common Stock, executed by the Holder.
This will make clear the Holder's intention to convert this Note or a specified
portion hereof, and accompanied by proper assignment hereof in blank. Accrued
but unpaid interest shall be subject to conversion. The number of issuable
shares will be rounded to the nearest whole share, and no fractional shares or
scrip repre– senting fractions of shares will be issued on conversion. To the
extent the Conversion Price of the Company’s Common Stock closes below the par
value per share, the Company will take all steps necessary to solicit the
consent of the stockholders to reduce the par value to the lowest value possible
under law. The Company agrees to honor all conver– sions submitted pending this
increase
.
In
the
event
the
Company
experiences
a
DTC
“Chill”
on
its
shares,
the
conversion
price
discount
shall
be
increased
to
60%
while
that
“Chill”
is
in
effect.
Notwithstanding anything to the contrary contained in
the Note (except as set forth below in this Section), the Note shall not be
convertible by Investor, and Company shall not effect any conversion of the Note
or otherwise issue any shares of Common Stock to the extent (but only to the
extent) that Investor together with any of its affiliates would beneficially own
in excess of 9.99% (the “
Maximum
Percentage
”) of the
Common Stock outstanding. To the extent the foregoing limitation applies, the
determination of whether a Note shall be convertible (vis–à–vis other
convertible, exercisable or exchangeable secu– rities owned by Investor or any
of its affiliates) and of which such securities shall be con– vertible,
exercisable or exchangeable (as among all such securities owned by Investor and
its affiliates) shall, subject to such Maximum Percentage limitation, be
determined on the basis of the first submission to Company for conversion,
exercise or exchange (as the case may be). No prior inability to convert a Note,
or to issue shares of Common Stock, pursu– ant to this Section shall have any
effect on the applicability of the provisions of this Section with respect to
any subsequent determination of convertibility. For purposes of this Sec– tion,
beneficial ownership and all determinations and calculations (including, without
lim– itation, with respect to calculations of percentage ownership) shall be
determined in ac– cordance with Section 13(e) of the 1934 Act (as defined below)
and the rules and regula– tions promulgated thereunder. The provisions of this
Section shall be implemented in a manner otherwise than in strict conformity
with the terms of this Section to correct this Section (or any portion hereof)
which may be defective or inconsistent with the intended Maximum Percentage
beneficial ownership limitation herein contained or to make chang– es or
supplements necessary or desirable to properly give effect to such Maximum Per–
centage limitation. The limitations contained in this Section shall apply to a
successor holder of this Note and shall be unconditional, irrevocable and
non–waivable. For any rea– son at any time, upon the written or oral request of
Investor, Company shall within one (1) business day confirm orally and in
writing to Investor the number of shares of Com– mon Stock then outstanding,
including by virtue of any prior conversion or exercise of convertible or
exercisable securities into Common Stock, including, without limitation,
pursuant to this Note. During the first six months, this Note is in effect, the
Investor may not convert this Note pursuant to this paragraph. The conversion
discount and look–back period will be adjusted downward (i.e. for the benefit of
the Holder) if the Company offers a more favorable conversion discount (whether
via interest rate, OID, lower ceiling price or otherwise) or look–back period to
another party while this note is in effect and the Holder will also get the
benefit of any other term (for a example a higher prepay) granted to any third
party while this Note is in effect.
(b) Interest on any
unpaid principal balance of this Note shall be paid at the rate of 10% per
annum. Interest shall be paid, by the Company, in Common Stock ("Interest
Shares"). Holder may send in a Notice of Conversion to the Company for Interest
Shares based on the formula provided in Section 4(a) above. The dollar amount
converted into Interest Shares shall be all or a portion of the accrued interest
calculated on the unpaid principal balance of this Note to the date of such
notice.
(c) This Note may
not be prepaid.
(d) Upon (i) a
transfer of all or substantially all of the assets of the Company to any person
in a single transaction or series of related transactions, (ii) a re–
classification, capital reorganization or other change or exchange of
outstanding shares of the Common Stock, other than a forward or reverse stock
split or stock dividend, or (iii) any consolidation or merger of the Company
with or into another person or entity in which the Company is not the surviving
entity (other than a merger which is effected solely to change the jurisdiction
of incorporation of the Company and results in a reclassification, conversion or
exchange of outstanding shares of Common Stock solely into shares of Com– mon
Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"),
then, in each case, the Company shall, upon request of the Holder, redeem this
Note in cash for 150% of the principal amount, plus accrued but unpaid interest
through the date of redemption, or at the election of the Holder, such Holder
may convert the unpaid principal amount of this Note (together with the amount
of accrued but unpaid interest) into shares of Common Stock immediately prior to
such Sale Event at the Conversion Price.
(e) In case of any
Sale Event (not to include a sale of all or substan– tially all of the Company’s
assets) in connection with which this Note is not redeemed or converted, the
Company shall cause effective provision to be made so that the Holder of this
Note shall have the right thereafter, by converting this Note, to purchase or
convert this Note into the kind and number of shares of stock or other
securities or property (in– cluding cash) receivable upon such reclassification,
capital reorganization or other change, consolidation or merger by a holder of
the number of shares of Common Stock that could have been purchased upon
exercise of the Note and at the same Conversion Price, as de– fined in this
Note, immediately prior to such Sale Event. The foregoing provisions shall sim–
ilarly apply to successive Sale Events. If the consideration received by the
holders of Com– mon Stock is other than cash, the value shall be as determined
by the Board of Directors of the Company or successor person or entity acting in
good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Note at the time, place, and rate, and in the form, herein prescribed.
6.
The Company hereby expressly waives demand and presentment for payment, notice
of non–payment, protest, notice of protest, notice of dishonor, notice of ac–
celeration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereto.
7.
The Company agrees to pay all costs and expenses, including reasona– ble
attorneys' fees and expenses, which may be incurred by the Holder in collecting
any amount due under this Note.
8.
While this Note is outstanding and to the extent the Company grants any other
party more favorable investment terms (whether via interest rate, original issue
discount, conversion discount or look–back period), the terms
of the Note shall automati– cally adjust to match those more favorable terms.
9. If
one or more of the following described "Events of Default" shall oc– cur:
(a) The Company
shall default in the payment of principal or interest on this Note or any other
note issued to the Holder by the Company; or
(b) Any of the
representations or warranties made by the Company herein or in any certificate
or financial or other written statements heretofore or hereaf– ter furnished by
or on behalf of the Company in connection with the execution and delivery of
this Note, or the Securities Purchase Agreement under which this note was issued
shall be false or misleading in any respect; or
(c) The Company
shall fail to perform or observe, in any respect, any covenant, term, provision,
condition, agreement or obligation of the Company under this Note or any other
note issued to the Holder; or
(d) The Company
shall (1) become insolvent; (2) admit in writing its inability to pay its debts
generally as they mature; (3) make an assignment for the bene– fit of creditors
or commence proceedings for its dissolution; (4) apply for or consent to the
appointment of a trustee, liquidator or receiver for its or for a substantial
part of its proper– ty or business; (5) file a petition for relief, consent to
the filing of such petition or have filed against it an involuntary petition for
bankruptcy relief, all under federal or state laws as applicable; or
(e) A trustee,
liquidator or receiver shall be appointed for the Company or for a substantial
part of its property or business without its consent and shall not be discharged
within sixty (60) days after such appointment; or
(f) Any governmental
agency or any court of competent jurisdiction at the instance of any
governmental agency shall assume custody or control of the whole or any
substantial portion of the properties or assets of the Company; or
(g) One or more
money judgments, writs or warrants of attachment, or similar process, in excess
of Hundred Eighty Five Thousand and Eight Hundred dollars ($85,800.00) in the
aggregate, shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of fifteen (15) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or
(h) The Company
shall have defaulted on or breached any term of any other note of similar debt
instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or
(i) The Company
shall have its Common Stock delisted from an exchange (including the OTCBB
exchange) or, if the Common Stock trades on an exchange, then trading in the
Common Stock shall be suspended for more than 10 consecutive days;
(j) If a majority of
the members of the Board of Directors of the Company on the date hereof are no
longer serving as members of the Board;
(k) The Company
shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein
without restrictive legend within 3 business days of its receipt of a Notice of
Conversion; or
(l) The Company
shall not replenish the reserve set forth in Section 13, within 3 business days
of the request of the Holder. If the Company does not re– plenish, the request
of the Holder then the conversion discount set forth in Section 4(a) shall be
increased from a 50% conversion discount to a 60% conversion discount; or
(m) The Company
shall not be “current” in its filings with the Securities and Exchange
Commission; or
(n) The Company
shall lose the “bid” price for its stock in a market (including the OTC
marketplace or other exchange).
(o) The Company is
in arrears for more than 30 days with its Transfer Agent, the conversion
discount shall be increased from 50% to 60%.
(p) A default has
been declared against the Company, which has not been cured in any other loan or
Note agreement.
Then, or at any time thereafter, unless cured within 5 days, and
in each and every such case, unless such Event of Default shall have been waived
in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder's sole
discretion, the Holder may consider this Note immediately due and payable,
without presentment, demand, protest or (further) notice of any kind (other than
notice of acceleration), all of which are hereby expressly waived, anything
herein or in any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately, and without expiration of any
period of grace, enforce any and all of the Holder's rights and remedies
provided herein or any other rights or remedies afforded by law. Upon an Event
of Default, interest shall accrue at a default interest rate of 24% per annum
or, if such rate is usurious or not permitted by current law, then at the
highest rate of interest permitted by law. In the event of a breach of Section
8(k) the penal– ty shall be $250 per day the shares are not issued beginning on
the 4
th
day after the conver– sion notice was delivered to the
Company. This penalty shall increase to $500 per day be– ginning on the
10
th
day. The penalty for a breach of Section 8(n) shall be an
increase of the outstanding principal amounts by 20%. In case of a breach of
Section 8(i), (k), or (l) the outstanding principal due under this Note shall
increase by 50%. If this Note is not paid at maturity, the outstanding principal
due under this Note shall increase by 10%. If the Holder shall commence an
action or proceeding to enforce any provisions of this Note, including, without
limitation, engaging an attorney, then if the Holder prevails in such action,
the Holder shall be reimbursed by the Company for its attorneys’ fees and other
costs and ex– penses incurred in the investigation, preparation and prosecution
of such action or proceeding.
At the Holder’s election, if the Company fails for any reason
to deliver to the Holder the conversion shares by the 3rd business day following
the delivery of a Notice of Conversion to the Company and if the Holder incurs a
Failure to Deliver Loss, then at any time the Holder may provide the Company
written notice indicating the amounts payable to the Holder in respect of the
Failure to Deliver Loss and the Company must make the Holder whole as follows:
Failure to Deliver Loss = [(High trade price at any time on or
after the day of exercise) x (Number of conversion shares)]
The Company must pay the Failure to Deliver Loss by cash
payment, and any such cash payment must be made by the third business day from
the time of the Holder’s written no– tice to the Company.
10. In case any
provision of this Note is held by a court of competent ju– risdiction to be
excessive in scope or otherwise invalid or unenforceable, such provision shall
be adjusted rather than voided, if possible, so that it is enforceable to the
maximum extent possible, and the validity and enforceability of the remaining
provisions of this Note will not in any way be affected or impaired thereby.
11. Neither this
Note nor any term hereof may be amended, waived, dis– charged or terminated
other than by a written instrument signed by the Company and the Holder.
12. The Company
represents that it is not a “shell” issuer and has never been a “shell” issuer
or that if it previously has been a “shell” issuer that at least 12 months have
passed since the Company has reported form 10 type information indicating it is
no longer a “shell issuer. Further. The Company will instruct its counsel to
either (i) write a 144– 3(a)(9) opinion to allow for salability of the
conversion shares or (ii) accept such opinion from Holder’s counsel.
13. The Company
shall reserve 66,000,000 shares of Common Stock for conversions under this Note
(the “Share Reserve”). The investor shall have the right to pe– riodically
request that the number of Reserved Shares be increased so that the number of
Reserved Shares at least equals 400%
of the number of shares of Company
common stock issuable upon conversion of the Note. The Company shall pay all
costs associated with issuing and delivering the shares. At all times, the reserve shall
be maintained with the Transfer Agent at four times the amount of shares
required if the Note would be fully converted. If the Company defaults on these
terms, the conversion discount will increase to 60%.
14. The Company will
give the Holder direct notice of any corporate ac– tions, including but not
limited to name changes, stock splits, recapitalizations etc. This no– tice
shall be given to the Holder as soon as possible under law.
15. This Note shall
be governed by and construed in accordance with the laws of New York applicable
to contracts made and wholly to be performed within the State of New York and
shall be binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and consent to
exclusive jurisdiction and venue in the courts of the State of New York. This
Agreement may be exe– cuted in counterparts, and the facsimile transmission of
an executed counterpart to this Agreement shall be effective as an original.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed by an of– ficer thereunto duly authorized. Dated:
June
8
th
, 2017
|
LITHIUM EXPLORATION GROUP, INC.
|
|
|
|
|
By:
|
|
|
|
Title:
CEO
|
EXHIBIT
A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Note)
LITHIUM
EXPLORATION GROUP, INC. The undersigned hereby irrevocably elects to convert
$__________of the bove Note into _________Shares of Common Stock of Lithium
Exploration Group, Inc. (“Shares”) according to the conditions set forth in such
Note, as of the date written below.
If
Shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer and other taxes and charges payable with
respect thereto.
|
Date of Conversion:
|
|
|
Applicable Conversion Price:
|
|
|
Signature:
|
|
|
|
[Print Name of Holder and Title of Signer]
|
|
Address:
|
|
|
|
|
|
|
|
|
SSN or EIN:
|
|
|
Shares are to be registered in the following
name:
|
|
|
|
|
|
Name:
|
|
|
Address:
|
|
|
Tel:
|
|
|
Fax:
|
|
|
SSN or EIN:
|
|
|
|
|
|
Shares are to be sent or delivered to the
following account:
|
|
|
|
|
Account Name:
|
|
|
Address:
|
|
10.116
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
LITHIUM EXPLORATION GROUP, INC.
10% OID Convertible Promissory Note
due September 3,
2014
|
Original Issue Date: March 3,
2014
|
USD$220,000
|
For value received,
Lithium
Exploration Group, Inc.
, a Nevada corporation (the “
Company
”), hereby
promises to pay to the order of
JDF Capital Inc.
(together with its
successors, representatives, and permitted assigns, the “
Holder
”), in
accordance with the terms hereinafter provided, up to an aggregate of $220,000
(Two Hundred and Twenty Thousand Dollars) (the “Principal Amount”). The
Principal Amount outstanding shall be due and payable on September 3, 2014 (the
“
Maturity Date
”).
All payments under or pursuant to
this Note refer to and shall be made in United States Dollars in immediately
available funds to the Holder at the address of the Holder first set forth above
or at such other place as the Holder may designate from time to time in writing
to the Company or by wire transfer of funds to the Holder’s account,
instructions for which are attached hereto as
Exhibit A
.
ARTICLE I
Section
1.1
Purchase Agreement
. This Note has
been executed and delivered pursuant to the Security Purchase Agreement dated as
of March 3, 2014 (the “
Purchase Agreement
”) by and among the Company and
the purchasers listed therein. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement.
Section
1.2
Interest
.
(a) Beginning
on the issuance date of this Note (the “
Issuance Date
”), the outstanding
principal balance of this Note shall bear interest, in arrears, at a rate per
annum equal to 12 percent accruing on a semi-annual basis commencing March 3,
2014 in cash or restricted shares of the Company’s common stock, par value
$0.001 per share (the “
Common Stock
”) at the option of the Holder.
Section
1.2
Payment on Non-Business Days
.
Whenever any payment to be made shall be due on a Saturday, Sunday or a public
holiday under the laws of the State of Nevada, such payment may be due on the
next succeeding business day and such next succeeding day shall be included in
the calculation of the amount of accrued interest payable on such date.
Section
1.3
Transfer
. This Note may be
transferred or sold, subject to the provisions of Section 4.8 of this Note, or
pledged, hypothecated or otherwise granted as security by the Holder.
Section
1.4
Replacement
. Upon receipt of a duly
executed, notarized and unsecured written statement from the Holder with respect
to the loss, theft or destruction of this Note (or any replacement hereof), and
without requiring an indemnity bond or other security, or, in the case of a
mutilation of this Note, upon surrender and cancellation of such Note, the
Company shall issue a new Note, of like tenor and amount, in lieu of such lost,
stolen, destroyed or mutilated Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section
2.1
Events of Default
. The occurrence
of any of the following events shall be an “Event of Default” under this Note:
(a) the
Company shall fail to make the payment of any amount of principal outstanding on
the date such payment is due hereunder;
(b) the
Company shall fail to make any payment of interest in shares of Common Stock for
a period of three (3) days after the date such interest is due;
(c) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be quoted or listed on at least one of the OTC
QB, OTC Bulletin Board, Nasdaq SmallCap Market, Nasdaq National Market, American
Stock Exchange or The New York Stock Exchange, Inc. for a period of five (5)
consecutive Trading Days;
(d) the
Company’s notice to the Holder, including by way of public announcement, at any
time, of its inability to comply or its intention not to comply with proper
requests for conversion of this Note into shares of Common Stock;
(e)
the Company shall fail to (i) timely deliver the shares of Common Stock upon
conversion of the Note or any accrued and unpaid interest, or (ii) make the
payment of any fees and/or liquidated damages under this Note or the Purchase
Agreement, which failure in the case of items (i) and (ii) of this Section
2.1(e) is not remedied within three (3) business days after the incurrence
thereof;
(f) default
shall be made in the performance or observance of (i) any material covenant,
condition or agreement contained in this Note (other than as set forth in clause
(e) of this Section 2.1) and such default is not fully cured within five (5)
business days after the occurrence thereof or (ii) any material covenant,
condition or agreement contained in the Purchase Agreement or any other
Transaction Document which is not covered by any other provisions of this
Section 2.1 and such default is not fully cured within five (5) business days
after the occurrence thereof;
(g) any
material representation or warranty made by the Company herein or in the
Purchase Agreement or any other Transaction Document shall prove to have been
false or incorrect or breached in a material respect on the date as of which
made;
(h)
the Company shall (A) default in any payment of any amount or amounts of
principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$100,000
or (B) default in the observance or performance of any other agreement or condition relating to any Indebtedness or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of which
default or other event or condition is to cause, or to permit the holder or
holders or beneficiary or beneficiaries of such Indebtedness to cause with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity;
-2-
(i) the
Company shall (i) apply for or consent to the appointment of, or the taking of
possession by, a receiver, custodian, trustee or liquidator of itself or of all
or a substantial part of its property or assets, (ii) make a general assignment
for the benefit of its creditors, (iii) commence a voluntary case under the
United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic), (iv) file a petition
seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors’
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing;
(j) a
proceeding or case shall be commenced in respect of the Company, without its
application or consent, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, moratorium, dissolution, winding up, or composition
or readjustment of its debts, (ii) the appointment of a trustee, receiver,
custodian, liquidator or the like of it or of all or any substantial part of its
assets in connection with the liquidation or dissolution of the Company or (iii)
similar relief in respect of it under any law providing for the relief of
debtors, and such proceeding or case described in clause (i), (ii) or (iii)
shall continue undismissed, or unstayed and in effect, for a period of sixty
(60) days or any order for relief shall be entered in an involuntary case under
United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic) against the Company or
action under the laws of any jurisdiction (foreign or domestic) analogous to any
of the foregoing shall be taken with respect to the Company and shall continue
undismissed, or unstayed and in effect for a period of sixty (60) days; or
(k) the
failure of the Company to instruct its transfer agent to remove any legends from
shares of Common Stock eligible to be sold under Rule 144 of the Securities Act
and issue such unlegended certificates to the Holder within five (5) business
days of the Holder’s request so long as the Holder has provided reasonable
assurances and opinions of counsel to the Company that such shares of Common
Stock can be resold pursuant to Rule 144; or
(l) the
failure of the Company to pay any amounts due to the Holder herein within three
(3) business days of receipt of notice to the Company.
Section 2.2
Remedies Upon An Event of
Default
. If an Event of Default shall have occurred and shall be continuing,
the Holder of this Note may at any time at its option, (a) declare the entire
unpaid principal balance of this Note, together with all interest accrued
hereon, due and payable, and thereupon, the same shall be accelerated and so due
and payable, without presentment, demand, protest, or notice, all of which are
hereby expressly unconditionally and irrevocably waived by the Company;
provided, however, that upon the occurrence of an Event of Default described in
(i) Sections 2.1 (k) or (l), the outstanding principal balance and interest
hereunder shall be automatically due and payable and (ii) Sections 2.1 (a)-(j)
and 2.1(m) -(n), demand the prepayment of this Note pursuant to Section 3.6
hereof, (b) subject to Section 3.4 hereof, demand that the principal amount of
this Note then outstanding shall be converted into shares of Common Stock at a
Conversion Price (as defined in Section 3.2(a) hereof) per share calculated
pursuant to Section 3.1 hereof assuming that the date that the Event of Default occurs is the Conversion Date and demand that all
accrued and unpaid interest under this Note shall be converted into shares of
Common Stock in accordance with Section 1.2 hereof, or (c) exercise or otherwise
enforce any one or more of the Holder’s rights, powers, privileges, remedies and
interests under this Note, the Purchase Agreement, other Transaction Document or
applicable law. No course of delay on the part of the Holder shall operate as a
waiver thereof or otherwise prejudice the right of the Holder. No remedy
conferred hereby shall be exclusive of any other remedy referred to herein or
now or hereafter available at law, in equity, by statute or otherwise.
-3-
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section
3.1
Conversion Option
.
(a)
At any time on or after the Issuance Date, this Note shall be convertible (in
whole or in part), at the option of the Holder (the “
Conversion Option
”),
into such number of fully paid and non-assessable shares of Common Stock (the
“
Conversion Rate
”) as is determined by dividing that portion of the
outstanding principal balance under this Note as of such date that the Holder
elects to convert by the Conversion Price (as defined in Section 3.2(a) hereof)
then in effect on the date on which the Holder faxes a notice of conversion (the
“
Conversion Notice
”), duly executed, to the Company (the “
Voluntary
Conversion Date
”), provided, however, that the Conversion Price shall be
subject to adjustment as described in Section 3.5 below. The Holder shall
deliver this Note to the Company at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Company shall keep written records of the
amount of this Note converted as of each Conversion Date.
(b)
On any Voluntary Conversion Date, the Holder may cause the any outstanding
Principal Amount of this Note plus all accrued and unpaid interest to convert
into a number of fully paid and nonassessable shares of Common Stock equal to
the quotient of the elected outstanding principal amount of this Note plus all
accrued interest on the elected outstanding on the Voluntary Conversion Date (as
described in this Section below) divided by the Conversion Price as described in
Section 3.2(a) below.
Furthermore, upon the occurrence of an Event of Default (as
defined in Section 2.1 hereof), then to the extent permitted by law, the Company
will pay interest to the Holder, payable on demand, on the outstanding principal
balance of the Note from the date of the Event of Default until such Event of
Default is cured at the rate of the lesser of fifteen percent (15%) and the
maximum applicable legal rate per annum.
(c)
Conversion Limitations
;
Holder’s Restriction on Conversion
. The
Company shall not effect any conversion of this Note, and the Holder shall not
have the right to convert any portion of this Note, to the extent that after
giving effect to such conversion, the Holder (together with the Holder’s
affiliates), as set forth on the applicable Conversion Notice, would
beneficially own in excess of 4.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to such conversion. For purposes of
the foregoing sentence, the number of shares of Common Stock beneficially owned
by the Holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of this Note with respect to which the
determination of such sentence is being made, but shall exclude the number of
shares of Common Stock which would be issuable upon (A) conversion of the
remaining, nonconverted portion of this Note beneficially owned by the Holder or
any of its affiliates and (B) exercise or conversion of the unexercised or
nonconverted portion of any other securities of the Company (including, without
limitation, any other Notes or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in the preceding
sentence, for purposes of this Section, beneficial ownership shall be calculated
in accordance with Section 13(d) of the Exchange Act. To the extent that the
limitation contained in this section applies, the determination of whether this
Note is convertible (in relation to other securities owned by the Holder) and of
which a portion of this Note is convertible shall be in the sole discretion of
such Holder. To ensure compliance with this restriction, the Holder will be
deemed to represent to the Company each time it delivers a Conversion Notice
that such Conversion Notice has not violated the restrictions set forth in this
paragraph and the Company shall have no obligation to verify or confirm the
accuracy of such determination. For purposes of this Section, in determining the
number of outstanding shares of Common Stock, the Holder may rely on the number
of outstanding shares of Common Stock as reflected in (x) the Company’s most
recent Form 10-Q or Form 10-K (or such related form), as the case may be, (y) a
more recent public announcement by the Company or (z) any other notice by the
Company or the Company’s Transfer Agent setting forth the number of shares of
Common Stock outstanding. Upon the written or oral request of the Holder, the
Company shall within two Trading Days confirm orally and in writing to the
Holder the number of shares of Common Stock then outstanding. In any case, the
number of outstanding shares of Common Stock shall be determined after giving
effect to the conversion or exercise of securities of the Company, including
this Note, by the Holder or its affiliates since the date as of which such
number of outstanding shares of Common Stock was reported. The provisions of
this Section may be waived by the Holder upon, at the election of the Holder,
not less than 61 days’ prior notice to the Company, and the provisions of this
Section shall continue to apply until such 61st day (or such later date, as
determined by the Holder, as may be specified in such notice of waiver).
-4-
Section
3.2
Conversion Price
.
(a)
The term “
Conversion Price
” shall mean a 50% discount of the lowest
closing price of the common stock for the 20 trading days immediately prior to
(i) the date of the Purchase Agreement, or (ii) the Voluntary Conversion
Date.
Section
3.3
Mechanics of Conversion
.
(a) Not
later than three (3) Trading Days after any Conversion Date, the Company or its
designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust Company (“
DTC
”) account on the Holder’s behalf via the
Deposit Withdrawal Agent Commission System (“
DWAC
”) as specified in the
Conversion Notice, registered in the name of the Holder or its designee, for the
number of shares of Common Stock to which the Holder shall be entitled. In the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Company shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5.1 of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note (the “
Delivery Date
”). Notwithstanding the
foregoing to the contrary, the Company or its transfer agent shall only be
obligated to issue and deliver the shares to the DTC on the Holder’s behalf via
DWAC (or certificates free of restrictive legends) if such conversion is in
connection with a sale and the Holder has complied with the applicable
prospectus delivery requirements. If in the case of any Conversion Notice such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the Delivery Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return this Note if tendered for conversion, whereupon
the Company and the Holder shall each be restored to their respective positions
immediately prior to the delivery of such notice of revocation, except that any
amounts described in Sections 3.3(b) and (c) shall be payable through the date
notice of rescission is given to the Company.
-5-
(b) The
Company understands that a delay in the delivery of the shares of Common Stock
upon conversion of this Note beyond the Delivery Date could result in economic
loss to the Holder. If the Company fails to deliver to the Holder such shares
via DWAC or a certificate or certificates pursuant to this Section hereunder by
the Delivery Date, the Company shall pay to such Holder, in cash, an amount per
Trading Day for each Trading Day until such shares are delivered via DWAC or
certificates are delivered, together with interest on such amount at a rate of
10% per annum, accruing until such amount and any accrued interest thereon is
paid in full, equal to the greater of (A) (i) 1% of the aggregate principal
amount of the Note requested to be converted for the first five (5) Trading Days
after the Delivery Date and (ii) 2% of the aggregate principal amount of the
Note requested to be converted for each Trading Day thereafter. Nothing herein
shall limit a Holder’s right to pursue actual damages for the Company’s failure
to deliver certificates representing shares of Common Stock upon conversion
within the period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity (including, without
limitation, a decree of specific performance and/or injunctive relief).
Notwithstanding anything to the contrary contained herein, the Holder shall be
entitled to withdraw a Conversion Notice, and upon such withdrawal the Company
shall only be obligated to pay the liquidated damages accrued in accordance with
this Section 3.3(b) through the date the Conversion Notice is withdrawn.
(c) In
addition to any other rights available to the Holder, if the Company fails to
cause its transfer agent to transmit to the Holder a certificate or certificates
representing the shares of Common Stock issuable upon conversion of this Note on
or before the Delivery Date, and if after such date the Holder is required by
its broker to purchase (in an open market transaction or otherwise) shares of
Common Stock to deliver in satisfaction of a sale by the Holder of the shares of
Common Stock issuable upon conversion of this Note which the Holder anticipated
receiving upon such exercise (a “
Buy-In”
), then the Company shall (1) pay
in cash to the Holder the amount by which (x) the Holder’s total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (y) the amount obtained by multiplying (A) the number of
shares of Common Stock issuable upon conversion of this Note that the Company
was required to deliver to the Holder in connection with the conversion at issue
times (B) the price at which the sell order giving rise to such purchase
obligation was executed, and (2) at the option of the Holder, either reinstate
the portion of the Note and equivalent number of shares of Common Stock for
which such conversion was not honored or deliver to the Holder the number of
shares of Common Stock that would have been issued had the Company timely
complied with its conversion and delivery obligations hereunder. For example, if
the Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted conversion of shares of Common Stock
with an aggregate sale price giving rise to such purchase obligation of $10,000,
under clause (1) of the immediately preceding sentence the Company shall be
required to pay the Holder $1,000. The Holder shall provide the Company written
notice indicating the amounts payable to the Holder in respect of the Buy-In,
together with applicable confirmations and other evidence reasonably requested
by the Company. Nothing herein shall limit a Holder’s right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company’s failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Note as required pursuant to the
terms hereof.
Section
3.4
Ownership Cap and Certain Conversion
Restrictions
.
Notwithstanding
anything to the contrary set forth in Section 3 of this Note, at no time may the
Holder convert all or a portion of this Note if the number of shares of Common
Stock to be issued pursuant to such conversion would exceed, when aggregated
with all other shares of Common Stock owned by the Holder at such time, the
number of shares of Common Stock which would result in the Holder beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act
and the rules thereunder) more than 9.9% of all of the Common Stock
outstanding at such time; provided, however, that upon the Holder providing the
Company with sixty-one (61) days notice (pursuant to Section 4.1 hereof) (the
“Waiver Notice”) that the Holder would like to waive this Section 3.4 with
regard to any or all shares of Common Stock issuable upon conversion of this
Note, this Section 3.4 will be of no force or effect with regard to all or a
portion of the Note referenced in the Waiver Notice; provided, further, that
this provision shall be of no further force or effect during the sixty-one (61)
days immediately preceding the Maturity Date.
-6-
Section
3.5
Adjustment of Conversion Price
.
(a) The
Conversion Price shall be subject to adjustment from time to time as follows:
(i)
Adjustments
for Stock Splits and Combinations
. If the Company shall at any time or from
time to time after the Issuance Date, effect a stock split of the outstanding
Common Stock, the applicable Conversion Price in effect immediately prior to the
stock split shall be proportionately decreased. If the Company shall at any time
or from time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately prior to the
combination shall be proportionately increased. Any adjustments under this
Section 3.5(a)(i) shall be effective at the close of business on the date the
stock split or combination occurs.
(ii)
Adjustments for Certain Dividends and Distributions
. If the Company shall
at any time or from time to time after the Issuance Date, make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in shares of Common Stock, then, and in
each event, the applicable Conversion Price in effect immediately prior to such
event shall be decreased as of the time of such issuance or, in the event such
record date shall have been fixed, as of the close of business on such record
date, by multiplying, the applicable Conversion Price then in effect by a
fraction:
(1)
the numerator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date; and
(2)
the denominator of which shall be the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or the
close of business on such record date plus the number of shares of Common Stock
issuable in payment of such dividend or distribution.
(iii)
Adjustment for Other Dividends and Distributions
. If the Company shall at
any time or from time to time after the Issuance Date, make or issue or set a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in other than shares of Common Stock,
then, and in each event, an appropriate revision to the applicable Conversion
Price shall be made and provision shall be made (by adjustments of the
Conversion Price or otherwise) so that the holders of this Note shall receive
upon conversions thereof, in addition to the number of shares of Common Stock
receivable thereon, the number of securities of the Company which they would
have received had this Note been converted into Common Stock on the date of such
event and had thereafter, during the period from the date of such event to and
including the Conversion Date, retained such securities (together with any
distributions payable thereon during such period), giving application to all
adjustments called for during such period under this Section 3.5(a)(iii) with
respect to the rights of the holders of this Note;
provided
,
however
, that if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be adjusted pursuant to this paragraph
as of the time of actual payment of such dividends or distributions.
-7-
(iv)
Adjustments
for Reclassification, Exchange or Substitution
. If the Common Stock issuable
upon conversion of this Note at any time or from time to time after the Issuance
Date shall be changed to the same or different number of shares of any class or
classes of stock, whether by reclassification, exchange, substitution or
otherwise (other than by way of a stock split or combination of shares or stock
dividends provided for in Sections 3.5(a)(i), (ii) and (iii), or a
reorganization, merger, consolidation, or sale of assets provided for in Section
3.5(a)(v)), then, and in each event, an appropriate revision to the Conversion
Price shall be made and provisions shall be made (by adjustments of the
Conversion Price or otherwise) so that the Holder shall have the right
thereafter to convert this Note into the kind and amount of shares of stock and
other securities receivable upon reclassification, exchange, substitution or
other change, by holders of the number of shares of Common Stock into which such
Note might have been converted immediately prior to such reclassification,
exchange, substitution or other change, all subject to further adjustment as
provided herein.
(v)
Adjustments for Reorganization, Merger, Consolidation or Sales of Assets
.
If at any time or from time to time after the Issuance Date there shall be a
capital reorganization of the Company (other than by way of a stock split or
combination of shares or stock dividends or distributions provided for in
Section 3.5(a)(i), (ii) and (iii), or a reclassification, exchange or
substitution of shares provided for in Section 3.5(a)(iv)), or a merger or
consolidation of the Company with or into another corporation where the holders
of outstanding voting securities prior to such merger or consolidation do not
own over fifty percent (50%) of the outstanding voting securities of the merged
or consolidated entity, immediately after such merger or consolidation, or the
sale of all or substantially all of the Company’s properties or assets to any
other person (an “
Organic Change
”), then as a part of such Organic Change
an appropriate revision to the Conversion Price shall be made and provision
shall be made (by adjustments of the Conversion Price or otherwise) so that the
Holder shall have the right thereafter to convert such Note into the kind and
amount of shares of stock and other securities or property of the Company or any
successor corporation resulting from Organic Change. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 3.5(a)(v) with respect to the rights of the Holder after the
Organic Change to the end that the provisions of this Section 3.5(a)(v)
(including any adjustment in the applicable Conversion Price then in effect and
the number of shares of stock or other securities deliverable upon conversion of
this Note) shall be applied after that event in as nearly an equivalent manner
as may be practicable.
(vi)
Issuance
of Common Stock Equivalents
. If the Company, at any time after the Issuance
Date, shall issue any securities convertible into or exchangeable for, directly
or indirectly, Common Stock (“
Convertible Securities
”), other than the
Note, or any rights or warrants or options to purchase any such Common Stock or
Convertible Securities, shall be issued or sold (collectively, the “
Common
Stock Equivalents
”) and the aggregate of the price per share for which
Additional Shares of Common Stock may be issuable thereafter pursuant to such
Common Stock Equivalent, plus the consideration received by the Company for
issuance of such Common Stock Equivalent divided by the number of shares of
Common Stock issuable pursuant to such Common Stock Equivalent (the
“
Aggregate Per Common Share Price
”) shall be less than the applicable
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall make the Aggregate Per Share Common Price be less than the applicable
Conversion Price in effect at the time of such amendment or adjustment, then the
applicable Conversion Price upon each such issuance or amendment shall be
adjusted as provided in the first sentence of subsection (vi) of this Section
3.5(a) on the basis that (1) the maximum number of Additional Shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to
have been issued (whether or not such Common Stock Equivalents are
actually then exercisable, convertible or exchangeable in whole or in part) as
of the earlier of (A) the date on which the Company shall enter into a firm
contract for the issuance of such Common Stock Equivalent, or (B) the date of
actual issuance of such Common Stock Equivalent. No adjustment of the applicable
Conversion Price shall be made under this subsection (vii) upon the issuance of
any Convertible Security which is issued pursuant to the exercise of any
warrants or other subscription or purchase rights therefor, if any adjustment
shall previously have been made to the exercise price of such warrants then in
effect upon the issuance of such warrants or other rights pursuant to this
subsection (vii). No adjustment shall be made to the Conversion Price upon the
issuance of Common Stock pursuant to the exercise, conversion or exchange of any
Convertible Security or Common Stock Equivalent where an adjustment to the
Conversion Price was made as a result of the issuance or purchase of any
Convertible Security or Common Stock Equivalent.
-8-
(vii)
Consideration
for Stock
. In case any shares of Common Stock or any Common Stock
Equivalents shall be issued or sold:
(1)
in connection with any merger or consolidation in which the Company is the
surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefor shall be, deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or
(2) in
the event of any consolidation or merger of the Company in which the Company is
not the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other
corporation computed on the basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Note, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Note immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Note. In the event Common Stock is
issued with other shares or securities or other assets of the Company for
consideration which covers both, the consideration computed as provided in this
Section 3.5(viii) shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the Company.
(b)
Record
Date
. In case the Company shall take record of the holders of its Common
Stock for the purpose of entitling them to subscribe for or purchase Common
Stock or Convertible Securities, then the date of the issue or sale of the
shares of Common Stock shall be deemed to be such record date.
(c)
Certain
Issues Excepted
. Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment to the Conversion Price in
connection with (i) securities issued (other than for cash) in connection with a
merger, acquisition, or consolidation, (ii) securities issued pursuant to a bona
fide firm underwritten public offering of the Company’s securities,(iii) securities issued pursuant to the conversion or exercise
of convertible or excercisable securities issued or outstanding on or prior to
the date hereof or issued pursuant to the Purchase Agreement, (iv) the shares of
Common Stock issuable upon the exercise of Warrants, (v) securities issued in
connection with strategic license agreements or other partnering arrangements so
long as such issuances are not for the purpose of raising capital, (vi) Common
Stock issued or options to purchase Common Stock granted or issued pursuant to
the Company’s stock option plans and employee stock purchase plans as they now
exist and (vii) the payment of any accrued interest in shares of Common Stock
pursuant to this Note.
-9-
(d)
No Impairment
. The Company shall
not, by amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith, assist in the
carrying out of all the provisions of this Section 3.5 and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the Holder against impairment. In the event a Holder shall
elect to convert any Note as provided herein, the Company cannot refuse
conversion based on any claim that such Holder or any one associated or
affiliated with such Holder has been engaged in any violation of law, violation
of an agreement to which such Holder is a party or for any reason whatsoever,
unless, an injunction from a court, or notice, restraining and or adjoining
conversion of all or of said Note shall have issued and the Company posts a
surety bond for the benefit of such Holder in an amount equal to one hundred
thirty percent (130%) of the amount of the Note the Holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
(e)
Certificates
as to Adjustments
. Upon occurrence of each adjustment or readjustment of the
Conversion Price or number of shares of Common Stock issuable upon conversion of
this Note pursuant to this Section 3.5, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and furnish to the Holder a certificate setting forth such adjustment and
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based. The Company shall, upon written request of the Holder, at
any time, furnish or cause to be furnished to the Holder a like certificate
setting forth such adjustments and readjustments, the applicable Conversion
Price in effect at the time, and the number of shares of Common Stock and the
amount, if any, of other securities or property which at the time would be
received upon the conversion of this Note. Notwithstanding the foregoing, the
Company shall not be obligated to deliver a certificate unless such certificate
would reflect an increase or decrease of at least one percent (1%) of such
adjusted amount.
(f)
Issue Taxes
. The Company shall pay any and all issue and other taxes,
excluding federal, state or local income taxes, that may be payable in respect
of any issue or delivery of shares of Common Stock on conversion of this Note
pursuant thereto;
provided
,
however
, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer requested by the
Holder in connection with any such conversion.
(g)
Fractional
Shares
. No fractional shares of Common Stock shall be issued upon conversion
of this Note. In lieu of any fractional shares to which the Holder would
otherwise be entitled, the Company shall pay cash equal to the product of such
fraction multiplied by the average of the Closing Bid Prices of the Common Stock
for the five (5) consecutive Trading Days immediately preceding the Conversion
Date.
(h)
Reservation
of Common Stock
. The Company shall at all times when this Note shall be
outstanding, reserve and keep available out of its authorized but unissued
Common Stock, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of this Note and all interest accrued
thereon;
provided
that the number of shares of Common Stock so reserved
shall at no time be less than one hundred twenty percent (120%) of the number of
shares of Common Stock for which this Note and all interest accrued thereon are
at any time convertible. The Company shall, from time to time in accordance with
Nevada corporate law, increase the authorized number of shares of Common Stock
if at any time the unissued number of authorized shares shall not be sufficient
to satisfy the Company’s obligations under this Section 3.5(h) .
-10-
(i)
Regulatory
Compliance
. If any shares of Common Stock to be reserved for the purpose of
conversion of this Note or any interest accrued thereon require registration or
listing with or approval of any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise before
such shares may be validly issued or delivered upon conversion, the Company
shall, at its sole cost and expense, in good faith and as expeditiously as
possible, endeavor to secure such registration, listing or approval, as the case
may be.
Section
3.6
Prepayment
.
(a)
Prepayment Upon an Event of Default
. Notwithstanding anything to the
contrary contained herein, upon the occurrence of an Event of Default described
in Sections 2.1(a) -(j) and 2.1(m) -(o) hereof, the Holder shall have the right,
at such Holder’s option, to require the Company to prepay in cash all or a
portion of this Note at a price equal to one hundred twenty percent (120%) of
the aggregate principal amount of this Note plus all accrued and unpaid interest
applicable at the time of such request (the “
Event of Default Prepayment
Price
”). Nothing in this Section 3.6(a) shall limit the Holder’s rights
under Section 2.2 hereof.
(b)
Prepayment
Option Upon Major Transaction
. In addition to all other rights of the Holder
contained herein, simultaneous with the occurrence of a Major Transaction (as
defined in Section 3.6(e) hereof), the Holder shall have the right, at the
Holder’s option, to require the Company to prepay all or a portion of the
Holder’s Note at a price equal to one hundred ten percent (110%) of the
aggregate principal amount of this Note plus all accrued and unpaid interest
(the “
Major Transaction Prepayment Price
”).
(c)
Prepayment
Option Upon Triggering Event
. In addition to all other rights of the Holder
contained herein, after a Triggering Event (as defined below), the Holder shall
have the right, at the Holder’s option, to require the Company to prepay all or
a portion of this Note in cash at a price equal to the sum of (i) the greater of
(A) one hundred twenty percent (120%) of the aggregate principal amount of this
Note plus all accrued and unpaid interest and (B) in the event at such time the
Holder is unable to obtain the benefit of its conversion rights through the
conversion of this Note and resale of the shares of Common Stock issuable upon
conversion hereof in accordance with the terms of this Note and the other
Transaction Documents, the aggregate principal amount of this Note plus all
accrued but unpaid interest hereon, divided by the Conversion Price on (x) the
date the Prepayment Price (as defined below) is demanded or otherwise due or (y)
the date the Prepayment Price is paid in full, whichever is less, multiplied by
the VWAP on (x) the date the Prepayment Price is demanded or otherwise due, and
(y) the date the Prepayment Price is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
this Note and the other Transaction Documents (the “Triggering Event Prepayment
Price,” and, collectively with the “Major Transaction Prepayment Price,” the
“Prepayment Price”).
(d)
Major
Transaction
. A “Major Transaction” shall be deemed to have occurred at such
time as any of the following events:
-11-
(i) the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company’s voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the
board of directors (or their equivalent if other than a corporation) of such
entity or entities); or
(ii)
the sale or transfer of more than fifty percent (50%) of the Company’s assets
(based on the fair market value as determined in good faith by the Company’s
Board of Directors) other than inventory in the ordinary course of business in
one or a related series of transactions; or
(iii) closing of a purchase, tender
or exchange offer made to the holders of more than fifty percent (50%) of the
outstanding shares of Common Stock in which more than fifty percent (50%) of the
outstanding shares of Common Stock were tendered and accepted.
(e)
Triggering
Event
. A “Triggering Event” shall be deemed to have occurred at such time as
any of the following events:
(i) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, Nasdaq SmallCap Market, Nasdaq National Market, American Stock Exchange
or The New York Stock Exchange, Inc. for a period of five (5) consecutive
Trading Days;
(ii) the
Company’s notice to any holder of the Note, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8) or its intention not to comply with proper
requests for conversion of any Note into shares of Common Stock; or
(iii) the
Company’s failure to comply with a Conversion Notice tendered in accordance with
the provisions of this Note within ten (10) business days after the receipt by
the Company of the Conversion Notice; or (iv) the Company deregisters its shares
of Common Stock and as a result such shares of Common Stock are no longer
publicly traded; or
(v) the
Company consummates a “going private” transaction and as a result the Common
Stock is no longer registered under Sections 12(b) or 12(g) of the Exchange Act.
(f)
Mechanics
of Prepayment at Option of Holder Upon Major Transaction
. No sooner than
fifteen (15) days nor later than ten (10) days prior to the consummation of a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier (“Notice of Major Transaction”) to the Holder of this Note. At
any time after receipt of a Notice of Major Transaction (or, in the event a
Notice of Major Transaction is not delivered at least ten (10) days prior to a
Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any holder of the Notes then outstanding may require the Company
to prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder’s Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier (“Notice of Prepayment at
Option of Holder Upon Major Transaction”) to the Company, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
number of Notes that such holder is electing to prepay and (ii) the applicable
Major Transaction Prepayment Price, as calculated pursuant to Section 3.6(b) above.
-12-
(g)
Mechanics
of Prepayment at Option of Holder Upon Triggering Event
. Within one (1)
business day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier (“Notice of
Triggering Event”) to each holder of the Notes. At any time after the earlier of
a holder’s receipt of a Notice of Triggering Event and such holder becoming
aware of a Triggering Event, any holder of this Note may require the Company to
prepay all of the Notes on a pro rata basis by delivering written notice thereof
via facsimile and overnight courier (“
Notice of Prepayment at Option of
Holder Upon Triggering Event
”) to the Company, which Notice of Prepayment at
Option of Holder Upon Triggering Event shall indicate (i) the amount of the Note
that such holder is electing to have prepaid and (ii) the applicable Triggering
Event Prepayment Price, as calculated pursuant to Section 3.6(c) above. A holder
shall only be permitted to require the Company to prepay the Note pursuant to
Section 3.6 hereof for the greater of a period of ten (10) days after receipt by
such holder of a Notice of Triggering Event or for so long as such Triggering
Event is continuing.
(h)
Payment
of Prepayment Price
. Upon the Company’s receipt of a Notice(s) of Prepayment
at Option of Holder Upon Triggering Event or a Notice(s) of Prepayment at Option
of Holder Upon Major Transaction from any holder of the Notes, the Company shall
immediately notify each holder of the Notes by facsimile of the Company’s
receipt of such Notice(s) of Prepayment at Option of Holder Upon Triggering
Event or Notice(s) of Prepayment at Option of Holder Upon Major Transaction and
each holder which has sent such a notice shall promptly submit to the Company
such holder’s certificates representing the Notes which such holder has elected
to have prepaid. The Company shall deliver the applicable Triggering Event
Prepayment Price, in the case of a prepayment pursuant to Section 3.6(i), to
such holder within five (5) business days after the Company’s receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.(f), the Company shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder’s original Note
shall have been so delivered to the Company; provided further that if the
Company is unable to prepay all of the Notes to be prepaid, the Company shall
prepay an amount from each holder of the Notes being prepaid equal to such
holder’s pro-rata amount (based on the number of Notes held by such holder
relative to the number of Notes outstanding) of all Notes being prepaid. If the
Company shall fail to prepay all of the Notes submitted for prepayment (other
than pursuant to a dispute as to the arithmetic calculation of the Prepayment
Price), in addition to any remedy such holder of the Notes may have under this
Note and the Purchase Agreement, the applicable Prepayment Price payable in
respect of such Notes not prepaid shall bear interest at the rate of two percent
(2%) per month (prorated for partial months) until paid in full. Until the
Company pays such unpaid applicable Prepayment Price in full to a holder of the
Notes submitted for prepayment, such holder shall have the option (the “Void
Optional Prepayment Option”) to, in lieu of prepayment, require the Company to
promptly return to such holder(s) all of the Notes that were submitted for
prepayment by such holder(s) under this Section 3.6 and for which the applicable
Prepayment Price has not been paid, by sending written notice thereof to the
Company via facsimile (the “Void Optional Prepayment Notice”). Upon the
Company’s receipt of such Void Optional Prepayment Notice(s) and prior to
payment of the full applicable Prepayment Price to such holder, (i) the
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction, as the case
may be, shall be null and void with respect to those Notes submitted for
prepayment and for which the applicable Prepayment Price has not been paid, (ii)
the Company shall immediately return any Notes submitted to the Company by each
holder for prepayment under this Section 3.6(h) and for which the applicable
Prepayment Price has not been paid and (iii) the Conversion Price of such
returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Void Optional Prepayment Notice(s) is delivered
to the Company and (B) the lowest Closing Bid Price during the period beginning
on the date on which the Notice(s) of Prepayment of Option of Holder Upon Major
Transaction or the Notice(s) of Prepayment at Option of Holder Upon Triggering Event, as the case may be, is delivered
to the Company and ending on the date on which the Void Optional Prepayment
Notice(s) is delivered to the Company; provided that no adjustment shall be made
if such adjustment would result in an increase of the Conversion Price then in
effect. A holder’s delivery of a Void Optional Prepayment Notice and exercise of
its rights following such notice shall not effect the Company’s obligations to
make any payments which have accrued prior to the date of such notice. Payments
provided for in this Section 3.6 shall have priority to payments to other
stockholders in connection with a Major Transaction.
-13-
(i)
Company
Prepayment Option upon Major Transaction
. Upon the consummation of a Major
Transaction, the Company may prepay in cash all or any portion of the
outstanding principal amount of this Note together with all accrued and unpaid
interest thereon upon at least thirty (30) days prior written notice to the
Holder (the “
Company’s Prepayment Notice
”) at a price equal to one
hundred twenty percent (120%) of the aggregate principal amount of this Note
plus any accrued but unpaid interest (the “
Company’s Prepayment Price
”);
provided, however, that if a holder has delivered a Conversion Notice to the
Company or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Company’s Prepayment Notice, the principal amount of
the Notes plus any accrued but unpaid interest designated to be converted may
not be prepaid by the Company and shall be converted in accordance with Section
3.3 hereof; provided further that if during the period between delivery of the
Company’s Prepayment Notice and the Company’s Prepayment Date (as defined
below), a holder shall become entitled and elects to deliver a Notice of
Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at
Option of Holder upon Triggering Event, then such rights of the holders shall
take precedence over the previously delivered Company Prepayment Notice if the
holder so elects. The Company’s Prepayment Notice shall state the date of
prepayment which date shall be the date of the consummation of the Major
Transaction (the “Company’s Prepayment Date”), the Company’s Prepayment Price
and the principal amount of Notes plus any accrued but unpaid interest to be
prepaid by the Company. The Company shall deliver the Company’s Prepayment Price
on the Company’s Prepayment Date, provided, that if the holder(s) delivers a
Conversion Notice before the Company’s Prepayment Date, then the portion of the
Company’s Prepayment Price which would be paid to prepay the Notes covered by
such Conversion Notice shall be returned to the Company upon delivery of the
Common Stock issuable in connection with such Conversion Notice to the
holder(s). On the Company’s Prepayment Date, the Company shall pay the Company’s
Prepayment Price, subject to any adjustment pursuant to the immediately
preceding sentence, to the holder(s) on a pro rata basis. If the Company fails
to pay the Company’s Prepayment Price by the third (3rd) business day after the
Company’s Prepayment Date, the prepayment will be declared null and void and the
Company shall lose its right to serve a Company’s Prepayment Notice pursuant to
this Section 3.6(i) in the future. Notwithstanding the foregoing to the
contrary, the Company may effect a prepayment pursuant to this Section 3.6(i)
only if trading in the Common Stock shall not have been suspended by the
Securities and Exchange Commission or the Nasdaq SmallCap Market (or other
exchange or market on which the Common Stock is trading), and and the Company is
in material compliance with the terms and conditions of this Note and the other
Transaction Documents.
Section
3.7
Inability to Fully Convert
.
(a)
Holder’s
Option if Company Cannot Fully Convert
. If, upon the Company’s receipt of a
Conversion Notice, the Company cannot issue shares of Common Stock for any
reason, including, without limitation, because the Company (w) does not have a
sufficient number of shares of Common Stock authorized and available, or (x) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities from
issuing all of the Common Stock which is to be issued to the Holder pursuant to
a Conversion Notice, then the Company shall issue as many shares of Common Stock
as it is able to issue in accordance with the Holder’s Conversion Notice and,
with respect to the unconverted portion of this Note, the Holder,
solely at Holder’s option, can elect to:
-14-
(i) require
the Company to prepay that portion of this Note for which the Company is unable
to issue Common Stock in accordance with the Holder’s Conversion Notice (the
“
Mandatory Prepayment
”) at a price per share equal to the Triggering
Event Prepayment Price as of such Conversion Date (the “
Mandatory Prepayment
Price
”);
(ii)
void its Conversion Notice and retain or have returned, as the case may be, this
Note that was to be converted pursuant to the Conversion Notice (provided that
the Holder’s voiding its Conversion Notice shall not effect the Company’s
obligations to make any payments which have accrued prior to the date of such
notice).
In the event a Holder shall elect to convert any portion of its
Notes as provided herein, the Company cannot refuse conversion based on any
claim that such Holder or any one associated or affiliated with such Holder has
been engaged in any violation of law, violation of an agreement to which such
Holder is a party or for any reason whatsoever, unless, an injunction from a
court, on notice, restraining and or adjoining conversion of all or of said
Notes shall have been issued and the Company posts a surety bond for the benefit
of such Holder in an amount equal to 130% of the principal amount of the Notes
the Holder has elected to convert, which bond shall remain in effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder in the event it obtains judgment.
(b)
Mechanics
of Fulfilling Holder’s Election
. The Company shall immediately send via
facsimile to the Holder, upon receipt of a facsimile copy of a Conversion Notice
from the Holder which cannot be fully satisfied as described in Section 3.7(a)
above, a notice of the Company’s inability to fully satisfy the Conversion
Notice (the “
Inability to Fully Convert Notice
”). Such Inability to Fully
Convert Notice shall indicate (i) the reason why the Company is unable to fully
satisfy such holder’s Conversion Notice, (ii) the amount of this Note which
cannot be converted and (iii) the applicable Mandatory Prepayment Price. The
Holder shall notify the Company of its election pursuant to Section 3.7(a) above
by delivering written notice via facsimile to the Company (“
Notice in
Response to Inability to Convert
”).
(c)
Payment
of Prepayment Price
. If the Holder shall elect to have its Notes prepaid
pursuant to Section 3.7(a)(i) above, the Company shall pay the Mandatory
Prepayment Price to the Holder within thirty (30) days of the Company’s receipt
of the Holder’s Notice in Response to Inability to Convert,
provided
that
prior to the Company’s receipt of the Holder’s Notice in Response to Inability
to Convert the Company has not delivered a notice to the Holder stating, to the
satisfaction of the Holder, that the event or condition resulting in the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Company shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.7(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid
in full. Until the full Mandatory Prepayment Price is paid in full to the
Holder, the Holder may (i) void the Mandatory Prepayment with respect to that
portion of the Note for which the full Mandatory Prepayment Price has not been
paid, (ii) receive back such Note, and (iii) require that the Conversion Price
of such returned Note be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the Holder voided the Mandatory Prepayment and
(B) the lowest Closing Bid Price during the period beginning on the Conversion
Date and ending on the date the Holder voided the Mandatory Prepayment.
-15-
(d)
Pro-rata Conversion and Prepayment
. In the event the Company receives a
Conversion Notice from more than one holder of the Notes on the same day and the
Company can convert and prepay some, but not all, of the Notes pursuant to this
Section 3.7, the Company shall convert and prepay from each holder of the Notes
electing to have its Notes converted and prepaid at such time an amount equal to
such holder’s pro-rata amount (based on the principal amount of the Notes held
by such holder relative to the principal amount of the Notes outstanding) of all
the Notes being converted and prepaid at such time.
Section
3.8
No Rights as Shareholder
. Nothing
contained in this Note shall be construed as conferring upon the Holder, prior
to the conversion of this Note, the right to vote or to receive dividends or to
consent or to receive notice as a shareholder in respect of any meeting of
shareholders for the election of directors of the Company or of any other
matter, or any other rights as a shareholder of the Company.
ARTICLE IV
MISCELLANEOUS
Section
4.1
Notices
. Any notice, demand,
request, waiver or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery by
telex (with correct answer back received), telecopy or facsimile at the address
or number designated in the Purchase Agreement (if delivered on a business day
during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The Company will give written notice to
the Holder at least ten (10) days prior to the date on which the Company takes a
record (x) with respect to any dividend or distribution upon the Common Stock,
(y) with respect to any pro rata subscription offer to holders of Common Stock
or (z) for determining rights to vote with respect to any Organic Change,
dissolution, liquidation or winding-up and in no event shall such notice be
provided to such holder prior to such information being made known to the
public. The Company will also give written notice to the Holder at least ten
(10) days prior to the date on which any Organic Change, dissolution,
liquidation or winding-up will take place and in no event shall such notice be
provided to the Holder prior to such information being made known to the
public.
Section
4.2
Governing Law
. This Note shall be
governed by and construed in accordance with the internal laws of the State of
Nevada, without giving effect to any of the conflicts of law principles which
would result in the application of the substantive law of another jurisdiction.
This Note shall not be interpreted or construed with any presumption against the
party causing this Note to be drafted.
Section
4.3
Headings
. Article and section headings
in this Note are included herein for purposes of convenience of reference only
and shall not constitute a part of this Note for any other purpose.
Section
4.4
Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief
. The remedies provided in this
Note shall be cumulative and in addition to all other remedies available under
this Note, at law or in equity (including, without limitation, a decree of
specific performance and/or other injunctive relief), no remedy contained herein
shall be deemed a waiver of compliance with the provisions giving rise to such
remedy and nothing herein shall limit a holder’s right to pursue actual damages
for any failure by the Company to comply with the terms of this Note.
-16-
Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable and material harm to the Holder and
that the remedy at law for any such breach may be inadequate. Therefore the
Company agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available rights and
remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.
Section
4.5
Enforcement Expenses
. The Company
agrees to pay all costs and expenses of enforcement of this Note, including,
without limitation, reasonable attorneys’ fees and expenses.
Section
4.6
Binding Effect
. The obligations of
the Company and the Holder set forth herein shall be binding upon the successors
and assigns of each such party, whether or not such successors or assigns are
permitted by the terms hereof.
Section
4.7
Amendments
. This Note may not be
modified or amended in any manner except in writing executed by the Company and
the Holder.
Section
4.8
Compliance with Securities Laws
.
The Holder of this Note acknowledges that this Note is being acquired solely for
the Holder’s own account and not as a nominee for any other party, and for
investment, and that the Holder shall not offer, sell or otherwise dispose of
this Note. This Note and any Note issued in substitution or replacement therefor
shall be stamped or imprinted with a legend in substantially the following form:
“
THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
”
Section
4.9
Consent to Jurisdiction
. Each of the Company and the Holder (i)
hereby irrevocably submits to the exclusive jurisdiction of the State of Nevada
for the purposes of any suit, action or proceeding arising out of or relating to
this Note and (ii) hereby waives, and agrees not to assert in any such suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such court, that the suit, action or proceeding is brought in an
inconvenient forum or that the venue of the suit, action or proceeding is
improper. Each of the Company and the Holder consents to process being served in
any such suit, action or proceeding by mailing a copy thereof to such party at
the address in effect for notices to it under the Purchase Agreement and agrees
that such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this Section 4.9 shall affect or limit any right to
serve process in any other manner permitted by law. Each of the Company and the
Holder hereby agree that the prevailing party in any suit, action or proceeding
arising out of or relating to this Note shall be entitled to reimbursement for reasonable legal fees from the non-prevailing
party.
-17-
Section
4.10
Parties in Interest
. This Note shall
be binding upon, inure to the benefit of and be enforceable by the Company, the
Holder and their respective successors and permitted assigns.
Section
4.11
Failure or Indulgence Not Waiver
. No
failure or delay on the part of the Holder in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other right, power or privilege.
Section
4.12
Company Waivers
. Except as otherwise
specifically provided herein, the Company and all others that may become liable
for all or any part of the obligations evidenced by this Note, hereby waive
presentment, demand, notice of nonpayment, protest and all other demands’ and
notices in connection with the delivery, acceptance, performance and enforcement
of this Note, and do hereby consent to any number of renewals of extensions of
the time or payment hereof and agree that any such renewals or extensions may be
made without notice to any such persons and without affecting their liability
herein and do further consent to the release of any person liable hereon, all
without affecting the liability of the other persons, firms or Company liable
for the payment of this Note, AND DO HEREBY WAIVE TRIAL BY JURY.
(a) No
delay or omission on the part of the Holder in exercising its rights under this
Note, or course of conduct relating hereto, shall operate as a waiver of such
rights or any other right of the Holder, nor shall any waiver by the Holder of
any such right or rights on any one occasion be deemed a waiver of the same
right or rights on any future occasion.
(b) THE
COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A
COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICABLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO ANY PREJUDGMENT REMEDY
WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
|
LITHIUM EXPLORATION GROUP,
INC.
|
|
|
|
By:
|
|
|
|
Name:
|
|
|
Title:
|
-18-
EXHIBIT A
WIRE INSTRUCTIONS
|
Payee:
|
|
|
Bank:
|
|
|
Address:
|
|
|
|
|
|
Bank No.:
|
|
|
Account No.:
|
|
|
Account Name:
|
|
-19-
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Note)
The undersigned hereby irrevocably elects to convert $
________________of the principal amount of the above Note No. ___ into shares of
Common Stock of Lithium Exploration Group, Inc. according to the conditions
hereof, as of the date written below.
|
Date of Conversion:
|
|
|
Applicable Conversion Price:
|
|
|
Number of shares of Common Stock beneficially
owned or deemed beneficially owned by the Holder on the Date of
Conversion: __________________________
|
|
Signature:
|
|
|
Print Name:
|
|
|
Address:
|
|
-20-
10.117
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY
NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE
SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM
REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS.
LITHIUM EXPLORATION GROUP, INC.
10% OID Convertible
Promissory Note
Due September 9, 2016
|
September 9, 2015
|
USD $30,000
|
For value received,
Lithium
Exploration Group, Inc.,
a Nevada corporation (the "Company"), hereby
promises to pay to the order of
JDF Capital Inc.
(together with its
successors, representatives, and permitted assigns, the "Holder"), in accordance
with the terms hereinafter provided, up to an aggregate of $30,000 (thirty
thousand dollars) (the
"Principal Amount"),
which includes the aggregate
principal sum of $25,000 (twenty-five thousand dollars) advanced by the Holder,
$2,500 Original Issue Discount incurred by the Holder, and $2,500 legal fees.
The Principal Amount outstanding shall be due and payable on September 9,
2016.
The due dates of any outstanding
principal balance are referred to herein as the "Maturity Date", respectively.
All payments under or pursuant to
this Note refer to and shall be made in United States Dollars in immediately
available funds to the Holder at the address of the Holder first set forth above
or at such other place as the Holder may designate from time to time in writing
to the Company or by wire transfer of funds to the Holder's account,
instructions for which are attached hereto as
Exhibit A
.
ARTICLE I
Section
1.1
Purchase Agreement
. This Note has
been executed and delivered pursuant to the Security Purchase Agreement dated as
of September 9, 2015 (the "Purchase Agreement'') by and among the Company and
the purchasers listed therein. Capitalized terms used and not otherwise defined
herein shall have the meanings set forth for such terms in the Purchase
Agreement.
Section
1.2
Interest.
(a) Beginning
on the issuance date of this Note (the "Issuance Date"), the outstanding
principal balance of this Note shall bear interest at a rate per annum equal to
10 percent (10%) accruing on an 12 month basis, which shall consist of the
pre-paid interest referred to above, which may be converted to shares of the
Company's common stock, par value $0.001 per share (the "Common Stock") at the
option of the Holder on the same terms as the Note.
1
10.117
Section
1.3
Payment on Non-Business Days
. Whenever
any payment to be made shall be due on a Saturday, Sunday or a public holiday
under the laws of the State of Nevada, such payment may be due on the next
succeeding business day and such next succeeding day shall be included in the
calculation of the amount of accrued interest payable on such date.
Section
1.4
Transfer
. This Note may be
transferred or sold, subject to the provisions of Section 4.8 of this Note, or
pledged, hypothecated or otherwise granted as security by the Holder.
Section
1.5
Replacement.
Upon receipt of a duly
executed, notarized and unsecured written statement from the Holder with respect
to the loss, theft or destruction of this Note (or any replacement hereof), and
without requiring an indemnity bond or other security, or, in the case of a
mutilation of this Note, upon surrender and cancellation of such Note, the
Company shall issue a new Note, of like tenor and amount, in lieu of such lost,
stolen, destroyed or mutilated Note.
ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section
2.1
Events of Default
. The occurrence of
any of the following events shall be an "Event of Default" under this Note:
(a) the
Company shall fail to make the payment of any amount of principal outstanding on
the date such payment is due hereunder;
(b)
the Company shall fail to make any payment of interest in shares of Common Stock
for a period of three (3) days after the date such interest is due;
(c)
the suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, Nasdaq Small Cap Market, Nasdaq National Market, American Stock Exchange
or The New York Stock Exchange, Inc. for a period of five (5) consecutive
Trading Days;
(d) the
Company's notice to the Holder, including by way of public announcement, at any
time, of its inability to comply or its intention not to comply with proper
requests for conversion of this Note into shares of Common Stock;
(e) the
Company shall fail to (i) timely deliver the shares of Common Stock upon
conversion of the Note or any accrued and unpaid interest, or (ii) make the
payment of any fees and/or liquidated damages under this Note or the Purchase
Agreement, which failure in the case of items (i) and (ii) of this Section
2.1(e) is not remedied within three (3) business days after the incurrence
thereof;
(f) default
shall be made in the performance or observance of (i) any material covenant,
condition or agreement contained in this Note (other than as set forth in clause
(e) of this Section 2.1) and such default is not fully cured within five (5)
business days after the occurrence thereof or (ii) any material covenant,
condition or agreement contained in the Purchase Agreement or any other
Transaction Document which is not covered by any other provisions of this
Section 2.1 and such default is not fully cured within five (5) business days
after the occurrence thereof;
(g) any
material representation or warranty made by the Company herein or in the
Purchase Agreement or any other Transaction Document shall prove to have been
false or incorrect or breached in a material respect on the date as of which made;
2
10.117
(h)
the Company shall (A) default in any payment of any amount or amounts of
principal of or interest on any Indebtedness (other than the Indebtedness
hereunder) the aggregate principal amount of which Indebtedness is in excess of
$50,000 or (B) default in the observance or performance of any other agreement
or condition relating to any Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to perm it the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity;
(i)
the Company shall (i) apply for or consent to the appointment of, or the taking
of possession by, a receiver, custodian, trustee or liquidator of itself or of
all or a substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary case
under the United States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic), (iv) file a
petition seeking to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of creditors'
rights generally, (v) acquiesce in writing to any petition filed against it in
an involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its operations or issue a
press release regarding same, or (vii) take any action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the foregoing;
(j) a
proceeding or case shall be commenced in respect of the Company, without its
application or consent, in any court of competent jurisdiction, seeking (i) the
l iquidation, reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of it or of all or any substantial
part of its assets in connection with the liquidation or dissolution of the
Company or (iii) similar relief in respect of it under any law providing for the
relief of debtors, and such proceeding or case described in clause (i), (ii) or
(iii) shall continue undismissed, or unstayed and in effect, for a period of
sixty (60) days or any order for relief shall be entered in an involuntary case
under United States Bankruptcy Code (as now or hereafter in effect) or under the
comparable laws of any jurisdiction (foreign or domestic) against the Company or
action under the laws of any jurisdiction (foreign or domestic) analogous to any
of the foregoing shall be taken with respect to the Company and shall continue
undismissed, or unstayed and in effect for a period of sixty (60) days; or
(k) the
failure of the Company to instruct its transfer agent to remove any legends from
shares of Common Stock eligible to be sold under Rule 144 of the Securities Act
and issue such unlegended certificates to the Holder within five (5) business
days of the Holder's request so long as the Holder has provided reasonable
assurances and opinions of counsel to the Company that such shares of Common
Stock can be resold pursuant to Rule 144; or
(I) the
failure of the Company to pay any amounts due to the Holder herein within three
(3) business days of receipt of notice to the Company.
Section
2.2
Remedies Upon An Event of Default
.
If an Event of Default shall have occurred and shall be continuing, the Holder
of this Note may at any time at its option, (a) declare the entire unpaid
principal balance of this Note, together with all interest accrued hereon, due
and payable, and thereupon, the same shall be accelerated and so due and
payable, without presentment, demand, protest, or notice, all of which are
hereby expressly unconditionally and irrevocably waived by the Company;
provided, however, that upon the occurrence of an Event of Default described in
(i) Sections 2.1 (k) or (I), the outstanding principal balance and interest
hereunder shall be automatically due and payable and (ii) Sections 2.1 (a)-(j) and 2.l (m)-(n), demand
the prepayment of this Note pursuant to Section 3.6 hereof, (b) subject to
Section 3.4 hereof, demand that the principal amount of this Note then
outstanding shall be converted into shares of Common Stock at a Conversion Price
(as defined in Section 3.2(a) hereof) per share calculated pursuant to Section
3.1 hereof assuming that the date that the Event of Default occurs is the
Conversion Date and demand that all accrued and unpaid interest under this Note
shall be converted into shares of Common Stock in accordance with Section 1 .2
hereof, or (c) exercise or otherwise enforce any one or more of the Holder's
rights, powers, privileges, remedies and interests under this Note, the Purchase
Agreement, other Transaction Document or applicable law. No course of delay on
the part of the Holder shall operate as a waiver thereof or otherwise prejudice
the right of the Holder. No remedy conferred hereby shall be exclusive of any
other remedy referred to herein or now or hereafter available at law, in equity,
by statute or otherwise.
3
10.117
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section
3.1
Conversion Option
.
(a) At
any time on or after the Issuance Date, this Note shall be convertible (in whole
or in part), at the option of the Holder (the
"Conversion Option
"), into
such number of fully paid and non-assessable shares of Common Stock (the
"
Conversion Rate
") as is determined by dividing that portion of the
outstanding principal balance under this Note as of such date that the Holder
elects to convert by the Conversion Price (as defined in Section 3.2(a) hereof)
then in effect on the date on which the Holder faxes a notice of conversion (the
"Conversion Notice
"), duly executed, to the Company (the "Voluntary
Conversion Date
"), provided, however, that the Conversion Price shall be
subject to adjustment as described in Section 3.5 below. The Holder shall
deliver this Note to the Company at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Company shall keep written records of the
amount of this Note converted as of each Conversion Date.
(b) On
any Voluntary Conversion Date, the Holder may cause the any outstanding
Principal Amount of this Note plus all accrued and unpaid interest to convert
into a number of fully paid and non-assessable shares of Common Stock equal to
the quotient of the elected outstanding principal amount of this Note plus all
accrued interest on the elected outstanding on the Voluntary Conversion Date (as
described in this Section below) divided by the Conversion Price as described in
Section 3.2(a) below.
Furthermore, upon the occurrence of an Event of Default (as
defined in Section 2.1 hereof), then to the extent permitted by law, the Company
will pay interest to the Holder, payable on demand, on the outstanding principal
balance of the Note from the date of the Event of Default until such Event of
Default is cured at the rate of the lesser of fifteen percent (15%) and the
maximum applicable legal rate per annum.
(B)
Conversion
Limitations
;
Holder's Restriction on Conversion
. The Company shall
not effect any conversion of this Note, and the Holder shall not have the right
to convert any portion of this Note, to the extent that after giving effect to
such conversion, the Holder (together with the Holder's affiliates), as set
forth on the applicable Conversion Notice, would beneficially own in excess of
4.99% of the number of shares of the Common Stock outstanding immediately after
giving effect to such conversion. For purposes of the foregoing sentence, the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of this Note with respect to which the determination of such sentence
is being made, but shall exclude the number of shares of Common Stock which
would be issuable upon (A) conversion of the remaining, nonconverted portion of
this Note beneficially owned by the Holder or any of its affiliates and (B)
Exercise or conversion of the unexercised or nonconverted portion of any other
securities of the Company (including, without limitation, any other Notes or the
Warrants) subject to a limitation on conversion or exercise analogous to the
limitation contained herein beneficially owned by the Holder or any of its
affiliates. Except as set forth in the preceding sentence, for purposes of this
Section, beneficial ownership shall be calculated in accordance with Section
13(d) of the Exchange Act. To the extent that the limitation contained in this
section applies, the determination of whether this Note is convertible (in
relation to other securities owned by the Holder) and of which a portion of this
Note is convertible shall be in the sole discretion of such Holder. To ensure
compliance with this restriction, the Holder will be deemed to represent to the
Company each time it delivers a Conversion Notice that such Conversion Notice
has not violated the restrictions set forth in this paragraph and the Company
shall have no obligation to verify or confirm the accuracy of such
determination. For purposes of this Section, in determining the number of
outstanding shares of Common Stock, the Holder may rely on the number of
outstanding shares of Common Stock as reflected in (x) the Company's most recent
Form 10-Q or Form 10-K (or such related form), as the case may be, (y) a more
recent public announcement by the Company or (z) any other notice by the Company
or the Company's Transfer Agent setting forth the number of shares of Common
Stock outstanding. Upon the written or oral request of the Holder, the Company
shall within two Trading Days confirm orally and in writing to the Holder the
number of shares of Common Stock then outstanding. In any case, the number of
outstanding shares of Common Stock shall be determined after giving effect to
the conversion or exercise of securities of the Company, including this Note, by
the Holder or its affiliates since the date as of which such number of
outstanding shares of Common Stock was reported. The provisions of this Section
may be waived by the Holder upon, at the election of the Holder, not less than
61 days' prior notice to the Company, and the provisions of this Section shall
continue to apply until such 61st day (or such later date, as determined by the
Holder, as may be specified in such notice of waiver).
4
10.117
Section
3.2
Conversion Price.
(a) The
term "Conversion Price" shall mean a 3 5 % discount to the lowest s a l e price
of the common stock for the 20 trading days immediately prior to (i) the date of
the Purchase Agreement, or (ii) the Voluntary Conversion Date.
Section
3.3
Mechanics of Conversion
.
(a) Not
later than three (3) Trading Days after any Conversion Date, the Company or its
designated transfer agent, as applicable, shall issue and deliver to the
Depository Trust Company ("DTC") account on the Holder's behalf via the Deposit
Withdrawal Agent Commission System ("DWAC") as specified in the Conversion
Notice, registered in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder shall be entitled. I n
the
alternative, not later than three (3) Trading Days after any Conversion Date,
the Company shall deliver to the applicable Holder by express courier a
certificate or certificates which shall be free of restrictive legends and
trading restrictions (other than those required by Section 5. l of the Purchase
Agreement) representing the number of shares of Common Stock being acquired upon
the conversion of this Note (the
"Delivery Date
"). Notwithstanding the
foregoing to the contrary, the Company or its transfer agent shall only be
obligated to issue and deliver the shares to the OTC on the Holder's behalf via
DWAC (or certificates free of restrictive legends) if such conversion is in
connection with a sale and the Holder has complied with the applicable
prospectus delivery requirements. lf in the case of any Conversion Notice such
certificate or certificates are not delivered to or as directed by the
applicable Holder by the Delivery Date, the Holder shall be entitled by written
notice to the Company at any time on or before its receipt of such certificate
or certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return this Note if tendered for conversion, whereupon
the Company and the Holder shall each be restored to their respective positions
immediately prior to the delivery of such notice of revocation, except that any
amounts described in Sections 3.3(b) and (c) shall be payable through the date
notice of rescission is given to the Company.
(b) The
Company understands that a delay in the delivery of the shares of Common Stock upon conversion of this Note beyond the Delivery Date
could result in economic loss to the Holder. If the Company fails to deliver to
the Holder such shares via DWAC or a certificate or certificates pursuant to
this Section hereunder by the Delivery Date, the Company shall pay to such
Holder, in cash, an amount per Trading Day for each Trading Day until such
shares are delivered via DWAC or certificates are delivered, together with
interest on such amount at a rate of l 0% per annum, accruing until such amount
and any accrued interest thereon is paid in full, equal to the greater of (A)
(i) 1% of the aggregate principal amount of the Note requested to be converted
for the first five (5) Trading Days after the Delivery Date and (ii) 2% of the
aggregate principal amount of the Note requested to be converted for each
Trading Day thereafter and (B) $2,000 per day (which amount shall be paid as
liquidated damages and not as a penalty). Nothing herein shall limit a Holder's
right to pursue actual damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it at law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief). Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a Conversion Notice,
and upon such withdrawal the Company shall only be obligated to pay the
liquidated damages accrued in accordance with this Section 3.3(b) through the
date the Conversion Notice is withdrawn.
5
10.117
(c) ln
addition to any other rights available to the Holder, if the Company fails
to cause its transfer agent to transmit to the Holder a certificate or
certificates representing the shares of Common Stock issuable upon conversion of
this Note on or before the Delivery Date, and if after such date the Holder is
required by its broker to purchase (in an open market transaction or otherwise)
shares of Common Stock to deliver in satisfaction of a sale by the Holder of the
shares of Common Stock issuable upon conversion of this Note which the Holder
anticipated receiving upon such exercise (a "
Buy-In"
), then the Company
shall ( 1) pay in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multi plying (A)
the number of shares of Common Stock issuable upon conversion of this Note that
the Company was required to deliver to the Holder in connection with the
conversion at issue times (B) the price at which the sell order giving rise to
such purchase obligation was executed, and (2) at the option of the Holder,
either reinstate the portion of the Note and equivalent number of shares of
Common Stock for which such conversion was not honored or deliver to the Holder
the number of shares of Common Stock that would have been issued had the Company
timely complied with its conversion and delivery obligations hereunder. For
example, if the Holder purchases Common Stock having a total purchase price of
$11,000 to cover a Buy-In with respect to an attempted conversion of shares of
Common Stock with an aggregate sale price giving rise to such purchase
obligation of $10,000, under clause (1) of the immediately preceding sentence
the Company shall be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations and other evidence
reasonably requested by the Company. Nothing herein shall limit a Holder's right
to pursue any other remedies available to it hereunder, at law or in equity
including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof.
Section
3.4
Ownershi p Cap and Certain Conversion
Restrictions
.
Notwithstanding
anything to the contrary set forth in Section 3 of this Note, at no time may the
Holder convert all or a portion of this Note if the number of shares of Common
Stock to be issued pursuant to such conversion would exceed, when aggregated
with all other shares of Common Stock owned by the Holder at such time, the
number of shares of Common Stock which would result in the Holder beneficially
owning (as determined in accordance with Section l3(d) of the Exchange Act and
the rules thereunder) more than 9.9% of all of the Common Stock outstanding at
such time; provided, however, that upon the Holder providing the Company with
sixty-one (61) days notice (pursuant to Section 4.1 hereof) (the "Waiver Notice") that the Holder would
like to waive this Section 3.4 with regard to any or all shares of Common Stock
issuable upon conversion of this Note, this Section 3.4 will be of no force or
effect with regard to all or a portion of the Note referenced in the Waiver
Notice; provided, further, that this provision shall be of no further force or
effect during the sixty-one (61) days immediately preceding the Maturity Date.
6
10.117
Section
3.5
Adjustment of Conversion Price
.
(a) The
Conversion Price shall be subject to adjustment from time to time as follows:
(i)
Adjustments
for Stock Splits and Combinations
. If the Company shall at any time or from
time to time after the Issuance Date, effect a stock split of the outstanding
Common Stock, the applicable Conversion Price in effect immediately prior to the
stock split shall be proportionately decreased. If the Company shall at any time
or from time to time after the Issuance Date, combine the outstanding shares of
Common Stock, the applicable Conversion Price in effect immediately prior to the
combination shall be proportionately increased. Any adjustments u nder this
Section 3.5(a)(i) shall be effective at the close of business on the date the
stock split or combination occurs.
(ii)
Adjustments
for Certain Dividends and Distributions
. If the Company shall at any time or
from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in shares of Common Stock, then, and in each
event, the applicable Conversion Price in effect immediately prior to such event
shall be decreased as of the time of such issuance or, in the event such record
date shall have been fixed, as of the close of business on such record date, by
multiplying, the applicable Conversion Price then in effect by a fraction:
(1
) the numerator of which shall be the total n
umber of shares of Common Stock issued and outstanding immediately prior to the
time of such issuance or the close of business on such record date; and
(2) the
denominator of which shall be the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance or the close of
business on such record date; plus the number of shares of Common Stock issuable
in payment of such dividend or distribution.
(iii)
Adjustment
for Other Dividends and D
i
stributions
. If the Company shall at any time or
from time to time after the Issuance Date, make or issue or set a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in other than shares of Common Stock, then, and in
each event, an appropriate revision to the applicable Conversion Price shall be
made and provision shall be made (by adjustments of the Conversion Price or
otherwise) so that the holders of this Note shall receive upon conversions
thereof, in addition to the number of shares of Common Stock receivable thereon,
the number of securities of the Company which they would have received had this
Note been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
Conversion Date, retained such securities (together with any distributions
payable thereon during such period), giving application to all adjustments
called for during such period under this Section 3.5(a)(iii ) with respect to
the rights of the holders of this Note; provided, however, that if such record
date shall have been fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Conversion Price
shall be adjusted pursuant to this paragraph as of the time of actual payment of
such dividends or distributions.
(iv)
Adjustments
for Reclassification, Exchange or Substitution
. If the Common Stock issuable upon conversion of this Note at any
time or from time to time after the Issuance Date shall be changed to the same
or different n umber of shares of any class or classes of stock, whether by
reclassification, exchange, substitution or otherwise (other than by way of a
stock split or combination of shares or stock dividends provided for in Sections
3.5(a)(i), (ii) and (iii), or a reorganization, merger, consolidation, or sale
of assets provided for in Section 3.5(a)(v)), then, and in each event, an
appropriate revision to the Conversion Price shall be made and provisions shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert this Note into the kind and amount of
shares of stock and other securities receivable upon reclassification, exchange,
substitution or other change, by holders of the number of shares of Common Stock
into which such Note might have been converted immediately prior to such
reclassification, exchange, substitution or other change, all subject to further
adjustment as provided herein.
7
10.117
(v)
Adjustments
for Reorganization, Merger, Consolidation or Sales of Assets
. If at any time
or from time to time after the Issuance Date there shall be a capital
reorganization of the Company (other than by way of a stock split or combination
of shares or stock dividends or distributions provided for in Section 3.5(a)(i),
(ii) and (iii), or a reclassification, exchange or substitution of shares
provided for in Section 3.5(a)(iv)), or a merger or consolidation of the Company
with or into another corporation where the holders of outstanding voting
securities prior to such merger or consolidation do not own over fifty percent
(50%) of the outstanding voting securities of the merged or consolidated entity,
immediately after such merger or consolidation, or the sale of all or
substantially all of the Company's properties or assets to any other person (an
"
Organic Change
"), then as a part of such Organic Change an appropriate
revision to the Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the Holder shall have
the right thereafter to convert such Note into the kind and amount of shares of
stock and other securities or property of the Company or any successor
corporation resulting from Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
3.5(a)(v) with respect to the rights of the Holder after the Organic Change to
the end that the provisions of this Section 3.5(a)(v) (including any adjustment
in the applicable Conversion Price then in effect and the number of shares of
stock or other securities deliverable upon conversion of this Note) shall be
applied after that event in as nearly an equivalent manner as may be
practicable.
(vi)
Issuance of Common Stock Equivalents
. If the Company, at any time after
the Issuance Date, shall issue any securities convertible into or exchangeable
for, directly or indirectly, Common Stock ("
Convertible Securities
"),
other than the Note, or any rights or warrants or options to purchase any such
Common Stock or Convertible Securities, shall be issued or sold (collectively,
the "
Common Stock Equivalents
") and the aggregate of the price per share
for which Additional Shares of Common Stock may be issuable thereafter pursuant
to such Common Stock Equivalent, plus the consideration received by the Company
for issuance of such Common Stock Equivalent divided by the number of shares of
Common Stock issuable pursuant to such Common Stock Equivalent (the
"Aggregate Per Common Share Price
") shall be less than the applicable
Conversion Price then in effect, or if, after any such issuance of Common Stock
Equivalents, the price per share for which Additional Shares of Common Stock may
be issuable thereafter is amended or adjusted, and such price as so amended
shall make the Aggregate Per Share Common Price be less than the applicable
Conversion Price in effect at the time of such amendment or adjustment, then the
applicable Conversion Price upon each such issuance or amendment shall be
adjusted as provided in the first sentence of subsection (vi) of this Section
3.5(a) on the basis that (1) the maximum number of Additional Shares of Common
Stock issuable pursuant to all such Common Stock Equivalents shall be deemed to
have been issued (whether or not such Common Stock Equivalents are actually then
exercisable, convertible or exchangeable in whole or in part) as of the earlier
of (A) the date on which the Company shall enter into a firm contract for the
issuance of such Common Stock Equivalent, or (B) the date of actual issuance of
such Common Stock Equivalent. No adjustment of the applicable Conversion Price
shall be made under this subsection (vii) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of any warrants or
other subscription or purchase rights therefor, if any adjustment shall
previously have been made to the exercise price of such warrants then in effect
upon the issuance of such warrants or other rights pursuant to this subsection
(vii). No adjustment shall be made to the Conversion Price upon the issuance of
Common Stock pursuant to the exercise, conversion or exchange of any Convertible
Security or Common Stock Equivalent where an adjustment to the Conversion Price
was made as a result of the issuance or purchase of any Convertible Security or
Common Stock Equivalent.
8
10.117
(vii)
Consideration for Stock
. In case any shares of Common Stock or any Common
Stock Equivalents shall be issued or sold:
(1)
in connection with any merger or consolidation in which the Company is the
surviving corporation (other than any consolidation or merger in which the
previously outstanding shares of Common Stock of the Company shall be changed to
or exchanged for the stock or other securities of another corporation), the
amount of consideration therefor shall be, deemed to be the fair value, as
determined reasonably and in good faith by the Board of Directors of the
Company, of such portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or
(2) in
the event of any consolidation or merger of the Company in which the Company is
not the surviving corporation or in which the previously outstanding shares of
Common Stock of the Company shall be changed into or exchanged for the stock or
other securities of another corporation, or in the event of any sale of all or
substantially all of the assets of the Company for stock or other securities of
any corporation, the Company shall be deemed to have issued a number of shares
of its Common Stock for stock or securities or other property of the other
corporation computed on The basis of the actual exchange ratio on which the
transaction was predicated, and for a consideration equal to the fair market
value on the date of such transaction of all such stock or securities or other
property of the other corporation. If any such calculation results in adjustment
of the applicable Conversion Price, or the number of shares of Common Stock
issuable upon conversion of the Note, the determination of the applicable
Conversion Price or the number of shares of Common Stock issuable upon
conversion of the Note immediately prior to such merger, consolidation or sale,
shall be made after giving effect to such adjustment of the number of shares of
Common Stock issuable upon conversion of the Note. In the event Common Stock is
issued with other shares or securities or other assets of the Company for
consideration which covers both, the consideration computed as provided in this
Section 3.5(viii) shall be allocated among such securities and assets as
determined in good faith by the Board of Directors of the Company.
(b)
Record Date.
In case the Company shall take record of the holders of its
Common Stock for the purpose of entitling them to subscribe for or purchase
Common Stock or Convertible Securities, then the date of the issue or sale of
the shares of Common Stock shall be deemed to be such record date.
(c)
Certain Issues Excepted
Anything herein to the contrary notwithstanding,
the Company shall not be required to make any adjustment to the Conversion Price
in connection with (i) securities issued (other than for cash) in connection
with a merger, acquisition, or consolidation, (ii) securities issued pursuant to
a bona fide firm underwritten public offering of the Company's securities, (iii)
securities issued pursuant to the conversion or exercise of convertible or
exercisable securities issued or outstanding on or prior to the date hereof or
issued pursuant to the Purchase Agreement, (iv) the shares of Common Stock issuable upon the exercise of Warrants, (v)
securities issued i n connection with strategic license agreements or other
partnering arrangements so long as such issuances are not for the purpose of
raising capital, (vi) Common Stock issued or options to purchase Common Stock
granted or issued pursuant to the Company's stock option plans and employee
stock purchase plans as they now exist, (vii) the payment of any accrued
interest in shares of Common Stock pursuant to this Note.
9
10.117
(d)
No
Impairment
. The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith, assist in the carrying out of all the provisions of this Section 3.5 and
in the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the Holder against impairment. In the event a
Holder shall elect to convert any Note as provided herein, the Company cannot
refuse conversion based on any claim that such Holder or anyo ne associated or
affiliated with such Holder has been engaged in any violation of law, violation
of an agreement to which such Holder is a party or for any reason whatsoever,
unless, an injunction from a court, or notice, restraining and or adjoining
conversion of all or of said Note shall have issued and the Company posts a
surety bond for the benefit of such Holder in an amount equal to one hundred
thirty percent ( 130%) of the amount of the Note the Holder has elected to
convert, which bond shall remain in effect until the completion of
arbitration/litigation of the dispute and the proceeds of which shall be payable
to such Holder in the event it obtains judgment.
(e)
Certificates as to Adjustments
. Upon occurrence of each adjustment or
readjustment of the Conversion Price or n umber of shares of Common Stock
issuable upon conversion of this Note pursuant to this Section 3.5, the Company
at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing i n detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon written
request of the Holder, at any time, furnish or cause to be furnished to the
Holder a like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless
such certificate would reflect an increase or decrease of at least one percent
(1%) of such adjusted amount.
(f)
Issue
Taxes
. The Company shall pay any and all issue and other taxes, excluding
federal, state or local income taxes, that may be payable in respect of any
issue or delivery of shares of Common Stock on conversion of this Note pursuant
thereto; provided, however, that the Company shall not be obligated to pay any
transfer taxes resulting from any transfer requested by the Holder in connection
with any such conversion.
(g)
Fractional Shares
. No fractional shares of Common Stock shall be issued
upon conversion of this Note. In lieu of any fractional shares to which the
Holder would otherwise be entitled, the Company shall pay cash equal to the
product of such fraction multiplied by the average of the Closing Bid Prices of
the Common Stock for the five (5) consecutive Trading Days immediately preceding
the Conversion Date.
(h)
Reservation
of Common Stock
. The Company shall at all times when this Note shall be
outstanding, reserve and keep available out of its authorized but unissued
Common Stock, such number of shares of Common Stock as shall from time to time
be sufficient to effect the conversion of this Note and all interest accrued
thereon;
provided
that the number of shares of Common Stock so reserved
shall at no time be less than one hundred twenty percent ( 120%) of the number
of shares of Common Stock for which this Note and all interest accrued thereon
are at any time convertible. The Company shall, from time to time in accordance
with Nevada corporate law, increase the authorized number of shares of Common Stock if at any time the unissued
number of authorized shares shall not be sufficient to satisfy the Company's
obligations under this Section 3.5(h) .
10
10.117
(i)
Regulatory
Compliance
. If any shares of Common Stock to be reserved for the purpose of
conversion of this Note or any interest accrued thereon require registration or
listing with or approval of any governmental authority, stock exchange or other
regulatory body under any federal or state law or regulation or otherwise before
such shares may be validly issued or delivered upon conversion, the Company
shall, at its sole cost and expense, i n good faith and as expeditiously as
possible, endeavor to secure such registration, listing or approval, as the case
may be.
Section
3.6
Prepayment
.
(a)
Prepayment
Upon an Event of Defaul
t. Notwithstanding anything to the contrary contained
herein, upon the occurrence of an Event of Default described i n Sections 2.1
(a)-(j)) and 2.1 (m)- (o) hereof, the Holder shall have the right, at such
Holder's option, to require the Company to prepay in cash all or a portion of
this Note at a price equal to one hundred twenty percent (120%) of the aggregate
principal amount of this Note plus all accrued and unpaid interest applicable at
the time of such request (the
"Event of Default Prepayment Price
").
Nothing i n this Section 3.6(a) shall limit the Holder's rights under Section
2.2 hereof.
(b)
Prepayment Option Upon Major Transaction
. In addition to all other rights
of the Holder contained herein, simultaneous with the occurrence of a Major
Transaction (as defined in Section 3.6(e) hereof), the Holder shall have the
right, at the Holder's option, to require the Company to prepay all or a portion
of the Holder's Note at a price equal to one hundred ten percent (110%) of the
aggregate principal amount of this Note plus all accrued and unpaid interest
(the "
Major Transaction Prepayment Price
").
(c)
Prepayment
Option Upon Triggering Event
. In addition to all other rights of the Holder
contained herein, after a Triggering Event (as defined below), the Holder shall
have the right, at the Holder's option, to require the Company to prepay all or
a portion of this Note in cash at a price equal to the sum of (i) the greater of
(A) one hundred twenty percent (120%) of the aggregate principal amount of this
Note plus all accrued and un paid interest and (B) in the event at such time the
Holder is unable to obtain the benefit of its conversion rights through the
conversion of this Note and resale of the shares of Common Stock issuable upon
conversion hereof in accordance with the terms of this Note and the other
Transaction Documents, the aggregate principal amount of this Note plus all
accrued but unpaid interest hereon, divided by the Conversion Price on (x) the
date the Prepayment Price (as defined below) is demanded or otherwise due or (y)
the date the Prepayment Price is paid in full, whichever is less, multiplied by
the VWAP on (x) the date the Prepayment Price is demanded or otherwise due, and
(y) the date the Prepayment Price is paid in full, whichever is greater, and
(ii) all other amounts, costs, expenses and liquidated damages due in respect of
this Note and the other Transaction Documents (the "Triggering Event Prepayment
Price," and, collectively with the "Major Transaction Prepayment Price," the
"Prepayment Price").
(d)
Major
Transaction
. A "Major Transaction" shall be deemed to have occurred at such
time as any of the following events:
(i) the
consolidation, merger or other business combination of the Company with or into
another Person (other than (A) pursuant to a migratory merger effected solely
for the purpose of changing the jurisdiction of incorporation of the Company or
(B) a consolidation, merger or other business combination in which holders of
the Company's voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting power of the
surviving entity or entities necessary to elect a majority of the members of the
board of directors (or their equivalent if other than a corporation) of such
entity or entities); or
11
10.117
(ii)
the sale or transfer of more than fifty percent (50%) of the Company's assets
(based on the fair market value as determined in good faith by the Company's
Board of Directors) other than inventory in the ordinary course of business in
one or a related series of transactions; or
(iii) closing
of a purchase, tender or exchange offer made to the holders of more than fifty
percent (50%) of the outstanding shares of Common Stock in which more than fifty
percent (50%) of the outstanding shares of Common Stock were tendered and
accepted.
(e)
Triggering
Event
. A "Triggering Event" shall be deemed to have occurred at such time as
any of the following events:
(i) the
suspension from listing, without subsequent listing on any one of, or the
failure of the Common Stock to be listed on at least one of the OTC Bulletin
Board, Nasdaq SmallCap Market, Nasdaq National Market, American Stock Exchange
or The New York Stock Exchange, Inc. for a period of five (5) consecutive
Trading Days;
(ii) the
Company's notice to any holder of the Note, including by way of public
announcement, at any time, of its inability to comply (including for any of the
reasons described in Section 3.8) or its intention not to comply with proper
requests for conversion of any Note into shares of Common Stock; or
(iii)
the Company's failure to comply with a Conversion Notice tendered in accordance
with the provisions of this Note within ten (10) business days after the receipt
by the Company of the Conversion Notice; or
(iv) the
Company deregisters its shares of Common Stock and as a result such shares of
Common Stock are no longer publicly traded; or
(v) the
Company consummates a ''going private" transaction and as a result the Common
Stock is no longer registered under Sections l 2(b) or 12(g) of the Exchange
Act.
(f)
Mechanics
of Prepayment at Option of Holder Upon Major Transaction
. No sooner than
fifteen (15) days nor later than ten (10) days prior to the consummation of a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier ("Notice of Major Transaction") to the Holder of this Note. At
any time after receipt of a Notice of Major Transaction (or, in the event a
Notice of Major Transaction is not delivered at least ten (10) days prior to a
Major Transaction, at any time within ten (10) days prior to a Major
Transaction), any holder of the Notes then outstanding may require the Company
to prepay, effective immediately prior to the consummation of such Major
Transaction, all of the holder's Notes then outstanding by delivering written
notice thereof via facsimile and overnight courier ("Notice of Prepayment at
Option of Holder Upon Major Transaction") to the Company, which Notice of
Prepayment at Option of Holder Upon Major Transaction shall indicate (i) the
number of Notes that such holder is electing to prepay and (ii) the applicable
Major Transaction Prepayment Price, as calculated pursuant to Section 3.6(b)
above.
(g)
Mechanics
of Prepayment at Option of Holder Upon Triggering Event
. Within one (1)
business day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of the Notes. At any time after the earlier of
a holder's receipt of a Notice of Triggering Event and such holder becoming
aware of a Triggering Event, any holder of this Note may require the Company to
prepay all of the Notes on a pro rata basis by delivering written notice thereof
via facsimile and overnight courier (
"Notice of Prepayment at Option of
Holder Upon Triggering Event
") to the Company, which Notice of Prepayment at
Option of Holder Upon Triggering Event shall indicate (i) the amount of the Note
that such holder is electing to have prepaid and (ii) the applicable Triggering
Event Prepayment Price, as calculated pursuant to Section 3.6(c) above. A holder
shall only be permitted to require the Company to prepay the Note pursuant to
Section 3.6 hereof for the greater of a period of ten (10) days after receipt by
such holder of a Notice of Triggering Event or for so long as such Triggering
Event is continuing.
12
10.117
(h)
Payment
of Prepayment Price.
Upon the Company's receipt of a Notice(s) of Prepayment
at Option of Holder Upon Triggering Event or a Notice(s) of Prepayment at Option
of Holder Upon Major Transaction from any holder of the Notes, the Company shall
immediately notify each holder of the Notes by facsimile of the Company's
receipt of such Notice(s) of Prepayment at Option of Holder Upon Triggering
Event or Notice(s) of Prepayment at Option of Holder Upon Major Transaction and
each holder which has sent such a notice shall promptly submit to the Company
such holder's certificates representing the Notes which such holder has elected
to have prepaid. The Company shall deliver the applicable Triggering Event
Prepayment Price, in the case of a prepayment pursuant to Section 3.6(i), to
such holder within five (5) business days after the Company's receipt of a
Notice of Prepayment at Option of Holder Upon Triggering Event and, in the case
of a prepayment pursuant to Section 3.6(f), the Company shall deliver the
applicable Major Transaction Prepayment Price immediately prior to the
consummation of the Major Transaction; provided that a holder's original Note
shall have been so delivered to the Company; provided further that if the
Company is u nable to prepay all of the Notes to be prepaid, the Company shall
prepay an amount from each holder of the Notes being prepaid equal to such
holder's pro-rata amount (based on the number of Notes held by such holder
relative to the number of Notes outstanding) of all Notes being prepaid. If the
Company shall fail to prepay all of the Notes submitted for prepayment (other
than pursuant to a dispute as to the arithmetic calculation of the Prepayment
Price), in addition to any remedy such holder of the Notes may have under this
Note and the Purchase Agreement, the applicable Prepayment Price payable in
respect of such Notes not prepaid shall bear interest at the rate of two percent
(2%) per month (prorated for partial months) until paid in full. Until the
Company pays such unpaid applicable Prepayment Price in full to a holder of the
Notes submitted for prepayment, such holder shall have the option (the "Void
Optional Prepayment Option") to, in lieu of prepayment, require the Company to
promptly return to such holder(s) all of the Notes that were submitted for
prepayment by such holder(s) under this Section 3.6 and for which the applicable
Prepayment Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "Void Optional Prepayment Notice"). Upon the
Company's receipt of such Void Optional Prepayment Notice(s) and prior to
payment of the full applicable Prepayment Price to such holder, (i) the
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction, as the case
may be, shall be null and void with respect to those Notes submitted for
prepayment and for which the applicable Prepayment Price has not been paid, (ii)
the Company shall immediately return any Notes submitted to the Company by each
holder for prepayment under this Section 3.6(h) and for which the applicable
Prepayment Price has not been paid and (iii) the Conversion Price of such
returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Void Optional Prepayment Notice(s) is delivered
to the Company and (B) the lowest Closing Bid Price during the period beginning
on the date on which the Notice(s) of Prepayment of Option of Holder Upon Major
Transaction or the Notice(s) of Prepayment at Option of Holder Upon Triggering
Event, as the case may be, is delivered to the Company and ending on the date on
which the Void Optional Prepayment Notice(s) is delivered to the Company;
provided that no adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect. A holder's delivery of a Void
Optional Prepayment Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice. Payments provided for in this Section
3.6 shall have priority to payments to other stockholders in connection with a Major Transaction.
13
10.117
(i)
Company Prepayment Option upon Major Transaction
. Upon the consummation
of a Major Transaction, the Company may prepay in cash all or any portion of the
outstanding principal amount of this Note together with all accrued and unpaid
interest thereon upon at least thirty (30) days prior written notice to the
Holder (the "
Company's Prepayment Notice
") at a price equal to one
hundred twenty percent (120%) of the aggregate principal amount of this Note
plus any accrued but unpaid interest (the
"Company's Prepayment Price
");
provided, however, that if a holder has delivered a Conversion Notice to the
Company or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Company's Prepayment Notice, the principal amount of
the Notes plus any accrued but unpaid interest designated to be converted may
not be prepaid by the Company and shall be converted in accordance with Section
3.3 hereof; provided further that if during the period between delivery of the
Company's Prepayment Notice and the Company's Prepayment Date (as defined
below), a holder shall become entitled and elects to deliver a Notice of
Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at
Option of Holder upon Triggering Event, then such rights of the holders shall
take precedence over the previously delivered Company Prepayment Notice if the
holder so elects. The Company's Prepayment Notice shall state the date of
prepayment which date shall be the date of the consummation of the Major
Transaction (the "Company's Prepayment Date"), the Company's Prepayment Price
and the principal amount of Notes plus any accrued but unpaid interest to be
prepaid by the Company. The Company shall deliver the Company's Prepayment Price
on the Company's Prepayment Date, provided, that if the holder(s) delivers a
Conversion Notice before the Company's Prepayment Date, then the portion of the
Company's Prepayment Price which would be paid to prepay the Notes covered by
such Conversion Notice shall be returned to the Company upon delivery of the
Common Stock issuable i n connection with such Conversion Notice to the
holder(s). On the Company's Prepayment Date, the Company shall pay the Company's
Prepayment Price, subject to any adjustment pursuant to the immediately
preceding sentence, to the holder(s) on a pro rata basis. If the Company fails
to pay the Company's Prepayment Price by the third (3rd) business day after the
Company's Prepayment Date, the prepayment will be declared null and void and the
Company shall lose its right to serve a Company's Prepayment Notice pursuant to
this Section 3.6(i) in the future. Notwithstanding the foregoing to the
contrary, the Company may effect a prepayment pursuant to this Section 3.6(i)
only if trading in the Common Stock shall not have been suspended by the
Securities and Exchange Commission or the Nasdaq SmallCap Market (or other
exchange or market on which the Common Stock is trading), and and the Company is
in material compliance with the terms and conditions of this Note and the other
Transaction Documents.
Section
3.7
Inability to Fully Convert
.
(a)
Holder's Option if Company Cannot Fully Convert
. If, upon the Company's
receipt of a Conversion Notice, the Company cannot issue shares of Common Stock
for any reason, including, without limitation, because the Company (w) does not
have a sufficient number of shares of Common Stock authorized and available, or
(x) is otherwise prohibited by applicable law or by the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or any of its securities from
issuing all of the Common Stock which is to be issued to the Holder pursuant to
a Conversion Notice, then the Company shall issue as many shares of Common Stock
as it is able to issue in accordance with the Holder's Conversion Notice and,
with respect to the unconverted portion of this Note, the Holder, solely at
Holder's option, can elect to:
(i) require
the Company to prepay that portion of this Note for which the Company is unable
to issue Common Stock in accordance with the Holder's Conversion Notice (the
"
Mandatory
P
repayment") at a price per share equal to the
Triggering Event Prepayment Price as of such Conversion Date (the "Mandatory
Prepayment Price");
(ii)
void its Conversion Notice and retain or have returned, as the case may be, this Note that was to be converted pursuant to the
Conversion Notice (provided that the Holder's voiding its Conversion Notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice).
14
10.117
In the event a Holder shall elect to convert any portion of its
Notes as provided herein, the Company cannot refuse conversion based on any
claim that such Holder or anyone associated or affiliated with such Holder has
been engaged in any violation of law, violation of an agreement to which such
Holder is a party or for any reason whatsoever, unless, an injunction from a
court, on notice, restraining and or adjoining conversion of all or of said
Notes shall have been issued and the Company posts a surety bond for the benefit
of such Holder in an amount equal to 130% of the principal amount of the Notes
the Holder has elected to convert, which bond shall remain i n effect until the
completion of arbitration/litigation of the dispute and the proceeds of which
shall be payable to such Holder in the event it obtains judgment.
(b)
Mechanics of Fulfilling Holder's Election
. The Company shall immediately
send via facsimile to the Holder, upon receipt of a facsimile copy of a
Conversion Notice from the Holder which cannot be fully satisfied as described
in Section 3.7(a) above, a notice of the Company's inability to fully satisfy
the Conversion Notice (the
"Inability to Fully Convert Notice
"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Company
is unable to fully satisfy such holder's Conversion Notice, (ii) the amount of
this Note which cannot be converted and (iii) the applicable Mandatory
Prepayment Price. The Holder shall notify the Company of its election pursuant
to Section 3.7(a) above by delivering written notice via facsimile to the
Company (
"Notice in Response to
Inability to Convert
").
(c)
Payment
of Prepayment Price
. If the Holder shall elect to have its Notes prepaid
pursuant to Section 3.7(a)(i) above, the Company shall pay the Mandatory
Prepayment Price to the Holder within thirty (30) days of the Company's receipt
of the Holder's Notice in Response to Inability to Convert, provided that prior
to the Company's receipt of the Holder's Notice in Response to Inability to
Convert the Company has not delivered a notice to the Holder stating, to the
satisfaction of the Holder, that the event or condition resulting i n the
Mandatory Prepayment has been cured and all Conversion Shares issuable to the
Holder can and will be delivered to the Holder in accordance with the terms of
this Note. If the Company shall fail to pay the applicable Mandatory Prepayment
Price to the Holder on a timely basis as described in this Section 3.7(c) (other
than pursuant to a dispute as to the determination of the arithmetic calculation
of the Prepayment Price), in addition to any remedy the Holder may have under
this Note and the Purchase Agreement, such unpaid amount shall bear interest at
the rate of two percent (2%) per month (prorated for partial months) until paid
in full. Until the full Mandatory Prepayment Price is paid in full to the
Holder, the Holder may (i) void the Mandatory Prepayment with respect to that
portion of the Note for which the full Mandatory Prepayment Price has not been
paid, (ii) receive back such Note, and (iii) require that the Conversion Price
of such returned Note be adjusted to the lesser of (A) the Conversion Price as
in effect on the date on which the Holder voided the Mandatory Prepayment and
(B) the lowest Closing Bid Price during the period beginning on the Conversion
Date and ending on the date the Holder voided the Mandatory Prepayment.
(d)
Pro-rata
Conversion and Prepayment
. In the event the Company receives a Conversion
Notice from more than one holder of the Notes on the same day and the Company
can convert and prepay some, but not all, of the Notes pursuant to this Section
3.7, the Company shall convert and prepay from each holder of the Notes electing
to have its Notes converted and prepaid at such time an amount equal to such
holder's pro-rata amount (based on the principal amount of the Notes held by
such holder relative to the principal amount of the Notes outstanding) of all
the Notes being converted and prepaid at such time.
Section
3.8
No Rights as Shareholder.
Nothing
contained in this Note shall be construed as conferring upon the Holder, prior
to the conversion of this Note, the right to vote orto receive dividends or to consent or to receive notice as a
shareholder in respect of any meeting of shareholders for the election of
directors of the Company or of any other matter, or any other rights as a
shareholder of the Company.
15
10.117
ARTICLE IV
MISCELLANEOUS
Section
4.1
Notices
. Any notice, demand,
request, waiver or other communication required or permitted to be given
hereunder shall be in writing and shall be effective (a) upon hand delivery by
telex (with correct answer back received), telecopy or facsimile at the address
or number designated in the Purchase Agreement (if delivered on a business day
during normal business hours where such notice is to be received), or the first
business day following such delivery (if delivered other than on a business day
during normal business hours where such notice is to be received) or (b) on the
second business day following the date of mailing by express courier service,
fully prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The Company will give written notice to
the Holder at least ten (10) days prior to the date on which the Company takes a
record (x) with respect to any dividend or distribution upon the Common Stock,
(y) with respect to any pro rata subscription offer to holders of Common Stock
or (z) for determining rights to vote with respect to any Organic Change,
dissolution, liquidation or winding-up and in no event shall such notice be
provided to such holder prior to such information being made known to the
public. The Company will also give written notice to the Holder at least ten
(10) days prior to the date on which any Organic Change, dissolution,
liquidation or winding-up will take place and in no event shall such notice be
provided to the Holder prior to such information being made known to the public.
Section
4.2
Governing Law
. This Note shall be
governed by and construed in accordance with the internal laws of the State of
Nevada, without giving effect to any of the conflicts of law principles which
would result in the application of the substantive law of another jurisdiction.
This Note shall not be interpreted or construed with any presumption against the
party causing this Note to be drafted.
Section
4.3
Headings.
Article and section headings
in this Note are included herein for purposes of convenience of reference only
and shall not constitute a part of this Note for any other purpose.
Section
4.4
Remedies, Characterizations, Other
Obligations, Breaches and Injunctive Relief
. The remedies provided in this
Note shall be cumulative and in addition to all other remedies available under
this Note, at law or in equity (including, without limitation, a decree of
specific performance and/or other injunctive relief), no remedy contained herein
shall be deemed a waiver of compliance with the provisions giving rise to such
remedy and nothing herein shall limit a holder's right to pursue actual damages
for any failure by the Company to comply with the terms of this Note. Amounts
set forth or provided for herein with respect to payments, conversion and the
like (and the computation thereof) shall be the amounts to be received by the
holder thereof and shall not, except as expressly provided herein, be subject to
any other obligation of the Company (or the performance thereof). The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable and material harm to the Holder and that the remedy at law for any
such breach may be inadequate. Therefore the Company agrees that, in the event
of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available rights and remedies, at law or in equity, to
seek and obtain such equitable relief, including but not limited to an
injunction restraining any such breach or threatened breach, without the
necessity of showing economic loss and without any bond or other security being
required.
Section
4.5
Enforcement Expenses.
The Company
agrees to pay all costs and expenses of enforcement of this Note, including, without limitation,
reasonable attorneys' fees and expenses.
16
10.117
Section
4.6
Binding Effect
. The obligations of
the Company and the Holder set forth herein shall be binding upon the successors
and assigns of each such party, whether or not such successors or assigns are
permitted by the terms hereof.
Section
4.7
Amendments
. This Note may not be
modified or amended many manner except in writing executed by the Company and
the Holder.
Section
4.8
Compliance with Securities Laws
.
The Holder of this Note acknowledges that this Note is being acquired solely for
the Holder's own account and not as a nominee for any other party, and for
investment, and that the Holder shall not offer, sell or otherwise dispose of
this Note. This Note and any Note issued in substitution or replacement therefor
shall be stamped or imprinted with a legend in substantially the following form:
"THIS NOTE HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE
SECURITIES LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE
SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION
FROM REGISTRATION UNDER THE ACT AND SUCH STATE SECURITIES LAWS."
Section
4.9
Consent to Jurisdiction
. Each of
the Company and the Holder (i) hereby irrevocably submits to the exclusive
jurisdiction of the State of Nevada for the purposes of any suit, action or
proceeding arising out of or relating to this Note and (ii) hereby waives, and
agrees not to assert in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the Company and the Holder
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under the Purchase Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing in this Section
4.9 shall affect or limit any right to serve process in any other manner
permitted by law. Each of the Company and the Holder hereby agree that the
prevailing party in any suit, action or proceeding arising out of or relating to
this Note shall be entitled to reimbursement for reasonable legal fees from the
non-prevailing party.
Section
4.10
Parties in Interest
. This Note
shall be binding upon, inure to the benefit of and be enforceable by the
Company, the Holder and their respective successors and permitted assigns.
Section
4.1 1
Failure or Indulgence Not
Waiver
. No failure or delay on the part of the Holder in the exercise of any
power, right or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege.
17
10.117
Section
4.12
Company Waivers
. Except as
otherwise specifically provided herein, the Company and all others that may
become liable for all or any part of the obligations evidenced by this Note,
hereby waive presentment, demand, notice of nonpayment, protest and all other
demands' and notices in connection with the delivery, acceptance, performance
and enforcement of this Note, and do hereby consent to any number of renewals of
extensions of the time or payment hereof and agree that any such renewals or
extensions may be made without notice to any such persons and without affecting
their liability herein and do further consent to the release of any person
liable hereon, all without affecting the liability of the other persons, firms
or Company liable for the payment of this Note, AND DO HEREBY WAIVE TRlAL BY
JURY.
(a) No
delay or omission on the part of the Holder in exercising its rights under this
Note, or course of conduct relating hereto, shall operate as a waiver of such
rights or any other right of the Holder, nor shall any waiver by the Holder of
any such right or rights on any one occasion be deemed a waiver of the same
right or rights on any future occasion.
(b) THE
COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHICH THIS NOTE IS A PART IS A
COMMERCIAL TRANSACTION, AND TO THE EXTENT ALLOWED BY APPLICA BLE LAW, HEREBY
WAIVES ITS RIGHT TO NOTICE AN D HEA R ING
18
10.117
WITH RESPECT TO ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS
SUCCESSORS OR ASSIGNS MAY DESIRE TO USE.
|
LITHIUM EXPLORATION GROUP, INC.
|
|
|
|
|
By:
|
|
|
|
Name: Alexander Walsh
|
|
|
Title: Chief Executive Officer
|
10.117
FORM OF
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Note)
The undersigned hereby irrevocably elects to convert $ of the
principal amount of the above Note No. ___ into shares of Common Stock of Lithium
Exploration Group, Inc. (the "Company") according to the conditions hereof, as
of the date written below.
|
Date of Conversion
|
|
|
Applicable Conversion Price:
|
|
|
Number of shares of Common Stock beneficially owned or
deemed beneficially owned by the Holder on the Date of Conversion: ______________________________
|
|
Signature:
|
|
|
Print Name:
|
|
|
Address:
|
|
|
|
|