10-K 1 v354475_10k.htm FORM 10-K

 

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, 2013

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:  333-149338

 

 

Li3 Energy, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada 20-3061907
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)  
   
Marchant Pereira 150  
Of. 803  
Providencia, Santiago de Chile  
Chile  
   
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code +(56) 2-2896-9100
   
Securities registered under Section 12(b) of the Act: None
   
Securities registered under Section 12(g) of the Act: Common Stock, $0.001 par value per share

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes ¨     No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.

Yes ¨     No x

 

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

Yes x      No ¨

 

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

Yes x     No ¨

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                                        ¨

 

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

 

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

 

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

 

On December 31, 2012, the last business day of the registrant’s most recently completed second fiscal quarter, 232,415,080 shares of its common stock, par value $0.001 per share (its only class of voting or non-voting common equity), were held by non-affiliates of the registrant.  The aggregate market value of such shares was approximately $13,689,248, based on the price at which the registrant’s common stock was last sold at such time (i.e. $0.0589 per share on December 31, 2012).  For purposes of making this calculation, shares beneficially owned at such time by each executive officer and director of the registrant and by each beneficial owner of greater than 10% of the voting stock of the registrant have been excluded because such persons may be deemed to be affiliates of the registrant.  This determination of affiliate status is not necessarily a conclusive determination for other purposes.

 

As of October 2, 2013, there were 395,497,453 shares of the registrant's common stock, par value $0.001, issued and outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

None.

 

 
 

 

TABLE OF CONTENTS

 

Item Number and Caption     Page
       
Forward-Looking Statements   2
     
PART I     3
       
1. Business   3
1A. Risk Factors   14
1B. Unresolved Staff Comments   24
2. Properties   24
3. Legal Proceedings   24
4. Mine Safety Disclosures   25
       
PART II     26
       
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   26
6. Selected Financial Data   27
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations   28
7A. Quantitative and Qualitative Disclosures About Market Risk   37
8. Financial Statements and Supplementary Data   37
9. Changes in and Disagreements with Accountants on Accounting, and Financial Disclosure   37
9A Controls and Procedures   38
9B. Other Information   38
       
PART III     39
       
10. Directors, Executive Officers, and Corporate Governance   39
11. Executive Compensation   43
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   49
13. Certain Relationships and Related Transactions, and Director Independence   51
14. Principal Accounting Fees and Services   52
       
PART IV     53
       
15. Exhibits, Financial Statement Schedules   53

 

 
 

 

FORWARD-LOOKING STATEMENTS

 

Various statements in this Annual Report, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are “forward-looking statements.”  The forward-looking statements may include projections and estimates concerning the timing and success of specific projects, revenues, income and capital spending. Forward-looking statements are often (but not always) accompanied by words such as “believe,” “intend,” “expect,” “seek,” “may,” “should,” “anticipate,” “could,” “estimate,” “plan,” “predict,” “project,” “target,” “goal,” “objective” or other similar expressions. These statements are likely to address our growth strategy, financial results and exploration and development programs, among other things.

 

Forward-looking statements are subject to risks and uncertainties that may change at any time. The forward-looking statements contained in this Annual Report are largely based on our expectations, which reflect many estimates and assumptions made by our management. These estimates and assumptions reflect our best judgment based on currently known market conditions and other factors. Although we believe such estimates and assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors and it is impossible for us to anticipate all factors that could affect our actual results. In addition, management’s assumptions about future events may prove to be inaccurate.  Management cautions all readers that the forward-looking statements contained in this Annual Report are not guarantees of future performance, and we cannot assure any reader that such statements will be realized or the forward looking events and circumstances will occur.  There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from those anticipated or implied in the forward-looking statements, including, but not limited to, those described in the “Risk Factors” section and elsewhere in this Annual Report.

 

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

 

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PART I

 

ITEM 1. BUSINESS

 

Corporate Summary

 

Li3 Energy, Inc., (“Li3,” “we,” “our” or “us”) was incorporated under the laws of the state of Nevada on June 24, 2005. We are an exploration company in the lithium and potassium mining sector, based in South America. Our common stock is currently quoted on the OTC Bulletin Board. We aim to acquire and develop lithium and potassium brine deposits in South America. We are currently focused on further exploring, developing and commercializing our flagship “Maricunga Project”, which consists of two adjacent properties: i) our 60% controlling interest in SLM Litio 1-6 (1,438 hectares), and ii) the Cocina Mining Concessions (450 hectares) acquired in April 2013; both located in the northeast section of the Salar de Maricunga in Region III of Atacama, in northern Chile. To the best of our knowledge, we are one of the only companies with an advanced exploration stage lithium and potassium project within the Salar de Maricunga, the second largest lithium-bearing salt brine deposit in Chile. We plan to continue exploring other synergistic opportunities to further augment and strengthen this property and our land portfolio throughout the region. We are seeking to be a low cost producer of lithium, potash and other mineral products.

 

Our goals are to: a) advance the Maricunga Project to the Feasibility Study stage; b) support the global implementation of clean and green energy initiatives; c) meet growing lithium market demand; and d) become a mid-tier, low cost secondary supplier of lithium, potassium, and other strategic minerals, serving global clients in the energy, fertilizer and specialty chemical industries.

 

Under the current Chilean mining law, lithium is a non-concessible substance; only mining exploitation concessions initiated before January 1, 1979 are authorized for the exploitation of lithium. Since the constitution process of the SLM Litio 1-6 Mining Concessions was initiated in 2000, we are not authorized to exploit lithium in the area covered by such concessions. All other minerals are concessible. As the constitution process of the Cocina Mining Concessions was initiated in 1937, we are authorized to exploit lithium in the area covered by the Cocina Mining Concessions. As with any mineral exploitation in Chile, all other permits are required.

 

In June 2012, the Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses. In September 2012, we formed a consortium consisting of Li3, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction to obtain the exploitation permit for SLM Litio 1-6. At the end of the process, we were informed that the Consortium’s bid was not the winning bid. The Chilean government has since decided to invalidate the CEOL process due to an administrative error. The Company submitted several appeals to the Chilean government requesting it to reconsider the invalidation and award the CEOL to the second highest bidder - the Consortium. To date, the appeals have been rejected by the Chilean government. The Company continues to seek a concession for the SLM Litio 1-6, however, if no permit for lithium exploitation is acquired, the Company plans to develop and exploit potassium from this property.

 

Due to the uncertainty regarding the ability to obtain a lithium permit for our SLM Litio 1-6 property, we sought to acquire a property that did not require a CEOL to exploit lithium. Under these efforts, we acquired the Cocina Mining Concessions in April 2013. The Cocina Mining Concessions now enhance the viability of a combined project (the Maricunga Project) with the SLM Litio 1-6 properties, from which we aim to exploit lithium and potassium from the Cocina Mining Concessions and potassium from SLM Litio 1-6.

 

Through our strategic partner POSCAN, we have been evaluating the use of advanced process technologies that may further improve upon the economics and shorten the commercial production timeline of our Maricunga Project. These technologies have been recently evaluated by POSCO in a pilot test facility, proving effective when measured against the conventional lithium and potassium commercialization process.

 

According to the signumBOX Performance Index published in May 2013, our SLM Litio 1-6 mining concessions are ranked as the fourth best undeveloped lithium project in the world out of 47 other brine salars, subject to obtaining lithium exploitation permits. Maricunga is the highest ranked undeveloped lithium brine project in Chile and after Atacama, the Salar de Maricunga has the second highest quality deposit of lithium in Chile.

 

Currently we are focused on the development of our Cocina Mining Concessions to produce lithium carbonate and our SLM Litio 1-6 property to produce potash to accelerate cash flow generation, while we continue to consider other relevant acquisitions or joint venture opportunities which would help us to pursue our strategy.

 

A summary of our key activities is found below:

 

·May 2011 - Completed acquisition of 60% Controlling Interest in SLM Litio1-6, which established the Maricunga Project.

 

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·August 2011 - Strategic Partnership with POSCO Canada Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO (NYSE: PKX), which established an $18 million Exploration and Development program for SLM Litio 1-6, among other things.
   
·September 2011 - Completed $8 million funding tranche with POSCAN and launched $8 million Phase One Exploration Plan on SLM Litio 1-6.
   
·March 2012 - Signed MOU with POSCO to construct Test Facility (advanced process technology).
   
·May 2012 - Issued a technical report, prepared in accordance with National Instrument 43-101 of the Canadian Securities Administrators, validating our lithium and potash exploration campaign at SLM Litio 1-6 and recommending the project to advance to the Feasibility Study stage.
   
·August 2012 - Completed a $10 million funding tranche from POSCAN.
   
·September 2012 - Organized a consortium (Li3 Energy, POSCO, Mitsui, Daewoo) to bid on auction for lithium exploitation permit on SLM Litio 1-6.
   
·September 2012 - Participated in government auction for lithium exploitation permit (CEOL), however we were unsuccessful.
   
·March 2013 - Approval of Environmental Impact Declaration for SLM Litio 1-6 concessions.
   
·April 2013 - Acquired the Cocina Mining Concessions (450 hectares)for a purchase price of $6.3 million, which do not require a special permit to exploit lithium.
   
 ·May 2013 - SLM Litio 1-6 identified as 4th in “Top Undeveloped Lithium Projects in the World” - signumBOX, subject to obtaining the permit to exploit lithium. The Chilean ministry of mining is not currently issuing permits for lithium exploitation and there is no assurance they will do so in the future.

 

We believe that if we are successful in advancing the Maricunga Project through the exploration and Feasibility Study stage, obtain the necessary Chilean government approvals/licenses, close and acquire additional land acreage to support further development of the Maricunga project, achieve a Definitive Feasibility Study, and raise the necessary capital, we could begin commercial production and begin generating revenues by the end of calendar year 2017. However, there can be no assurance that we will achieve our stated objectives.

 

We are led by a management team with extensive exploration, mining, minerals, finance and commercialization expertise, and a Board of Directors who have advised, led and operated numerous mining entities. They are supported by an experienced technical team, many of whom have worked on other junior lithium projects.

 

We are an exploration stage company and as such, we have never generated revenues from operations and currently do not expect to generate any such revenues in the near term.

 

Strategic Plan

 

Our objective is to become an integrated chemical company through the strategic acquisition and development of lithium and potassium assets, as well as other assets that have by-product synergies. Part of our strategic plan is to explore and develop our existing project as well as to identify other synergistic opportunities with new projects with production potential that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium, potassium and other industrial minerals properties. Our primary objective is to become a low cost lithium and potash producer utilizing improved technologies for the extraction of lithium and potash from brines in an accelerated manner.

 

Some of the actions we have taken in striving to achieve our objective are as follows:

 

A) Acquisition of Cocina Mining Concessions

 

While lithium is not currently exploitable on SLM Litio 1-6 under current Chilean regulations, we have been evaluating properties within close proximity to our Maricunga Project, which would not be subject to such limitation.

 

On April 16, 2013, Minera Li Energy SpA, a 100% owned subsidiary, purchased all of the outstanding shares of SLM Cocina Diecinueve de la Hoyada de Maricunga, a Chilean legal mining company (the “Cocina Company”) for a total purchase price of $6.3 million. Cocina Company was the sole owner of a group of exploitation mining concessions named Cocina 19 through 27 (the “Cocina Mining Concessions”), totaling 450 hectares that is contiguous to SLM Litio 1-6.

 

The Cocina Mining Concessions allow us to exploit lithium in the area covered by those concessions without the requirement of any special permit. As with any mineral exploitation in Chile, all other permits are required.

 

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The Cocina Mining Concessions now enhance the viability of a combined project (the Maricunga Project) with the SLM Litio 1-6 properties, from which we aim to exploit lithium and potassium from the Cocina Mining Concessions and potassium from SLM Litio 1-6.

 

B) Evaluation of Advanced Process Technologies

 

Another aspect of our strategic plan involves exploring the use of technologies that, when measured against the conventional approach to lithium commercialization could possibly improve project economics and shorten time to market.

 

In March 2013, POSCO (of which POSCAN is a wholly owned subsidiary) announced that it has developed a chemical lithium extraction technology that reduces recovery time from around 12 months to just eight hours. Testing of this technology showed that it increases the lithium recovery rate from a maximum of 50% using traditional evaporation ponds to more than 80%, and the lithium carbonate produced is more than 99.9% pure. If we are able to advance our Maricunga Project through the Feasibility Study stage, we will pursue utilizing this technology as the means of extracting lithium from our Cocina Mining Concessions in order to gain efficiencies.

 

Strategic Partners

 

POSCO / POSCAN

 

POSCO (with its subsidiaries) is a diversified company, with operations in energy, chemicals and materials and is one of the largest steel manufacturers in the world. It is publicly-listed on the NYSE.

 

POSCO (NYSE: PKX) possesses proven executive leadership, a world renowned Global Research and Development Center (RIST), a vast knowledge of lithium and other strategic minerals, and a vision to transform the methodology in how lithium is commercialized. We believe that this demonstrates a unique ability to apply both intellectual and financial capital, and that a Strategic Partnership with POSCO would enable the Company to begin to execute its strategic plan.

 

On August 24, 2011, we entered into a Securities Purchase Agreement (the “SPA”) and an Investor Rights Agreement (the “IRA” and, together with the SPA, the “POSCAN Agreements”) with POSCO Canada Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO. Pursuant to the POSCAN Agreements, on September 14, 2011, POSCAN purchased 38,095,300 Units of Li3’s securities for approximately $8 million, with each “Unit” consisting of one share of common stock and a three-year warrant to purchase one share of common stock at an exercise price of $0.40 per share.

 

On August 17, 2012, Li3 closed on POSCAN’s second tranche of investment under the SPA, selling 62,499,938 Units to POSCAN for $9,999,990, with each “Unit” consisting of one share of common stock and a three-year warrant to purchase one share of common stock for $0.21 per share. As at June 30, 2013, POSCAN held 100,595,238 Li3 shares, representing 25.4% of our common stock.

 

As part of this second tranche of investment, we reduced the exercise price of all of the warrants sold under the SPA (the “POSCAN Unit Warrants”) from $0.40 per share to $0.21 per share. Li3 also agreed to issue to POSCAN a two-year warrant (the “POSCAN Bonus Warrant”) to purchase 5,000,000 shares of common stock at an exercise price of $0.15 per share.

 

The IRA provides that Li3 will appoint a director nominated by POSCAN to our board of directors, and will continue to nominate a POSCAN-designee at each annual meeting for as long as POSCAN owns not less than 10% of the issued and outstanding shares of common stock.

 

In March 2012, Li3 and POSCO executed a Non-Binding Memorandum of Understanding (“MOU”) to construct a test facility for the recovery of lithium and other products at POSCO’s expense, with technical support from Li3 as necessary.

 

In March 2013, POSCO announced that it had successfully completed testing of its proprietary, patented Direct Lithium Extraction Process. This process addresses the current economics and inefficiencies in the lithium market by significantly improving lithium recovery yields and shortening the time to commercial production. This process includes the following benefits:

 

  · When measured against traditional forms of commercialization (via natural solar evaporation), its technology increased lithium yields from the same resource from 40-50% to 80% with a substantially reduced land footprint;

  · Substantially improved process times and has achieved lithium carbonate end product from existing brine resources in 8 hours, as opposed to the industry average of 12 months; and

  · Non-dependent on climatic conditions, self-contained and eliminates the use of evaporation ponds.

 

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In July 2013, Li3 and POSCO executed another non-exclusive, non-binding MOU, replacing the MOU executed in March 2012. Terms of the MOU include POSCO (at its sole expense), designing, building and operating a new pilot demonstration facility in Chile or, at another site to be mutually agreed upon. Li3 will provide all technical support for the facility as necessary as well as obtaining all required permitting. Additionally, Li3 and POSCO plan to negotiate terms for a Commercial Off-take agreement (inclusive of financial structure) for any products produced within the pilot demonstration facility upon its completion.

 

There can be no assurance that any final agreement will be reached with POSCAN with respect to a pilot plant, a commercial plant, any further investment by POSCAN, any purchase by POSCAN of our production, or otherwise.

 

Project Overview

 

Chile - Maricunga Project

 

Location

 

The Maricunga project consists of approximately 1,888 hectares, and is located in the northeast section of the Salar de Maricunga in Chile, the second largest lithium-bearing salt brine deposit in Chile. It consists of our 60% controlling interest in SLM Litio 1-6 (1,438 hectares - highlighted in blue on the map below) and the recently acquired Cocina Mining Concessions (450 hectares - highlighted in green on the map below).

 

The Salar de Maricunga is located in Region III (Atacama region) of northern Chile at an elevation of approximately 3,750m. It is classified as a mixed type of salar of the Na-Cl-Ca/SO4 system. It is located about 180km to the north-east of Copiapo, the capital of the Atacama region, via “Carreteradel Inca” highway.

 

Location of the Salar de Maricunga

 

 

Maricunga Project within the Salar

 

 

 

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The area of each of our concessions is:

 

  (a) Litio 1- 1/29 - 130 hectares.
  (b) Litio 2- 1/29 - 143 hectares.
  (c) Litio 3- 1/58 - 286 hectares.
  (d) Litio 4- 1/60 - 297 hectares.
  (e) Litio 5- 1/60 - 300 hectares.
  (f) Litio 6- 1/60 - 282 hectares.
  (g) Cocina 19-27 - 450 hectares.

 

SLM Litio 1-6 Concessions

 

On May 20, 2011, we acquired 60% of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga (“SLM Litio 1-6”, comprising six exploitation mining concessions granted by the Chilean government, each held by one of the “Maricunga Companies”) through our Chilean subsidiary, Minera Li Energy SPA (“Minera Li”). The purchase price was $6,370,000 in cash, including amounts paid to agents, and 127,500,000 restricted shares of our common stock. Each mining concession grants the owner the right to explore and develop commercially, mineral deposits at the SLM Litio 1-6 property, except for lithium. The SLM Litio 1-6 Concessions were constituted post to the 1979 Lithium Exploitation Restrictions, meaning that, from a mining law point of view, their holder is not authorized to exploit lithium in the area covered by those concessions. These mining properties are not subject to royalties or other agreements. However, we must pay annual licenses in March of each year, aggregating approximately $15,000 per year for exploration and exploitation concessions.

 

In December 2011, we completed on schedule, the $8 million Phase One of the Exploration and Development Program established in August 2011 on our SLM Litio 1-6 concessions.

 

In May 2012, we reported the completion of the NI 43-101 of the Canadian Securities Administrators (NI 43-101) that summarized and validated the results of our $8 million Phase One Exploration and Development Program on our Maricunga Project in Chile which was completed in December 2011. The Technical Report was prepared by Donald H. Hains, Principal of Hains Technology and Associates, who is a “Qualified Person” as defined by NI 43-101. The NI 43-101 Compliant Measured Resource Report on SLM Litio 1-6 proves our SLM Litio 1-6 mining concessions have attractive lithium and potassium grades and recommended the project to advance to the Feasibility Study stage. The Company applied for a permit for the extraction of lithium from SLM Litio 1-6, however the Chilean ministry of mining has since suspended its process of awarding such permits. The Company intends to continue to seek a permit for the exploitation of lithium in the future. Presently, the Company is developing its plan to develop the SLM Litio 1-6 for potash production in conjunction with its development of its lithium prospect, Cocina, which is contiguous to SLM Litio 1-6.The Compliant Measured Resource Report estimated lithium and potassium concentrations as follows:

 

Average Concentration (g/L) 
K   Li   Mg   Ca   SO4   B   Mg/Li   K/Li   (SO4+2B)/(Cs+Mg) 
 8.97    1.25    8.28    12.42    0.72    0.61    6.63    7.18    0.184 

 

The report also included the following conclusions and recommendations:

 

-Results of airlift testing and pumping tests on test trenches indicate that future brine production can be achieved through a combination of production wells and open trenches.

 

-The analyses of brine chemistry indicate that the brine is amenable to lithium and potash recovery through conventional technology.

 

-It is believed that through the application of proprietary technology developed by Li3’s strategic partners, lithium recovery from the brine can be significantly enhanced and may range from 45 percent to more than 70 percent.

 

-It is the recommendation of the authors that a full feasibility study be completed for the Project. To date, we have not pursued a feasibility study as we do not have a permit to exploit lithium from SLM Litio 1-6. We plan to prepare a feasibility study for SLM Litio 1-6 as a potash producer and for Cocina Mining Concessions as lithium producer, both within a combined project.

 

In October 2012, the Company filed a request for approval of the Environmental Impact Declaration for the SLM Litio 1-6 concessions with the Chilean Environmental Authority. This approval was required to enable us to commence a feasibility study for the exploitation of potassium and production of potash, and was received in March 2013. Due to a lack of funds following the acquisition of our Cocina Mining Concessions in April, we have been unable to progress to the feasibility study stage on SLM Litio 1-6.

 

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CocinaMining Concessions

 

On April 16, 2013, Minera Li entered into a purchase agreement (the “Purchase Agreement”) with Jose Resk Nara and Carlos Alfonso Iribarren (the “Sellers”) whereby it purchased all of the outstanding shares of SLM Cocina Diecinueve de la Hoyada de Maricunga, a Chilean legal mining company (the “Cocina Company”). Cocina Company was the sole owner of a group of exploitation mining concessions named Cocina 19 through 27 (the “Cocina Mining Concessions”).

 

Pursuant to the Purchase Agreement, Minera Li agreed to pay the Sellers $7.3 million, of which $2.0 million was paid on the Closing Date, $2.0 million was to be paid on July 16, 2013, $1.8 million is to be paid on October 16, 2013 and $100,000 is to be paid annually on each of April 16 for 15 years, beginning in 2014. The Cocina Mining Concessions were mortgaged in favor of the Sellers as a security for the remaining payment as specified in the Purchase Agreement.

 

The Company did not make the required July 16, 2013 payment. As the scheduled payment was not paid, the Sellers may foreclose on their mortgage at any time due to non-payment of amounts owed to the Sellers in accordance with the Purchase Agreement. The Company is currently in discussions to modify terms of the amounts owed to the Sellers, however, there is no assurance the Company will come to an agreement with the Sellers.

 

The Cocina Mining Concessions were constituted prior to the 1979 Lithium Exploitation Restrictions, meaning that, from a mining law point of view, their holder is authorized (having a constitutionally protected ownership right) to exploit lithium in the area covered by those concessions. As with any mineral exploitation in Chile, all other permits are required. Refer to section Lithium Exploitation Permitting in Chile below for more details about the rights to exploit lithium in Chile.

 

Lithium Exploitation Permitting in Chile

 

In Chile, the Chilean Organic Law on Mining Concessions (“LOCM”) and the Chilean Mining Code (“CMC”) provide that lithium may not be granted in a mining concession without prejudice of the mining concessions validly granted before lithium was declared as a mineral the exploration and exploitation of which could not be the object of a mining concession. As a result, only mining exploitation concessions initiated before January 1, 1979 are authorized for the exploitation of lithium. For all other cases, the CMC establishes the reserve of lithium to Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of Chile for each case. Additionally, Law 16,319, which created the Chilean Nuclear Energy Commission (the “NEC”), provides in its article 8ththat, for reasons of national interest, any act or contract in connection with lithium will require the previous authorization of NEC (or have NEC as a party thereto). NEC is entitled to subject any such authorization to the fulfillment by the applicant of certain conditions. Once any such authorization is granted, NEC is not authorized to amend it or terminate it, nor the applicant to resign it, for reasons other than those set forth in the resolution granting it.

 

Since the constitution process of the SLM Litio 1-6 Mining Concessions was initiated in 2000, the Maricunga Companies are not authorized to exploit lithium in the area covered by such concessions, unless they also obtain a CEOL authorizing such exploitation.

 

As the constitution process of the Cocina Mining Concessions was initiated in 1937, Minera Li (a wholly-owned subsidiary of Li3), as the owner of the Cocina Mining Concessions, is authorized to exploit lithium in the area covered by the Cocina Mining Concessions.

 

In June 2012, the Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, the Consortium submitted its bid for the CEOLs and in September 2012, the Company was informed that the Consortium’s bid was not the winning bid.

 

The Chilean government has since decided to invalidate the CEOL process due to an administrative error, as well as rescinding the CEOL Basis, which defined the regulations of the CEOL process. The Company submitted several appeals to the Chilean government requesting it to reconsider the invalidation and award the CEOL to the second highest bidder - the Consortium. To date, the appeals have been rejected by the Chilean government. The Company continues to seek a concession for the SLM Litio 1-6, however, if no permit for lithium exploitation is acquired, the Company plans to develop and exploit potassium from this property.

 

Due to the uncertainty regarding the ability to obtain a lithium permit for our SLM Litio 1-6 property, we sought to acquire a property that did not require a CEOL to exploit lithium. Under these efforts, we acquired the Cocina Mining Concessions in April 2013.The Cocina Mining Concessions now enhance the viability of a combined project (the Maricunga Project) with the SLM Litio1-6 properties, from which we aim to exploit lithium and potassium from the Cocina Mining Concessions and potassium from SLM Litio 1-6. The majority of the past and current technical work performed on the project is applicable to the production of lithium and/or potash.

 

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Other Permits

 

Our operations are subject to numerous Chilean and international laws and regulations governing the operation and maintenance of our facilities and the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may:

 

·Require that we acquire the relevant permits before commencing extraction operations;

 

·Restrict the substances that can be released into the environment in connection with mining and extraction activities;

 

·Limit or prohibit mining activities on protected areas such as wetland or wilderness areas; and

 

·Require remedial measures to mitigate pollution from former operations, such as dismantling abandoned production facilities.

 

Companies must meet, maintain and abide by strict environmental regulations in accordance with Chilean and international laws and regulations. We will also have to abide and comply with national labor laws that protect and govern our employees. Additionally, we believe that between our management team, the consultants and experts we have hired, we will be able to satisfy any and all regulatory and compliance requirements.

 

SLM Litio 1-6 Minority Shareholders

 

Minority shareholders own the remaining 40% of the Maricunga Companies. The Chilean Mining Code requires shareholders of legal mining companies (such as the Maricunga Companies) to contribute their pro rata portion of exploration and exploitation expenses that are established at a shareholders meeting (“Required Contributions”).

 

At shareholders meetings held on October 6, 2011, the Maricunga Companies established Required Contributions that were to be funded by the shareholders on or prior to January 4, 2012. The minority shareholders of each Maricunga Company defaulted on their obligations to fund such Required Contributions.

 

The Chilean Mining Code permits any legal mining company to initiate an executive trial, the final resolution of which would state that shares held by shareholders who fail to make any Required Contribution must be sold at a public auction. The Chilean Mining Code establishes that the minimum bid in such auction shall be the amount of the Required Contribution that the defaulting shareholders failed to contribute (the “Default Amount”). The proceeds of such auction shall go first to the relevant legal mining company in the amount of the Default Amount, and any proceeds in excess thereof shall be paid to the defaulting shareholders. If the minimum bid is not achieved in the auction, then the defaulting shareholders’ shares in the legal mining company will be cancelled and each non-defaulting shareholder’s funding obligations will increase proportionally. The defaulting shareholders may cancel this procedure by paying the Default Amount plus expenses at any time before the sale in the public auction.

 

As the majority shareholder of SLM Litio 1-6, we have filed lawsuits distributed to four civil courts of Copiapo, third Region of Atacama, Chile, against the minority shareholders seeking either payment of their pro rata portion of costs or an auction of their 40% share of the properties. The minority shareholders have not paid their required contributions to the costs of conservation and exploration, which were agreed upon at the shareholders’ meeting on October 6, 2011. In December 2012, we received a favorable decision from one of the civil courts to auction approximately 4% of the shares once the judgment is executed. This was opposed by the shareholders, but the Court of Appeals of Copiapó confirmed the favorable decision. Now the favorable decision is being revised by the Supreme Court. We are awaiting the Supreme Court decision after which the second court of Copiapo should set a date and time for the auction of 4% of the shares. The other civil courts are due to issue their final decision regarding the auction of 12% of the shares. The remaining lawsuits for 24% of the shares are still in preliminary stage.

 

As indicated above, the shares of the minority shareholders of the Maricunga Companies will be cancelled in the scenario where the minimum bid is not achieved in the public auctions of all the lawsuits. If this scenario occurred, Minera Li would become the exclusive shareholder of each of the Maricunga Companies thereby absorbing them as a matter of law. Note however that (i) the shares of the minority shareholders are subject to pledges, injunction orders and judicial liens created in favor of third parties before the initiation of the above referred lawsuits; and (ii) there is no legal norm regulating how (i) would impact the absorption outcome.

 

Certain minority shareholders have filed counter claims against us, in two civil courts of Santiago, to declare, among other things, the invalidation of such shareholders’ meeting at which Required Contributions were established that such minority shareholders failed to make. In one of the courts, the process is on hold because the minority shareholders have not filed a new claim, as requested by the court. In the other court, we have filed our defense claiming that the lawsuits should be dismissed on the basis that the decision made in the shareholders´ meeting on October 6, 2011 was made in accordance with Chilean law, and that the amounts are necessary for the conservation and exploration of the mining property. Both lawsuits are currently on hold.

 

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Under Article 189 of CMC, the transfer of the mining concession(s) which caused the legal mining company to exist requires the vote of 2/3 of the legal mining company’s shares. The legal mining company requires the same majority for entering into a promise (or equivalent) to totally or partially sell such concession(s). Accordingly and as of today, Minera Li’s rights in the Maricunga Companies are not sufficient to have the Maricunga Companies transfer the SLM Litio 1-6 Concessions or promise to sell them.

 

Competition

 

We are currently categorized as a junior mineral resource exploration company that competes with other mineral resource exploration companies for financing, personnel and equipment and for the acquisition of mineral properties. Many of the mineral resource exploration companies with whom we compete have greater financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral properties and on exploration and development. This competition could result in competitors having mineral properties of greater quality and interest to prospective investors who may finance additional exploration and/or development. This competition could adversely impact on our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral properties.

 

Compliance with Government Regulation

 

We are committed to complying with and are, to our knowledge, in compliance with, all governmental and environmental regulations applicable to our company and our properties. Permits from a variety of regulatory authorities are required for many aspects of mine operation and reclamation. We cannot predict the extent to which these requirements will affect our company or our properties if we identify the existence of minerals in commercially exploitable quantities. In addition, future legislation and regulation could cause additional expense, capital expenditure, restrictions and delays in the exploration of our properties.

 

Employees

 

We have seven full-time employees and/or contract employees, including our Chief Executive Officer and Chief Financial Officer. In addition, we engage several advisors and consultants.

 

We engage contractors from time to time to consult with us on specific corporate affairs or to perform specific tasks in connection with our exploration programs.

 

Subsidiaries

 

We currently have five wholly owned subsidiaries:

 

1.Li3 Energy Peru SRL, a private limited company organized under the laws of Peru;
   
2.Minera Li Energy SPA, a company registered in Chile;
   
3.Alfredo Holdings, Ltd., an exempted limited company incorporated under the laws of the Cayman Islands;
   
4.Pacific Road Mining Chile, S.A. a Chilean corporation, which is a subsidiary of Alfredo Holdings, Ltd.; and
   
5.Noto Energy S.A., an Argentinean corporation.

 

We, through our subsidiary Minera Li Energy SPA, also own 60% of each of Sociedades Legales Minera Litio 1 a 6 de la Sierra Hoyada de Maricunga (“SLM Litio 1-6”), a group of six Chilean mining companies.

 

Li3 Energy Caymans, Inc., a previously wholly owned subsidiary incorporated under the laws of the Cayman Islands, was deregistered in June 2013.

 

Intellectual Property

 

We do not own, either legally or beneficially, any patent or trademark nor any material intellectual license, and are not dependent on any such rights. We have trademarked Li3 Energy, its logo and registered the domain name www.li3energy.com. We consider many of our lithium mining site evaluation, exploration and development techniques to be proprietary, and periodically evaluate whether to seek protection for any such techniques.

 

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Lithium and Lithium Mining

 

Lithium is the lightest metal in the periodic table of elements. It is a soft, silver white metal and belongs to the alkali group of elements, which includes sodium, potassium, rubidium, cesium and francium. The chemical symbol for lithium is “Li,” and its atomic number is 3.Like the other alkali metals, lithium has a single valence electron that is easily given up to form a cation (positively charged ion). Because of this, it is a good conductor of both heat and electricity and highly reactive, though it is the least reactive of the alkali metals. Lithium possesses a low coefficient of thermal expansion (which describes how the size of an object changes with a change in temperature) and the highest specific heat capacity (a measure of the heat, or thermal energy, required to increase the temperature of a given quantity of a substance by one unit of temperature) of any solid element.

 

No other metal is as lightweight, better at holding a charge or as good at dissipating heat as lithium. These properties make lithium an excellent material for manufacturing batteries (lithium-ion batteries). According to the U.S. Geological Survey’s (“USGS”) “Mineral Commodity Summaries 2013”, issued in January 2013, batteries accounted for 22% of lithium end-usage globally, and we expect demand for lithium from the battery segment to grow along with demand for such batteries. Although lithium markets vary by location, global end-usage was estimated by the USGS as follows: ceramics and glass, 30%; batteries, 22%; lubricating greases, 11%; air treatment, 4%; metallurgical, 4%; polymers, 3%; pharmaceuticals, 2%; primary aluminum production, 1%; and other uses, 23%. Lithium use in batteries expanded significantly in recent years, because rechargeable lithium batteries are being used increasingly in portable electronic devices and electrical tools.

 

Lithium is extracted from solutions called brines, which are associated with evaporate deposits, as well as from spodumene (a lithium aluminum silicate), which occurs in a rock called pegmatite.

 

Historically, and especially during the period leading up to and during World War II, lithium was designated a strategic metal, heavily used in the aircraft industry because it is light and strong. During this period the mineral spodumene (a lithium aluminum silicate) was mined by open pit hard rock mining methods and processed to recover the lithium. During the post-war period, lithium production from the higher cost hard rock mines was replaced by the lower cost extraction of lithium from the mineral rich brines associated with evaporite deposits. Evaporite deposits occur in environments characterized by arid conditions with extremely high evaporation rates. This environment typically occurs at high altitudes, greater than 3,000 meters above sea level, so evaporite deposits occur in only a very few locations in the world, including China (the province of Qinghai and the Autonomous Region of Tibet); the Puna Plateau, a high altitude plateau covering part of Argentina, Chile, Bolivia and the southern portion of Peru; and in a small region in Nevada, which is the core of what is called the Great Basin of the western United States.

 

Brine extraction (mining) and the recovery of lithium and other economic compounds is analogous to pumping water from an aquifer, but instead of fresh water, the water contains a variety of mineral salts in solution, including lithium, potassium (K), magnesium (Mg) and sodium (Na). This form of “mining” is much more efficient, cost effective and environmentally friendly than open pit mining. According to estimates from Byron Capital Markets and other public sources, estimated approximate costs of lithium production from spodumene can typically cost in the range of $2,700 to $4,500 per metric ton of lithium carbonate and is a process that is highly sensitive to energy costs. On the other hand, estimated cost of lithium production from brines can be between the range of $1,800 to $3,100 per metric ton of lithium carbonate. However, the processing cost can vary by a wide range, depending largely on:

 

  · lithium concentration in the particular brine;
  · evaporation rates at the site, which determine how quickly the brine can be concentrated; and
  · the balance of other minerals in the brine, which affects the degree of processing needed to remove impurities.

 

Ideal Brine Conditions

 

The most important metrics when evaluating lithium brine resources are:

 

1)lithium content;
2)evaporation rate;
3)magnesium to lithium ratio;
4)potassium content; and
5)sulphate to lithium ratio.

 

The lithium concentration in the brines is typically measured in parts per million (ppm) or weight percentages. The higher the lithium concentration, the better. However, high local evaporation rates can compensate for lower lithium concentrations.

 

Providing that lithium contents are high enough, the magnesium to lithium (Mg:Li) ratio is another important chemical feature in assessing favorable brine chemistry and the ultimate economic viability of a site at an early stage. The lower the ratio the better, as a high ratio means that, during the evaporation process, an increasing amount of lithium will be trapped (“entrained”) in the magnesium salts when they crystallize early. This will ultimately lead to a lower lithium recovery rate and thus less profitability. High Mg:Li ratios also generally mean that more soda ash (Na 2 CO 3) reagent is required during the processing of the brine (as described below) and, therefore, may add significantly to costs.

 

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The potassium (K) concentration in the brines is typically measured as a weight percentage.

 

The lower the sulphate (SO4) to lithium ratio in the final lithium brine pond, the more the brine will be amenable to lithium extraction via the conventional solar evaporation process. This is because lithium sulphate (Li 2 SO 4) is highly soluble and so, to the extent that it is able to form, the lithium recovery will suffer.

 

Brine Exploration Phases

 

The life cycle of a brine mining operation can be divided into five phases:

 

·Mining activity begins with the “exploration phase,” in which one seeks to define the type, extent, location and value of deposits and to estimate the grade and size of the deposits;
  
·The “feasibility phase” then ensues to address the financial viability of the project (including any permitting requirements) and to determine whether or not to proceed to development - the end of the feasibility stage is marked by the conclusion of a feasibility study;
  
·If the decision is made to move forward after the feasibility stage, then the “development phase” follows, in which the infrastructure needed to begin operations is constructed;
  
·Upon completion of such infrastructure, a project enters the “production phase,” during which the applicable minerals are extracted, produced and sold;
  
·Once all economically extractable minerals have been produced, a mine is closed and it enters the “reclamation phase,” in which the area is made suitable for future uses.

 

We are currently in the exploration phase, seeking to define the type, extent, location and value of deposits.

 

Key Stages of Lithium Recovery

 

Currently the most economical way to recover lithium from a salar (a dry lake or salt flat) is by solar evaporation. However, the process is subject to natural conditions, and the evaporation rate, relative humidity, wind velocity, temperature and brine composition have a tremendous influence on the solar pond requirements and in turn on pumping and settling rates to meet production quotas.

 

Each lithium recovery process has a unique design based on the concentrations of Li, Na, K, Mg, calcium (Ca) and SO4 in the brine, and, although there may be some similarities, each salar has its own customized methodology for optimum recovery due to the varying ionic concentrations. Wells are drilled, and the mineral rich brine is pumped to the surface into a series of large shallow ponds of increasing concentration. As water evaporates, the concentration of minerals in solution increases. Typically the brine evaporates over an 18-24 month period until it has a sufficient concentration of lithium salts. At that point, the concentrate is shipped by truck or pipelined to processing plants where it is converted to usable salt products. In the plant, sodium carbonate (soda ash) is added to precipitate lithium carbonate, which is dried and shipped to end users to be further processed into pure lithium metal. The by-products such as potassium chloride (potash), sodium borate (borax) and other salts may also be recovered and sold to end users.

 

The primary reagents used to produce lithium from brine are lime and soda ash. Both substances are natural materials, commonly used in many processes and have no detrimental environmental effect when used properly. Other than solar energy, only minor amounts of fuels are consumed in the production process (pumping the brines into the ponds, etc.).

 

Global Market

 

Based on the most recent available information from the United States Geological Survey (“USGS”) issued in January 2013, market conditions improved for lithium-based products in 2012. Worldwide lithium production increased in 2012. Production volumes of two major lithium producers in Australia and Chile increased moderately through the third quarter of 2012. Argentina’s major lithium producer experienced weather-related complications during the year, which reduced production and delayed efforts to increase production capacity. Industry analysts and the major lithium producers expected worldwide consumption of lithium in 2012 to be between 25,900 and 28,200 tons, increasing by 7.5% to 10% from that of 2011. All of the major brine and mineral-based lithium producers increased their lithium prices in 2012. Many emerging companies continued exploring for lithium on claims worldwide. Numerous claims in Nevada, as well as in Argentina, Australia, Bolivia, and Canada, have been leased or staked.

 

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Subsurface brines have become the leading raw material for lithium carbonate production worldwide because of lower production costs compared with the mining and processing costs for hard-rock ores. Owing to growing spodumene demand from China in the last several years, however, mineral-sourced lithium has gained market share on brine-sourced lithium. Two brine operations in Chile dominate the world market, and a facility at a brine deposit in Argentina produced lithium carbonate and lithium chloride. One new brine operation in Argentina began limited commercial production in 2012, and several additional brine operations were under development. Brine operations in China produced lithium carbonate, lithium chloride, and lithium hydroxide. Lithium minerals were used directly as ore concentrates in ceramics and glass applications worldwide and, increasingly, as feedstock for lithium carbonate and other lithium compounds in China.

 

Owing to China’s growing demand for high-quality spodumene by its chemical companies, Australia’s leading lithium ore miner doubled its production capacity, raising its total lithium carbonate equivalent production capacity to 110,000 tons per year. A major lithium brine producer agreed to acquire the Australian lithium ore miner in 2012 to diversify its supply of lithium. An emerging Australian lithium ore producer continued lithium concentrate production in Western Australia and opened a lithium carbonate plant in China, where the lithium concentrate was to be converted to battery-grade lithium carbonate and supplied to the Aisian market. Utilizing a unique reverse-osmosis process, a California company began producing high-purity lithium carbonate from geothermal brines. The reverse osmosis process eliminates the need for solar evaporation, a crucial and lengthy procedure in common brine operations. Initial lithium carbonate production was 500 tons per year.

 

Batteries, especially rechargeable batteries, are the uses for lithium compounds with the largest growth potential. Demand for rechargeable lithium batteries exceeds that of rechargeable non lithium batteries for use in cellular telephones, cordless tools, MP3 players, and portable computers and tablets. Major automobile companies were developing lithium batteries for electric motor. Non rechargeable lithium batteries were used in calculators, cameras, computers, electronic games, watches and other devices.

 

Lithium supply security has become a top priority for Asian technology companies. Strategic alliances and joint ventures have been, and are continuing to be, established with lithium exploration companies worldwide to ensure a reliable, diversified supply of lithium for Asia’s battery suppliers and vehicle manufactures.

 

According to the USGS, Chile is the leading lithium producer in the world.  Argentina, Australia, China, and the United States are also major producers. The 2013 edition of the USGS Mineral Commodity Summaries gives the following estimated world lithium mine production (in metric tons of lithium content):

 

   Mine production 
   2012 (est.)   2011 
Chile   13,000    12,900 
Australia   13,000    12,500 
China   6,000    4,140 
Argentina   2,700    2,950 
Portugal   820    820 
Zimbabwe   500    470 
Brazil   490    320 
United States(1)   Withheld    Withheld 
World total (rounded)   37,0001   34,100 1

 

(1)Excludes U.S. production.

 

Substitution for lithium compounds is possible in batteries, ceramics, greases, and manufactured glass.  Examples are calcium and aluminum soaps as substitutes for stearates in greases; calcium, magnesium, mercury, and zinc as anode material in primary batteries; and sodic and potassic fluxes in ceramics and glass manufacture. Lithium carbonate is not considered to be an essential ingredient in aluminum potlines. Substitutes for aluminum-lithium alloys in structural materials are composite materials consisting of boron, glass, or polymer fibers in engineering resins.

 

Potassium Nitrate Market and Production

 

Potassium nitrate is a chemical compound with the formula KNO3. It occurs as a mineral niter and is a natural solid source of nitrogen. Its common names include saltpeter and nitrate of potash.  Major uses of potassium nitrate are in fertilizers, rocket propellants and fireworks. When used as a food additive in the European Union, the compound is referred to as E252.

 

Potassium nitrate can be produced through various chemical reactions, including:

 

NH4NO3 (ammonium nitrate) + KCl (potash) NH4Cl (ammonium chloride) + KNO3

 

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NH4NO3 + KOH (potassium hydroxide) NH3 (ammonia) + KNO3 + H2O

 

NaNO3 (sodium nitrate) + KCl NaCl (table salt) + KNO3

 

Potassium nitrate is mainly used in fertilizers, as a source of nitrogen and potassium, two of the macro nutrients for plants. Potassium nitrate is also one of the three components of black powder (gunpowder), along with powdered charcoal (substantially carbon) and sulfur, where it acts as an oxidizer.

 

In the process of food preservation, potassium nitrate, more commonly known as saltpeter, has been a common ingredient of salted meat since the middle ages, but its use has been mostly discontinued due to inconsistent results compared to more modern nitrate and nitrite compounds. Even so, saltpeter is still used in some food applications, such as charcuterie and the brine used to make corned beef.

 

Potassium nitrate is an efficient oxidizer, which produces a lilac flame upon burning due to the presence of potassium. It is therefore used in amateur rocket propellants and in fireworks. It is also added to pre-rolled cigarettes to maintain an even burn of the tobacco.

 

Potassium nitrate is the main component (usually about 98%) of tree stump remover, as it accelerates the natural decomposition of the stump. It is also commonly used in the heat treatment of metals as a solvent in the post-wash. The oxidizing, water solubility and low cost make it an ideal short-term rust inhibitor.

 

Potassium nitrate can also be found in some toothpastes for sensitive teeth.  Recently, the use of potassium nitrate in toothpastes for treating sensitive teeth (dentine hypersensitivity) has increased dramatically, even though studies to this effect have been inconclusive.

 

World population growth and its effects on the scarcity of water and increased competition on land use for living, industry, nature and agriculture, increase the need for agriculture efficiency. The amount of land in agriculture per capita will further decrease in the future as world population is expected to grow faster than the growth of arable land. Therefore, crop productivity has to increase in order to provide the same amount of food in relation to the growing world population. The growing importance of specialty plant nutrition products, such as potassium nitrate, has been driven by these factors as one of its main uses is for premium crops.

 

Terminated Agreement and Plan of Merger with Blue Wolf

 

On May 17, 2013, we entered into an agreement and plan of merger with Blue Wolf Mongolia Holdings Corp. (“Blue Wolf”) and Blue Wolf Acquisition Sub, Inc., the “Agreement and Plan of Merger” for purposes of obtaining additional funding to allow us to continue advancing the Maricunga project.

 

As required by the terms of the Agreement and Plan of Merger, among other closing conditions, Blue Wolf could not consummate the Transaction unless it retained an amount of cash not less than $5 million after payment of the purchase price for shares validly tendered and not properly withdrawn in its tender offer, and after payment of its fees and expenses. On July 11, 2013, we were advised that subsequent to the tender offer, there would be insufficient cash remaining and on this basis, Blue Wolf terminated the Agreement and Plan of Merger.

 

Additional Information

 

The Company files annual, quarterly and current reports, proxy statements and other information with the SEC. The public may inspect or copy these materials at the Public Reference Room at the SEC at 100 F Street, N.E., Washington, D.C. 20549, and can obtain information of the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. Our public filings are also available from the SEC’s website at www.sec.gov.

 

ITEM 1A. RISK FACTORS

 

THIS ANNUAL REPORT ON FORM 10-K CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. YOU ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS AND ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, MANY OF WHICH CANNOT CONTROL OR PREDICT.  ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY FORWARD-LOOKING STATEMENTS.  IN EVALUATING SUCH STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER, AMONG OTHER THINGS, THE VARIOUS FACTORS IDENTIFIED IN THIS ANNUAL REPORT ON FORM 10-K, INCLUDING THE MATTERS SET FORTH BELOW.  IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCURS, THEN OUR BUSINESS, PROSPECTS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED.

 

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RISKS RELATED TO OUR BUSINESS AND FINANCIAL CONDITION

 

We are an exploration stage company and currently have no revenues. Our business plan depends on our ability to explore for and develop mineral reserves and place any such reserves into extraction. Because we have a limited operating history, it is difficult to predict our future performance.

 

Although we were formed in June 2005, we have been, and continue to be, an exploration stage company. Therefore, we have limited operating and financial history available to help potential investors evaluate our past performance and the risks of investing in us. Moreover, our limited historical financial results may not accurately predict our future performance. Companies in their initial stages of development present substantial business and financial risks and may suffer significant losses. As a result of the risks specific to our new business and those associated with new companies in general, it is possible that we may not be successful in implementing our business strategy.

 

We have generated no revenues to date and do not anticipate generating any revenues in the near term. Our activities to date have been limited to capital formation, organization, acquisition of interests in mining properties and limited exploration on our projects, including digging and sampling of test pits and brine analysis on our SLM Litio 1-6 property. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our success is significantly dependent on a successful exploration, mining and production program. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to locate exploitable quantities of mineral resources or operate on a profitable basis. We are in the exploration stage and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our Company.

 

Our past losses raise doubt about our ability to continue as a going concern.

 

The consolidated financial statements contained herein have been prepared assuming we will continue as a going concern. At June 30, 2013, we had no source of current revenue, had a cash balance of $12,667, negative working capital of $8,233,961 and negative cash flows from operations of $21,973,450during the period from June 24, 2005 (inception) through June 30, 2013.

 

We do not believe this negative working capital position is sufficient to maintain our basic operations, which does not include future exploration and acquisition activities, for at least the next 12 months.

 

We have sustained and continue to sustain losses as a result of our operations and cannot predict if and when we may generate profits.  In the event we identify commercial reserves of lithium or other minerals, it will require substantial additional capital to develop those reserves. We expect to finance our operations primarily through future equity or debt financing. However, as discussed in the notes to our consolidated financial statements included in this Report, there exists substantial doubt about our ability to continue as a going concern because there is no assurance that we will be able to obtain such capital, through equity or debt financing, or any combination thereof, on satisfactory terms or at all.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Mineral operations are subject to applicable law and government regulation, which could restrict or prohibit the exploitation of that mineral resource.

 

Both mineral exploration and extraction in Chile require obtaining mining concessions as well as permits from various foreign, federal, state, provincial and local governmental authorities, as the case may be, and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety and other matters. There can be no assurance that we will be able to obtain or maintain any of the mining rights and permits required for the continued exploration of its mineral properties or for the construction and operation of a mine on its properties (especially but not limited to extracting lithium) nor that it will be able to obtain or maintain any of such rights and permits at economically viable costs.

 

In Chile, the Chilean Organic Law on Mining Concessions (“LOCM”) and the Chilean Mining Code (“CMC”) provide that lithium may not be granted in a mining concession without prejudice of the mining concessions validly granted before lithium was declared as a mineral the exploration and exploitation of which could not be the object of a mining concession. As a result, only mining exploitation concessions initiated before January 1, 1979 are authorized for the exploitation of lithium. For all other cases, the CMC establishes the reserve of lithium to Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation contracts, fulfilling the requirements and conditions set forth by the President of Chile for each case. Additionally, Law 16,319, which created the Chilean Nuclear Energy Commission (the “NEC”), provides in its article 8th that, for reasons of national interest, any act or contract in connection with lithium will require the previous authorization of NEC (or have NEC as a party thereto). NEC is entitled to subject any such authorization to the fulfillment by the applicant of certain conditions. Once any such authorization is granted, NEC is not authorized to amend it or terminate it, nor the applicant to resign it, for reasons other than those set forth in the resolution granting it.

 

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Since the constitution process of the SLM Litio 1-6 Mining Concessions was initiated in 2000, the Maricunga Companies are not authorized to exploit lithium in the area covered by such concessions, unless they also obtain a CEOL authorizing such exploitation. At the date of this report there is no assurance that the Chilean Government will begin another CEOL process. As the constitution process of the Cocina Mining Concessions was initiated in 1937, Minera Li (a wholly-owned subsidiary of Li3), as the owner of the Cocina Mining Concessions, is authorized to exploit lithium in the area covered by the Cocina Mining Concessions.

 

Lithium exploitation both in the area covered by the Cocina Mining Concessions as well as in the area covered by the SLM Litio 1-6 Mining Concessions (in case in the future it becomes legally possible to exploit lithium in this latter area) shall require the NEC authorization. To the best of our understanding (i) NEC provided its authorization when requested to do so in the past, subjecting the applicant to commercially reasonable production quotas; and (ii) the third party whose option to acquire the Cocina Mining Concessions (via acquiring 100% shares of the Cocina Company) recently expired obtained a NEC authorization for the exploitation of lithium from the area covered by such concessions subject to a production quota of 50,000 tons; and (iii) NEC granted an authorization to whomever were awarded with the CEOL public offer, provided that such entity informs the NEC on the price, purchaser, volume and use of each sale of lithium; informs the NEC, on an annual basis, on the volume sold, the amount of metallic lithium, the volume of extracted brine to produce the volume of lithium sold as well as the density and lithium volume in the brine; and sells or otherwise commercializes all the lithium produced in the best market conditions.

 

Even though the authorization that NEC granted to the third party is not transferable and the authorization that NEC granted to whomever was awarded the CEOL public offer should be considered extinguished as a consequence of the ineffectiveness of the CEOL public offer (and for as long as it remains ineffective), those authorizations shed light on the type of conditions that NEC may impose on Minera Li or the Maricunga Companies should any of them request an authorization from NEC to extract lithium from the area covered by the Cocina Mining Concessions or the SLM Litio 1-6 Mining Concessions (in case lithium exploitation from these latter concessions is authorized). Moreover, the granting of the NEC authorization (as well as the conditions such authorization could be subject to) should be decided exclusively on the grounds that it is related to the “production, acquisition, transfer, transport, and specific use of atomic energy and fertile fissionable and radioactive materials”, since that is the purpose of the NEC, which, in turn, determines NEC’s scope of authority.

 

In June 2012, the Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty (in addition to paying taxes in accordance with the ordinary Chilean tax regime. In September 2012, we formed a consortium consisting of Li3, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, the Consortium submitted its bid for the CEOLs and in September 2012, the Company was informed that the Consortium’s bid was not the winning bid.

 

The Chilean government has since decided to invalidate the CEOL process due to an administrative error, as well as rescinding the CEOL Basis, which defined the regulations of the CEOL process. The Company submitted several appeals to the Chilean government requesting it to reconsider the invalidation and award the CEOL to the second highest bidder - the Consortium. The appeals have been rejected by the Chilean government.

 

This negative response implies that we are not authorized to exploit lithium from the area covered by the SLM Litio 1-6 mining concessions since such concessions do not authorize to exploit lithium. Accordingly, there can be no assurance that we will be able to obtain the permits necessary to exploit any minerals that its exploration activities discover in a timely manner or at all. Any such delay or failure would have a material adverse effect on the development horizon for SLM Litio 1-6 and its prospects.

 

Our option on the Alfredo Property has expired, and we may have a continuing obligation in the event we develop future iodine nitrate properties in Chile.

 

On August 3, 2010, we signed an agreement to acquire Alfredo Holdings, Ltd. which held an option to acquire six mining concessions in Pozo Almonte, Chile. We allowed the option to expire because we determined that the project was not economically viable. Pursuant to an amendment to our agreement with the Alfredo Sellers, if and when certain milestones are achieved with respect to any future Li3 Energy Chilean iodine nitrate project, we must make additional payments to the Alfredo Sellers in an aggregate amount of up to $5.5 million. There can be no assurance that financing sufficient to make such payments will be available to us when needed. We are not currently planning to explore, exploit or develop any iodine nitrate project in Chile.

 

All of our properties are in the exploration stage. Investment in exploration projects increases the risks inherent in our mining activities. There is no assurance that we can establish the existence of any mineral resource on any of our properties in commercially exploitable quantities, and our mining operations may not be successful.

 

We have not established that any of our mineral properties contains any meaningful levels of mineral reserves. There can be no assurance that future exploration and mining activities will be successful.

 

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A mineral reserve is defined by the SEC in its Industry Guide 7 (which can be viewed at http://www.sec.gov/divisions/corpfin/forms/industry.html.secguide7) as that part of a mineral deposit which could be economically and legally extracted or produced at the time of the reserve determination. There can be no assurance that we will ever establish any mineral reserves.

 

Even if we do eventually discover a meaningful mineral reserve on one or more of our properties, there can be no assurance that we will be able to develop our properties into producing mines and extract those resources. Both mineral exploration and development involve a high degree of risk and few properties which are explored are ultimately developed into producing mines. Furthermore, we cannot be sure that an overall exploration success rate or extraction operations within a particular area will ever come to fruition and, in any event, production rates inevitably decline over time. The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade and other attributes of the mineral deposit, the proximity of the resource to infrastructure such as a smelter, roads and a point for shipping, government regulation and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral resource unprofitable.

 

We have limited financial resources and may not be able to fund our anticipated exploration activities. If we are unable to fund our exploration activities, our potential profitability will be adversely affected.

 

Our anticipated exploration activities will require financial resources substantially in excess of our current working capital. If we are not able to finance our exploration activities, then we will be unable to identify commercially exploitable resources even if present on our properties. If we fail to adequately support our exploration activities, it could have a material adverse effect on our results of operations and the market price of our shares. There can be no assurance that capital will be available to us when needed, on favorable terms or at all.

 

If we establish the existence of a mineral resource on any of our properties in a commercially exploitable quantity, we will require additional capital in order to develop the property into a producing mine. If we are unable to obtain additional funding, our business operations will be harmed and if we do obtain additional financing, existing shareholders may suffer substantial dilution.

 

If we do discover mineral resources in commercially exploitable quantities on any of our properties, we will be required to expend substantial sums of money to establish the extent of the resource, develop processes to extract it and develop extraction and processing facilities and infrastructure. Although we may derive substantial benefits from the discovery of a major deposit, there can be no assurance that such a resource will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis.

 

We currently do not have any contracts or firm commitments for additional financing. There can be no assurance that additional financing will be available in amounts or on terms acceptable to us, if at all. An inability to obtain additional capital would restrict our ability to grow and could diminish our ability to continue to conduct our business operations. If we are unable to obtain additional financing, we will likely be required to curtail exploration and development plans and possibly cease operations. Any additional equity financing may involve substantial dilution to then existing shareholders.

 

Newer battery and/or fuel cell technologies could decrease demand for lithium over time, which could significantly impact our prospects and future revenues.

 

Many materials and technologies are being researched and developed with the goal of making batteries lighter, more efficient, faster charging and less expensive. Some of these technologies could be successful and could impact demand for lithium batteries in personal electronics, electric and hybrid vehicles and other applications. Advances in nanotechnology, in particular, offer the prospect of significantly better batteries in the future. For example, researchers at Stanford University have recently demonstrated ultra-lightweight, bendable batteries and super capacitors made from paper coated with ink made of carbon nanotubes and silver nanowires; the material charges and discharges very quickly, making it potentially useful in hybrid and electric vehicles, which need rapid power for acceleration and would benefit from quicker charging than is available with current technologies. We cannot predict which new technologies may ultimately prove to be commercializable and on what time horizon. While lithium battery technology is currently among the best available for electronics, vehicles and other applications, commercialized battery technologies that offer superior weight, capacity, charging time and/or cost could significantly adversely affect the demand for lithium in the future and thus could significantly adversely impact our prospects and future revenues.

 

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Mineral exploration and development is subject to extraordinary operating risks. We do not currently insure against these risks. In the event of a cave-in or similar occurrence, our liability may exceed our resources, which could have an adverse impact on us.

 

Mineral exploration, development and production involve many risks which even a combination of experience, knowledge and careful evaluation may not be able to overcome. Our operations will be subject to all the hazards and risks inherent in the exploration for mineral resources and, if we discover a mineral resource in commercially exploitable quantity, our operations could be subject to all of the hazards and risks inherent in the development and production of resources, including liability for pollution, cave-ins or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in work stoppages and damage to property, including damage to the environment. We do not currently maintain any insurance coverage against these operating hazards. The payment of any liabilities that arise from any such occurrence would have a material adverse impact on us.

 

Lithium, iodine and nitrates prices are subject to unpredictable fluctuations, making it difficult to predict the economic viability of our exploration properties and projects.

 

We may derive revenues, if any, either from the extraction and sale of lithium, iodine and potassium nitrate, as well as other potentially economic salts produced from the lithium salar brines, or from the sale of our mineral resource properties. The price of these commodities may fluctuate widely, and is affected by numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities, increased production due to new extraction developments and improved extraction and production methods and technological changes in the markets for the end products. The effect of these factors on the price of these minerals, and therefore the economic viability of any of our exploration properties and projects, cannot accurately be predicted.

 

The mining industry is highly competitive, and we face competition from many established global companies. We may not be able to compete effectively with these companies which may adversely affect our prospects.

 

The markets in which we operate are highly competitive. The mineral exploration, development, and production industry is largely un-integrated. We compete against numerous well-established national and foreign companies in every aspect of the mineral mining industry. Some of our competitors have longer operating histories and greater technical facilities, and significantly greater recognition in the market and financial and other resources, than we. We may not compete effectively with other exploration companies in locating and acquiring mineral resource properties, and customers may not buy any or all of the mineral products that we expect to produce.

 

We owe certain of our shareholders approximately $653,000 in cash as of June 30, 2013 as a result of certain registration rights penalties. While we intend to obtain waivers from each of these shareholders to ameliorate this debt, there is no guarantee that we will be able to do so in terms that are favorable to us.

 

On March 22, 2011, our board of directors approved a private placement offering with respect to an aggregate of 23,920,071 units of its securities, for aggregate gross proceeds of approximately $6,458,189 ($5,720,918 net after offering expenses and placement agent fees). We also issued to placement agents and finders warrants to purchase an aggregate of 1,913,606 shares of common stock at an exercise price of $0.27 per share and exercisable for a period of three years. Pursuant to a registration rights agreement for this offering, we agreed to file a registration statement with the SEC within 75 days after the closing date to register the shares of common stock and the shares of common stock underlying the warrants under the Securities Act, and to use its best efforts to cause such registration statement to become effective within 150 days after the filing date, all at our expense. Pursuant to the registration rights agreement, in the event we did not meet these deadlines, we agreed to pay the investors monetary penalties of 2% of their investment per month until such failures are cured (up to an aggregate maximum penalty of 10%, or $645,819).We were required to file the registration statement by June 21, 2011, however the registration statement was not filed until July 1, 2011, and we recorded a monetary penalties accrual of $38,750. We were required to cause the registration statement to become effective by November 28, 2011, however the registration statement was not effective until March 19, 2012, and we increased the monetary penalties accrual to $518,243, (plus accrued interest of $134,723, included in accrued expenses, which is calculated at 18% per annum for registration rights penalties considered past due), and the penalty has not yet been paid as of June 30, 2013.

 

If we are unable to make payments due on October 16, 2013 to the sellers of SLM Cocina Diecinueve de la Hoyada de Maricunga, a Chilean based company and the owner of certain mining concessions in Chile, the sellers could foreclose on their mortgage and retain the concessions.

 

On April 16, 2013, we entered into a purchase agreement with Jose Resk Nara and Carlos Alfonso Iribarren to purchase all of the outstanding shares of SLM Cocina Diecinueve de la Hoyada de Maricunga, which owned the group of mining concessions Cocina 19 through 27 (the Cocina Mining Concessions).The transfer of the shares purchased therein has been completed and Minera Li has absorbed the Cocina Company as a matter of law (and the Company ceased to exist as of the date of acquisition). As a consequence thereof, Minera Li is the sole owner of the Cocina Mining Concessions.

 

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Pursuant to the purchase agreement, we agreed to pay the sellers $7.3 million (including $1 million of interest), of which $2.0 million was paid on the closing date, $2.0 million is to be paid on July 16, 2013, $1.8 million is to be paid on October 16, 2013, and $100,000 is to be paid annually on each of April 16 for 15 years, beginning in 2014. The Company did not make the required July 16, 2013 payment. The Company is currently in discussions to modify the terms of the amounts owed to the Sellers, however, there is no assurance the company will come to an agreement with the Sellers. The Sellers may foreclose on their mortgage at any time due to non-payment of amounts owed to the Sellers in accordance with the Purchase Agreement. In the event of foreclosure, the concession could go to public auction and could be acquired by a third party, or retained by the Seller if nobody offers the minimum auction price.

 

Because we are small and have limited capital, we may have to limit our exploration and developmental mining activity which may adversely affect our prospects.

 

Because we are a small exploration stage company and have limited capital, we may have to limit our exploration and production activity. As such, we may not be able to complete an exploration program that is as thorough as we would like. In that event, existing reserves may go undiscovered. Without finding reserves, our ability to generate revenues and its prospects will be adversely affected.

 

Compliance with environmental and other government regulations could be costly and could negatively impact production and adversely affect our operating results.

 

Our operations are subject to numerous federal, state and local laws and regulations governing the operation and maintenance of our facilities and the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may:

 

  · require that we acquire permits before commencing extraction operations;

 

  · restrict the substances that can be released into the environment in connection with mining and extraction activities;

 

  · limit or prohibit mining activities on protected areas such as wetland or wilderness areas; and

 

  · require remedial measures to mitigate pollution from former operations, such as dismantling abandoned production facilities.

 

Under these laws and regulations, we could be liable for personal injury and clean-up costs and other environmental and property damages, as well as administrative, civil and criminal penalties. We do not believe that insurance coverage for environmental damages that occur over time is available at a reasonable cost, and we do not maintain any such insurance. Also, we do not believe that insurance coverage for the full potential liability that could be caused by sudden and accidental environmental damages is available at a reasonable cost. Accordingly, we may be subject to liability or we may be required to cease production (subsequent to any commencement) from properties in the event of environmental damages.

 

The Maricunga Project requires, as a condition precedent for commencing any extracting activity, the approval by the Chilean environmental authorities of its environmental impact study. The process to obtain the approval of an environmental impact study includes, among other things, requiring the opinion of all relevant authorities with environmental powers. Once the environmental impact study is approved, no sectional environmental permit can be denied.

 

The developer of the Maricunga Project also needs to obtain all non-environmental permits necessary to carry out exploration and exploitation mining activities in the area. The environmental impact assessment system regulated in law 19 300 considers the inclusion of the mitigation measures to protect the habitat of vulnerable animals in the area which should be included by us in the environmental impact study or statement, as applicable.

 

We may be legally required to obtain water rights as a condition precedent to commencing any extraction of minerals from the Maricunga Project.

 

The Maricunga Project, if successful, involves extracting mineral (lithium and potassium) from the Salar de Maricunga. The Salar de Maricunga has a high presence of semi superficial water. We may be legally required to obtain water rights as a condition precedent to commencing any extraction of minerals from the Maricunga Project.

 

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We may be unable to amend the mining claims that we are seeking to acquire to cover the primary minerals that we plan to develop.

 

Our business plan includes acquisition, exploration and development of lithium and potassium brine properties. However, we may pursue this goal by acquiring salt-mining claims and/or options or other interests in salt-mining claims or other types of claims, which we intend to seek to have amended to cover lithium extraction. There can be no assurance that we will be successful in amending any such claims timely, economically or at all.  See Risk Factors - “Mineral operations are subject to applicable law and government regulation” above.

 

We may not be able to acquire additional mineral properties.

 

Our only material asset is our Maricunga properties. If we lose, abandon or otherwise dispose of our interest in all or part of these properties, there is no assurance that we will be able to acquire any other mineral properties of merit.

 

Title to our properties may be challenged, impugned or revoked or be subject to undetected defects, which may result in the loss of all or a portion of our rights or interests.

 

Although we have exercised customary due diligence with respect to determining title to our properties, there can be no assurance that our rights or interests in and to our properties will not be challenged, impugned or revoked. Our properties may be subject to prior unregistered agreements or transfers or indigenous land claims and title may be affected by undetected defects. If title defect exists, it is possible that we may lose all or a portion of our interest in our properties. Until competing rights or interest to our properties have been determined, there is no assurance as to the validity of our rights or interest to our properties. In addition, we may be unable to operate our properties as permitted or to enforce our rights with respect to our properties, and the title to our mineral properties may also be impacted by state action.

 

We may have difficulty managing growth in our business, which could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute our business plan.

 

Because of the relatively small size of our business, growth in accordance with our long-term business plans, if achieved, will place a significant strain on our financial, technical, operational and management resources.  As we increase our activities and the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical, operational and management resources.  The failure to continue to upgrade our technical, administrative, operating and financial control systems or the occurrence of unexpected expansion difficulties, including the recruitment and retention of required personnel could have a material adverse effect on our business, financial condition and results of operations and our ability to timely execute our business plan.

 

If we are unable to keep our key management personnel, then we are likely to face significant delays at a critical time in our corporate development and our business is likely to be damaged which could have a material adverse effect on our business, financing condition and operations.

 

Our success depends upon the skills, experience and efforts of our management and other key personnel, including our Chief Executive Officer. As a relatively new company, much of our corporate, scientific and technical knowledge is concentrated in the hands of a few individuals. We do not have employment agreements with any of our employees other than our Chief Executive Officer and Chief Financial Officer. We do not maintain key-man life insurance on any of our management or other key personnel. The loss of the services of one or more of our present management or other key personnel could significantly delay our exploration and development activities as there could be a learning curve of several months or more for any replacement personnel. Furthermore, competition for the type of highly skilled individuals we require is intense and we may not be able to attract and retain new employees of the caliber needed to achieve our objectives. Failure to replace key personnel could have a material adverse effect on our business, financial condition and operations.

 

Difficult conditions in the global capital markets may significantly affect our ability to raise additional capital to continue operations.

 

The ongoing worldwide financial and credit upheaval may continue indefinitely. Because of reduced market liquidity, we may not be able to raise additional capital when we need it. Because the future of our business will depend on our ability to explore and develop the mineral resources on our existing properties and to complete the acquisition of one or more additional mineral resource properties for which, most likely, we will need additional capital, we may not be able to complete such development and acquisition projects or develop or acquire revenue producing assets. As a result, we may not be able to generate income and, to conserve capital, we may be forced to curtail our current business activities or cease operations entirely.

 

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Being a public company has increased our expenses and administrative workload.

 

As a public company, we must comply with various laws and regulations, including the Sarbanes-Oxley Act of 2002 and related rules of the SEC. Complying with these laws and regulations requires the time and attention of our board of directors and management, and increases our expenses. Among other things, we must:

 

· maintain and evaluate a system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;

 

· maintain policies relating to disclosure controls and procedures;

 

· prepare and distribute periodic reports in compliance with our obligations under federal securities laws;

 

· institute a more comprehensive compliance function, including with respect to corporate governance; and

 

· Involve, to a greater degree, our outside legal counsel and accountants in the above activities.

 

In addition, being a public company has made it more expensive for us to obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially higher costs to obtain this coverage. These factors could also make it more difficult for us to attract and retain qualified executives and members of our board of directors, particularly directors willing to serve on our audit committee.

 

RISKS RELATED TO OUR COMMON STOCK

 

There is not now, and there may not ever be, an active market for our common stock.

 

There currently is a limited public market for our common stock. Further, although our common stock is currently quoted on the OTC Bulletin Board (the “OTCBB”), trading of our common stock may be extremely sporadic. For example, several days may pass before any shares may be traded. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, our common stock. Accordingly, investors must assume they may have to bear the economic risk of an investment in our common stock for an indefinite period of time. There can be no assurance that a more active market for our common stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of our common stock, and would likely have a material adverse effect on the market price of our common stock and on our ability to raise additional capital.

 

We cannot assure you that our common stock will become liquid or that it will be listed on a securities exchange.

 

Until our common stock is listed on a national securities exchange such as the New York Stock Exchange or the Nasdaq National Market, we expect our common stock to remain eligible for quotation on the OTCBB, or on another over-the-counter quotation system. In those venues, however, an investor may find it difficult to obtain accurate quotations as to the market value of our common stock. In addition, if we fail to meet the criteria set forth in SEC regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us to raise capital.

 

Our common stock is subject to the “penny stock” rules of the SEC and FINRA’s sales practice requirements, and the trading market in our common stock is limited, which makes transactions in our common stock cumbersome and may reduce the value of an investment in the stock.

 

The SEC has adopted Rule 15g-9, which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

 

  · that a broker or dealer approve a person’s account for transactions in penny stocks; and

 

  · the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

 

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 

  · obtain financial information and investment experience objectives of the person; and

 

  · make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

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The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth:

 

  · the basis on which the broker or dealer made the suitability determination; and

 

  · that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

 

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of common stock and cause a decline in the market value of stock.

 

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

 

In addition to the "penny stock" rules promulgated by the SEC, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA’s requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

 

The price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.

 

The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:

 

  · actual or anticipated variations in our operating results;

 

  · announcements of developments by us, our strategic partners or our competitors;

 

  · announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

 

  · adoption of new accounting standards affecting our industry;

 

  · additions or departures of key personnel;

 

  · sales of our common stock or other securities in the open market; and

 

  · other events or factors, many of which are beyond our control.

 

The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such company. Litigation initiated against us, whether or not successful, could result in substantial costs and diversion of our management’s attention and resources, which could harm our business and financial condition.

 

Compliance with U.S. securities laws, including the Sarbanes-Oxley Act, will be costly and time-consuming.

 

We are a reporting company under U.S. securities laws and are obliged to comply with the provisions of applicable U.S. laws and regulations, including the Securities Act of 1933 (the “Securities Act”), the Exchange Act, and the Sarbanes-Oxley Act of 2002 and the related rules of the SEC, and the rules and regulations of the relevant U.S. market, in each case, as amended from time to time. Preparing and filing annual and quarterly reports and other information with the SEC, furnishing audited reports to stockholders and other compliance with these rules and regulations will involve a material increase in regulatory, legal and accounting expenses and the attention of management, and there can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all.

 

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We do not anticipate dividends to be paid on our common stock, and investors may lose the entire amount of their investment.

 

Cash dividends have never been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent a sale of their shares. We cannot assure stockholders of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire amount of their investment.

 

If securities analysts do not initiate coverage or continue to cover our common stock or publish unfavorable research or reports about our business, this may have a negative impact on the market price of our common stock.

 

The trading market for our common stock may be affected by, among other things, the research and reports that securities analysts publish about our business and the Company. We do not have any control over these analysts. There is no guarantee that securities analysts will cover our common stock. If securities analysts do not cover our common stock, the lack of research coverage may adversely affect its market price. If we are covered by securities analysts, and our stock is the subject of an unfavorable report, our stock price and trading volume would likely decline. If one or more of these analysts ceases to cover us or fails to publish regular reports on us, then we could lose visibility in the financial markets, which could cause our stock price or trading volume to decline.

 

State Blue Sky registration - potential limitations on resale of the shares.

 

The holders of the shares of our common stock and persons who desire to purchase the shares in any trading market that might develop in the future, should be aware that there may be significant state law restrictions upon the ability of investors to resell the securities. Accordingly, investors should consider the secondary market for our securities to be a limited one. It is the intention of our management to seek coverage and publication of information regarding us in an accepted publication which permits a “manuals exemption.” This manuals exemption permits a security to be sold by shareholders in a particular state without being registered if the company issuing the security has a listing for that security in a securities manual recognized by that state. The listing entry must contain (i) the names of issuers, officers, and directors, (ii) an issuer’s balance sheet, and (iii) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. The principal accepted manuals are those published by Standard and Poor’s, and Mergent, Inc. Many states expressly recognize these manuals. A smaller number of states declare that they recognize securities manuals, but do not specify the recognized manuals. Among others, the following states do not have any provisions and, therefore, do not expressly recognize the manuals exemption: Alabama, California, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont, and Wisconsin.

 

Current stockholders may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock.

 

In the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders and the purchasers of our common stock offered hereby. We are currently authorized to issue an aggregate of 1,000,000,000 shares of capital stock consisting of 990,000,000 shares of common stock and 10,000,000 shares of preferred stock with preferences and rights to be determined by our Board of Directors. As of October 2, 2013, there are 395,497,453 shares of our common stock and no shares of our preferred stock outstanding. There are 1,949,999 shares of our common stock reserved for issuance under our 2009 Equity Incentive Plan (the “2009 Plan”), of which we have 1,450,000 nonqualified stock options and 399,999 restricted stock units outstanding. Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. In addition, there are 163,227,532 shares of our common stock issuable upon the exercise of outstanding warrants and another approximately 27,289,848 shares issuable upon conversion of outstanding convertible promissory notes.

 

Any future issuance of our equity or equity-backed securities may dilute then-current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding equity. As described above, we may need to raise additional capital through public or private offerings of our common or preferred stock or other securities that are convertible into or exercisable for our common or preferred stock. We may also issue such securities in connection with hiring or retaining employees and consultants (including stock options issued under our equity incentive plans), as payment to providers of goods and services, in connection with future acquisitions or for other business purposes. Our Board of Directors may at any time authorize the issuance of additional common or preferred stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth in our certificate of incorporation. The terms of equity securities issued by us in future transactions may be more favorable to new investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect. Also, the future issuance of any such additional shares of common or preferred stock or other securities may create downward pressure on the trading price of the common stock.  There can be no assurance that any such future issuances will not be at a price (or exercise prices) below the price at which shares of the common stock are then traded.

 

We may obtain additional capital through the issuance of preferred stock, which may limit your rights as a holder of our common stock.

 

Without any stockholder vote or action, our Board of Directors may designate and approve for issuance shares of our preferred stock.  The terms of any preferred stock may include priority claims to assets and dividends and special voting rights which could limit the rights of the holders of our common stock.  The designation and issuance of preferred stock favorable to current management or stockholders could make any possible takeover of us or the removal of our management more difficult.

 

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We may be subject to claims for rescission or damages in connection with certain sales of shares of our Common Stock in the open market.

 

On March 19, 2012, the Securities and Exchange Commission declared effective a registration statement that we had filed to cover the resale of shares previously issued and sold (or to be issued upon the exercise of warrants). On March 1, 2013, we filed a post-effective amendment for that registration statement that included our audited financial statements as of and for the year ended June 30, 2012 as had been filed on our Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 Annual Report”). We believe that the filing of the post-effective amendment fulfilled our obligation to update the registration with current financial information pursuant to Section 10(a)(3) of the Act. However, there were approximately three months when our registration statement contained financial information that was not current. During that period, 65,000 shares sold pursuant to that prospectus in open market transactions which may have violated Section 5 of the Securities Act of 1933, as amended, and, as a result, the purchasers of those shares may have rescission rights or claims for damages. Accordingly, we have reduced shareholders’ equity at June 30, 2013 by $3,041, the total amount that we would have to refund if all the purchasers of those shares exercised their rescission right.

 

OTHER RISKS

 

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment decision with respect to our common stock.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable for smaller reporting companies.

 

ITEM 2. PROPERTIES

 

The information set forth above under “Business” relating to our exploration properties within the Salar de Maricungais incorporated herein by reference.

 

We also lease approximately 1,500 square feet of office space in Santiago, Chile, with monthly rent of approximately $4,000. This lease commenced on July 1, 2011, and we paid rent during fiscal year 2013 amounting to $44,951. This lease expires on June 30, 2014. We believe our leased facilities are adequate for our needs at present.

 

ITEM 3. LEGAL PROCEEDINGS

 

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

 

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

 

As the majority shareholder of SLM Litio 1-6, we have filed lawsuits distributed to four civil courts of Copiapo, third Region of Atacama, Chile, against the minority shareholders seeking either payment of their pro rata portion of costs or an auction of their share of the properties. The minority shareholders have not paid their required contributions to the costs of conservation and exploration, which were agreed upon at the shareholders’ meeting on October 6, 2011. In December 2012, we received a favorable decision from one of the civil courts to auction approximately 4% of the shares once the judgment is executed. This was opposed by the shareholders, but the Court of Appeals of Copiapó confirmed the favorable decision. Now the favorable decision is being revised by the Supreme Court. We are awaiting the Supreme Court decision after which the second court of Copiapo should set a date and time for the auction of 4% of the shares. The other civil courts are due to issue their final decision regarding the auction of 12% of the shares. The remaining lawsuits for 24% of the shares are still in preliminary stage.

 

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Certain minority shareholders have filed counter claims against us, in two civil courts of Santiago, to declare, among other things, the invalidation of such shareholders’ meeting at which required contributions were established that such minority shareholders failed to make. In one of the courts, the process is on hold because the minority shareholders have not filed a new claim, as requested by the court. In the other court, we have filed our defense claiming that the lawsuits should be dismissed on the basis that the decision made in the shareholders´ meeting on October 6, 2011 was made in accordance with Chilean law, and that the amounts are necessary for the conservation and exploration of the mining property. Both lawsuits are currently on hold.

 

Our future plans are not dependent on the outcome of this matter with respect to the development of the Maricunga project.

  

ITEM 4. MINE SAFETY DISCLOSURES

 

Mine Safety and Health Administration Regulations

 

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

 

Our Chilean exploration properties are not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the fiscal year ended June 30, 2013, despite the fact Li3 Energy, Inc. is outside the “Mine Act” jurisdiction, the Company had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information and Holders

 

As of October 2, 2013, there were 395,497,453 shares of our common stock issued and outstanding, 163,227,532 shares issuable upon exercise of outstanding warrants and other rights, approximately 27,289,848 shares issuable upon conversion of outstanding convertible notes, 399,999 shares of common stock issuable upon vesting of restricted stock units, and 1,450,000 shares issuable upon exercise of outstanding options. Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. On October 2, 2013, there were approximately 185 holders of record of shares of our common stock.

 

Since July 1, 2006, our common stock has been listed for quotation on the OTCBB, originally under the symbol “MYTC.” Our symbol changed to “NNDY” in July 2008 in connection with our name change to Nano Dynamics Holdings, Inc. Our symbol changed to “LIEG” effective November 18, 2009, in connection with our name change to Li3 Energy, Inc. The OTCBB is a quotation service that displays real-time quotes, last-sale prices, and volume information in over-the-counter equity securities. An OTCBB equity security generally is any equity that is not listed or traded on a national securities exchange.

 

The following table sets forth the high and low bid prices for our common stock for the fiscal quarters indicated as reported on the OTCBB quotation serviceThese bid prices represent prices quoted by broker-dealers on the OTCBB quotation service.The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. Our Common Stock is thinly traded and, thus, pricing of our common stock on the OTCBB does not necessarily represent its fair market value.

 

Fiscal Year Ending June 30, 2012  High   Low 
First Quarter  $0.2300   $0.1010 
Second Quarter   0.1300    0.0600 
Third Quarter   0.1400    0.0700 
Fourth Quarter   0.1000    0.0600 

 

Fiscal Year Ending June 30, 2013  High   Low 
First Quarter  $0. 1000   $0.0500 
Second Quarter   0.0800    0.0400 
Third Quarter   0.0600    0.0300 
Fourth Quarter   0.0600    0.0400 

 

Dividends

 

We have never declared any cash dividends with respect to our common stock. Future payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. We presently intend to retain future earnings, if any, for use in our business and have no present intention to pay cash dividends on our common stock.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Our Board of Directors adopted, and our stockholders approved, our 2009 Equity Incentive Plan (the “2009 Plan”) on October 19, 2009. The 2009 Plan reserves a total of 5,000,000 shares of our common stock for issuance pursuant to awards granted thereunder. If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan. As of the date of this report, we have issued 3,050,001 shares of our common stock under the 2009 Plan, and 1,949,999 shares remain reserved for issuance.

 

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We have currently granted the following awards under the 2009 Plan:

 

  (a) awards of 1,450,000 nonqualified stock options with a weighted average exercise price of approximately $0.22 per share, none of which have been exercised. 1,200,000 of the stock options have vested and have five year terms expiring in August 2017, and the remaining 250,000 options vest on September 1, 2013 and have a five year term;
     
  (b) an award of 2,500,000 shares of restricted stock which are fully vested and issued; and
     
  (c) awards of restricted stock units with respect to 950,000 shares of common stock, 550,001 of which are fully vested and issued, 233,333 of which vest in January 2014, 83,333 of which vest in March 2014, and the remaining 83,333 of which vest in March 2015.

 

Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations and have not issued any of these shares.

 

Other awards of nonqualified stock options were previously granted under the 2009 Plan, however such awards expired unexercised and the shares subject to these awards are therefore available for further awards under the 2009 Plan.

 

The following table provides information as of June 30, 2013, with respect to the shares of common stock that may be issued under our existing equity compensation plans:

 

       Weighted-      
       average   Number of securities  
   Number of securities   Exercise price of   remaining available for  
   to be issued upon   Outstanding   future issuance under equity  
   exercise of   options,   compensation plans  
   outstanding options,   Warrants and   (excluding securities reflected  
   warrants and rights   rights   in column (a))  
Plan Category  (a)   (b)   (c)  
Equity compensation plans approved by security holders (1)   1,450,000   $0.22   499,999 (2)
Equity compensation plans not approved by security holders   -    -   -  
Total   1,450,000   $0.22   499,999 (2)

 

(1)

Represents the 2009 Equity Incentive Plan.

 

(2) 399,999 of such shares are reserved for issuance pursuant to Restricted Stock Units granted under the 2009 Plan.

 

See “Executive Compensation” for information regarding individual equity compensation arrangements received by our executive officers pursuant to their employment agreements with us.

 

Unregistered Sales of Equity Securities

 

Except as previously disclosed in Quarterly Reports on Form 10-Q or Current Reports on Form 8-K that we have filed, during the period covered by this Report we have not sold any of our equity securities that were not registered under the Securities Act.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable for smaller reporting companies.

 

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

We are a South America based exploration company in the lithium and potassium mining sector. We aim to acquire and develop lithium and potassium brine deposits in South America.

 

We own (a) a 60% interest in SLM Litio 1-6, which consists of mining concessions covering an area of approximately 1,438 hectares is located in the Salar de Maricunga in northern Chile; and (b) the Cocina Mining Concessions covering450 hectares located adjacent to the existing SLM Litio 1-6 mining concessions, which corresponds to a strategic lithium asset. We are currently evaluating additional exploration and production opportunities.

 

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” above and “Risk Factors” included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2013, filed with the Securities and Exchange Commission (“SEC”) (the “Form 10-K”), for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

 

The following discussion and analysis of our financial condition and results of operations as of, and for the years ended, June 30, 2013 and 2012, are based on our audited consolidated financial statements as of June 30, 2013, and for the years ended June 30, 2013 and 2012.

 

You should read this discussion and analysis together with such consolidated financial statements and the notes thereto.

 

Going Concern

 

At June 30, 2013, we had no source of current revenue, had a cash balance of $12,667, a negative working capital of $8,233,961 and negative cash flows from operations of $21,973,450 during the period from June 24, 2005 (inception) through June 30, 2013.

 

In the course of our exploration activities, we have sustained and continue to sustain losses. We cannot predict if and when we may generate profits. In the event we identify commercial reserves of minerals, we will require substantial additional capital to develop those reserves and permits from the Chilean government to exploit the mineral reserves, neither of which is assured.

 

To take us into the operational stage and to begin generating revenues, we will require a substantial injection of funds to progress development of our properties. We have been actively seeking sources of funding through both equity and debt financings. However, there exists substantial doubt about our ability to continue as a going concern because there is no assurance that we will be able to obtain such capital. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet our ultimate capital needs and to support our growth. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, then our operations would be materially negatively impacted.

 

On May 14, 2013, the Company issued an unsecured Convertible Promissory Note to Asher Enterprises, Inc. (“Asher”) in the amount of $158,500, bearing an interest rate of 8% per annum with a maturity date of February 17, 2014.  On July 15, 2013, the Company issued another unsecured Convertible Promissory Note to Asher in the amount of $53,000, bearing an interest rate of 8% per annum with a maturity date of April 17, 2014.

 

On August 16, 2013, the Company entered into an Offer to Finance agreement with 2265866 Ontario, Inc. (the “Lender”) under which the Lender agreed to loan CAD $500,000 to Li3 at an interest rate of 18% per annum with a maturity date of March 31, 2014. The net proceeds received were $482,605 based on the foreign exchange rate on the date of funding.

 

Our ability to complete additional equity or debt offerings is dependent on the state of the debt and/or equity markets at the time of any proposed offering, and such market’s reception of us and the offering terms. In addition, our ability to complete an offering may be dependent on the status of our exploration activities, which cannot be predicted. There is no assurance that capital in any form would be available to us, and if available, on terms and conditions that are acceptable.

 

These conditions raise substantial doubt about our ability to continue as a going concern. Our continuation as a going concern is dependent on our ability to meet our obligations, to obtain additional financing as may be required until such time as we can generate sources of recurring revenues and to ultimately attain profitability. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

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Operational Update

 

Maricunga project

 

Our Maricunga project comprises of undeveloped 1,888 hectares of property located in the northeast section of the Salar de Maricunga in Region III of Atacama, in northern Chile, and consists of our 60% controlling interest in SLM Litio 1-6 and the recently acquired Cocina Mining Concessions.

 

In September 2011, in order to provide funding to begin the initial assessments of producible minerals from the SLM Litio 1-6, we entered into a subscription agreement with POSCO Canada Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO (a South Korean company). In accordance with the subscription agreement, POSCAN purchased 38,095,300 Units of our securities for approximately $8 million, with each “Unit” consisting of one share of our common stock and a three-year warrant to purchase one share of our common stock at an exercise price of $0.40 per share.

 

In May 2012, we reported the completion of the NI 43-101 of the Canadian Securities Administrators (NI 43-101) that summarizes and validates the results of our $8 million Phase One Exploration and Development Program on our SLM Litio 1-6 in Chile, completed in December 2011. The Technical Report was prepared by Donald H. Hains, P. Geo., Principal of Hains Technology Associates, who is a Qualified Person as defined by NI 43-101. The report included the following conclusions and recommendations:

 

-Results of airlift testing and pumping tests on test trenches indicate that future brine production can be achieved through a combination of production wells and open trenches.

 

-The analyses of brine chemistry indicate that the brine is amenable to lithium and potash recovery through conventional technology.

 

-It is believed that through the application of proprietary technology developed by Li3’s strategic partners, lithium recovery from the Maricunga brine can be significantly enhanced and may range from 45 percent to more than 70 percent.

 

-It is the recommendation of the authors that a full feasibility study be completed for the Project.

 

On August 17, 2012, (the “Second Closing”), POSCAN purchased an additional 62,499,938 Units of our securities for gross proceeds of $9,999,990, with each “Unit” consisting of one share of common stock for $0.16 per share and a three-year warrant to purchase one share of common stock for $0.21 per share. In connection with the transaction, we agreed to reduce the exercise price of all of the warrants previously sold to POSCAN from $0.40 per share to $0.21 per share and issued to POSCAN a two-year warrant (the “Bonus Warrant”) to purchase 5,000,000 shares of our common stock at an exercise price of $0.15 per share.

 

In June 2012, the Chilean Government’s Ministry of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose of participating in such CEOL auction. The Consortium submitted its bid for the CEOLs and in September 2012, the Company was informed that the Consortium’s bid was not the winning bid.

 

The Chilean government has since decided to invalidate the CEOL process due to an administrative error, as well as rescinding the CEOL Basis, which defined the regulations of the CEOL process. The Company submitted several appeals to the Chilean government requesting it to reconsider the invalidation and award the CEOL to the second highest bidder - the Consortium. The appeals have been rejected by the Chilean government. This negative response implies that we are not authorized to exploit lithium from the area covered by the SLM Litio 1-6 mining concessions since such concessions do not authorize to exploit lithium. Accordingly, there can be no assurance that we will be able to obtain the permits necessary to exploit any minerals that our exploration activities discover in a timely manner or at all.

 

In October 2012 the Company filed a request for approval of the Environmental Impact Declaration for the SLM Litio1-6 concessions with the Chilean Environmental Authority. This approval was required to enable us to commence a feasibility study for the exploitation of potassium and production of potash, and was received in March 2013. Due to a lack of funds following the acquisition of our Cocina Mining Concessions in April, we have been unable to progress to the feasibility study stage on SLM Litio 1-6.

 

On April 16, 2013, Minera Li entered into a purchase agreement (the “Purchase Agreement”) with Jose Resk Nara and Carlos Alfonso Iribarren (the “Sellers”) whereby it purchased all of the outstanding shares of SLM Cocina Diecinueve de la Hoyada de Maricunga, a Chilean legal mining company (the “Cocina Company”). Cocina Company was the sole owner of a group of exploitation mining concessions named Cocina 19 through 27 (the “Cocina Mining Concessions”)comprising 450 hectares and increasing the Company´s land holdings within Maricunga to 1,888 hectares.

 

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Pursuant to the Purchase Agreement, Minera Li agreed to pay the Sellers $7.3 million, of which $2.0 million was paid on the Closing Date, $2.0 million is to be paid on July 16, 2013, $1.8 million is to be paid on October 16, 2013and $100,000 is to be paid annually on each of April 16 for 15 years, beginning in 2014.The Cocina Mining Concessions were mortgaged in favor of the Sellers as a security for the remaining payment as specified on the Purchase Agreement.

 

The Company did not make the required payment on July 16, 2013. The Company is currently in discussions to modify terms of the amounts owed to the Sellers, however, there is no assurance the Company will come to an agreement with the Sellers.

 

The Cocina Mining Concessions were constituted prior to the 1979 Lithium Exploitation Restrictions, meaning that, from a mining law point of view, Minera Li is authorized to exploit lithium in the area covered by those concessions. As with any mineral exploitation in Chile, Minera Li requires all other permits which according to Chilean law are necessary to exploit minerals.

 

Due to the uncertainty regarding the lithium permit for SLM Litio 1-6, we are pursuing these concessions as a producer of potash. Our NI 43-101 of the Canadian Securities Administrators (NI 43-101) shows that potassium resources are available in these properties. The majority of the past and current technical work performed on the project is applicable to the production of lithium and/or potassium. Potassium exploitation does not require special permits and it is exploitable via regular mining concessions, according to the Chilean Mining Code. Initial estimations suggest that a potash project is economically feasible. However, there can be no assurance that we will be able to do so in the near future or at all.

 

Therefore our Maricunga project is currently focused on the development of our Cocina Mining Concessions to produce lithium carbonate and potash and our SLM Litio 1-6 to produce potash.

 

The Company determined that the inability to secure a permit to produce lithium from SLM Litio 1-6 represents events or changes in circumstances that indicate that the carrying amount of SLM Litio 1-6 may not be recoverable under ASC 360, Property Plant and Equipment. On this basis, the Company conducted a review of that asset for recoverability by evaluating SLM Litio 1-6 as a “potash-only” producer. Because the SLM Litio 1-6 asset is in its exploration stage of development, a market based approach was used to determine the fair value of the mineral rights. As the Company only had two principal assets, the Cocina Mining Concessions and SLM Litio 1-6, the Company evaluated impairment principally by estimating the enterprise value of the Company at June 30, 2013 and from that, deducing the fair value of SLM Litio 1-6.

 

Based on the evaluation, the Company determined that the long-lived asset of SLM Litio 1-6 was not fully recoverable and recognized an impairment charge of approximately $46.5 million to write the mineral rights down from their carrying value to their estimated fair value of approximately $17.2 million at June 30, 2013.

 

In March 2013, POSCO announced that it has developed a chemical lithium extraction technology that reduces recovery time from around 12 months to just eight hours. The technology increases the lithium recovery rate from a maximum of 50% using traditional evaporation ponds to more than 80%, and the lithium carbonate produced is more than 99.9% pure. If the Maricunga project progresses to production stage, the Company plans to utilize this technology as the means of extraction in order to gain efficiencies.

 

Maricunga Minority Shareholders’ Lawsuit Update

 

As the majority shareholder of SLM Litio 1-6, we have filed lawsuits distributed to four civil courts of Copiapo, third Region of Atacama, Chile, against the minority shareholders seeking either payment of their pro rata portion of costs or an auction of their share of the properties. The minority shareholders have not paid their required contributions to the costs of conservation and exploration, which were agreed upon at the shareholders’ meeting on October 6, 2011. In December 2012, we received a favorable decision from one of the civil courts to auction approximately 4% of the shares once the judgment is executed. This was opposed by the shareholders, but the Court of Appeals of Copiapó confirmed the favorable decision. Now the favorable decision is being revised by the Supreme Court. We are awaiting the Supreme Court decision after which the second court of Copiapo should set a date and time for the auction of 4% of the shares. The other civil courts are due to issue their final decision regarding the auction of 12% of the shares. The remaining lawsuits for 24% of the shares are still in preliminary stage.

 

Certain minority shareholders have filed counter claims against us, in two civil courts of Santiago, to declare, among other things, the invalidation of such shareholders’ meeting at which required contributions were established that such minority shareholders failed to make. In one of the courts, the process is on hold because the minority shareholders have not filed a new claim, as requested by the court. In the other court, we have filed our defense claiming that the lawsuits should be dismissed on the basis that the decision made in the shareholders´ meeting on October 6, 2011 was made in accordance with Chilean law, and that the amounts are necessary for the conservation and exploration of the mining property. This lawsuit is still in the discovery stage. Both lawsuits are currently on hold.

 

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Strategic Plan

 

Part of our strategic plan is to explore and develop our existing projects as well as to identify other synergistic opportunities with new projects with production potential that that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium, potassium and other industrial minerals properties.  Our primary objective is to become a low cost lithium and potash producer utilizing improved technologies for the extraction of lithium and potash from brines in an accelerated manner. The key to achieving this objective is to become an integrated chemical company through the strategic acquisition and development of lithium and potassium assets, as well as other assets that have by-product synergies.

 

On April 16, 2013, we acquired the Cocina Mining Concessions, which consists of 450 hectares located adjacent to our existing SLM Litio 1-6 property and are permitted for the exploitation of lithium. Given our inability to date to obtain the necessary permits for lithium exploitation for our SLM Litio 1-6 property, we are pursuing a strategy that involves the production of potash from those properties simultaneously with the production of lithium carbonate and potash from the Cocina Mining Concessions. Our Technical Report in accordance with National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”) shows that potassium resources are available in the SLM Litio 1-6properties. As part of our strategic plan, we always had plans to produce a potassium by-product alongside the lithium. Potassium exploitation does not require special permits and is exploitable via regular mining concessions, according to the Chilean Mining Code.

 

Results of Operations

 

Fiscal Year Ended June 30, 2013 Compared with Fiscal Year Ended June 30, 2012

 

Revenues

 

We had no revenues during the years ended June 30, 2013 and 2012.

 

Operating Expenses

 

Exploration Expenses

 

During the years ended June 30, 2013 and 2012, we incurred exploration expenses of $489,671 and $6,193,533, respectively. The expenses incurred during the year ended June 30, 2013 relate to our efforts to obtain the environmental permits that will allow us to take our Maricunga project to a feasibility stage. The expenses incurred during the year ended June 30, 2012 related primarily to our efforts to begin exploration activities on our Maricunga project and principally included drilling and other related expenses.

 

Mineral Rights Impairment Expense

 

During the years ended June 30, 2013 and 2012, we incurred impairment expenses of $46,493,626 and $300,000, respectively. The impairment expense recorded during the year ended June 30, 2013 is a result of the Company evaluating SLM Litio 1-6 as a “potash-only” producer and conducting a review of that asset for recoverability. Because the SLM Litio 1-6 asset is in its exploration stage of development, a market based approach was used to determine the fair value of the mineral rights. Mineral rights impairment expense recorded during the year ended June 30, 2012 is a result of the impairment of the Noto properties on the basis that it was not deemed economically feasible to continue pursuing the development of these properties.

 

Loss on Settlements, Net

 

During the year ended June 30, 2013, the Company recorded a gain on settlements of $12,559 as a result of settlement agreements with respect to a total of $482,296 of obligations, under which the Company issued an aggregate of 7,198,294 shares of the Company’s common stock, valued at $469,737. There were no similar transactions during the year ended June 30, 2012.

 

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General and Administrative Expenses

 

Our general and administrative expenses for the years ended June 30, 2013 and 2012 consisted of the following:

 

           Increase 
   June 30, 2013   June 30, 2012   (Decrease) 
Rent  $83,752   $98,668   $(14,916)
Office expenses   37,670    160,504    (122,834)
Communications   55,943    63,974    (8,031)
Travel expenses   215,353    899,241    (683,888)
Legal fees   884,945    1,195,750    (310,805)
Accounting & finance fees   334,324    333,016    1,308 
Audit fees   228,438    144,848    83,590 
Other professional fees   340,331    845,796    (505,465)
Marketing and investor relations   37,769    304,858    (267,089)
Board of Directors fees   244,000    215,935    28,065 
Bank fees   7,844    8,620    (776)
Salaries & wages   1,245,948    1,145,958    99,990 
Relocation expenses   40,479    -    40,479 
Stock-based compensation   603,828    649,580    (45,752)
Depreciation and amortization   37,030    30,372    6,658 
Registration rights penalties   -    479,777    (479,777)
Other penalties   120,000    -    120,000 
Write-offs of deposits   -    400,000    (400,000)
Other   26,478    19,146    7,332 
   $4,544,132   $6,996,043   $(2,451,911)

 

We incurred total general and administrative expenses of $4,544,132 for the year ended June 30, 2013 compared to $6,996,043 for the year ended June 30, 2012, a $2,451,911 decrease, comprised mainly of decreases in:

 

·Office expenses of $122,834, as a result of one-off costs incurred for the set up of the Chile office during 2012, and cost reduction efforts undertaken by the Company during 2013;

 

·Travel expenses of $683,888, due to reduced travel activity required in seeking sources of funding in the first half of 2013 as a result of the POSCO second tranche of funding received, and efforts initiated by the Company to reduce costs in the second half of 2013;
  
·Legal fees of $310,805. During 2012, significant legal fees were incurred in relation to financing and capital raising, potential transactions, structuring, tax issues and equity incentive plans;
  
·Other professional fees of $505,465, due to a reduction in the use of outside professionals and the efforts of the Company to reduce costs. Additionally, non-recurring consulting fees were incurred in 2012 in relation to the acquisition of SLM Litio 1-6 and the commencement of the Maricunga project;
  
·Marketing and investor relations of $267,089,as a result of the decrease in investor relations activities and the efforts of the Company to reduce costs;
  
·Registration rights penalties of $479,777, which related to potential penalties recognized in 2012 in connection with the failure to file a timely registration statement. No such penalties were incurred during 2013;
  
·Write-offs of deposits of $400,000, which related to the write-off of deposit payments to New World Resource Corp. and to the Claritas and Bongos properties in 2012. No such write-off was incurred during 2013.

 

The decreases in the above expenses were partially offset by increases in:

 

·Audit fees of $83,590 primarily due to increase in cost of quarterly review fees of $15,540 in 2013 as a result of increased complexity and accrual for annual audit fee of $60,000 made in current year;
  
·Salaries & wages of $99,990, mainly due to hiring a full-time CFO and Vice President in March 2012 ($233,808), CEO salary increase effective January 2012 ($25,000), salaries for Chile employees allocated to exploration costs in 2012 ($163,886), partially offset by reduced salaries in Peru due to office closure ($209,480) and the resignation of the COO in December 2012 ($113,224);
  
·Other penalties of $120,000 have been accrued but unpaid, representing penalties assessed by the IRS in relation to the late filing of Form 5471 (an information return with respect to certain foreign corporations) for the 2010, 2011 and 2012 years. We are seeking to have the penalties forgiven but there is no assurance we will be successful.

 

Other Income (Expense)

 

Loss on Debt Extinguishment

 

A loss on debt extinguishment of $841,752 was recognized during the year ended June 30, 2012 as a result of entering into a waiver agreement with the lenders whereby the terms of the convertible notes were extended and the conversion price was reduced from $0.40 per share to $0.12 per share. During the year ended June 30, 2013, the Company entered into another waiver agreement with the lenders whereby the terms of the convertible notes were extended and the conversion price was reduced from $0.12 per share to $0.095 per share, and a loss on debt extinguishment of $37,235 was recognized. As a result of the modifications of the terms of the convertible notes, the Company expensed all unamortized deferred financing costs and recorded the difference between the carrying value of the notes and the estimated fair value of the post-modification notes as loss on debt extinguishment.

 

32
 

 

Change in Fair Value of Derivative Liability - Warrant Instruments

 

During the year ended June 30, 2013, we recorded a gain of $8,471,743 on the change in fair value of derivative liability - warrant instruments, compared to $10,780,342 during the year ended June 30, 2012.  The change in fair value of our derivative warrant liability has no impact on our cash flows from operations and was primarily a result of the decrease in our stock price during the year ended June 30, 2013.

 

Warrant Modification Expense

 

During the year ended June 30, 2013, the Company adjusted the exercise price of the warrants previously issued to POSCAN from $0.40 to $0.21 per share in conjunction with the closing of POSCAN’s second tranche of investment. The incremental value of the warrants before and after the modification was $171,150 and was reported as warrant modification expense. There were no similar transactions during the year ended June 30, 2012.

 

Interest Expense

 

During the years ended June 30, 2013 and 2012, net interest expense was $419,745 and $1,150,634, respectively.  The decrease in interest expense was primarily a result of the decrease in amortization of discount on notes payable and deferred financing costs, which amounted to $179,590 during the year ended June 30, 2013 and $979,059 during the year ended June 30, 2012 and interest income of $36,878 earned on funds on deposit during the year ended June 30, 2013. This decrease in interest expense has been partially offset by an increase in interest expense for the year ended June 30, 2013 on registration rights penalties of $51,847and interest related to late payment of supplier invoices of $37,710.

 

Gain on Foreign Currency Transactions

 

During the years ended June 30, 2013 and 2012, gain on foreign currency transactions amounted to $32,924 and $14,142, respectively, and such activity was related to our operations in Peru and Chile.

 

Net Loss

 

Net loss for the year ended June 30, 2013 was $43,638,333 compared to $4,687,478 for the year ended June 30, 2012, an increase of $38,950,855. The increase in net loss is primarily due to the increase in mineral rights impairment expense of $46,493,626 and the decrease in unrealized gain on the change in fair value of derivative liabilities of $2,308,599, which have been partially offset by: the decrease in exploration expenses of $5,703,862;the decrease in general and administrative expenses of $2,451,911; the decrease in loss on debt extinguishment of $804,517;and the decrease in net interest expense of $730,889.

 

Net Loss Attributable to Non-Controlling Interest

 

During the years ended June 30, 2013 and 2012, the net loss attributable to non-controlling interests was $18,798,439 and $2,375,407, respectively.  This represents the non-controlling interest’s 40% share of expenses relating to the exploration of the SLM Litio 1-6 Property, and includes their 40% share of the mineral rights impairment expense recorded during the year ended June 30, 2013.

 

Liquidity and Capital Resources

 

We are primarily engaged in exploration and acquisition of new properties and do not generate income from operations currently. Our only source of liquidity has been debt and equity financing.

 

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

 

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

 

33
 

 

As of June 30, 2013, the Company had a cash balance on hand of $12,667, which is not sufficient to maintain its basic operations for 12 months. We have implemented a cost reduction program and we are taking the necessary actions to preserve cash. We are in progress of evaluating the total costs and activities that a potassium project requires. The Company has no source of revenue; however management is actively seeking additional funding in the form of equity and/or debt from potential investors.

 

Commitments Relating to Mineral Rights

 

On April 16, 2013, we entered into a purchase agreement with Jose Resk Nara and Carlos Alfonso Iribarren to purchase all of the outstanding shares of SLM Cocina Diecinueve de la Hoyada de Maricunga, which owned the group of mining concessions Cocina 19 through 27 (the Cocina Mining Concessions). Pursuant to the purchase agreement, we agreed to pay the sellers $7.3 million, of which $2.0 million was paid on the closing date, $2.0 million is to be paid on July 16, 2013, $1.8 million is to be paid on October 16, 2013, and $100,000 is to be paid annually on each of April 16 for 15 years, beginning in 2014.

 

The transfer of the shares purchased therein has been completed and Minera Li has absorbed the Cocina Company as a matter of law. As a consequence thereof, Minera Li is the sole owner of the Cocina Mining Concessions.

 

Subsequent to June 30, 2013, we verbally agreed with the Sellers to defer the payment due on July 16, 2013 to October 16, 2013 for an additional payment of approximately $300,000. If we are unable to make the October 16, 2013 payment, or any of the other payments due to the sellers, the sellers could execute on their mortgage. At execution, the concession could go to public auction and could be acquired by a third party, or retained by the Seller if nobody offers the minimum auction price.

 

Convertible Notes

 

In September 2012, the Company entered into a Second Amendment and Waiver Agreement with the holders of the zero-coupon convertible notes (the “Second Waiver Agreement”).  Pursuant to the Second Waiver Agreement, the zero-coupon convertible notes maturity date was extended to September 28, 2013, and the aggregate principal amount thereof was increased to $1,880,000, which includes an Original Issue Discount of 12.1% or $202,926. The Waiver Agreement also reduced the conversion price of the zero-coupon bridge notes from $0.12 to $0.095 per share.

 

On May 14, 2013, the Company issued an unsecured Convertible Promissory Note (the “Note”) to Asher Enterprises, Inc. (“Asher”), bearing an interest rate of 8% per annum, in the amount of $158,500 with a Maturity Date of February 17, 2014.  Under the terms of the Note, any amount of principal and interest that is not paid when due will be subject to interest of 22% per annum (“Default Interest”). The Note provides that all or any part of the principal and interest balance due on the Note are convertible at Asher´s option at any time from 180 days following the date of the Note (being November 10, 2013) and ending on complete satisfaction of the Note by payment or conversion.

 

The conversion price shall equal the Variable Conversion Price which is calculated as 61% of the Market Price, being the average of the lowest three trading prices for the Company´s common stock during the 10 day period prior to the conversion date.

 

POSCAN Funding

 

In September 2011, POSCAN purchased 38,095,300 Units of our securities for approximately $8 million (or $0.21 per Unit), with each “Unit” consisting of one share of our common stock and a three-year warrant to purchase one share of our common stock at an exercise price of $0.40 per share.

 

In August 2012, we received the second tranche of funding by POSCAN. We issued 62,499,938 Units to POSCAN for gross proceeds of $9,999,990 (or $0.16 per Unit), with each “Unit” consisting of one share of common stock and a three-year warrant to purchase one share of common stock for $0.21 per share.

 

Pursuant to the Additional Agreement, we reduced POSCAN’s purchase price per Unit for the second tranche from $0.21 per share to $0.16 per share, and reduced the exercise price of all of the warrants sold under the POSCAN SPA from $0.40 per share to $0.21 per share.

 

Pursuant to the Additional Agreement, we also agreed to issue to POSCAN a two-year Bonus Warrant to purchase 5,000,000 shares of our common stock at an exercise price of $0.15 per share. Furthermore, subject to certain exceptions, we must issue additional shares of our common stock to POSCAN in the event that we issue or sell any such shares to third parties for a price of less than $0.16 per share at any time during the 18 months immediately following the Second Closing.

 

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POSCAN has no current commitments to provide us with funding in the future.

 

Shares for Debt Settlement

 

In addition to utilizing our capital to acquire properties and pay other corporate costs, we periodically issue shares of our common stock as consideration in lieu of cash to conserve our cash and meet our obligations. We likely will continue to issue common stock for these purposes where feasible, if we determine that it is in our economic best interests. During the year ended June 30, 2013, we issued 7,198,294 shares of our common stock for the settlement of $482,296 relating to certain outstanding liabilities (of which $390,336 were outstanding at June 30, 2012).

 

Common Stock Subject to Rescission

 

On March 19, 2012, the Securities and Exchange Commission declared effective a registration statement that we had filed to cover the resale of shares previously issued and sold (or to be issued upon the exercise of warrants). On March 1, 2013, we filed a post-effective amendment for that registration statement that included our audited financial statements as of and for the year ended June 30, 2012 as had been filed on our Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 Annual Report”). We believe that the filing of the post-effective amendment fulfilled our obligation to update the registration with current financial information pursuant to Section 10(a)(3) of the Act. However, there were approximately three months when our registration statement contained financial information that was not current. During that period, 65,000 shares sold pursuant to that prospectus in open market transactions which may have violated Section 5 of the Securities Act of 1933, as amended, and, as a result, the purchasers of those shares may have rescission rights or claims for damages. Accordingly, we have reduced shareholders’ equity at June 30, 2013 by $3,041, the total amount that we would have to refund if all the purchasers of those shares exercised their rescission right.

 

Events subsequent to June 30, 2013

 

oConvertible Notes Payable

 

On July 15, 2013 the Company issued an unsecured Convertible Promissory Note to Asher, bearing an interest rate of 8% per annum, in the amount of $53,000 with a Maturity Date of April 17, 2014.  Under the terms of the note, any amount of principal and interest that is not paid when due will be subject to interest of 22% per annum (“Default Interest”). The note provides that all or any part of the principal and interest balance due on the note are convertible at Asher´s option at any time from 180 days following the date of the note (being January 11, 2014) and ending on complete satisfaction of the note by payment or conversion.

 

The conversion price shall equal the Variable Conversion Price which is calculated as 61% of the Market Price, being the average of the lowest three trading prices for the Company´s common stock during the 10 day period prior to the conversion date.

 

The conversion price of the note on the date of issuance was deemed to be $0.033 per share, which may have triggered a provision in the POSCAN Additional Agreement that provides that, subject to certain exceptions, the Company must issue additional shares of our common stock to POSCAN in the event that the Company issues or sells any such shares to third parties for a price of less than $0.16 per share at any time during the 18 months immediately following the Second Closing. We are seeking a waiver of this provision. In the event the provision applies, and a waiver is not granted, the Company estimates it would be required to issue an additional 2,771,794 shares, with associated stock-based compensation expense estimated at $91,469.

 

oCredit Facility

 

On August 16, 2013, the Company entered into an Offer to Finance agreement with 2265866 Ontario, Inc (the “Lender”) under which the Lender agreed to loan CAD $500,000 to Li3 (the “Credit Facility) at an interest rate of 18% per annum with the principal and outstanding interest repayable at the earlier of March 31, 2014 or an Event of Default as defined in the Offer to Finance agreement. The net proceeds received on August 16, 2013, were $482,605 based on the foreign exchange rate on the date of funding.

 

As required by the terms of the Credit Facility, the Company also entered into a General Security Agreement with the Lender, granting to the Lender a security interest in all present and after acquired personal property owned, leased, licensed, possessed, or acquired by the Company.

 

oCredit Agreement –Third Amendment Agreement

 

On August 16, 2013, the Company entered into a Third Amendment Agreement with the holders of the zero-coupon convertible notes (the “Third Amendment Agreement”).  Pursuant to the Third Amendment Agreement, the zero-coupon convertible notes’ maturity date was extended from September 28, 2013 to March 31, 2014, and the aggregate principal amount thereof was increased from $1,880,000 to $2,000,000, which includes an Original Issue Discount of 10.1%. Interest at the rate of 2.9% per annum or $33,631 will be recognized over the life of the extension. The interest was paid by the Company during August 2013.

 

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The Third Amendment Agreement also reduced the conversion price of the zero-coupon bridge notes from $0.095 to $0.02 per share. This may have triggered a provision in the POSCAN Additional Agreement that provides that, subject to certain exceptions, the Company must issue additional shares of our common stock to POSCAN in the event that the Company issues or sells any such shares to third parties for a price of less than $0.16 per share at any time during the 18 months immediately following the Second Closing. We are seeking a waiver of this provision. In the event the provision applies, and a waiver is not granted, the Company estimates it would be required to issue an additional 66,675,000 shares, with associated stock-based compensation expense estimated at $1,800,225.

 

In connection with the Third Amendment Agreement, the convertible notes were analyzed for a beneficial conversion feature and it was concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date stock price and was determined to be $700,000. This amount was recorded as a debt discount and will be amortized to interest expense over the term of the convertible notes.

 

The Company also entered into a General Security Agreement with the holders of the zero-coupon convertible notes, granting them a security interest in all present and after acquired personal property owned, leased, licensed, possessed, or acquired by the Company.

 

Issuance of Restricted Stock

 

On September 30, 2013, the Company agreed to issue 2,206,870 restricted shares of common stock to a third party in settlement of $50,000 of legal services accrued during the year ended June 30, 2013. The closing price of the common stock on the measurement date was $0.023 per share, and a loss on settlement of $783 will be recorded during the quarter ended September 30, 2013.

 

Off-Balance Sheet Arrangements

 

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

 

Critical Accounting Policies

 

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the United States ("U.S. GAAP").  U.S. GAAP represents a comprehensive set of accounting and disclosure rules and requirements.  The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.  We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions, however, in the past the estimates and assumptions have been materially accurate and have not required any significant changes. Should we experience significant changes in the estimates or assumptions that would cause a material change to the amounts used in the preparation of our financial statements, material quantitative information will be made available to investors as soon as it is reasonably available.

 

We believe the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements:

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Management has made significant estimates related to the fair value of shares issued for mineral acquisitions; the fair value of derivative liabilities; stock-based payments; and contingencies.

 

Mineral Exploration and Development Costs

 

All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs incurred to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If we do not continue with exploration after the completion of the feasibility study, the cost of mineral rights will be expensed at that time. Costs of abandoned projects are charged to mining costs, including related property and equipment costs. To determine if capitalized costs are in excess of their recoverable amount, periodic evaluation of the carrying value of capitalized costs and any related property and equipment costs are performed based upon expected future cash flows and/or estimated salvage value.

 

36
 

 

Impairment of Long Lived Assets

 

Long-lived assets, including mineral rights, are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. We account for asset impairment in accordance with ASC 360, Property Plant and Equipment. Long-lived assets such as property, plant and equipment, mineral properties and purchased intangible assets subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment is considered to exist if the total estimated future cash flow on an undiscounted basis is less than the carrying amount of the related assets. An impairment loss is measured and recorded based on the estimated fair value of the long-lived asset.

 

Share-Based Payments

 

The Company estimates the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model and common shares based on the last quoted market price of the Company’s common stock on the date of the share grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. As share-based compensation expense is recognized based on awards ultimately expected to vest, the Company reduces the expense for estimated forfeitures based on historical forfeiture rates. Previously recognized compensation costs may be adjusted to reflect the actual forfeiture rate for the entire award at the end of the vesting period. Excess tax benefits, if any, are recognized as an addition to paid-in capital.

 

Fair Value Measurements

 

As defined in FASB ASC Topic No. 820 - 10, fair value is the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC Topic No. 820 - 10 requires disclosure that establishes a framework for measuring fair value and expands disclosure about fair value measurements.

 

As required by FASB ASC Topic No. 820 - 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

 

Non-Controlling Interests

 

We are required to report our non-controlling interests as a separate component of shareholders’ equity. We are also required to present the consolidated net income and the portion of the consolidated net income allocable to the non-controlling interests and to our shareholders separately in our consolidated statements of operations. Losses applicable to the non-controlling interests are allocated to the non-controlling interests even when those losses are in excess of the non-controlling interests’ investment basis.

 

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable for smaller reporting companies.

 

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our audited consolidated financial statements as of, and for the years ended, June 30, 2013 and 2012, and for the period from June 24, 2005 (inception) through June 30, 2013, are included beginning on Page F-1 immediately following the signature page to this report.  See Item 15 for a list of the financial statements included herein.

 

ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

37
 

 

ITEM 9ACONTROLS AND PROCEDURES

  

(a) Evaluation of Disclosure Controls and Procedures.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2013. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all errors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weakness, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles in the United States of America. In addition, we engaged third party consultants to assist us with our accounting functions and in performing the additional analyses referred to above. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2013, based on the framework in Internal Control-Integrated Framework and the Internal Control over Financial Reporting-Guidance for Smaller Public Companies, both issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weakness:

 

We are currently in the exploration stage, and we have focused on hiring individuals to assist in identifying and pursuing business opportunities in lithium and industrial minerals mining. Although we have hired qualified resources to carry out our day-to-day accounting and financial reporting obligations, we have not yet reached the point at which we have adequate resources to address all complex accounting issues in-house. We rely on external consultants who we understand are sufficiently qualified to provide us with expert assistance in these areas. As a result of this, while we are not aware of any specific deficiency, a reasonable possibility exists that a material misstatement of the company's annual or interim financial statements will not be prevented or detected by us on a timely basis.

 

Because of this material weakness, management has concluded that our Company did not maintain effective internal control over financial reporting as of June 30, 2013, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by our independent registered public accounting firm because smaller reporting companies are exempt from this requirement.

 

(c) Changes in Internal Controls.

 

During the year ended June 30, 2013, the Company has employed a full time financial controller to formalize, evaluate and test the financial closing process and the internal review procedures in an effort to ensure that our consolidated financial statements accurately reflect our financial condition and results of operations. Formal procedures have been established for the month end reporting process and the additional staff member has also allowed segregation of duties in several areas. Detailed cost schedules and variance to budget analysis are prepared by the Financial Controller on a monthly basis and reviewed by the CFO.

 

ITEM 9B.OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10.DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

Below are the names and certain information regarding our current executive officers and directors:

 

Name   Age   Title   Date First Appointed
Luis Francisco Saenz   42   President, Chief Executive Officer and Director   October 19, 2009
Luis Santillana   37   Chief Financial Officer, Secretary and Treasurer   July 1, 2012
Patrick Cussen   64   Chairman of the Board   December 5, 2011
Patricio A. Campos   67   Director   October 23, 2011
Eduardo G. de Aguirre   66   Director   October 23, 2011
Harvey McKenzie    67   Director    June 27, 2011 
David G. Wahl   68   Director   February 18, 2010
SungWon Lee   46   Director   December 19, 2012

 

The following persons served as executive officers and directors of our Company until their resignation on the dates disclosed:

 

Name   Age   Title   Date First Appointed   Date Resigned
R. Thomas Currin, Jr.   56   Chief Operating Officer   August 11, 2010   November 30, 2012
Hyundae Kim   43   Director   September 14, 2011   December 19, 2012
Alan S. Fraser   51   Director   October 23, 2011   July 31, 2013

 

Directors are elected to serve until the next annual meeting of stockholders and until their successors are elected and qualified. Our executive officers are appointed by the Board of Directors and serve at its pleasure.

 

Certain biographical information for each of our executive officers and directors is set forth below.

 

Luis Francisco Saenz joined our Board of Directors on October 19, 2009. Mr. Saenz has been our Chief Executive Officer since October 19, 2009, and President since September 14, 2011. Mr. Saenz was formerly employed at Standard Bank (“Standard”) with Standard’s investment banking unit, Standard Americas, Inc. Mr. Saenz joined Standard in New York in 1997 and relocated to Peru in 1998 to establish Standard’s Peru representative office. While in Peru, Mr. Saenz led Standard’s mining and metals organization effort in the Latin America region. Mr. Saenz returned to New York in 2007 to head Standard’s mining and metals team in the Americas. Mr. Saenz previously worked for Pechiney World Trade in the base metals trading area before joining Merrill Lynch as Vice-President for Commodities in Latin America. Mr. Saenz graduated from Franklin and Marshall College in 1991 with a Bachelor of Arts degree in economics and international affairs.

 

Luis Santillana became our Vice President of Finance on March 1, 2012, and has been our Chief Financial Officer, Secretary and Treasurer since July 1, 2012. Mr. Santillana strengthens our existing management team and brings additional domain expertise, having over 10 years’ experience in the mining industry, specifically in finance, fund raising, debt facilities, deal negotiation and execution, strategic and financial planning, financial valuations, treasury management, and improvement of management reporting. Prior to joining our Company, Mr. Santillana held the position of Strategic Planning Manager, for ENRC plc, a $7 billion revenue, diversified mining company listed on the London Stock Exchange (FTSE 100). Based in London, he was involved in strategic and financial planning and management reporting for ENRC. From September 2008 to June 2010, Mr. Santillana was responsible for the financial planning and treasury functions at London Mining plc, an iron-ore mining company listed on the London Stock Exchange (AIM). Prior to joining London Mining plc, Mr Santillana worked for Hochschild Mining plc, a Peruvian gold and silver producer, where he was part of the core management team that led Hochschild Mining’s successful IPO and listing on the London Stock Exchange (FTSE 250). Mr Santillana holds an MBA from IESE Business School (Spain) and a Bachelor’s Degree in Industrial Engineering from Universidad de Lima (Peru).

 

Patrick Cussen joined our Company as Chairman of the Board of Directors in December 2011. Mr. Cussen brings us 41 years of mineral and mining expertise and is currently the President of Celta Consultoras Limitada, a Chilean mining consulting and service company to the Latin American mining industry advising global clients including: Antofagasta Minerals, Vale, Phelps Dodge (Freeport), Placer Dome (Barrick), Codelco, Citibank, LS-Nikko Copper and Royal Gold. From 1972 - 1985, Mr. Cussen held numerous positions within Codelco, the world’s largest copper producer, culminating as Managing Director, Chile Copper Ltd., a London based Codelco subsidiary. From 1985 - 1990, Mr. Cussen was VP Sales, Empresa Minera de Mantos Blancos S.A. (subsidiary of Anglo American Chile). Mr. Cussen is currently Chairman of the Board of the Center for Copper and Mining Studies, Cesco, the Chilean think-tank on mining. Mr. Cussen is also a former member of the board of the Chilean Copper Commission. Mr. Cussen is an industrial civil engineer and holds an MA in economics from the University of Chile.

 

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Mr. Cussen’s qualifications to serve on the board of directors include his extensive experience within the Latin American mining industry.

 

Patricio Campos joined our Board of Directors in September 2011. Mr. Campos brings us valuable domain expertise having over 42 years’ experience in the mining industry, specifically in project exploration, evaluation, technical and economic preparation, plant constructions and operations. His mineral and mining experience includes copper, gold and non-metallic (coal, phosphate, limestone, nitrate and iodine, lithium (brines) minerals, boron and potassium chloride projects. Mr. Campos has also acted as a consultant in the evaluation of ore deposit reserves, copper, gold, iodine, nitrate, coal, phosphate, lithium salares, boron, potassium chloride and potassium sulphate projects. Prior to joining our Company, Mr. Campos previously led and supervised the construction of several plants (iodine, bagging) for Chemical & Mining Co. of Chile Inc. (NYSE: SQM), a multi-national global producer and seller of fertilizers and specialty chemicals and Bifox Ltd. (phosphoric acid, grinding, crushing). Additionally, Mr. Campos has worked as a consultant spanning 30 years for companies such as Anglo American (Salar de Atacama Project), SQM (Salar de Atacama Project), Falcon Mines, MAGSA, ACF Minera S.A., SCM Montevideo & Montecristo, and Sociedad Minera Isla Riesco. Mr. Campos has also actively participated in due diligence processes and negotiations for mining assets such as Algorta Norte S.A.’s iodine project, SQM’s Salar de Atacama and Antucoya copper projects, Codelco´s El Hueso gold mine and other exploration projects, Phelp Dodge’s Safford project, among others. Mr. Campos is a former Professor of Mining Economy at the Mining Department, Universidad de Chile and a former Professor for due diligence, Mining Department, Escuela de Ingenieria, Unversidad de Chile and Instituto de Ingenieros de Minas de Chile. Currently Mr. Campos is a member of the Comité de Recursos Mineros del II MCh (Mining Resources Committee, Chile). Mr. Campos received his Civil Mining Engineering degree from Universidad de Chile and Graduated in economic evaluation and project preparation, Bid-Odeplan - Universidad Católica de Chile.

 

Mr. Campos’s significant experience in the mining industry, specifically in project exploration, evaluation, technical and economic preparation qualifies him to serve as a member of our board of directors.

 

Eduardo de Aguirre joined our Board of Directors in October 2011. Mr. de Aguirre brings us over 37 years' experience in business development, project management and finance. Since 2007, Mr. de Aguirre has served as Legal Representative to General Dynamics Installation Services Inc., Chile who manufactured and commissioned radio telescopes for the ALMA Project for a total value of about $150MMUS. ALMA is the largest astronomical project in existence in the world, now fully operational in the Atacama desert in Chile. Its total cost is in the range of billions of dollars. In addition, since 2005, he has acted as Consultant and Sales Representative for Latin America to General Dynamics SATCOM Technologies Inc. Prior to that, from 2000 - 2011, he acted as a consultant for various Chilean entities including Target-DDI, AACA, ASL, Filmosonido and Via Sat. From 1989 - 2000, Mr. de Aguirre served as Regional Manager in South America and as General Manager of the Chilean Subsidiary of Scientific Atlanta, Inc. Mr. de Aguirre is a Civil Industrial Engineer and attended Engineering School at the Catholic University, Santiago, Chile.

 

Mr. de Aguirre’s qualifications to serve on the board of directors include his experience in business development, project management and finance.

 

Harvey McKenzie was appointed to our Board of Directors on June 27, 2011. Mr. McKenzie is a Chartered Accountant and has been the CFO and corporate secretary of Anconia Resources Corp. (TSXV: ARA.V) since June 2011 and the CFO of Red Crescent Resources Limited (TSX: RCB) since January 1, 2013. Prior thereto, Mr. McKenzie served as the CFO of several Canadian publicly listed exploration, development and producing mining companies, including Martina Minerals Corp. from February 2005 to December 31 2012, Eurotin Inc. from May 2011 to September 2011, Sino Vanadium Inc. from May 2010 to March 2011, Iberian Minerals Corp. from July 2007 to June 2009, Carlisle Goldfields Limited from September 2006 to July 2007, and Asian Mineral Resources Limited from July 2006 to January 2008.  From August 2005 to July 2007, he was the CFO and a director of Card One Plus, Ltd., an electronic payment solutions company. Prior thereto he was the CFO of Thistle Mining Inc. from March 1999 to August 2005 (TSXV: TMG.V). He has also served as a consultant for several private companies and on the boards of several junior Canadian natural resource companies for over a decade. Prior thereto, he was in the financial services sector from 1987 to 1995; and from 1983 to 1987 he served as Director of Information Services of Ernst & Young, Chartered Accountants, in Toronto. From 1977 to 1983, he provided management and controllership functions for various financial institutions. From 1970 to 1977, he served as an Auditor for PricewaterhouseCoopers, Chartered Accountants. Mr. McKenzie obtained his Diploma in Alternate Dispute Resolution from the University of Toronto in 2001. He obtained his C.A. from the Institute of Chartered Accountants of Ontario in 1973 and his B.Sc. (Hons.) in Mathematics from the University of Toronto in 1970.

 

Mr. McKenzie’s qualifications to serve on the board of directors include his extensive financial and accounting experience with publicly listed companies involved in the mining and mineral industry.

 

David G. Wahl, P. Eng., P.Geo. ICD.D was appointed to our Board of Directors on February 18, 2010.  From 2005 to the present, Mr. Wahl has been the President and CEO of Southampton Associates - Consulting Engineers & Geoscientist, a private consulting concern specializing in mining and technical issues for corporate clients, financial institutions and governments. Mr. Wahl is a Director of Renforth Resources Inc. (TSX-V) and Femin Inc (Frankfurt). Mr. Wahl also has served in a technical advisory capacity to certain financial institutions, government agencies, and national legal and accounting firms.  As a past director of the Prospectors and Developers Association, Mr. Wahl provided independent peer review of the OSC/TSE Mining Standard Task Force and for Canadian National Instrument 43-101.  Mr. Wahl contributed to a similar review process as co-chair of the Professional Engineers of Ontario Review Committee.  Mr. Wahl is a graduate of the Colorado School of Mines and received a degree as an Engineer of Mines in 1968. Mr. Wahl is also a member of the Institute of Corporate Directors, a Self Regulatory Professional Institute.

 

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Mr. Wahl’s qualifications to serve on the board of directors include his far-reaching technical experience with companies involved in the mining and mineral industry.

 

SungWon Lee, PhD. was appointed to Li3’s board of directors on December 19, 2012, in connection with the closing of POSCAN’s initial investment in Li3’s securities.  Dr. Lee is a metallurgist with vast knowledge in aluminum forming and superplasticity. Dr. Lee joined POSCO in 2000 and has held various roles including Team Leader of the New Business Development Department where his activities included sourcing and reviewing numerous investment projects, joint ventures and organic growth projects. Dr. Lee led the development of the Magnesium Coil Project and the Fe-Mn Alloy Joint Venture both of which are operating units within POSCO Group. Dr. Lee has been serving as the Director of the Lithium Project Department within POSCO since 2010. Dr. Lee graduated with a Bachelor of Science from Yonsei University, Korea, M.S. Metallurgical Engineering, Yonsei University, Korea and PhD. Materials Science and Engineering, University of Southern California, USA.

 

Dr. Lee’s extensive metallurgy experience and his wide-ranging experience as a project leader qualifies him to serve on our board of directors.

 

Rights to Nominate Directors

 

We have agreed with the Maricunga Sellers that during the Lock-Up period, the Maricunga Sellers will have the right to nominate three of our directors and that a fourth director (who shall hold the position of Chairman of the Board) will be jointly nominated by the Maricunga Sellers and by our management. Such Lock-Up period expired in December 2012.

 

Pursuant to the Investor’s Rights Agreement between POSCAN and us, dated as of August 24, 2011, we were required to appoint a director nominated by POSCAN to our Board of Directors, and we must continue to nominate a POSCAN-designee at each annual meeting for as long as POSCAN owns not less than 10% of the issued and outstanding shares of our common stock.  We appointed Mr. Hyundae Kim to our Board of Directors, effective upon the September 14, 2011 closing of POSCAN’s initial investment in us. On Mr. Kim´s resignation on December 19, 2012, Dr. SungWon Lee was appointed to the board of directors as the POSCAN-designee.

 

Director Independence

 

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “Independent Directors.”  However, our Board of Directors has determined that each of Messrs. Campos, De Aguirre, McKenzie, Wahl and Lee is an “Independent Director” within the meaning of the rules of the Nasdaq Stock Market.

 

Board of Directors Meetings

 

Our business is under the general oversight of the Board of Directors as provided by the laws of Nevada and our bylaws. During the fiscal year ended June 30, 2013, the Board of Directors held eight meetings and took action by unanimous written consent in lieu of a meeting two times. Except as set forth below, each incumbent director attended at least 75% of the Board of Directors meetings and the meetings of the committees on which he served during fiscal 2013 (or the portion thereof during which he has been a director).

 

Director  Percentage of meetings
 attended
 
Hyundae Kim   -0-%
SungWon Lee   50%

 

Board Committees

 

Until December 5, 2011, we had not established any committees of our Board of Directors.  The entire Board of Directors has historically performed all functions that would otherwise be performed by committees, including audit and nominating committees.  Effective December 5, 2011, our Board of Directors formed an Audit Committee, a Compensation Committee, a Health, Safety, Environment and Community Committee and a Nominating and Corporate Governance Committee. We have subsequently adopted charters for all such committees.

 

41
 

 

Audit Committee

 

The purpose of the Audit Committee of the Board of Directors is to represent and assist the Board in monitoring (i) accounting, auditing, and financial reporting processes; (ii) the integrity of our financial statements; (iii) our internal controls and procedures designed to promote compliance with accounting standards and applicable laws and regulations; and (iv) the appointment of and evaluating the qualifications and independence of our independent registered public accounting firm. The Audit Committee’s responsibilities are set forth in its formal charter. The Audit Committee consists of Mr. McKenzie (Chairperson) and Messrs. Cussen and Fraser. The Audit Committee was formed on December 5, 2011, and has met four times during fiscal 2013.

 

Following the resignation of Mr. Fraser on July 31, 2013, the Company is yet to appoint another member to the Audit Committee.

 

The Board of Directors has determined that all Audit Committee members are financially literate under the rules of the Nasdaq Stock Market. The Board also determined that Mr. McKenzie qualifies as an “audit committee financial expert” within the meaning of Item 407 of Regulation S-K promulgated under the Exchange Act.

 

Compensation Committee

 

The purpose of the Compensation Committee of the Board of Directors is to (i) assist the Board in discharging its responsibilities with respect to compensation of our executive officers, (ii) evaluate the performance of our executive officers, and (iii) administer our stock and incentive compensation plans and recommend changes in such plans to the Board as needed. The Compensation Committee’s specific responsibilities are set forth in its formal charter. The Compensation Committee currently consists of Mr. De Aguirre (Chairman) and Messrs. Cussen, Kim and Saenz. Mr. Saenz, as Chief Executive Officer, is not independent within the meaning of the rules of the Nasdaq Stock Market; nonetheless, we believe that his presence on the Compensation Committee is productive, given the size and history of our Company. The Compensation Committee was formed on December 5, 2011, and did not meet during fiscal 2012.

 

Following the resignation of Mr. Kim on December 19, 2012, the Company is yet to appoint another member to the Compensation Committee.

 

Health, Safety, Environment and Community Committee

 

The purpose of the Health, Safety, Environment and Community Committee of the Board of Directors is to assist the Board in discharging its responsibilities with respect to (i) employee health and safety, (ii) the protection of the environment, and (iii) our relationship to the local communities affected by our operations. The Health, Safety, Environment and Community Committee’s specific responsibilities are set forth in its formal charter. The Health, Safety, Environment and Community Committee currently consists of Mr. Campos (Chairman) and Messrs. Fraser and Wahl. The Health, Safety, Environment and Community Committee was formed on December 5, 2011, and did not meet during fiscal 2013.

 

Following the resignation of Mr. Fraser on July 31, 2013, the Company is yet to appoint another member to the Health, Safety, Environment and Community Committee.

 

Nominating and Corporate Governance Committee

 

The purpose of the Nominating and Corporate Governance Committee of the Board of Directors is to assist the Board in identifying qualified individuals to become Board members, in determining the composition of the Board and its committees, in monitoring a process to assess Board effectiveness and in developing and implementing corporate procedures and policies. The Nominating and Corporate Governance Committee’s specific responsibilities are set forth in its formal charter. The Nominating and Corporate Governance Committee currently consists of Mr. Cussen (Chairman) and Messrs. McKenzie and Saenz. Mr. Saenz, as Chief Executive Officer, is not independent within the meaning of the rules of the Nasdaq Stock Market; nonetheless, we believe that his presence on the Nominating and Corporate Governance Committee is productive, given the size and history of the Company. The Nominating and Corporate Governance Committee was formed on December 5, 2011, and did not meet during fiscal 2013.

 

Shareholder Communications

 

Currently, we do not have a policy with regard to the consideration of any director candidates recommended by security holders.  To date, no security holders have made any such recommendations.

 

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Code of Ethics

 

We have adopted a Company Code of Ethics and a Code of Ethics for Financial Reporting Officers (collectively, “Codes”) that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  A copy of our Codes will be provided to any person requesting same without charge.  To request a copy of our Code of Ethics or Code of Ethics for Financial Reporting Officers please make written request to our President c/o Marchant Pereira 150 Of. 803 Providencia, Santiago de Chile, Chile.  We believe our Codes are reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.

 

Whistle Blowing Policy

 

We have adopted a Company Whistle Blowing Policy, for which a copy will be provided to any person requesting same without charge.  To request a copy of our Whistle Blowing Policy please make written request to our President c/o Marchant Pereira 150 Of. 803 Providencia, Santiago de Chile, Chile.  We believe our Whistle Blowing Policy is reasonably designed to provide an environment where our employees and consultants may raise concerns about any and all dishonest, fraudulent or unacceptable behavior, which, if disclosed, could reasonably be expected to raise concerns regarding the integrity, ethics or bona fides of the Company.

 

Compliance with Section 16(a) of the Exchange Act

 

Prior to March 16, 2011, our common stock was not registered pursuant to Section 12 of the Exchange Act.  Accordingly, our officers, directors and principal shareholders were not subject to the beneficial ownership reporting requirements of Section 16(a) of the Exchange Act prior to that date.

 

Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to the Company under  Rule 16a-3(e) under the Exchange Act during its most recent fiscal year and Forms 5 and amendments thereto furnished to the Company with respect to its most recent fiscal year, and any written representation to the Company from the reporting person that no Form 5 is required, no person who, at any time during the fiscal year, was a director, officer, beneficial owner of more than ten percent of the Company’s common stock, or any other person known to the Company to be subject to section 16 of the Exchange Act with respect to the Company, failed to file on a timely basis, as disclosed in the above Forms, reports required by section 16(a) of the Exchange Act during the most recent fiscal year or prior fiscal years, except as described below:

 

       Number of     
       transactions that     
       were not     
   Number of late   reported on a   Failure to file a 
Name  reports   timely basis   required Form 
R. Thomas Currin, Jr.   -    -    - 
Eric E. Marin   -    -    - 
Harvey McKenzie   2    1    - 
Patrick Cussen   2    1    - 
Alan S. Fraser   1    1    - 
Patricio A. Campos   1    1    - 
Eduardo G. de Aguirre   1    1    - 
Hyundae Kim   -    1    1 
Luis Francisco Saenz   2    -    - 
Luis Santillana   3*   -    - 
David G. Wahl   2    -    - 
Calcata Sociedad Anónima S.A.   -    -    - 
POSCO Canada Ltd.   -    -    - 

 

* Includes 1 Form 3 Initial Statement of Beneficial Ownership of Securities filed September 24, 2012.

  

ITEM 11.EXECUTIVE COMPENSATION

 

The following table sets forth information concerning the total compensation paid or accrued by us during the last two fiscal years ended June 30, 2013 and June 30, 2012 to (i) all individuals that served as our principal executive officer or acted in a similar capacity for us at any time during the fiscal year ended June 30, 2013; and (ii) all individuals that served as executive officers of ours at any time during the fiscal year ended June 30, 2012 that received annual compensation during such fiscal year in excess of $100,000.

 

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Summary Compensation Table

 

                           Change         
                           in         
                           Pension         
                           Value         
                           and Non-         
                       Non-Equity   qualified         
                       Incentive   Deferred         
               Stock   Option   Plan   Compensation   All Other     
Name and Principal      Salary   Bonus   Awards   Awards   Compensation   Earnings   Compensation     
Position  Year   ($)   ($)   ($)   ($)   ($)   ($)   ($)   Total ($) 
Luis Francisco Saenz   2013    250,000    -    -    -    -    -    3,990    253,990 
Chief Executive Officer   (1)   2012    225,000    200,000    -    -    -    -    19,070    444,070 
                                              
Luis Santillana   2013    185,000    97,000    -    -    -    -    40,479    322,479 
Chief Financial Officer     (2)   2012    61,667    20,000    34,500    30,725    -    -    -    146,892 
                                              
Thomas E. Currin   2013    128,750    75,000    -    -    -    -    20,700    224,450 
Chief Operating Officer   (3)   2012    212,500    -    -    -    -    -    -    212,500 
                                              
Eric E. Marin   2013    85,395    -    -    -    -    -    -    85,395 
Interim Chief Financial Officer   (4)   2012    201,772    -    -    -    -    -    -    201,772 

 

(1)Mr. Saenz was appointed our Chief Executive Officer as of October 19, 2009.  Mr. Saenz has an employment agreement with us as described below.  We granted Mr. Saenz 1,500,000 shares of our restricted common stock upon his initial hire. On June 27, 2011we granted Mr. Saenz 700,000 restricted stock units under the 2009 Plan, which had a grant date fair value of $154,000.  We have been paying Mr. Saenz at the rate of $100,000 per annum for the first calendar quarter of 2011 and $200,000 per annum thereafter. On May 2, 2012, our Board of Directors approved a cash bonus of $200,000 for Mr. Saenz’ achievements for fiscal years 2010 and 2011 and an increase to Mr. Saenz’ compensation from $200,000 per annum to $250,000 per annum, retroactive as of January 1, 2012. In December 2011, the Company paid approximately $19,070 for Mr. Saenz’ rental expenses for an apartment located in Chile. In April 2012, the Company paid $3,990 in medical insurance for Mr. Saenz.

 

(2)Mr. Santillana served as our Vice President of Finance from March 1, 2012 until June 30, 2012, when he was appointed Chief Financial Officer. Mr. Santillana has an employment agreement with us as described below. We granted Mr. Santillana restricted stock units under the 2009 Plan with respect to 250,000 shares of our common stock, which had a grant date fair value of $34,500. We also granted options under the 2009 Plan to purchase another 250,000 shares of our common stock, which had a grant date fair value of $30,725. We paid Mr. Santillana cash bonuses of $20,000 during fiscal year 2012 and $97,000 during fiscal year 2013, comprising the balance of his signing bonus of $20,000 and an annual bonus of $77,000. We have been paying Mr. Santillana at the rate of $185,000 per annum for the entire period of his employment. During the year ended June 30, 2013, the Company paid $40,479 in flights, freight and rental expenses to relocate Mr. Santillana to Chile.

 

(3)Mr. Currin was appointed our Chief Operating Officer on August 11, 2010 and resigned on November 30, 2012.  Mr. Currin had an employment services agreement with us as described below, through MIZ Commercializador, S.de R.L. (“MIZ”).We granted 2,500,000 shares of restricted stock to MIZ under the 2009 Plan, which were to vest upon the achievement of certain milestones, and had a grant date fair value of $950,000. We also granted 1,000,000 stock options under the 2009 Plan to MIZ, with a grant date fair value of $343,310. Mr. Currin’s base salary was $200,000 per annum. On May 2, 2012, our Board of Directors approved an increase to Mr. Currin’s compensation from $200,000 per annum to $225,000 per annum, retroactive as of January 1, 2012.On December 5, 2012, the Company entered into a Consulting Services Agreement with MIZ in which Mr. Currin is to provide consulting services to the Company. Pursuant to the agreement, the Company pays MIZ $5,000 per month for up to four days of work with additional fees of $2,000 per day to be paid for additional days worked. In February, 2013, the Company recognized obligations of $20,700 owing to Mr. Currin, $20,547 of which were settled with the issuance of 306,667 shares of common stock and the balance of $153 settled in cash.

 

(4)Mr. Marin was appointed our Interim Chief Financial Officer on January 13, 2010 and resigned at the close of business on June 30, 2012. Mr. Marin was compensated through our Engagement Letter with Marin Management Services, LLC, dated January 7, 2010 (the “Marin Agreement”), pursuant to which we paid $200 per hour for Mr. Marin’s services to us as Interim Chief Financial Officer. On November 23, 2011, we entered into a Contractor Services Agreement (the “R&M Agreement”) with R&M Global Advisors, Inc., an entity controlled by Mr. Marin, in which we retained Mr. Marin’s services as our Interim Chief Financial Officer for a term beginning on September 15, 2011, and continuing for six months thereafter with provision for automatic renewal for successive six month periods unless either party provides notice of non-renewal. Under the R&M Agreement, we paid an initial fee of $15,000 plus a monthly fee of $15,000 per month, commencing retroactively on September 15, 2011. The amounts for the 2013 and 2012 fiscal years represent billings for professional services by R&M Global Advisors.

  

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Outstanding Equity Awards at Fiscal Year-End

 

We have not issued any stock options or maintained any stock option or other incentive plans other than our 2009 Equity Incentive Plan. (See “Market for Common Equity and Related Stockholder Matters - Securities Authorized for Issuance under Equity Compensation Plans,” above).

 

The following tables set forth information regarding stock options held by the Company’s Named Executive Officers at June 30, 2013.

 

Option Awards
           Equity incentive         
           plan awards:         
   Number of   Number of   Number of         
   securities   securities   Securities         
   underlying   underlying   underlying         
   unexercised   unexercised   unexercised   Option plan     
   options   options   unearned   exercise   Option 
Name  exercisable (#)   unexercisable (#)   options (#)   price ($)   expiration date 
Luis Saenz (2)   -    -    -   $-    - 
Luis Santillana (3)   -    250,000    250,000   $0.40    3-1-2017 
Thomas Currin (4)   1,000,000    -    -   $0.16    8-11-2017 
Eric E. Marin   -    -    -   $-    - 

 

Stock Awards
Name  Number of
 Shares
 or Units
 of Stock That
 Have Not
 Vested (#)
   Market Value of
 Shares or Units of
 Stock That Have
 Not Vested ($)
   Equity Incentive Plan
 Awards: Number of
 Unearned Shares, Units
 or Other Rights That
 Have Not Vested (#)
   Equity Incentive Plan Awards:
 Market or Payout Value of Unearned
 Shares, Units or Other Rights That
 Have Not Vested (#) (1)
 
Luis Saenz (2)   -    -    233,333   $9,010 
Luis Santillana(3)   -    -    166,666   $6,500 
Thomas Currin (4)   -    -    -   $- 
Eric E. Marin   -    -    -   $- 

 

(1)Value is based on last sale price of our common stock on June 30, 2013, which was $0.039 per share.

 

(2)In May 2011, Mr. Saenz received a grant of 700,000 restricted stock units (each unit is equivalent to one common share) under the 2009 Plan which vest in three equal installments on each January 15, 2012, 2013, and 2014. As of June 30, 2013,466,667 shares of common stock have been issued in respect to vested restricted stock units.

 

(3)Pursuant to an Employment Agreement, Mr. Santillana received a grant of 250,000 restricted stock units under the 2009 Plan, which shall vest in three equal installments on each of March 1, 2013, 2014 and 2015. As of June 30, 2013, 83,334 shares of common stock have been issued in respect to vested restricted stock units. The Company also agreed to grant Mr. Santillana an option under the 2009 Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which option shall vest in its entirety on September 1, 2013.

 

(4)Consists of stock options granted under the 2009 Plan to MIZ Comercializadora, S. de R.L. (“MIZ”), a corporation owned in part by Mr. Currin, to purchase 1,000,000 shares of common stock, exercisable for a term of five years at an exercise price of $0.16 per share, all of which are fully vested.

 

We have no plans in place and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily following retirement, including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans, tax-qualified deferred contribution plans and nonqualified deferred contribution plans.

 

Agreements with Executive Officers

 

We have an employment agreement with each of our Chief Executive Officer, our Chief Financial Officer and our Executive Vice President.  Each of our former Interim Chief Financial Officer and our former Chief Operating Officer is compensated through an agreement between us and his affiliate.

 

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Employment Agreement with Luis Saenz

 

We entered into an Employment Services Agreement with our Chief Executive Officer, Luis Saenz, effective as of August 24, 2011.  Under the Employment Services Agreement we pay Mr. Saenz such base salary as may be determined by our Board of Directors.  The Employment Services Agreement has an initial term of one year and is automatically renewed for successive one-year terms unless either party delivers timely notice of its intention not to renew.  We may also pay Mr. Saenz an annual bonus at such time and in such amount as may be determined by our Board of Directors in its sole discretion.

 

Mr. Saenz’s employment by us remains “at-will” and terminable at any time for any reason or for no reason.  If Mr. Saenz’s employment is terminated by us without Cause, we must continue to pay him any base salary at the rate then in effect for a period of 18 months.  If Mr. Saenz terminates the Employment Services Agreement for Good Reason, or in the event of a termination of employment due to a permanent disability, we will continue to pay him any base salary at the rate then in effect for a period of 18 months.

 

For the duration of the employment period and, unless we terminate Mr. Saenz’s employment without Cause, for a period of 18 months thereafter, Mr. Saenz has agreed not to directly or indirectly compete with any business engaged in by us or proposed to be engaged in by us during the period of his employment anywhere within the countries in which we are then operating.

 

The foregoing is a summary of the principal terms of the Employment Services Agreement and is qualified in its entirety by the detailed provisions of the actual agreement, which is incorporated by reference as an exhibit to this Report and is incorporated herein by reference.

 

Employment Services Agreement with Luis Santillana

 

We are party to an Employment Services Agreement with Mr. Santillana, dated as of December 1, 2011, amended as of March 1, 2012 (the “Employment Agreement”). Under the Employment Agreement, Mr. Santillana shall devote his full-time efforts to us, and we have been paying Mr. Santillana an annual base salary of $185,000. The Employment Agreement has an initial term of one year and is automatically renewed for successive one-year terms unless either party delivers timely notice of its intention not to renew. Pursuant to the Employment Agreement, we paid Mr. Santillana an initial bonus of $40,000, $20,000 of which was paid during the fiscal year 2012 and $20,000 of which was paid during the fiscal year 2013. We may also pay Mr. Santillana an annual bonus of up to 50% of his base salary, at such time and in such amount as may be determined by our Board of Directors in its sole discretion. We have granted Mr. Santillana 250,000 restricted stock units under our 2009 Equity Incentive Plan, which shall vest in three equal installments on each of March 1, 2013, 2014 and 2015. We have also granted Mr. Santillana an option under our 2009 Equity Incentive Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which option shall vest in its entirety on September 1, 2013.

 

Mr. Santillana’s employment by us is “at-will” and terminable at any time for any reason or for no reason. If Mr. Santillana’s employment is terminated by us without Cause or in connection with a Change of Control (as such terms are defined in the Employment Agreement) or if he terminates his employment for Good Reason (as defined in the Employment Agreement), his restricted stock units and options will vest immediately and expire nine months after such termination. If we terminate Mr. Santillana’s employment without Cause, or in connection with a Change of Control, or if Mr. Santillana terminates his employment for Good Reason, or in the event of a termination of employment due to a permanent disability, we will continue to pay Mr. Santillana his base salary at the rate then in effect for a period of nine months.

 

For the duration of the employment period and, unless we terminate Mr. Santillana’s employment without Cause, for a period of nine months thereafter, Mr. Santillana has agreed not to directly or indirectly compete with any business engaged in by us or proposed to be engaged in by us during the period of his employment anywhere within the countries in which we are then operating.

 

The foregoing is a summary of the principal terms of the Employment Agreement and is qualified in its entirety by the detailed provisions of the actual agreement, which is filed as an exhibit to this Annual Report and is incorporated herein by reference.

 

Employment Services Agreement with MIZ Comercializadora

 

We retained Mr. Currin’s services as our Chief Operating Officer under an Employment Services Agreement, dated as of August 11, 2010, with MIZ Comercializadora, S. de R.L. (“MIZ”), a corporation owned in part by Mr. Currin.

 

Pursuant to the Employment Services Agreement, the Company granted MIZ awards under the 2009 Plan to issue 2,500,000 restricted shares of its common stock (the “Restricted Stock”) upon the achievement of certain milestones and 1,000,000 stock options, exercisable for a term of ten years at an exercise price of $0.38 per share, which were to vest over three years.

 

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On December 5, 2012, MIZ and the Company terminated its Services Agreement effective as of November 30, 2012. In connection with the termination of the Services Agreement, all of the Restricted Stock was deemed fully vested and issued to MIZ (of which 1,700,000 shares were previously held in escrow, and 800,000 shares had previously been issued to MIZ). The stock options were also deemed fully vested, the exercise price was reduced to $0.16 per share and the term was modified to five years.

 

On December 5, 2012, the Company entered into a Consulting Services Agreement with MIZ in which Mr. Currin is to provide consulting services to the Company. Pursuant to the agreement, the Company pays MIZ $5,000 per month for up to four days of work with additional fees of $2,000 per day to be paid for additional days worked. The agreement will terminate on December 5, 2013 or in the event either party causes a material breach of the agreement.

 

 Engagement Letter with Marin Management Services/ R&M Global Advisors, Inc.

 

Mr. Marin formerly served as our Interim Chief Financial Officer from January 13, 2010 until June 2012.  During this period Mr. Marin and his consulting firm R&M Global Advisors, Inc. received compensation varying from $200 per hour in the initial stages of the arrangement to $15,000 a month prior to his contract being terminated effective June 30, 2012.

 

Compensation of Non-Employee Directors

 

On May 2, 2012, our Board adopted a plan of compensation for its non-employee directors’ services to the Company, pursuant to which each current and former non-employee director shall be paid cash (the “Cash Director Compensation”) at the greatest of the following annual rates that applies to such director during the relevant time periods: $64,000 for the Chairman of the Board; $40,000 for the Audit Committee Chairman; $34,000 for the Chairman of any other standing Board committee; and $24,000 for directors who do not chair any committees. The Cash Director Compensation shall be deemed to begin to accrue retroactively for each non-employee director on the later of such director’s initiation of substantial involvement with the Board, as determined in good faith by the Chief Executive Officer, and July 1, 2011 (each such director’s “Compensation Start Date”). The increased rates of Cash Director Compensation for the Chairman of the Board and Committee Chairmen shall only apply to the period of time that the relevant director served in such capacity.

 

During the fiscal year 2013, the Company issued an aggregate of 3,782,627 shares of our common stock as consideration in lieu of $253,436 in accrued Cash Director Compensation. We likely will continue to issue common stock for this purpose where feasible.

 

The Board also determined to grant to each of its non-employee directors other than the Chairman of the Board 100,000 Restricted Stock Units under the 2009 Plan, which shall vest in three equal installments on each of the first three anniversaries of such director’s Compensation Start Date. Finally, the Board determined to grant to the Chairman of the Board 300,000 Restricted Stock Units under the 2009 Plan, which shall vest in three equal installments on each of the first three anniversaries of his becoming Chairman of the Board. Such restricted stock units have not yet been granted, as we do not have sufficient shares authorized at this time for issuance pursuant to awards under our 2009 Plan to accommodate all of such restricted stock units.

 

Equity Compensation Plan Information

 

On October 19, 2009, our Board of Directors adopted, and our stockholders approved, the 2009 Equity Incentive Plan (the “2009 Plan”), which reserved a total of 5,000,000 shares of our common stock for issuance under the 2009 Plan (3,050,001 shares of which have been issued and the restrictions thereon lapsed).  If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan.

 

In addition, the number of shares of Common Stock subject to the 2009 Plan, any number of shares subject to any numerical limit in the 2009 Plan, and the number of shares and terms of any incentive award are expected to be adjusted in the event of any change in our outstanding common stock by reason of any stock dividend, spin-off, split-up, stock split, reverse stock split, recapitalization, reclassification, merger, consolidation, liquidation, business combination or exchange of shares or similar transaction.

 

Administration

 

It is expected that the Compensation Committee of our Board of Directors, or the Board of Directors in the absence of such a committee, will administer the 2009 Plan.  Subject to the terms of the 2009 Plan, the Compensation Committee would have complete authority and discretion to determine the terms of awards under the 2009 Plan.

 

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Grants

 

The 2009 Plan authorizes the grant to participants of nonqualified stock options, incentive stock options, restricted stock awards, restricted stock units, performance grants intended to comply with Section 162(m) of the Internal Revenue Code (as amended, the “Code”) and stock appreciation rights, as described below:

 

Options granted under the 2009 Plan entitle the grantee, upon exercise, to purchase a specified number of shares from us at a specified exercise price per share. The exercise price for shares of our common stock covered by an option cannot be less than the fair market value of the common stock on the date of grant unless agreed to otherwise at the time of the grant.

 

Restricted stock awards and restricted stock units may be awarded on terms and conditions established by the compensation committee, which may include performance conditions for restricted stock awards and the lapse of restrictions on the achievement of one or more performance goals for restricted stock units.

 

The compensation committee may make performance grants, each of which will contain performance goals for the award, including the performance criteria, the target and maximum amounts payable, and other terms and conditions.

 

The 2009 Plan authorizes the granting of stock awards. The compensation committee will establish the number of shares of our common stock to be awarded and the terms applicable to each award, including performance restrictions.

 

Stock appreciation rights (“SARs”) entitle the participant to receive a distribution in an amount not to exceed the number of shares of our common stock subject to the portion of the SAR exercised multiplied by the difference between the market price of a share of common stock on the date of exercise of the SAR and the market price of a share of common stock on the date of grant of the SAR.

 

Duration, Amendment and Termination

 

The Board has the power to amend, suspend or terminate the 2009 Plan without stockholder approval or ratification at any time or from time to time.  No change may be made that increases the total number of shares of our common stock reserved for issuance pursuant to incentive awards or reduces the minimum exercise price for options or exchange of options for other incentive awards, unless such change is authorized by our stockholders within one year. Unless sooner terminated, the 2009 Plan would terminate ten years after its adoption.

 

Grants to Officers and Directors

 

On December 9, 2009, the Board approved non-incentive stock option grants under the 2009 Plan to the individual non-employee directors, and in the amounts, listed in the table below.  These options can be exercised at a price of $0.25 per share, the fair market value of our common stock on the date of grant, as determined by the Board, based on the offering price of our common stock sold in relatively contemporaneous private placement transactions, vest in three equal installments on each of the first, second and third anniversaries of the date of grant and expire after ten years.

 

Name of Optionee  Number of Shares 
Douglas Perkins   50,000 
Anthony Hawkshaw   50,000 
Kjeld Thygesen   500,000 

 

Following the resignation of the above Optionees from the board of directors, the stock options expired unexercised.

 

Pursuant to an Employment Services Agreement, the Company granted to MIZ an award under the 2009 Plan of 2,500,000 restricted shares of its common stock (the “Restricted Stock”) upon the achievement of certain milestones. All of the Restricted Stock has vested and been issued. Additionally, the Company granted 1,000,000 stock options to MIZ which are fully vested and exercisable for a term of five years at an exercise price of $0.16 per share.

 

The Board granted 700,000 restricted stock units to Mr. Saenz under the 2009 Plan, which vest in three equal installments on January 15, 2012, 2013 and 2014.

 

Pursuant to an Employment Agreement, we have granted Mr. Santillana 250,000 restricted stock units under the 2009 Plan, which vest in three equal installments on each of March 1, 2013, 2014 and 2015. We also granted Mr. Santillana an option under the 2009 Plan to purchase an aggregate of 250,000 shares of our common stock, exercisable for a term of five years at an exercise price of $0.40 per share, which option shall vest in its entirety on September 1, 2013.

 

The Board also determined to grant to each of its non-employee directors other than the Chairman of the Board 100,000 Restricted Stock Units under the 2009 Plan, which shall vest in three equal installments on each of the first three anniversaries of such director’s Compensation Start Date. Finally, the Board determined to grant to the Chairman of the Board 300,000 Restricted Stock Units under the 2009 Plan, which shall vest in three equal installments on each of the first three anniversaries of his becoming Chairman of the Board. Such restricted stock units have not yet been granted, as we do not have sufficient shares authorized at this time for issuance pursuant to awards under our 2009 Plan to accommodate all of such restricted stock units.

 

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information with respect to the beneficial ownership of our common stock known by us as of October 2, 2013 by:

 

each person or entity known by us to be the beneficial owner of more than 5% of our common stock;
   
each of our directors;
   
each of our executive officers; and
   
all of our directors and executive officers as a group.
   

Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent such power may be shared with a spouse.  Information given with respect to beneficial owners who are not officers or directors of ours is to the best of our knowledge.  Unless otherwise noted, the address of each person below id c/o Li3 Energy, Inc., Marchant Pereira 150 Of. 803 Providencia, Santiago de Chile, Chile.

 

Title of Class: Common Stock

 

   Amount and Nature     
   of
 Beneficial
   Percentage
Of
 
Name and Address of Beneficial Owner  Ownership(1)   Class (2) 
         
Luis Francisco Saenz   3,557,712(3)   * 
Luis Santillana   631,841(4)   * 
Eduardo Guillermo de Aguirre   443,388(5)   * 
Patricio Antonio Campos   18,945,254(5)(6)(12)   4.8%
Harvey McKenzie   680,216(5)(7)   * 
David G. Wahl   402,985(5)   * 
Patrick A. Cussen   3,829,478(8)   1.0%
SungWon Lee   0(5)   * 
           
All directors and executive officers as a group (8 persons)   28,490,874(3)(8)(11)   7.2%
           
POSCO Canada Ltd.
650 W. Georgia St., Suite 2350
Vancouver, British Columbia
V6B 4N9
Canada
   206,190,476(10)   41.1%
           
Calcata Sociedad Anónima S.A.
San Antonio N°19, Of. 1601
Santiago, Santiago
Chile
   51,041,666(9)(11)   12.9%
           
Campos Mineral Asesorias Profesionales Limitad
Mardoqueo Fernández N° 128
Providencia, Santiago
Chile
   18,375,000(9)(11)   4.7%
           
Roberto Gaona Velasco
Los Gomeros N° 1643
Vitacura, Santiago
Chile
   16,333,334(9)(11)   4.1%
           
Christian Hidalgo Reyes
Luz N° 340 Apt. 601,
Las Condes, Santiago
Chile
   16,333,334(9)(11)   4.1%
           
Jorge Barrozo Sankan
Irarrazaval N°1729, Apt. 201
Ñuñoa, Santiago
Chile
   12,250,000(9)(11)   3.1%
           
Jean Pierre Naciff Catalano
Maipú N° 446
Copiapo
Chile
   8,166,666(9)(11)   2.1%

 

49
 

 

*           Indicates less than one percent. 

  

1Beneficial ownership is determined in accordance with the rules of the SEC and generally includes having or sharing voting or investment power with respect to securities.  Shares of common stock subject to options or warrants currently exercisable or convertible, or exercisable or convertible within 60 days of October 2, 2013, are deemed outstanding for computing the percentage of the person holding such option or warrant but are not deemed outstanding for computing the percentage of any other person.

 

2Percentages are based upon 395,497,453 shares of Common Stock issued and outstanding as of October 2, 2013.

 

3Does not include 233,333 shares of common stock issuable pursuant to Restricted Stock Units granted to Mr. Saenz under the 2009 Plan that vest on January 15, 2014. Until such Restricted Stock Units vest, Mr. Saenz has no voting or dispositive power with respect to such shares.

 

4Includes 250,000 shares of common stock issuable upon exercise of options which are exercisable within 60 days of October 2, 2013. Does not include 166,666 shares of common stock issuable pursuant to Restricted Stock Units granted to Mr. Santillana under the 2009 Plan that vest on March 1, 2013 and March 1, 2014. Until such Restricted Stock Units vest, Mr. Santillana has no voting or dispositive power with respect to such shares.

 

5Does not include 100,000 shares of common stock issuable pursuant to restricted stock units that the Board determined to grant under the 2009 Plan, but which have not yet been granted due to an insufficient number of shares being authorized for issuance pursuant to awards granted under the 2009 Plan. 66,666 of such restricted stock units were scheduled to have vested within 60 days of October 2, 2013.

 

6Includes 18,375,000 shares of our common stock held by Campos Mineral Asesorias Profesionales Limitada, an entity controlled by Mr. Campos.

 

7Includes 37,037 shares of our common stock issuable upon the exercise of warrants that are exercisable within 60 days of October 2, 2013.

 

8Includes 750,000 shares of our common stock issuable upon the exercise of warrants that are exercisable within 60 days. Does not include 555,556 shares of common stock held by Celta Consultores Limitada (“Celta”) or 277,778 shares of common stock issuable upon exercise of warrants held by Celta. Although Mr. Cussen owns a minority equity interest in Celta, he does not have voting or dispositive power over the securities held by Celta and disclaims beneficial ownership thereof, except to the extent of his pecuniary interest therein. Does not include 300,000 shares of common stock issuable pursuant to restricted stock units that the Board determined to grant under the 2009 Plan, but which have not yet been granted due to an insufficient number of shares being authorized for issuance pursuant to awards granted under the 2009 Plan. 200,000 of such restricted stock units were scheduled to have vested within 60 days of October 2, 2013.

 

9Estimate of beneficial ownership, based on information available to us. The beneficial owner may have acquired shares held in street name, of which we are not aware.

 

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10Includes 105,595,238 shares of our common stock issuable upon the exercise of the warrants that are currently exercisable. Does not include any additional shares that may become issuable pursuant to the Additional Agreement to Stock Purchase Agreement in the event we sell or are deemed to sell common stock for less than $0.16 per share.

 

11Because of the arrangements described in “Directors, Executive Officers, Promoters and Control Persons, Rights to Nominate Directors” above these persons  may be deemed to constitute a group as defined in Section 13(d) of the Exchange Act. However, each such person (a) disclaims membership in a group and (b) disclaims beneficial ownership of the shares of Common Stock beneficially owned by any other such person or any other person.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Our Board of Directors adopted, and our stockholders approved, the 2009 Plan on October 19, 2009.  The 2009 Plan reserved a total of 5,000,000 shares of our common stock for issuance pursuant to awards granted thereunder (3,050,001 of which have been issued and the restrictions with respect thereto have lapsed).  If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited, or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered shares will become available for further awards under the 2009 Plan.  As of the date hereof, we have outstanding option awards under the 2009 Plan exercisable for an aggregate of 1,450,000 shares of our common stock, 1,200,000 of which have vested.  In addition, we have granted a restricted stock award under the 2009 Plan with respect to 2,500,000 shares of common stock which are fully vested and issued. We also have outstanding Restricted Stock Units under the 2009 Plan with respect to 950,000 shares, of which 550,001 are fully vested and issued. Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations.  We have not maintained any other equity compensation plans since our inception.

 

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

  

We retained Mr. Currin’s services as our Chief Operating Officer under an Employment Services Agreement, dated as of August 11, 2010, with MIZ Comercializadora, S. de R.L. (“MIZ”), a corporation owned in part by Mr. Currin.  On December 5, 2012, MIZ and the Company terminated its Employment Services Agreement effect as of November 30, 2012.On December 5, 2012, the Company entered into a Consulting Services Agreement with MIZ in which Mr. Currin is to provide consulting services to the Company. The description of such Employment Services Agreement and Consulting Services Agreement set forth above under “Item 11, Executive Compensation - Employment Services Agreement with MIZ Comercializadora” are incorporated herein by reference.

 

We were party to a services agreement (the “R&M Agreement”) between R&M Global Advisors, LLC. (“R&M Global Advisors”) and us, in which Eric Marin (a partial owner of R&M Global Advisors) served as our interim Chief Financial Officer. R&M Global Advisors were paid $85,359 and $145,187 in cash for compensation during the years ended June 30, 2013 and 2012, respectively. As of June 30, 2013 and 2012, R&M Global Advisors were owed $-0- and $81,300, respectively.

 

On June 30, 2012, we entered into Amendment No. 1 to the R&M Agreement (the “R&M Amendment”) with R&M Global Advisors. Pursuant to the R&M Amendment, R&M Global Advisors and we mutually agreed to terminate Eric Marin’s services as our Interim Chief Financial Officer at the close of business on June 30, 2012.

 

In February 2013, we entered into an agreement with Celta Consultores Limitada (“Celta”), for Celta to provide consulting services with the objective of the Company entering into a joint venture agreement with a third party. Our Chairman, Mr. Cussen, is the President of Celta.

 

On July 8, 2013, the agreement was amended, providing for the Company to remunerate Celta as follows:

Five days after the signing of a memorandum of understanding for a potential joint venture, Celta shall receive 2,000,000 shares of Li3 common stock, and
Five days after the signing of a joint venture agreement, Celta shall receive 1,000,000 shares of Li3 common stock.

 

To date, we have not executed either of the above agreements.

 

See “Directors, Executive Officers, and Corporate Governance-Executive Officers and Directors” above for information regarding certain rights of the SLM Litio 1-6 Sellers and POSCAN to designate one or more persons to be nominated for election to our Board of Directors.

 

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Director Independence

 

We are not currently subject to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors comprised of a majority of “Independent Directors”. However, our Board of Directors has determined that each of Messrs. Campos, De Aguirre, McKenzie, Wahl and Lee is an “Independent Director” within the meaning of the rules of the Nasdaq Stock Market.

 

ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Audit Fees

 

The aggregate fees billed to us by our principal independent public accountant for services rendered during the fiscal years ended June 30, 2013 and 2012, are set forth in the table below:

 

   Fiscal year   Fiscal year 
   Ended   Ended 
Fee Category  June 30, 2013   June 30, 2012 
Audit fees (1)  $168,438   $128,395 
Audit-related fees (2)   75,955    76,878 
Tax fees (3)   7,360    15,840 
All other fees (4)   -    - 
Total fees  $251,753   $221,113 

 

(1)Audit fees consist of fees incurred for professional services rendered for the audit of consolidated financial statements, for reviews of our interim consolidated financial statements included in our quarterly reports on Forms 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.

 

(2)Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.”

 

(3)Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.

 

(4)All other fees consist of fees billed for all other services.

 

Audit Committee’s Pre-Approval Practice

 

Until December 5, 2011, our Board had no separate Audit Committee.  Accordingly, the entire Board of Directors functioned as our audit committee before such date.   It had been our Board’s policy to approve in advance all audit, review and attest services and all non-audit services (including, in each case, the engagement fees there for and terms thereof) to be performed by our independent auditors, in accordance with applicable laws, rules and regulations.  In accordance with its charter, our Audit Committee now approves in advance all audit and non-audit services to be provided by our independent registered public accounting firm. During fiscal 2012 and 2011, all such services were pre-approved by either our Board or our Audit Committee, in accordance with these policies.

 

Our Board selected GBH CPAs, PC as our independent registered public accounting firm for purposes of auditing our financial statements for the year ended June 30, 2013.  In accordance with Board’s practice, GBH CPAs, PC was pre-approved by the Board to perform these audit services for us prior to its engagement.

 

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PART IV

 

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

Financial Statement Schedules

 

Our consolidated financial statements are listed on the Index to Financial Statements on this annual report on Form 10-K beginning on page F-1.

 

All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.

 

Exhibits

 

The following Exhibits are being filed with this Annual Report on Form 10-K:

 

In reviewing the agreements included or incorporated by reference as exhibits to this Annual Report on Form 10-K, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about us or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

 

should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

 

have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

 

may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

 

were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

 

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about us may be found elsewhere in this Annual Report on Form 10-K and our other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

 

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Exhibit

Number

  Description
     
3.1   Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on June 24, 2005 (1)
     
3.2   Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on July 11, 2008 (2)
     
3.3   Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on October 19, 2009 (4)
     
3.4   Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on March 15, 2011 (17)
     
3.5   Bylaws of the Registrant, as Amended (20)
     
4.1   Form of Investor A Warrant of the Registrant, issued in connection with a private placement of which several closings were held in November and December of 2009 (5)
     
4.2   Form of Investor B Warrant of the Registrant, issued in connection with a private placement of which several closings were held in November and December of 2009  (5)
     
4.3   Form of Warrant of the Registrant, issued in connection with a private placement of which several closings were held in June, July and September of 2010 (10)
     
4.4   Form of Warrant included in the D Units sold in the Second 2010 Unit Offering (13)
     
4.5   Form of Warrant included in the E Units sold in the Third 2010 Unit Offering (15)
     
4.6   Form of Warrant included in the units issued in private placement in April and May, 2011 (16)
     
4.7   Form of Warrant issued pursuant to Securities Purchase Agreement dated as of August 24, 2011, between the Registrant and POSCAN (18)
     
4.8   Form of Warrant issued pursuant to the Additional Agreement to Securities Purchase Agreement, dated as of August 17, 2012, between the Registrant and POSCAN (26)
     
4.9   Form of Bonus Warrant issued pursuant to the Additional Agreement to Securities Purchase Agreement, dated as of August 17, 2012, between the Registrant and POSCAN (26)
     
10.1  †   Registrant’s 2009 Stock Incentive Plan adopted October 19, 2009 (5)
     
10.2  †   Form of Stock Option Agreement under the Registrant’s 2009 Equity Incentive Plan (5)
     
10.3   Form of Subscription Agreement between the Registrant and each subscriber in a private placement offering of units (5)
     
10.12   Registration Rights Agreement, dated as of February 16, 2010, among the Registrant, Next Lithium Corp. and Next Lithium (Nevada) Corp. (7)
     
10.14  †   Engagement Letter, dated January 7, 2010, between the Registrant and Marin Management Services, LLC (8)
     
10.18   Form of Subscription Agreement between the Registrant and each subscriber in the private placement of which several closings were held in June, July and September of 2010 (10)
     
10.19   Form of Registration Rights Agreement between the Registrant and the subscribers in the private placement of which several closings were held in June, July and September of 2010 (9)

 

54
 

 

10.20   Addendum to Master Option Agreement between Lacus Minerals S.A. and the Registrant, dated as of July 30, 2010 (12)
     
10.21   Stock Purchase Agreement, dated as of August 3, 2010, among the Registrant, Pacific Road Capital A Pty. Limited, as trustee for Pacific Road Resources Fund A, Pacific Road Capital B Pty. Limited, as trustee for Pacific Road Resources Fund B, and Pacific Road Capital Management G.P. Limited, as General Partner of Pacific Road Resources Fund L.P. (11)
     
10.22†   Employment Services Agreement, dated as of August 11, 2010, between the Registrant and MIZ Comercializadora, S. de R.L. (12)
     
10.23†   Form of Restricted Stock Agreement, dated as of August 11, 2010, between the Registrant and MIZ Comercializadora, S. de R.L. (12)
     
10.24   Letter Agreement between the Registrant and LW Securities, Ltd., dated November 24, 2010 (13)
     
10.25   Form of Subscription Agreement between the Registrant and each Subscriber in the Second 2010 Unit Offering (13)
     
10.27   Investment Agreement, dated as of December 2, 2010, between the Registrant and Centurion Private Equity, LLC  (11)
     
10.28   Registration Rights Agreement, dated as of December 2, 2010, between the Registrant and Centurion Private Equity, LLC (14)
     
10.29   Form of Subscription Agreement between the Registrant and each Subscriber in the Third 2010 Unit Offering (15)
     
10.31 †   Amendment No. 1 to Employment Services Agreement, dated as of December 14, 2010, between the Registrant and MIZ Comercializadora, S. de R.L. (13)
     
10.32   Settlement Agreement, dated as of December 30, 2010, between the Registrant and Robert James Sedgemore (13)
     
10.33   Binding Letter of Intent between the Registrant and shareholders of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga, dated as of February 24, 2011, relating to Registrant’s acquisition of a controlling interest in certain assets (16)
     
10.34   Form of Securities Purchase Agreement between the Registrant and each subscriber in connection with private placement of units in April and May, 2011 (16)
     
10.36   Form of Registration Rights Agreement between the Registrant and each subscriber in connection with private placement of units in April and May, 2011 (16)
     
10.37   Amending Agreement, dated as of March 30, 2011, between the Registrant and the Alfredo Sellers, amending the Stock Purchase Agreement between Registrant and the Alfredo Sellers dated as of August 3, 2010 (11)
     
10.38   Credit Agreement, dated as of May 2, 2011, between the Registrant and certain private institutional investors (16)
     
10.39   Framework Contract of Mining Project Development and Buying and Selling of Shares of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga dated as of May 20, 2011 (16)
     
10.40   Securities Purchase Agreement dated as of August 24, 2011, between the Registrant and POSCAN (11)
     
10.41   Investor Rights Agreement dated as of August 24, 2011, between the Registrant and POSCAN (11)
     
10.42   Employment Services Agreement between the registrant and Luis Saenz, effective as of August 24, 2011 (18)

 

55
 

 

10.43   Amendment and Waiver Agreement with the holders of the Registrant’s zero-coupon bridge notes, dated as of August 25, 2011 (18)
     
10.44  †   Consulting Services Agreement between the Registrant and R&M Global Advisors, dated November 23, 2011, with respect to Eric Marin’s services as Interim Chief Financial Officer of the Registrant (19)
     
10.45   Agreement Between R3 Fusion and Li3 Energy, dated as of January 12, 2012 (21)
     
10.46 * Form of 15% Bridge Notes issued by the Registrant
     
10.47  †   First Amendment to Registrant’s 2009 Stock Incentive Plan, dated May 2, 2012 (22)
     
10.48  †   Second Amendment to Registrant’s 2009 Stock Incentive Plan, dated June 17, 2012 (23)
     
10.49  †   Amendment No. 1 to Contractor Services Agreement between the Registrant and R&M Global Advisors, Inc., dated as of June 30, 2012 (24)
     
10.50   Additional Agreement to the Securities Purchase Agreement between the Registrant and POSCAN, dated as of August 17, 2012 (25)
     
10.51  †   Employment Services Agreement between the Registrant and Luis Santillana, dated as of December 1, 2011 (29)
     

10.52  † 

  Amendment  to Employment Services Agreement between the Registrant and Luis Santillana, dated as of March 1, 2012 (29)
     
10.53   Form of Settlement Agreement between the Registrant and the Receivable Holders entered into on September 7, 2012 (31)
     
10.54  

Second Amendment and Waiver Agreement with the holders of the Registrant’s zero-coupon bridge notes, dated as of September 28, 2012 (28)

 

10.55   Memorandum of Understanding dated March 17, 2013 for the Merger of Blue Wolf Mongolia Holdings Corp and the Registrant (32)
     
10.56   Purchase Agreement between the Registrant and Jose Resk Nara and Carlos Alfonso Iribarren (the “Sellers”) to purchase all of the outstanding shares of SLM Cocina Diecinueve de la Hoyada de Maricunga dated April 16, 2013 (33)
     
10.57   Agreement and Plan of Merger by and among the Registrant, Blue Wolf Mongolia Holdings Corp. and Blue Wolf Acquisition Sub dated May 21, 2013 (34)
     
14.1   Code of Ethics (3)
     
21.1   List of Subsidiaries (27)
     
31.1*¶   Certification of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2*¶   Certification of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1*¶   Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2*¶   Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

56
 

 

101.INS ** XBRL Instance Document
     
101.SCH ** XBRL Taxonomy Extension Schema Document
     
101.CAL ** XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF ** XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB ** XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE ** XBRL Taxonomy Extension Presentation Linkbase Document

 

(1)Filed with the Securities and Exchange Commission on August 19, 2005 as an exhibit to the Registrant’s registration statement on Form SB-2 (SEC File No. 333-127703), which exhibit is incorporated herein by reference.

 

(2)Filed with the Securities and Exchange Commission on July 29, 2008 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(3)Filed with the Securities and Exchange Commission on September 25, 2009 as an exhibit to the Registrant’s annual report on Form 10-K, which exhibit is incorporated herein by reference.

 

(4)Filed with the Securities and Exchange Commission on October 23, 2009 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(5)Filed with the Securities and Exchange Commission on November 16, 2009 as an exhibit to the Registrant’s quarterly report on Form 10-Q, which exhibit is incorporated herein by reference.

 

(6)Filed with the Securities and Exchange Commission on January 25, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(7)Filed with the Securities and Exchange Commission on March 18, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(8)Filed with the Securities and Exchange Commission on May 14, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(9)Filed with the Securities and Exchange Commission on June 15, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(10)Filed with the Securities and Exchange Commission on July 19, 2010 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(11)Filed with the Securities and Exchange Commission on March 15, 2012 as an exhibit to Amendment No. 8 to Registration Statement on Form S-1/A, which exhibit is incorporated herein by reference.

 

(12)Filed with the Securities and Exchange Commission on November 4, 2010, as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(13)Filed with the Securities and Exchange Commission on February 22, 2011, as an exhibit to the Registrant’s quarterly report on Form 10-Q, which exhibit is incorporated herein by reference.

 

(14)Filed with the Securities and Exchange Commission on December 8, 2010, as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(15)Filed with the Securities and Exchange Commission on December 15, 2010, as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(16)Filed with the Securities and Exchange Commission on May 23, 2011, as an exhibit to the Registrant’s quarterly report on Form 10-Q, which exhibit is incorporated herein by reference.

 

(17)Filed with the Securities and Exchange Commission on March 21, 2011, as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

57
 

 

(18)Filed with the Securities and Exchange Commission on August 26, 2011 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(19)Filed with the Securities and Exchange Commission on November 29, 2011 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(20)Filed with the Securities and Exchange Commission on December 2, 2011, included on the signature page to Amendment No. 2 to Registration Statement on Form S-1/A, and incorporated herein by reference.

 

(21)Filed with the Securities and Exchange Commission on January 20, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(22)Filed with the Securities and Exchange Commission on May 18, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(23)Filed with the Securities and Exchange Commission on June 21, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(24)Filed with the Securities and Exchange Commission on July 5, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(25)Filed with the Securities and Exchange Commission on August 24, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(27)Filed with the Securities and Exchange Commission on January 6, 2012 as an exhibit to Amendment No. 2 to the Registrant’s annual report on Form 10-K/A, which exhibit is incorporated herein by reference.

 

(28)Filed with the Securities and Exchange Commission on October 10, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(29)Filed with the Securities and Exchange Commission on September 21, 2012 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

 

(30)Filed with the Securities and Exchange Commission on October 15, 2012 as an exhibit to the Registrant’s Annual Report on Form 10-K, which exhibit is incorporated herein by reference.

 

(31)Filed with the Securities and Exchange Commission on September 13, 2012 as an exhibit to the Registrant’s current report on Form 8-K which exhibit is incorporated herein by reference.

 

(32)Filed with the Securities and Exchange Commission on March 18, 2013 as an exhibit to the Registrant’s current report on Form 8-K which exhibit is incorporated herein by reference.

 

(33)Filed with the Securities and Exchange Commission on May 1, 2013 as an exhibit to the Registrant’s current report on Form 8-K which exhibit is incorporated herein by reference.

 

(34)Filed with the Securities and Exchange Commission on May 21, 2013 as an exhibit to the Registrant’s current report on Form 8-K which exhibit is incorporated herein by reference.

 

*       Filed herewith.

 

**    XBRL (eXtensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not otherwise subject to liability under these Sections.

 

This certification is being furnished and shall not be deemed “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except if and to the extent that the Registrant specifically incorporates it by reference.

 

Management contract or compensatory plan or arrangement

 

58
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  Li3 ENERGY, INC.
     
Dated:  October 9, 2013 By: /s/ Luis Saenz
    Luis Saenz
    Chief Executive Officer
    (principal executive officer)
     
  By: /s/ Luis Santillana
    Luis Santillana
    Chief Financial Officer
    (principal financial officer and principal accounting officer)

 

59
 

 

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

SIGNATURE   TITLE   DATE
         
/s/ Luis Saenz   Chief Executive Officer (principal   October 9, 2013
Luis Saenz   executive officer), and Director    
         
/s/ Eduardo G. de Aguirre   Director   October 9, 2013
Eduardo G. de Aguirre        
         
/s/ Patricio A. Campos   Director   October 9, 2013
Patricio A. Campos        
         
/s/ Patrick A. Cussen   Director   October 9, 2013
Patrick A. Cussen        
         
/s/SungWon Lee   Director   October 9, 2013
SungWon Lee        
         
/s/ Harvey McKenzie   Director   October 9, 2013
Harvey McKenzie        
         
/s/ David G. Wahl   Director   October 9, 2013
David G. Wahl        

 

60
 

 

LI3 ENERGY, INC.

(An Exploration Stage Company)

INDEX TO FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of June 30, 2013 and 2012 F-3
   
Consolidated Statements of Operations and Comprehensive Loss for the years ended June 30, 2013 and 2012 and for the period from June 24, 2005 (Inception) through June 30, 2013 F-4
   
Consolidated Statement of Changes in Equity for the period  from June 24, 2005 (Inception) through June 30, 2013 F-5
   
Consolidated Statements of Cash Flows for the years ended June 30, 2012 and 2011  and for the period from June 24, 2005 (Inception) through June 30, 2013 F-6
   
Notes to Consolidated Financial Statements F-7

 

 
 

 

Report of Independent Registered Public Accounting Firm

 

To the Board of Directors

Li3 Energy, Inc.

(An Exploration Stage Company)

Providencia, Santiago, Chile

 

We have audited the accompanying consolidated balance sheets of Li3 Energy, Inc. (an Exploration Stage Company) as of June 30, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, equity, and cash flows for the years then ended and for the period from June 24, 2005 (inception) to June 30, 2013. These consolidated financial statements are the responsibility of Li3 Energy, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Li3 Energy, Inc., as of June 30, 2013 and 2012, and the results of their operations and their cash flows for the years then ended and for the period from June 24, 2005 (inception) to June 30, 2013 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, the Company has no source of recurring revenue; negative working capital and cash flows; and has suffered recurring losses from operations; which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ GBH CPAs, PC              
   
GBH CPAs, PC   
www.gbhcpas.com   
Houston, Texas  
   
October 9, 2013  

 

F-2
 

 

Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Balance Sheets

 

   June 30, 2013   June 30, 2012 
Assets          
Current assets:          
Cash  $12,667   $27,689 
Prepaid expenses and advances   84,508    8,841 
Total current assets   97,175    36,530 
Mineral rights, net   23,547,374    63,741,000 
Property and equipment, net   126,744    175,220 
Other assets   -    10,650 
Total non-current assets   23,674,118    63,926,870 
Total assets  $23,771,293   $63,963,400 
           
Liabilities & Equity          
Current liabilities:          
Accounts payable  $412,481   $2,436,048 
Accrued expenses   895,017    994,827 
Accrued registration rights penalties   518,243    518,243 
Common stock payable   250,897    - 
Short-term payable for acquisition of Cocina Mineral Rights   3,800,000    - 
Current portion of long-term debt   100,000    - 
Zero-coupon convertible debt, net of unamortized discount of $50,037 and $-0-, respectively   1,829,963    1,783,181 
Notes payable   50,000    1,200,000 
Convertible notes payable, net of unamortized discount of $131,799 and $-0-, respectively   71,701    45,000 
Current portion of derivative liabilities   402,834    - 
Total current liabilities   8,331,136    6,977,299 
Long-term debt, less debt discount of $981,080 and $-0-, respectively   418,920    - 
Derivative liabilities   3,587,015    7,653,928 
Total non-current liabilities   4,005,935    7,653,928 
Total liabilities  $12,337,071   $14,631,227 
           
Commitments and contingencies          
Common stock subject to rescission   3,041    - 
           
Equity:          
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding   -    - 
Common stock, $0.001 par value, 990,000,000 shares authorized; 395,497,453 and 323,782,553 shares issued and outstanding as of June 30, 2013 and June 30, 2012, respectively   395,497    323,783 
Additional paid-in capital   69,327,269    63,578,079 
Other comprehensive income   -    83,563 
Deficit accumulated during exploration stage   (62,613,739)   (37,773,845)
Total stockholders' equity of Li3 Energy, Inc.   7,109,027    26,211,580 
Non-controlling interests   4,322,154    23,120,593 
Total equity   11,431,181    49,332,173 
Total liabilities and equity  $23,771,293   $63,963,400 

 

See accompanying notes to the consolidated financial statements.

 

F-3
 

 

Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statements of Operations and Comprehensive Loss

 

           June 24, 2005 
       (Inception) 
   Year ended June 30,   through 
   2013   2012   June 30, 2013 
Revenues  $-   $-   $2,278 
                
Cost of goods sold   -    -    (1,182)
                
Gross profit   -    -    1,096 
                
Operating expenses:               
Exploration expenses   (489,671)   (6,193,533)   (9,579,058)
Mineral rights impairment expense   (46,493,626)   (300,000)   (55,632,411)
Gain (loss) on settlements, net   12,559    -    (1,484,941)
General and administrative expenses   (4,544,132)   (6,996,043)   (19,940,924)
Total operating expenses   (51,514,870)   (13,489,576)   (86,637,334)
                
Other income (expense):               
Loss on debt extinguishment   (37,235)   (841,752)   (878,987)
Change in fair value of derivative liabilities   8,471,743    10,780,342    6,912,391 
Warrant modification expense   (171,150)   -    (1,239,470)
Gain on foreign currency transactions   32,924    14,142    43,289 
Interest expense, net   (419,745)   (1,150,634)   (1,988,570)
Total other income (expense)   7,876,537    8,802,098    2,848,653 
                
Net loss   (43,638,333)   (4,687,478)   (83,787,585)
Net loss attributable to the non-controlling interests   18,798,439    2,375,407    21,173,846 
Net loss attributable to Li3 Energy, Inc. stockholders  $(24,839,894)  $(2,312,071)  $(62,613,739)
                
Loss per common share - basic  $(0.06)  $(0.01)     
Loss per common share - diluted  $(0.06)  $(0.01)     
                
Weighted average number of common shares outstanding - basic   384,582,034    313,997,372      
Weighted average number of common shares outstanding - diluted   384,582,034    313,997,372      
                
Comprehensive loss               
Net loss  $(43,638,333)  $(4,687,478)  $(83,787,585)
Foreign currency translation adjustments   (83,563)   83,563    - 
Total comprehensive loss   (43,721,896)   (4,603,915)   (83,787,585)
Comprehensive loss attributable to non-controlling interests   18,798,439    2,375,407    21,173,846 
Comprehensive loss attributable to Li3 Energy, Inc. stockholders  $(24,923,457)   (2,228,508)  $(62,613,739)

 

See accompanying notes to the consolidated financial statements.

 

F-4
 

 

Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statement of Changes in Equity

From June 24, 2005 (Inception) through June 30, 2013

  

                   Deficit         
                   Accumulated         
           Additional   Other   During the   Non-   Total 
   Common Stock   Paid-in   Comprehensive   Exploration   Controlling   Equity 
   Shares   Par Value   Capital   Loss   Stage   Interest   (Deficit) 
                             
Balance at June 24, 2005 (inception)  -   $-   $-   $-   $-   $-   $- 
                                    
Stock issued for cash, June 2005   71,052,672    71,052    (63,552)   -    -    -    7,500 
                                    
Net loss   -    -    -    -    -    -    - 
                                    
 Balance, June 30, 2005   71,052,672    71,052    (63,552)   -    -    -    7,500 
                                    
Stock issued for cash, March 2006   47,368,454    47,368    2,632    -    -    -    50,000 
                                    
Net loss   -    -    -    -    (14,068)   -    (14,068)
                                    
Balance, June 30, 2006   118,421,126    118,420    (60,920)   -    (14,068)   -    43,432 
                                    
Net loss   -    -    -    -    (16,081)   -    (16,081)
                                    
Balance, June 30, 2007   118,421,126    118,420    (60,920)   -    (30,149)   -    27,351 
                                    
Stock issued for cash, February 2008   2,631,595    2,632    47,368    -    -    -    50,000 
                                    
Net loss   -    -    -    -    (95,656)   -    (95,656)
                                    
Balance, June 30, 2008   121,052,721    121,052    (13,552)   -    (125,805)   -    (18,305)
                                    
Net loss   -    -    -    -    (67,905)   -    (67,905)
                                    
Balance, June 30, 2009   121,052,721    121,052    (13,552)   -    (193,710)   -    (86,210)
                                    
Cancellation of shares in connection with merger   (71,052,626)   (71,052)   71,052    -    -    -    - 
                                    
Stock issued for cash   18,000,000    18,000    2,265,139    -    -    -    2,283,139 
                                    
Stock-based compensation   2,625,000    2,625    1,137,322    -    -    -    1,139,947 
                                    
Stock issued for property acquisitions   4,000,000    4,000    3,636,000    -    -    -    3,640,000 
                                    
Net loss   -    -    -    -    (16,048,682)   -    (16,048,682)
                                    
Balance, June 30, 2010   74,625,095    74,625    7,095,961    -    (16,242,392)   -    (9,071,806)
                                    
Stock issued for cash   55,685,324    55,686    6,025,862    -    -    -    6,081,548 
                                    
Stock-based compensation   5,603,501    5,603    2,469,927    -    -    -    2,475,530 
                                    
Stock issued to settle liabilities   6.500.000    6.500    2.106.000    -    -    -    2.112.500 
                                    
Equity impact of derivative liability warrants and debt   -    -    4,972,546    -    -    -    4,972,546 
                                    
Stock issued for property acquisitions   137,500,000    137,500    35,637,500    -    -    -    35,775,000 
                                    
Consolidation of Maricunga Companies´ non-controlling interest   -    -    -    -    -    25,496,000    25,496,000 
                                    
Net loss   -    -    -    -    (19,219,382)   -    (19,219,382)
                                    
Balance, June 30, 2011   279,913,920    279,914    58,307,796    -    (35,461,774)   25,496,000    48,621,936 
                                    
Stock issued for cash:                                   
Stock and warrants offered  to POSCO, less offering costs of $685,944   38,095,300    38,095    3,495,996    -    -    -    3,534,091 
Exercise of $0.05 per share D Warrants for cash   4,200,000    4,200    205,800    -    -    -    210,000 
Equity impact of derivative liability warrants and debt:                                   
Fair value of D warrants reclassified from derivative liability to equity upon exercise   -    -    590,462    -    -    -    590,462 
Beneficial conversion of convertible debt waiver agreement   -    -    330,019    -    -    -    330,019 
                                    
Stock-based compensation:                                   
Amortization of stock-based compensation   -    -    514,380    -    -    -    514,380 
Stock issued to MIZ, a related party, pursuant to vesting of restricted stock   300,000    300    (300)   -    -    -    - 
Stock issued pursuant to vesting of restricted stock units   233,333    234    (234)   -    -    -    - 
Common stock issued for services   1,040,000    1,040    134,160    -    -    -    135,200 
                                    
Foreign currency translation adjustments   -    -    -    83,563    -    -    83,563 
                                    
Net loss        -    -    -    (2,312,071)   (2,375,407)   (4,687,478)
                                    
Balance, June 30, 2012   323,782,553    323,783   $63,578,079    83,563    (37,773,845)   23,120,593    49,332,173 
                                    
Stock issued for cash:                                   
Stock and warrants issued to POSCAN, less offering costs totaling $500,000   62,499,938    62,500    4,959,476    -    -    -    5,021,976 
                                    
Stock-based compensation:                                   
Amortization of stock-based compensation   -    -    328,958    -    -    -    328,958 
Modification of stock options   -    -    3,274    -    -    -    3,274 
Stock issued to MIZ, a related party, pursuant to vesting of restricted stock   1,700,000    1,700    (1,700)   -    -    -    - 
Stock issued pursuant to vesting of restricted stock units   316,668    317    (317)   -    -    -    - 
Stock issued for services   709,652    710    37,426                   38,136 
                                    
Stock issued to settle liabilities:                                   
Stock issued to directors and employees for services   6,488,642    6,488    425,113    -    -    -    431,601 
                                    
Common stock subject to rescission   -    -    (3,041)   -    -    -    (3,041)
                                    
Foreign currency translation adjustments   -    -    -    (83,563)   -    -    (83,563)
                                    
Net income (loss)   -    -    -    -    (24,839,894)   (18,798,439)   (43,638,333)