10-Q 1 v378409_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

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

For the transition period from __________ to __________

Commission File Number: 000-54303

LI3 ENERGY, INC.

(Exact name of registrant as specified in its charter)

Nevada

20-3061907

(State or other jurisdiction of

incorporation or organization)

(IRS Employer

Identification No.)

Marchant Pereira 150, Of 802

Providencia, Santiago de Chile, 7500000, Chile

(Address of principal executive offices) (Zip Code)

+ (56) 2-2896-9100

(Registrant’s telephone number, including area code)

Marchant Pereira 150, Of 803

Providencia, Santiago de Chile, 7500000, Chile

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

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

Yes x No ¨

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

Yes x No ¨

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

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

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

Yes ¨ No x

As of May 15, 2014 there were 435,006,181 shares of the registrant’s common stock outstanding.

LI3 ENERGY, INC.

TABLE OF CONTENTS

		Page

Part I - Financial Information

Item 1	Financial Statements	4

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3	Quantitative and Qualitative Disclosures About Market Risk	39

Item 4	Controls and Procedures	39

Part II - Other Information

Item 1	Legal Proceedings	41

Item 1A	Risk Factors	41

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	41

Item 3	Defaults Upon Senior Securities	41

Item 4	Mine Safety Disclosures	41

Item 5	Other Information	42

Item 6	Exhibits	42

Signatures		43

Statement Regarding Forward-Looking Information

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

All statements other than statements of historical facts included in this Report including, without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report, regarding our financial condition, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believes,” “ expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements including, but not limited to, our ability to identify appropriate corporate acquisition and/or joint venture opportunities in the lithium mining sector, our ability to establish technical and managerial infrastructure, our ability to raise the required capital to take advantage of and successfully participate in such opportunities, and future economic conditions, political stability and lithium prices. Descriptions of certain risks and uncertainties that could cause our actual results to differ materially from those described by the forward-looking statements in this Quarterly Report on Form 10-Q appear in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2013, filed with the Securities and Exchange Commission (the “SEC”) on October 9, 2013.

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.

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LI3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Balance Sheets

(Unaudited)

	March 31, 2014			June 30, 2013
Assets
Current assets:
Cash	$	120,287		$	12,667
Prepaid expenses and advances		2,852			84,508
Total current assets		123,139			97,175
Receivable for sale of controlling interest in Minera Li		992,443			-
Investment in Minera Li		7,673,881			-
Mineral rights, net		-			23,547,374
Property and equipment, net		484			126,744
Total non-current assets		8,666,808			23,674,118
Total assets	$	8,789,947		$	23,771,293

Liabilities & Equity
Current liabilities:
Accounts payable	$	221,125		$	412,481
Accrued expenses		764,199			895,017
Accrued registration rights penalties		518,243			518,243
Common stock payable		315,921			250,897
Payable for acquisition of mineral rights		-			3,800,000
Current portion of long-term debt		-			100,000
Zero-coupon convertible debt, net of unamortized discount of $-0- and $50,037, respectively		-			1,829,963
Notes payable		50,000			50,000
Convertible notes payable, net of unamortized discount of $37,195 and $131,799, respectively		60,805			71,701
Current portion of derivative liabilities		678,547			402,834
Total current liabilities		2,608,840			8,331,136
Long-term debt, less debt discount of $-0- and $981,080, respectively		-			418,920
Derivative liabilities		3,065,345			3,587,015
Total non-current liabilities		3,065,345			4,005,935
Total liabilities	$	5,674,185		$	12,337,071

Commitments and contingencies
Common stock subject to rescission		3,041			3,041

Equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and outstanding		-			-
Common stock, $0.001 par value, 990,000,000 shares authorized; 432,745,070 and 395,497,453 shares issued and outstanding as of March 31, 2014 and June 30, 2013, respectively		432,745			395,497
Additional paid-in capital		70,677,392			69,327,269
Deficit accumulated during exploration stage		(67,997,416	)		(62,613,739	)
Total stockholders' equity of Li3 Energy, Inc.		3,112,721			7,109,027
Non-controlling interests		-			4,322,154
Total equity		3,112,721			11,431,181
Total liabilities and equity	$	8,789,947		$	23,771,293

See accompanying notes to unaudited consolidated financial statements.

LI3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Unaudited)

													June 24, 2005
													(inception)
	Three Months Ended March 31,						Nine Months Ended March 31,						through March 31,
	2014			2013			2014			2013			2014

Revenues	$	-		$	-		$	-		$	-		$	2,278
Cost of goods sold		-			-			-			-			(1,182	)
Gross profit		-			-			-			-			1,096
Operating expenses:
Exploration expenses		(42,098	)		(79,336	)		(47,240	)		(456,945	)		(9,626,298	)
Equity in loss of Minera Li		(5,133	)		-			(5,133	)		-			(5,133	)
Mineral rights impairment expense		-			-			(6,485,438	)		-			(62,117,849	)
Gain on sale of mineral rights		-			-			120,000			-			120,000
Debt modification expense		-			-			(300,000	)		-			(300,000	)
Gain (loss) on settlements, net		1,530,285			-			1,536,822			(5,816	)		51,881
General and administrative expenses		1,384,967			(1,291,630	)		(1,724,851	)		(3,700,329	)		(21,665,775	)

Total operating expenses		2,868,021			(1,370,966	)		(6,905,840	)		(4,163,090	)		(93,543,174	)
Other income (expense):
Loss on sale of controlling interest in Minera Li		(47,815	)		-			(47,815	)		-			(47,815	)
Loss on debt extinguishment		(45,594	)		-			(19,988	)		(37,235	)		(898,975	)
Change in fair value of derivative liability instruments		(2,569,137	)		213,163			122,567			6,453,869			7,034,958
Warrant modification expense		-			-			-			(171,150	)		(1,239,470	)
Gain (loss) on foreign currency transactions		30,141			(426	)		52,680			19,723			95,969
Interest expense		(319,885	)		(57,274	)		(1,181,832	)		(298,533	)		(3,170,402	)
Total other income (expense)		(2,952,290	)		155,463			(1,074,388	)		5,966,674			1,774,265
Net income (loss)	$	(84,269	)	$	(1,215,503	)	$	(7,980,228	)	$	1,803,584		$	(91,767,813	)
Net loss attributable to non-controlling interests		320			31,734			2,596,551			187,898			23,770,397
Net income (loss) attributable to Li3 Energy, Inc.	$	(83,949	)	$	(1,183,769	)	$	(5,383,677	)	$	1,991,482		$	(67,997,416	)
Earnings (loss) per common share - basic	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.01
Earnings (loss) per common share - diluted	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	0.01
Weighted average number of common shares outstanding
Basic		426,169,909			394,002,697			408,108,295			380,373,535
Diluted		426,169,909			394,002,697			408,108,295			395,841,166

Comprehensive income (loss):
Net income (loss)	$	(84,269	)	$	(1,215,503	)	$	(7,980,228	)	$	1,803,584		$	(91,767,813	)
Foreign currency translation adjustments		-			-			-			(83,563	)		-
Total comprehensive income (loss)	$	(84,269	)	$	(1,215,503	)		(7,980,228	)	$	1,720,021		$	(91,767,813	)
Comprehensive loss attributable to non-controlling interests		320			31,734			2,596,551			187,898			23,770,397
Comprehensive income (loss) attributable to Li3 Energy, Inc. shareholders	$	(83,949	)	$	(1,183,769	)	$	(5,383,677	)	$	1,907,919		$	(67,997,416	)

See accompanying notes to unaudited consolidated financial statements.

LI3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statements of Changes in Equity

From June 24, 2005 (Inception) through March 31, 2014

(Unaudited)

													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 issued to POSCAN, 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 to employees 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 loss		-			-			-			-			(24,839,894	)		(18,798,439	)		(43,638,333	)

Balance, June 30, 2013		395,497,453			395,497			69,327,269			-			(62,613,739	)		4,322,154			11,431,181

Stock-based compensation:
Amortization of stock-based compensation		-			-			33,304			-			-			-			33,304
Beneficial conversion feature of convertible debt		-			-			700,000			-			-			-			700,000

Stock issued to settle liabilities:
Stock issued to directors and employees for services		11,110,474			11,111			198,221			-			-			-			209,332
Stock issued to third parties for services		3,620,802			3,621			76,724			-			-			-			80,345

Stock issued on conversion of debt		22,516,341			22,516			112,484			-			-			-			135,000

Fair value of embedded derivative liability reclassified to equity upon conversion/repayment of debt		-			-			229,390			-			-			-			229,390

Deconsolidation of Maricunga on sale of controlling interest		-			-			-			-			-			(1,725,603	)		(1,725,603	)

Net loss		-			-			-			-			(5,383,677	)		(2,596,551	)		(7,980,228	)

Balance, March 31, 2014		432,745,070		$	432,745		$	70,677,392		$	-		$	(67,997,416	)	$	-		$	3,112,721

See accompanying notes to unaudited consolidated financial statements.

LI3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

							June 24, 2005
							(Inception)
	Nine Months Ended						Through
	March 31,						March 31,
	2014			2013			2014
Cash flows from operating activities
Net income (loss)	$	(7,980,228	)	$	1,803,584		$	(91,767,813	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		13,415			31,113			121,506
Loss on write-off of fixed assets		4,786			6,556			16,231
Equity in loss of Minera Li		5,133			-			5,133
Mineral rights impairment expense		6,485,438			-			62,117,849
Gain on sale of mineral rights		(120,000	)		-			(120,000	)
Loss on sale of controlling interest in Minera Li		47,815			-			47,815
(Gain) loss on settlements, net		(1,536,822	)		5,816			(51,881	)
Stock-based compensation		98,328			867,908			5,160,203
Loss on debt extinguishment		19,988			37,235			898,975
Change in fair value of derivative liabilities		(122,567	)		(6,453,869	)		(7,034,958	)
Warrant modification expense		-			171,150			1,239,470
Zero coupon interest accretion and amortization of debt discount on convertible notes		931,141			102,297			2,478,554
Amortization of deferred financing costs		30,592			-			115,887
Gain on foreign currency transactions		(52,680	)		(19,723	)		(95,969	)
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses and advances		60,574			(91,088	)		(23,596	)
Increase in other assets		-			(533	)		-
Increase (decrease) in accounts payable		45,393			(2,169,639	)		503,653
Increase (decrease) in accrued expenses		428,557			(197,489	)		2,256,111
Increase in accrued registration rights penalties		-			-			518,243
Net cash used in operating activities		(1,641,137	)		(5,906,682	)		(23,614,587	)

Cash flows from investing activities
Acquisition of mineral rights		-			-			(9,968,785	)
Acquisition of property and equipment		-			-			(246,280	)
Proceeds from sale of controlling interest in Minera Li		1,500,000			-			1,500,000
Deconsolidation of investments		(72	)		-			(72	)
Proceeds from sale of mining properties		60,000			-			60,000
Amounts recovered from minority shareholders		1,555,000			-			1,555,000
Net cash provided by (used in) investing activities		3,114,928			-			(7,100,137	)

Cash flows from financing activities
Proceeds from zero coupon convertible debt offering		-			-			1,500,000
Payments on zero coupon convertible debt		(1,930,000	)		-			(1,930,000	)
Payment of deferred financing costs		-			-			(75,000	)
Payment of arranger fee for convertible debt		-			-			(67,600	)
Proceeds from notes payable		1,088,605			(37,600	)		2,492,105
Payments on notes payable		(524,776	)		(1,150,000	)		(1,674,776	)
Proceeds from issuance of common stock, net		-			9,499,990			28,946,707
Proceeds from exercise of warrants		-			-			1,643,575
Net cash provided by (used in) financing activities		(1,366,171	)		8,312,390			30,835,011

Effect of exchange rate changes on cash		-			(83,563	)		-

Net increase in cash		107,620			2,322,145			120,287

Cash at beginning of the period		12,667			27,689			-

Cash at end of the period	$	120,287		$	2,349,834		$	120,287

Supplemental disclosure of cash flow information:
Cash paid during the period for:
Income taxes	$	-		$	-		$	-
Interest	$	138,968		$	280,953		$	425,714
Non-cash financing and investing transactions:
Fair value of derivative warrant instruments issued in
private offerings	$	-		$	4,478,014		$	13,352,518
Reclassification of warrant liabilities to additional paid-in
capital for warrant exercises	$	-		$	-		$	5,195,008
Reclassification of embedded derivative liabilities to additional
paid-in capital for conversion/payment of debt	$	229,390		$	-		$	229,390
Receivable in connection with sale of mineral rights	$	60,000		$	-		$	-
Warrants issued for services	$	-		$	-		$	157,010
Warrants issued for offering costs	$	-		$	162,350		$	220,100
Debt discount due to beneficial conversion feature	$	700,000		$	-		$	1,398,019
Debt discount due to warrant derivative liabilities issued with
convertible debt	$	106,000		$	-		$	1,396,500
Debt discount for acquisition of Cocina Mineral Rights	$	-		$	-		$	-
Payable for acquisition of Cocina Mineral Rights	$	4,300,000		$	-		$	-
Settlement of accrued interest through modification of debt	$	-		$	105,742		$	105,742
Settlement of accrued liabilities through issuance of stock	$	289,677		$	368,749		$	771,973
Issuance of common stock for acquisition of mineral rights	$	-		$	-		$	39,415,000
Issuance of common stock on conversion of debt	$	135,000		$	-		$	135,000
Consolidation of non-controlling interest of the
Maricunga Companies	$	-		$	-		$	25,496,000
Common stock cancelled	$	-		$	-		$	71,052
Common stock subject to rescission	$	-		$	3,041		$	3,041

See accompanying notes to unaudited consolidated financial statements.

LI3 ENERGY, INC.

(An Exploration Stage Company)

Notes to the Consolidated Financial Statements

For the quarterly period ended March 31, 2014

(Unaudited)

NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Li3 Energy, Inc. (“Li3 Energy” or the “Company”) was incorporated under the laws of the State of Nevada on June 24, 2005. In 2009, the Company established its business focus and strategy toward identifying and pursuing business opportunities in lithium and industrial minerals mining in North and South America, but has more recently focused solely on South America.

At March 31, 2014, the Company’s four wholly owned subsidiaries included: Li3 Energy Peru SRL (“Li3 Peru”), a subsidiary formed in Peru to explore mining opportunities in Peru and in South America; Alfredo Holdings, Ltd. (“Alfredo”), an exempted limited company incorporated under the laws of the Cayman Islands; Li3 Energy Copiapó, SA (“Li3 Copiapó”, previously called Pacific Road Mining Chile, SA), a Chilean corporation, which is a subsidiary of Alfredo; and Noto Energy S.A. (“Noto”), an Argentinean corporation.

On January 27, 2014, the Company sold 51% of its ownership interest in Minera Li Energy SPA (“Minera Li”), a subsidiary registered in Chile, to a third party. Minera Li also holds 60% ownership of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga (“SLM Litio 1-6”), a group of six private companies (the “Maricunga Companies”). The Company retains 49% ownership of Minera Li.

The accompanying unaudited interim consolidated financial statements of Li3 Energy, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report on Form 10-K filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended June 30, 2013, as reported in Form 10-K, have been omitted.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Li3 Peru, Alfredo, Li3 Copiapó, and Noto. As a result of the Company disposing of its controlling interest in Minera Li on January 27, 2014, it deconsolidated Minera Li from its consolidated financial statements on that date and now accounts for its remaining investment under the equity method. All intercompany amounts have been eliminated in consolidation.

b. 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 materially from those estimates. Management has made significant estimates related to the fair value of investment in associates; the fair value of mineral assets; the fair value of derivative liabilities; stock-based payments; and contingencies.

c. Exploration Stage Company

The Company is in the exploration stage in accordance with SEC guidance and Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic No. 915 - Development Stage Entities. Its activities to date have been limited to capital formation, organization, and development of its business, including acquisitions of mineral rights.

d. Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at March 31, 2014 and June 30, 2013, respectively. The Company has not experienced any losses on its deposits of cash and cash equivalents.

e. Mineral Exploration and Development Costs

All exploration expenditures are expensed as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs incurred to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current production are also capitalized once proven and probable reserves exist and the property is determined to be a commercially mineable property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If the Company does not continue with exploration after the completion of the feasibility study, the cost of mineral rights will be expensed at that time. Costs of abandoned projects are charged to mining costs, including related property and equipment costs. To determine if capitalized costs are in excess of their recoverable amount, periodic evaluation of the carrying value of capitalized costs and any related property and equipment costs are performed based upon expected future cash flows and/or estimated salvage value. During the nine months ended March 31, 2014 and 2013, impairment charges of $6,485,438 and $-0-, respectively, were recorded by the Company.

f. 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.

g. Investment in Minera Li

As of January 27, 2014, the investment in Minera Li is accounted for under the equity method in accordance with ASC 323 – Equity Investments and Joint Ventures. Under the equity method, the carrying value of the investment is adjusted for the Company’s share of Minera Li earnings and losses, as well as any capital contributions to and distributions from associates. Distributions in excess of equity method earnings are recognized as a return of investment and recorded as investing cash inflows in the accompanying consolidated statements of cash flows. We classify operating income and losses as well as gains and impairments related to our equity investees as a component of operating income or loss, as the Company’s equity investees is an extension of our core business.

We evaluate equity investments for impairment whenever events or changes in circumstances indicate that the carrying value of the investment may have experienced an ‘‘other-than-temporary’’ decline in value. If such conditions exist, we compare the estimated fair value of the investment to its carrying value to determine if an impairment is indicated and determines whether the impairment is ‘‘other-than-temporary’’ based on an assessment of all relevant factors, including consideration of our intent and ability to retain the investment.

h. Foreign Currency

The Company has determined that the functional currency of the parent company and each of its foreign subsidiaries is U.S. Dollars.

Foreign currency transaction gains and losses are included in the statement of operations as other income (expense).

i. Income Taxes

A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and for net operating loss carry-forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

For financial statement purposes, we recognize the impact of an uncertain income tax position on the income tax return at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.

The Company recognizes interest related to income tax matters in income tax expense and penalties related to income tax matters in general and administrative expenses. The Company did not have any uncertain income tax positions or accrued interest included in its consolidated balance sheets at March 31, 2014, or June 30, 2013, and did not recognize any interest on income tax obligations in its consolidated statements of operations during the nine months ended March 31, 2014 or 2013. At March 31, 2014 and June 30, 2013, the Company has recorded $160,000 and $120,000, respectively, of accrued penalties related to income tax matters. The Company recognized penalties of $40,000 and $-0-, respectively, in its consolidated statements of operations during the nine months ended March 31, 2014 and 2013.

j. Non-Controlling Interests

The Company is required to report its non-controlling interests as a separate component of equity. The Company is also required to present the consolidated net income or loss and the portion of the consolidated net income or loss allocable to the non-controlling interests and to the stockholders of the Company separately in its consolidated statements of operations. Losses applicable to the non-controlling interests are allocated to the non-controlling interests even when those losses are in excess of the non-controlling interests’ investment basis. During the nine months ended March 31, 2014 and 2013, the Company recorded a net loss allocable to non-controlling interests of $2,596,551 and $187,898, respectively. The non-controlling interests related to the 60% of the Maricunga Companies that were not owned by Minera Li. As a result of the BBL Transaction (see Note 4) during January 2014, BBL became the majority shareholder of Minera Li, with the Company retaining a 49% interest. The Company determined that it ceased to have voting and management control of Minera Li and therefore accounted for the sale of the 51% of Minera Li by deconsolidating the subsidiary from its consolidated financial statements in accordance with ASC 810 - Consolidation. The Company´s remaining 49% interest in Minera Li has been treated as an equity investment in accordance with ASC 323 - Investments - Equity Method and Joint Ventures.

k. Earnings per Share

Basic net earnings per share amounts are computed by dividing the net income available to Li3 Energy, Inc. stockholders by the weighted average number of common shares outstanding over the reporting period. In periods in which the Company reports a net loss, dilutive securities are excluded from the calculation of diluted earnings per share as the effect would be anti-dilutive.

For the three and nine months ended March 31, 2014 and 2013, the following convertible debt, stock options and warrants to purchase shares of common stock were excluded from the computation of diluted net earnings or loss per share, as the inclusion of such shares would be anti-dilutive:

	Three months ended
	March 31, 2014		March 31, 2013
Stock options		1,450,000		1,450,000
Restricted stock units		983,334		-
Stock warrants		169,500,963		162,776,432
Convertible debt		3,517,621		-
		175,451,918		161,895,482

	Nine months ended
	March 31, 2014		March 31, 2013
Stock options		1,450,000		1,450,000
Restricted stock units		983,334		-
Stock warrants		169,500,963		161,376,432
Convertible debt		3,517,621		-
		175,451,918		162,826,432

l. Subsequent Events

The Company evaluated material events occurring between March 31, 2014 and through the date when the consolidated financial statements were available to be issued for disclosure consideration.

m. Recent Accounting Pronouncements

Recently issued or adopted accounting pronouncements are not expected to, or did not have, a material impact on our financial position, results of operations or cash flows.

n. Reclassifications

Certain reclassifications have been made to the prior period financial statements to conform to the current period presentation.

NOTE 3. GOING CONCERN

At March 31, 2014, the Company had no source of current revenue, a cash balance on hand of $120,287, negative working capital of $2,485,701 and the Company recognized negative cash flows from operations of $23,614,587 during the period from June 24, 2005 (inception) through March 31, 2014.

In order to address the Company’s funding requirements to execute its business plan for the development of its primary mining concession assets (the Maricunga Project), on January 27, 2014, Li3 Energy executed an agreement (the “BBL Transaction”) with BBL SpA, (“BBL”), under which BBL acquired 51% of Minera Li. Also on January 27, 2014, the Company executed an agreement (the “Tierras Agreement”) with Tierras Raras SpA, an affiliate of BBL.

Pursuant to the BBL Transaction and the Tierras Agreement:

Li3 Energy will receive $1,000,000 upon completion of certain Maricunga Project Milestones, or at the latest, on January 27, 2016.

BBL will provide the Company with a credit facility of $1,800,000 to provide Li3 Energy working capital. The credit facility will allow the Company to draw $100,000 during April 2014, and $200,000 per month thereafter, until the maximum $1,800,000 is reached. Repayment of each drawdown will be 12 months from the drawdown date, at 12% interest per annum. The payments have not been received as of the date of filing.

BBL will finance Li3 Energy´s share of exploration expenses on the Maricunga Project to the stage of full permitting including environmental, social, and construction, and all studies related to the Maricunga Project to internationally recognized standards. The loans will be due 24 months from receipt. Specific limits or terms for these loans have not been established and will be negotiated in good faith between the Company and BBL.

The Company believes that the transaction described above should provide sufficient working capital to maintain its basic operations for at least the next 12 months.

In the course of its development activities, the Company has sustained and continues to sustain losses. The Company cannot predict if and when the Company may generate profits. In the event we identify commercial reserves of lithium or other minerals, we will require substantial additional capital to develop those reserves and certain governmental permits to exploit such resources. The Company expects to finance its future operations primarily through future equity or debt financing. However, there exists substantial doubt about the Company’s ability to continue as a going concern because there is no assurance that it will be able to obtain such capital, through equity or debt financing, or any combination thereof, on satisfactory terms or at all. Additionally, no assurance can be given that any such financing, if obtained, will be adequate to meet the Company’s ultimate capital needs and to support its growth. If adequate capital cannot be obtained on a timely basis and on satisfactory terms, then the Company’s operations would be materially negatively impacted.

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

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

These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain the necessary rights to exploit its mineral rights; meet its financial and operational obligations, to obtain additional financing as may be required until such time as it can generate sources of recurring revenues and to ultimately attain profitability. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

NOTE 4. INVESTMENT IN MINERA LI

The Company´s equity investments at March 31, 2014 relate to its 49% investment in Minera Li. The investment in Minera Li was consolidated prior to January 27, 2014.

Balance, July 1, 2013	$	-
Add: Fair value of investment in Minera Li recognized on January 27, 2014		7,679,014
Less: Equity in loss of Minera Li		(5,133	)
Carrying value, March 31, 2014	$	7,673,881

Minera Li was previously a wholly owned subsidiary of the Company. On January 27, 2014, Li3 Energy entered into a Purchase and Sale Agreement with BBL, a Chilean corporation, pursuant to which BBL acquired from the Company eleven of its sixty shares of Minera Li (the “Share Purchase”) for a cash payment of $1,500,000 which was received by the Company on January 28, 2014. In connection with the Share Purchase, Minera Li held a shareholders’ meeting, pursuant to which Minera Li issued forty additional shares (the “Additional Shares”) to BBL in exchange for a cash payment of $5,500,000 (the “Issuance”, and together with the “Share Purchase”, the “BBL Transaction”). As a result of the BBL Transaction, BBL became the majority shareholder of Minera Li, with the Company retaining a 49% interest in Minera Li.

Concurrent with the execution of the Agreement, the Company and BBL also entered into a Shareholders Agreement regarding their joint ownership interest of Minera Li. Under the Shareholders Agreement, BBL will pay $1,000,000 (the “Additional Payment”) to the Company upon the earlier of its completion of certain milestones (the “Milestones”) relating to the permitting and development of the Maricunga Project and, in any event, no later than January 27, 2016. The Company recorded the present value of the Additional Payment receivable of $992,443 as receivable on sale of investment in the consolidated balance sheets.

BBL agreed to finance the Company’s exploration and development expenses until the Maricunga Project reaches full permitting and is ready for construction by providing loans due 24 months from receipt. The loans will be secured by the Company’s ownership interest in Minera Li. Specific limits or terms for these loans have not been established and will be negotiated in good faith between BBL and Li3 Energy.

In addition to the foregoing financing, BBL also committed to provide the Company with a line of credit (the “Credit Facility”) in the amount of $1,800,000 (the “Maximum Amount”). The Credit Facility will be available from April 1, 2014 until March 31, 2015, and can be drawn down by the Company as follows: (i) $100,000 beginning in April 2014 and (ii) $200,000 every month thereafter, until the Maximum Amount is reached. Each drawdown must be repaid within twelve (12) months of the drawdown date, at 12% interest per annum. The Credit Facility is secured by the Company’s ownership interest in Minera Li. The proceeds of the Credit Facility will be used for the working capital needs of the Company.

Accounting for the BBL Transaction

The Company´s remaining 49% interest in Minera Li was recorded as an equity investment in accordance with ASC 323 - Investments - Equity Method and Joint Ventures. The Company calculated that the fair value of the Company´s remaining investment in Minera Li immediately following the BBL Transaction was $7,679,014 and a loss on sale of investments of $47,815relating to the deconsolidation was recorded in the consolidated statement of operations for the nine months ended March 31, 2014 as follows:

Consideration received
Cash proceeds received for sale of shares in Minera Li	$	1,500,000
Fair value of $1,000,000 Additional Payment receivable for sale of shares in Minera Li		992,443
		2,492,443
Add:
Fair value of retained equity method investment (49% investment in Minera Li)		7,679,014
Carrying amount of non-controlling interest in Minera Li		1,725,603
		11,897,060
Less:
Carrying amount of net assets of Minera Li at January 27, 2014		(11,944,875	)
Loss on sale of controlling interest in Minera Li	$	(47,815	)

The fair value of the remaining 49% investment in Minera Li retained by the Company of $7,679,014 was calculated with reference to the BBL Transaction, whereby BBL paid $7,992,443 to acquire 51% of Minera Li (comprised of a $1,500,000 cash payment to Li3, $992,443 Additional Payment due to Li3 at fair value and $5,500,000 of cash contributed as equity to Minera Li).

Summarized Financial Information of Minera Li

Set out below is the summarized financial information of Minera Li at March 31, 2014, which is accounted for using the equity method. The information reflects the amounts presented in the financial statements of Minera Li adjusted for differences in accounting policies between the Company and Minera Li.

Summarized Balance Sheet

	March 31, 2014
Current assets	$	482,880
Non-current assets		17,166,060
Total assets	$	17,648,940

Current liabilities	$	262,356
Equity		17,386,584
Total liabilities and equity	$	17,648,940

Summarized Statement of Operations

	January 27, 2014 - March 31, 2014
Revenue	$	-
Operating expenses:
Exploration expenses		(756	)
General & administrative expenses		(9,720	)
Total operating expenses		(10,476	)
Net loss	$	(10,476	)

NOTE 5. MINERAL RIGHTS

Mineral rights, net of impairment, consist of the following at March 31, 2014 and June 30, 2013:

Maricunga	March 31, 2014		June 30, 2013
SLM Litio 1-6	$	-	$	17,247,374
Cocina Mining Concessions		-		6,300,000
	$	-	$	23,547,374

All of the Company’s mineral rights in SLM Litio 1-6 and the Cocina Mining Concessions were held by Minera Li which has been deconsolidated from the Company´s consolidated financial statements – see Note 4.

SLM Litio 1-6

The SLM Litio 1-6 property consisted solely of undeveloped mineral rights. On May 20, 2011, Minera Li, acquired 60% of SLM Litio 1-6 for a purchase price of $6,370,000 in cash and 127,500,000 restricted shares of common stock which had a fair value of $31,875,000 (the “SLM Litio 1-6 Shares”). The Company also initially recorded an additional $25,496,000 to reflect the non-controlling interest for the 40% of SLM Litio 1-6 that were not acquired.

At June 30, 2013, 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 December 31, 2013, the Company determined that the BBL Transaction provided additional evidence regarding the estimated fair value of SLM Litio 1-6 at December 31, 2013, and recognized a further impairment charge of $6,485,438 to write the mineral rights down to their estimated fair value of $10,761,936.

Matters Related to Non-controlling Interests

The Company agreed to register under the Securities Act of 1933, as amended, one-half of the 127,500,000 SLM Litio 1-6 Shares on a “best efforts” basis by January 31, 2012 and the remainder by October 31, 2012. On December 27, 2012 the Company filed a registration statement with the SEC requesting to register a total of 127,500,000 shares. On January 24, 2013, such registration statement was declared effective by the SEC.

The Company incurred exploration expenses with respect to the SLM Litio 1-6 property of $6,446,928 and impairment expense of $52,979,064 up to the BBL Transaction date. The Minority Shareholders did not make payments to the Company for their respective shares of the exploration expenses. As a result, all of the expenses incurred by the Maricunga Companies up to the BBL Transaction date were funded by the Company. The Company recorded 40% of the expenses incurred by the Maricunga Companies to the non-controlling interest, or $2,596,551 and $187,898, respectively, for the nine months ended March 31, 2014 and 2013.

The Company had filed lawsuits against the Minority Shareholders seeking either payment of their pro rata portion of costs or an auction of their 40% share of the properties.

In conjunction with the BBL Transaction, Tierras Raras SpA (“Tierras Raras”), an affiliate of BBL, entered into an agreement with Minera Li. Pursuant to the Tierras Agreement, Tierras Raras agreed to purchase all of the interests of the SLM Litio 1-6 Minority Shareholders, and, in conjunction with the purchase, to pay $1,600,000 to Minera Li, which in turn would pay the funds to the Company, as consideration for the settlement and release by the Company of its claims against the SLM Litio 1-6 Minority Shareholders. The transactions contemplated by the Tierras Agreement closed in February 2014, and the Company received $1,555,000 in settlement on February 26, 2014, which was recorded as a gain on settlement in the consolidated financial statements for the nine months ended March 31, 2014. The Company agreed that $45,000 would be retained in Minera Li in order to settle liabilities incurred prior to the BBL Transaction date. No additional amounts are owed to the Company in connection with this settlement agreement.

Cocina Mining 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”). The Cocina Company had no operating activities, held no assets or liabilities other than the Cocina Mining Concessions and had no employees as of the date of the purchase of the Company. Accordingly, the purchase was treated as an asset acquisition.

The Cocina Company was absorbed on April 16, 2013 by Minera Li (and therefore, the Cocina Company ceased to exist).

The Cocina Mining Concessions were constituted prior to the 1979 Lithium Exploitation Restrictions, meaning that, according to Chilean mining law, the 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 which are necessary to exploit minerals are required.

Pursuant to the Purchase Agreement, Minera Li agreed to pay the Sellers $7,300,000 in a combination of cash and debt, as follows:

	Jose Resk Nara		Carlos Alfonso Iribarren
April 16, 2013	$	1,000,000	$	1,000,000
July 16, 2013		1,000,000		1,000,000
October 16, 2013		1,150,000		650,000
April 16, 2014 - April 16, 2028		-		1,500,000	($100,000/year)
	$	3,150,000	$	4,150,000

$2,000,000 of the purchase price was paid on April 16, 2013 (the “Closing Date”). The Company determined that the value of the Cocina Mining Concessions upon acquisition was $6,300,000, with the additional $1,000,000 of the purchase price treated as imputed interest (debt discount) to be amortized over the life of the remaining payments to Carlos Alfonso Iribarren. As of June 30, 2013, the Company recorded the $3,800,000 which was to be paid between July 16, 2013 and October 16, 2013 as short-term payable for acquisition of the Cocina mineral rights and the remaining $1,500,000 of the purchase price was recorded as debt, offset by $1,000,000 of debt discount, of which the Company amortized $18,920. During the nine months ended March 31, 2014, the Company amortized an additional $30,592 of debt discount to interest expense.

The Company did not make the required July 16, 2013 payment of $2,000,000, and agreed with the Sellers to defer the payment until October 2013 for an additional payment of $300,000, which the Company recorded in operating expenses as debt modification expense during the nine months ended March 31, 2014.

On November 13, 2013, the Company entered into an agreement with the Sellers and BBL in which it was agreed that the total purchase price of the Cocina Mining Concessions would be reduced from $7,600,000 ($7,300,000 per the Purchase Agreement plus a penalty for late payment of $300,000 as discussed above) to $6,600,000 and that BBL would assume the remaining payment obligations required to be made to the Sellers of $4,600,000, with payment due no later than March 30, 2014. Pursuant to the agreement, Minera Li was required to pay the $4,600,000 to BBL by May 31, 2014. As a result of the modification of the original purchase price and payment terms, the Company reclassified $450,488 originally recorded as long-term debt (long-term debt of $1,500,000 net of debt discount of $950,488, and including current portion of $100,000) to short-term payable for acquisition of mineral rights. During the nine months ended March 31, 2013, a gain on debt extinguishment of $49,512 was recorded by the Company as a result of the modification.

The amount payable to BBL of $4,600,000 was paid in connection with the BBL Transaction which was completed in January 2014.

NOTE 6. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	March 31, 2014			June 30, 2013
Leasehold improvement and office equipment	$	1,941		$	56,675
Field equipment		-			162,046
Less: Accumulated depreciation		(1,457	)		(91,977	)
	$	484		$	126,744

Depreciation expense for the nine months ended March 31, 2014 and 2013 was $13,415, and $31,113, respectively. The balance of the property and equipment held by Minera Li recorded in the Company´s consolidated financial statements prior to its deconsolidation was $108,059.

NOTE 7. RELATED PARTY TRANSACTIONS

POSCAN

On August 17, 2012, POSCAN, a greater than 10% shareholder and a wholly owned subsidiary of POSCO (a Korean company), purchased 62,499,938 shares of the Company’s common stock. See Note 13.

NOTE 8. CREDIT AGREEMENT

Second Amendment and Waiver Agreement

On September 28, 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 from June 30, 2012 to September 28, 2013, and the aggregate principal amount thereof was increased to $1,880,000, which included an Original Issue Discount of 12.1%. The Waiver Agreement also reduced the conversion price of the zero-coupon notes from $0.12 to $0.095 per share. In connection with the Second Waiver Agreement, the Company agreed to pay an arranger a cash fee (“arranger fee”) of $37,600.

In connection with the Second Waiver Agreement, the convertible debentures were analyzed for a beneficial conversion feature after the debt modification at which time it was concluded that no beneficial conversion feature existed.

The Company applied ASC 470-50-40/55 -Debtor’s Accounting for a Modification or Exchange of Debt Instrument and concluded that the Second Waiver Agreement constituted a debt extinguishment rather than debt modification because the change in the fair value of the embedded conversion features immediately before and after the modification exceeded 10% of the original loan balance. As a result, the Company recorded a loss on debt extinguishment of $37,235 during the nine months ended March 31, 2013, as summarized below:

Loss on Extinguishment:
Carrying value of pre-modification debt	$	1,677,439

Less: Estimated fair value of debt after modification		(1,880,000	)
Less: Arranger fee		(37,600	)
Original issue discount		202,926
Fair value of assets given		(1,714,674	)
Loss on debt extinguishment	$	(37,235	)

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, the aggregate principal amount thereof was increased from $1,880,000 to $2,000,000, which included an Original Issue Discount of 10.1%, and the conversion price of the zero-coupon notes was reduced from $0.095 to $0.02 per share. Interest at the rate of 2.9% per annum, or $33,631, was required to be recognized over the life of the extension. The interest was paid by the Company during the nine months ended March 31, 2014.

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 amortized to interest expense over the term of the convertible notes.

The Company applied ASC 470-50-40/55 -Debtor’s Accounting for a Modification or Exchange of Debt Instrument and concluded that the Third Amendment Agreement constituted a debt extinguishment rather than debt modification because the change in the fair value of the embedded conversion features immediately before and after the modification exceeded 10% of the original loan balance. As a result, the Company recorded a loss on debt extinguishment of $23,906 during the nine months ended March 31, 2014, as summarized below:

Loss on Extinguishment:
Carrying value of pre-modification debt	$	1,856,094

Less: Estimated fair value of debt after modification		(2,000,000	)
Original issue discount		120,000
Fair value of assets given		(1,880,000	)
Loss on debt extinguishment	$	(23,906	)

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.

On February 27, 2014, the Company paid $1,930,000 to the holders of the zero-coupon convertible notes in full settlement of the notes. As a result, the Company recorded a further loss on debt extinguishment of $45,594 during the nine months ended March 31, 2014, as summarized below:

Post-Modification Debt:
Estimated fair value of debt after modification	$	2,000,000
Less: Original issue discount		(120,000	)
Less: Beneficial conversion feature discount		(700,000	)
Carrying value at August 16, 2013 (date of modification)		1,180,000
Amortization of debt discount (recorded as interest expense during the period)		704,406
Carrying value on February 27, 2014 (prior to repayment)		1,884,406
Amount paid in settlement of the debt		(1,930,000	)
Loss on debt extinguishment	$	(45,594	)

The carrying value of the zero-coupon convertible debt as of June 30, 2013 is summarized below.

Post-Modification Debt:
Estimated fair value of debt after modification	$	1,880,000
Less: Original issue discount		(202,926	)
Carrying value at September 28, 2012 (date of modification)		1,677,074
Amortization of debt discount (recorded as interest expense during the year)		152,889
Carrying value at June 30, 2013	$	1,829,963

NOTE 9. NOTES PAYABLE

On August 16, 2013, the Company entered into an Offer to Finance agreement with a third party lender (the “Lender”) under which the Lender agreed to loan CAD $500,000 (USD $482,605) 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 Company repaid the Credit Facility on February 28, 2014. The total interest expense in respect to the Credit Facility recognized during the nine months ended March 31, 2014 was $54,290. A foreign exchange gain of $34,329 was also recognized on translation of the Credit Facility.

On October 30, 2013, the Company entered into a loan agreement with BBL pursuant to which BBL agreed to lend the Company $500,000 to be repaid no later than May 31, 2014, with an interest rate of 3.5% per annum adjusted for inflation according to changes in the Unidad de Fomento (“UF”) rate between the date of the loan agreement and the date of complete repayment. Under the terms of the loan agreement, the loan proceeds must be used to settle existing debts of the Company. Pursuant to the loan agreement, the assets of Minera Li were required to be pledged as a guarantee of this loan. The proceeds from the loan of $498,845 net of local Chilean taxes of $1,155 were received by the Company on November 4, 2013. The loan from BBL of $500,000 was paid in connection with the BBL Transaction completed in January 2014.

NOTE 10. CONVERTIBLE NOTES PAYABLE

On May 14, 2013, the Company issued an unsecured Convertible Promissory Note (the “First Asher 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. Legal expenses incurred in relation to the First Asher Note were $3,500 and were deducted from the gross proceeds received. In accordance with the provisions of the First Asher Note, during the nine months ended March 31, 2014, Asher elected to convert a total of $135,000 in principal amounts of the note into an aggregate of 22,516,341 shares of the Company´s common stock. The Company reclassified the fair value of the embedded conversion feature derivative liability of $148,539 related to these conversions to additional paid-in capital. The principal amount outstanding under the First Asher Note following these conversions was $23,500. The Company paid $33,000 on February 5, 2014 in settlement of principal ($23,500) and interest outstanding ($9,500) on the First Asher Note. The interest expense in respect to the First Asher Note for the nine months ended March 31, 2014 was $7,867. The interest accrued on the First Asher Note at June 30, 2013 was $1,633. Upon repayment of the note, the Company reclassified the fair value of the embedded conversion feature derivative liability of $20,626 to additional paid-in capital.

On July 15, 2013, the Company issued an unsecured Convertible Promissory Note to Asher (the “Second Asher Note”), bearing an interest rate of 8% per annum, in the amount of $53,000 with a Maturity Date of April 17, 2014. Legal expenses incurred in relation to the Second Asher Note were $3,000 and were deducted from the gross proceeds received. The Company paid $68,376 on January 29, 2014 in settlement of principal ($53,000), interest outstanding ($2,114) and prepayment amount ($13,262) on the Second Asher Note. The interest expense in respect to the Second Asher Note for the nine months ended March 31, 2014 was $15,376 (including $13,262 prepayment amount). Upon repayment of the note, the Company reclassified the fair value of the embedded conversion feature derivative liability of $60,255 to additional paid-in capital.

On January 8, 2014, the Company issued an unsecured Convertible Promissory Note to Asher (the “Third Asher Note”), bearing an interest rate of 8% per annum, in the amount of $53,000 with a Maturity Date of October 10, 2014. The Company received the proceeds from the Third Asher Note on January 22, 2014, net of legal expenses of $3,000. The total interest accrued on the Third Asher Note at March 31, 2014 was $953.

Under the terms of the First Asher Note, the Second Asher Note and the Third Asher Note (together the “Asher Notes”), any amount of principal and interest that is not paid when due will be subject to interest of 22% per annum (“Default Interest”). The Asher Notes provide that all or any part of the principal and interest balance due on the Asher Notes are convertible at Asher´s option at any time from 180 days following the dates of the Asher Notes and ending on complete satisfaction of the Asher Notes by payment or conversion.

The Company may prepay the Asher Notes at any time up to 180 days from the date of issuance, with the following prepayment terms:

Number of days from date of note		Amount to be paid
0 - 30 days		110% of principal + unpaid accrued interest
31 - 90 days		115% of principal + unpaid accrued interest
91 - 120 days		120% of principal + unpaid accrued interest
121 - 180 days		125% of principal + unpaid accrued interest

In the event of default, the Asher Notes are immediately due and payable. The minimum amount due is 150% of the combined outstanding principal and unpaid interest.

The number of shares of common stock to be issued upon conversion shall be determined by dividing the Conversion Amount by the applicable conversion price. The Conversion Amount means the principal amount of the Asher Notes and, at Asher´s option, accrued and unpaid interest, Default Interest, and any other amounts owed to Asher pursuant to the terms of the Asher Notes. 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. At any one time, Asher will be limited to convert no more than 9.99% of the issued and outstanding common stock at time of conversion.

The conversion price of the Asher Notes is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The fair value of the Asher Notes were recognized as derivative instruments at issuance and are measured at fair value at each reporting period. The Company determined that the fair value of the First Asher Note was $198,128 at the issuance date. The value of the debt of $158,500 was recorded as a debt discount and will be amortized to interest expense over the term of the First Asher Note. The variance to the fair value of $39,628 was recognized as an initial loss and recorded to change in fair value of derivative liabilities during the year ended June 30, 2013. The Company determined that the fair value of the Second Asher Note was $109,046 at the issuance date. The value of the debt of $53,000 was recorded as a debt discount and will be amortized to interest expense over the term of the Second Asher Note. The variance to the fair value of $56,046 on the Second Asher Note was recognized as an initial loss and recorded to change in fair value of derivative liabilities during the nine months ended March 31, 2014. The Company determined that the fair value of the Third Asher Note was $141,549 at the issuance date. The value of the debt of $53,000 was recorded as a debt discount and will be amortized to interest expense over the term of the Third Asher Note. The variance to the fair value of $88,549 on the Third Asher Note was recognized as an initial loss and recorded to change in fair value of derivative liabilities during the nine months ended March 31, 2014.

The carrying value of Asher Notes as of March 31, 2014 and June 30, 2013 is summarized below.

	First Asher Note			Second Asher Note			Third Asher Note			Asher Notes
Value of debt on issue date of May 14, 2013	$	158,500		$	-		$	-		$	158,500
Less: Original issue discount		(158,500	)		-			-			(158,500	)
Amortization of debt discount (recorded as interest expense during the year)		26,701			-			-			26,701
Carrying value at June 30, 2013	$	26,701		$	-		$	-		$	26,701
Value of debt on issue date of July 15, 2013		-			53,000			-			53,000
Value of debt on issue date of January 8, 2014		-			-			53,000			53,000
Less: Original issue discount		-			(53,000	)		(53,000	)		(106,000	)
Less: Principal amount converted to common stock		(135,000	)		-			-			(135,000	)
Amortization of debt discount (recorded as interest expense during the period)		131,799			53,000			15,805			200,604
Debt paid in settlement of the notes		(23,500	)		(53,000	)		-			(76,500	)
Carrying value at March 31, 2014	$	-		$	-		$	15,805		$	15,805

NOTE 11. LONG-TERM DEBT

In connection with the acquisition of the Cocina Mining Concessions, on April 16, 2013, the Company agreed to make $1,500,000 of payments to a seller of the Cocina Mining Concessions. The Company agreed to pay the seller annual payments of $100,000 for fifteen years beginning on April 14, 2014. The Company determined that $1,000,000 of the debt represented a debt discount which was to be amortized to the note payable over the life of the note. The effective interest rate on this note payable was approximately 18%.

On November 13, 2013, the Company entered into an agreement with the sellers of the Cocina Mining Concessions and BBL in which it was agreed that the total purchase price of the Cocina Mining Concessions would be reduced from $7,600,000 ($7,300,000 per the Purchase Agreement plus a penalty for late payment of $300,000 as discussed above) to $6,600,000 and that BBL would assume the remaining payment obligations required to be made to the Sellers of $4,600,000, with payment due no later than March 30, 2014. Pursuant to the agreement, Minera Li was required to pay the $4,600,000 to BBL by May 31, 2014. As a result of the modification of the original purchase price and payment terms, the Company reclassified $450,488 originally recorded as long-term debt (long-term debt of $1,500,000 net of debt discount of $950,488, and including current portion of $100,000) to short-term payable for acquisition of mineral rights. During the nine months ended March 31, 2013, a gain on debt extinguishment of $49,512 was recorded by the Company as a result of the modification.

The amount payable to BBL of $4,600,000 was paid in connection with the BBL Transaction which was completed in January 2014.

As of March 31, 2014, the Company had no long-term debt.

NOTE 12. DERIVATIVE LIABILITIES

Warrants

The Company has determined that certain warrants the Company has issued contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the warrants exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40.

The warrants issued in connection with the 2009 Unit Offering, the 2010 Unit Offerings, the Incentive warrants, the 2011 Unit Offering warrants, the Lender Warrants, the Warrants issued for advisory services and the Arranger Warrants contain anti-dilution provisions that provide for a reduction in the exercise price of such warrants in the event that future common stock (or securities convertible into or exercisable for common stock) is issued (or becomes contractually issuable) at a price per share (a “Lower Price”) that is less than the exercise price of such warrant at the relevant time. The amount of any such adjustment is determined in accordance with the provisions of the relevant warrant agreement and depends upon the number of shares of common stock issued (or deemed issued) at the Lower Price and the extent to which the Lower Price is less than the exercise price of the warrant at the relevant time. In addition, the number of shares issuable upon exercise of the 2010 Unit Offering Warrants, the Incentive warrants and all warrants issued to agents under both the 2009 Unit Offering, and the 2010 Unit Offerings will be increased inversely proportional to any decrease in the exercise price, thus preserving the aggregate exercise price of the warrants both before and after any such adjustment.

The fair values of the warrants issued in the 2009 Unit Offering, the 2010 Unit Offerings, the Incentive warrants, the 2011 Unit Offering, the Lender Warrants, the Arranger warrants, the warrants issued for advisory services and the POSCAN Warrants were recognized as derivative warrant instruments at issuance or when they become issuable and are measured at fair value at each reporting period. The Company determined the fair values of these warrants using a modified lattice valuation model.

In conjunction with the closing of POSCAN’s second tranche of investment on August 17, 2012, the Company adjusted the exercise price of the warrants previously issued to POSCAN from $0.40 to $0.21 per share. The incremental value of the warrants before and after the modification was $171,150 and was reported as warrant modification expense.

On August 17, 2012, the Company closed on POSCAN’s second tranche of investment under the SPA (the “Second Closing”), selling 62,499,938 units to POSCAN for gross proceeds of $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. Furthermore, the Additional Agreement 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.

The Company has determined that these warrants contain provisions that protect holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could result in modification of the warrants’ respective exercise prices based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. The warrants were recognized as derivative warrant instruments at issuance or when they become issuable and are measured at fair value at each reporting period. The Company determined the fair values of these warrants using a modified lattice valuation model.

Activity for derivative warrant instruments during the nine months ended March 31, 2014 was as follows:

			Initial valuation
			of derivative
			liabilities upon				Decrease in
	Balance at		issuance of new				fair value of			Exercise		Balance at
	June 30,		warrants during		Modification		derivative			of		March 31,
	2013		the period		expense		liabilities			warrants		2014
2009 Unit Offering warrants	$	314,835	$	-	$	-	$	(166,559	)	$	-	$	148,276
First 2010 Unit Offering warrants		361,632		-		-		133,205			-		494,837
Second 2010 Unit Offering warrants		54,411		-		-		15,285			-		69,696
Third 2010 Unit Offering warrants		129,379		-		-		27,584			-		156,963
Incentive warrants		148,289		-		-		63,151			-		211,439
2011 Unit Offering warrants		190,100		-		-		(190,100	)		-		-
Lender warrants		52,929		-		-		10,342			-		63,271
Warrants for advisory services and Arranger warrants		10,933		-		-		(7,734	)		-		3,199
POSCAN warrants		2,522,794		-		-		(61,258	)		-		2,461,536
	$	3,785,302	$	-	$	-	$	(176,084	)	$	-	$	3,609,218

There were no warrants exercised during the nine months ended March 31, 2014. During April 2014, 13,873,656 of the 2011 Unit Offering warrants issued on April 7, 2011 expired unexercised. Also on April 6, 2014, 800,000 of the warrants for advisory services issued on June 27, 2011 expired unexercised.

Activity for derivative warrant instruments during the nine months ended March 31, 2013 was as follows:

			Initial valuation
			of derivative
			liabilities upon				Decrease in
	Balance at		issuance of new				fair value of			Exercise		Balance at
	June 30,		warrants during		Modification		derivative			of		March 31,
	2012		the period		expense		liabilities			warrants		2013
2009 Unit Offering warrants	$	872,212	$	-	$	-	$	(283,868	)	$	-	$	588,344
First 2010 Unit Offering warrants		1,640,644		-		-		(1,109,454	)		-		531,190
Second 2010 Unit Offering warrants		237,426		-		-		(144,920	)		-		92,506
Third 2010 Unit Offering warrants		512,341		-		-		(312,306	)		-		200,035
Incentive warrants		579,760		-		-		(364,660	)		-		215,100
2011 Unit Offering warrants		1,495,038		-		-		(1,170,908	)		-		324,130
Lender warrants		274,386		-		-		(194,373	)		-		80,013
Warrants for advisory services and Arranger warrants		83,210		-		-		(64,536	)		-		18,674
POSCAN warrants		1,958,911		4,478,014		171,150		(2,808,844	)		-		3,799,231
	$	7,653,928	$	4,478,014	$	171,150	$	(6,453,869	)	$	-	$	5,849,223

There were no warrants exercised during the nine months ended March 31, 2013.

On August 17, 2012, the Company measured the modified warrants using a modified lattice valuation model. Below is the summary of the valuation:

Fair value of warrant on August 17, 2012 with exercise price $0.40 and stock price $0.069	$	1,091,513
Fair value of warrant on August 18, 2012 with exercise price $0.21 and stock price $0.067		1,262,663
Modification expense	$	171,150

The following is a summary of the assumptions used in the modified lattice valuation model as of the initial valuations of the derivative warrant instruments issued during the nine months ended March 31, 2014 and 2013, respectively, and as of March 31, 2014 and 2013, respectively:

	Initial
	Valuations -			Valuation as of			Valuation as of
	March 31,			March 31,			March 31,
		2013			2014			2013
Common stock issuable upon exercise of warrants		62,499,938			169,500,963			155,395,482
Market value of common stock on measurement date (1)	$	0.07		$	0.0277		$	0.058
Adjusted exercise price	$	0.21			$0.04-$0.29			$0.05-$0.38
Risk free interest rate (2)		0.31	%		0.07%-0.44	%		0.14%-0.36	%
Warrant lives in years		3.0			0.0 – 2.0			1.02-3.09
Expected volatility (3)		182	%		211%-307	%		139%-152	%
Expected dividend yields (4)		None			None			None
Assumed stock offerings per year over next five years (5)		1-2			1			1-2

Probability of stock offering in any year over five years (6)		25	%		100	%		100	%
Range of percentage of existing shares offered (7)		15%-31	%		15% - 27	%		8%-24	%

Offering price range (8)		$0.21-$0.45			$0.03 - $0.05			$0.15-$0.45

(1)

The market value of common stock is the stock price at the close of trading on the date of issuance or at period-end, as applicable.

(2)

The risk-free interest rate was determined by management using the 1, 2 or 3 - year Treasury Bill as of the respective Offering or measurement date.

(3)

The historical trading volatility was determined by the Company’s trading history.

(4)

Management determined the dividend yield to be -0-% based upon its expectation that it will not pay dividends for the foreseeable future.

(5)

Management estimates the Company will have at least one stock offering in the next five years.

(6)

Management has determined that the probability of a stock offering is 100% during the next year.

(7)

Management estimates that the range of percentages of existing shares offered in each stock offering will be between 15% and 27% of the shares outstanding.

(8)

Represents the estimated offering price range in future offerings as determined by management.

Embedded Derivative Instruments

The Company determined that the Asher Notes contain an embedded derivative instrument as the conversion price is based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40 (refer Note 10 for further information regarding the Asher Notes). The fair values of the Asher Notes were recognized as derivative instruments at issuance and are measured at fair value at each reporting period. The Company determined that the fair value of the First Asher Note was $198,128 at the issuance date. As the value of the debt at issuance was $158,500, an initial loss of $39,628 was recognized and recorded to change in fair value of derivative liabilities. The Company determined that the fair value of the Second Asher Note was $109,046 at the issuance date. As the value of the debt at issuance was $53,000, an initial loss of $56,046 was recognized and recorded to change in fair value of derivative liabilities during the nine months ended March 31, 2014. The Company determined that the fair value of the Third Asher Note was $141,549 at the issuance date. As the value of the debt at issuance was $53,000, an initial loss of $88,549 was recognized and recorded to change in fair value of derivative liabilities during the nine months ended March 31, 2014.

The Company determined the fair values of the embedded derivatives on the grant dates using a modified lattice fair value model with the following assumptions:

First Asher Note - stock price on the measurement date of $0.04 per share, term of 0.76 years, expected volatility of 156%, and a discount rate of 0.15%.

Second Asher Note - stock price on the measurement date of $0.028 per share, term of 0.76 years, expected volatility of 156%, and a discount rate of 0.11%.

Third Asher Note - stock price on the measurement date of $0.0085 per share, term of 0.76 years, expected volatility of 223%, and a discount rate of 0.13%.

Activity for embedded derivative instruments during the nine months ended March 31, 2014 was as follows:

			Initial valuation					Fair value of
			of embedded		Increase			derivative			Fair value of
			derivative		(decrease) in			liabilities			derivative
	Balance at		instruments		fair value of			on conversion			liabilities			Balance at
	June 30,		issued during		derivative			of debt to			on repayment			December 31,
	2013		the period		liabilities			common stock			of debt			2013
First Asher Note	$	204,547	$	-	$	(35,382	)	$	(148,539	)	$	(20,626	)	$	-
Second Asher Note		-		109,046		(48,821	)		-			(60,225	)		-
Third Asher Note		-		141,549		(6,875	)		-			-			134,674
	$	204,547	$	250,595	$	(91,077	)	$	(148,539	)	$	(80,851	)	$	134,674

At March 31, 2014, the Company determined the fair values of the embedded derivatives using a modified lattice fair value model with the following assumptions:

Third Asher Note - stock price on the measurement date of $0.0277 per share, term of 0.5 years, expected volatility of 307%, and a discount rate of 0.07%.

NOTE 13. STOCKHOLDERS’ EQUITY

Common Stock Issued for Services

In September 2012, the Company entered into several stock settlement agreements with certain parties to whom the Company was obligated as of June 30, 2012 (“Receivable Holders”). The Company entered into settlement agreements with respect to an aggregate of $390,336 of obligations (including $363,336 to officers, directors, and employees), and issued an aggregate of 5,825,761 shares of the Company’s common stock. Each settlement agreement provided for the Company to issue one share of the Company’s common stock for every $0.067 of obligations released by the Receivable Holder. The stock price on the grant date of these shares was $0.068 therefore a loss on settlement of $5,816 was recorded in relation to these settlement agreements for the nine months ended March 31, 2013.

On September 12, 2013, the Company agreed to issue 2,206,870 restricted shares of common stock to a third party in settlement of $50,000 of legal services accrued during the year ended June 30, 2013. The closing price of the common stock on the measurement date was $0.03 per share, and a loss on settlement of $16,206 was recorded by the Company during the nine months ended March 31, 2014. The shares were issued on October 31, 2013.

On September 30, 2013, the Company agreed to issue restricted shares of common stock to certain Directors of the Company in settlement of accrued directors’ fees. On October 31, 2013, the Company issued 4,688,291 restricted shares of common stock in settlement of $106,000 of directors fees, of which $55,000 were accrued during the year ended June 30, 2013. The closing price of the common stock on the measurement date was $0.023 per share, and a loss on settlement of $1,831 was recorded during the nine months ended March 31, 2014.

On December 26, 2013, the Company issued 2,792,533 restricted shares of common stock to its Chief Executive Officer in settlement of $52,500 in accrued salary. The closing price of the common stock on the measurement date was $0.01 per share.

On January 30, 2014, the Company agreed to issue 3,629,630 restricted shares of common stock to certain Directors of the Company in settlement of $49,000 in accrued directors’ fees. The closing price of the common stock on the measurement date was $0.01 per share. The shares were issued on February 25, 2014.

Also on January 30, 2014, the Company agreed to issue 1,413,932 restricted shares of common stock to a certain third party in settlement of $13,998 in travel expenses. The closing price of the common stock on the measurement date was $0.01 per share, and a loss on settlement of $141 was recorded during the nine months ended March 31, 2014. The shares were issued on February 25, 2014.

Common Stock Sales

July 1, 2012 through March 31, 2013

On August 17, 2012, the Company closed on POSCAN’s second tranche of investment under the Securities Purchase Agreement between the Company and POSCAN, dated as of August 24, 2011 (the “POSCAN SPA”), selling 62,499,938 units to POSCAN for gross proceeds of $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 (the “Additional Agreement”). Further, the Company also agreed to issue to POSCAN a two-year warrant to purchase 5,000,000 shares of our common stock at an exercise price of $0.15 per share, valued at $192,500. The Company analyzed the instruments for derivative accounting consideration and determined that derivative accounting does not apply to these warrants. The Company determined the fair value of these warrants on the grant date using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.07 per share, term of 2 years, expected volatility of 141%, and a discount rate of 0.29%.

The Company recorded proceeds from the sale of common stock, the three-year warrants and the two-year warrants on a relative fair values basis. The fair values were allocated as follows:

Common stock	$	4,829,476
3-year warrant derivative liability		4,478,014
2-year warrant		192,500
	$	9,499,990

The net proceeds from the closing of POSCAN’s second tranche of funding of $9,499,990 were allocated $5,021,976 to common stock and additional paid-in capital and $4,478,014 to derivative liabilities related to the warrants.

On January 11, 2011, the Company engaged a consultant to provide advisory services to facilitate equity or debt fund raising for the Company. In connection with the closing of POSCAN’s second tranche of investment on August 17, 2012, the Company paid 5% of the gross proceeds of $9,999,990, or $500,000, which was recorded as offering costs for the nine months ended March 31, 2013.

In addition, the Company agreed to provide the consultant a five-year warrant to purchase 2,380,950 shares of common stock at an exercise price of $0.21 per share. The Company analyzed the instruments for derivative accounting consideration and determined that derivative accounting did not apply to these warrants. The Company determined the fair value of these warrants on the grant date using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.07 per share, term of 5 years, expected volatility of 216%, and a discount rate of 0.81%.

July 1, 2013 through March 31, 2014

There were no common stock sales during the nine months ended March 31, 2014.

The Additional Agreement between the Company and POSCAN 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 (see Note 12). The 18 month period terminated on February 16, 2014 and therefore the Company is no longer subject to this requirement for future issuances.

During the year ended June 30, 2013, the Company entered into certain agreements and issued shares which may have triggered this provision. On May 3, 2013, POSCAN issued a waiver of this provision with respect to the following transactions:

•

Settlement agreements entered into by the Company providing for the Company to issue an aggregate of up to 20,000,000 shares of the Company’s common stock in settlement of obligations released by certain creditors of the Company, up to an aggregate of $1,000,000. The Company issued 16,886,008 shares under such agreements, in settlement of a total of $690,796 of obligations.

•

The Second Amendment and Waiver Agreement entered into by the Company with the holders of the zero-coupon convertible notes under which the conversion price of the zero-coupon bridge notes was modified from $0.12 to $0.095 per share.

The Company has also entered into the following agreements which may have triggered this provision. If necessary, the Company will seek a waiver of this provision for the following transactions:

•

On May 14, 2013, the Company issued an unsecured Convertible Promissory Note (the “First Asher Note”) to Asher bearing an interest rate of 8% per annum, in the amount of $158,500 with a Maturity Date of February 17, 2014. The conversion price of the First Asher Note at June 30, 2013 was $0.02 per share. In the event the provision applies, and a waiver is not granted, the Company estimated it would be required to issue an additional 6,433,263 shares and recorded an accrual for common stock payable (with an off-set to stock-based compensation expense) estimated at $250,897 during the year ended June 30, 2013.

During the nine months ended March 31, 2014, Asher converted $135,000 of the debt to 22,516,341 shares of common stock in the Company, and the Company subsequently paid the remaining principal amount of the note of $23,500 to Asher on February 5, 2014. As a result, the Company reassessed its provision at March 31, 2014 and estimates it would be required to issue an additional 21,672,591 shares with an estimated value of $236,677 in the event the provision applies. As a result, the Company reduced its accrual for common stock payable (with an off-set to stock-based compensation expense) by $14,220 from $250,897 during the nine months ended March 31, 2014.

•

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. The conversion price of the Second Asher Note at December 31, 2013 was $0.01 per share. In the event the provision applies, and a waiver is not granted, the Company estimated it would be required to issue an additional 8,445,037 shares. As a result, the Company recorded an accrual for common stock payable (with an off-set to stock-based compensation expense) estimated at $84,450. The Company paid the principal amount of the note of $53,000to Asher on January 29, 2014 and therefore reversed the provision of $84,450.

•

On August 16, 2013, the Company entered into a Third Amendment Agreement with the holders of the zero-coupon convertible notes under which the conversion price of the zero-coupon bridge notes was reduced from $0.095 to $0.02 per share. In the event the provision applies, and a waiver is not granted, the Company estimated it would be required to issue an additional 66,675,000 shares. As a result, the Company recorded an accrual for common stock payable (with an off-set to stock-based compensation expense) estimated at $1,800,225. The Company paid the principal amount owing on the note of $1,930,000 on January 27, 2014 and therefore reversed the provision of $1,800,225.

•

On January 8, 2014, 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 October 10, 2014. The conversion price of the Third Asher Note at March 31, 2014 was $0.0085 per share. In the event the provision applies, and a waiver is not granted, the Company estimated it would be required to issue an additional 9,322,666 shares. As a result, the Company recorded an accrual for common stock payable (with an off-set to stock-based compensation expense) estimated at $79,243 during the nine months ended March 31, 2014.

Common Stock Issued on Conversion of Debt

In accordance with the provisions of the First Asher Note, during the nine months ended March 31, 2014, Asher elected to convert $135,000 in principal amounts of the note into an aggregate of 21,672,591 shares of the Company´s common stock, as follows:

Date of conversion	Principal converted		Number of shares issued
November 25, 2013	$	15,000		1,401,869
December 5, 2013		15,000		1,744,186
December 18, 2013		15,000		2,307,692
December 30, 2013		20,000		3,333,333
January 14, 2014		20,000		3,921,569
January 23, 2014		25,000		5,000,000
January 29, 2014		25,000		4,807,692
	$	135,000		21,672,591

2009 Equity Incentive Plan

On October 19, 2009, stockholders holding shares representing approximately fifty-nine percent (59%) of the Company’s issued and outstanding common stock executed a written consent in lieu of a meeting and approved the creation of the 2009 Equity Incentive Plan (the “2009 Plan”). The 2009 Plan provides for the issuance of both non-statutory and incentive stock options and other awards to acquire, in the aggregate, up to 5,000,000 shares of the Company’s common stock.

As of March 31, 2014, the Company has granted stock options and other awards in respect to 4,900,000 shares of common stock under the 2009 Plan.

Restricted Stock Units

On June 27, 2011, the Company granted its Chief Executive Officer an award of 700,000 restricted stock units under the 2009 Plan which vested in 1/3 increments each January 15th of 2012, 2013 and 2014. The value of the issuable shares was determined based on the $0.22 per share closing price of the common stock on the measurement date, being $154,000. The Company recorded stock compensation expense over the 3 year service period. During the nine months ended March 31, 2014 and 2013, the Company recorded $10,617 and $32,897, respectively, of stock-based compensation in connection with this agreement. As of March 31, 2014, 466,667 shares of common stock have been issued which vested on January 15, 2012 and January 15, 2013. On April 7, 2014, 233,333 shares of common stock were issued which vested on January 15, 2014.

During December 2011, the Company entered into a one-year employment agreement with its new Vice President of Finance (now called the Chief Financial Officer, the “CFO”) originally to commence on January 1, 2012 (amended to March 1, 2012). Pursuant to the agreement, the CFO was granted 250,000 restricted stock units under its 2009 Plan which vest over 3 years. The value of the issuable shares was determined based on the $0.13 closing price of the common stock on the measurement date, being $34,500. The Company will record stock compensation expense for these restricted stock units over the 3 year service period which began on March 1, 2012.During the nine months ended March 31, 2014 and 2013, the Company recorded stock-based compensation expense of $6,678 and $10,456, respectively, in connection with this agreement. As of March 31, 2014, 83,334 shares of common stock have been issued which vested on March 1, 2013. On April 7, 2014, 83,333 shares of common stock were issued which vested on March 1, 2014.

In May 2012, the Company committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares to members of its Board of Directors. Such restricted stock units shall vest over a period of three years starting from the later of July 1, 2011 and the initial date of the applicable director’s substantial involvement with the Board’s activities. However, the Company does not currently have enough shares authorized for issuance under the 2009 Plan to satisfy all of these obligations. The Company is analyzing the required steps to increase the number of shares under the plan. The Company recorded stock-based compensation expense related to these units of $12,416 and $15,560 during the nine months ended March 31, 2014 and 2013, respectively.

Stock Option Awards

Summary of stock option activity is presented in the table below:

					Weighted-average
			Weighted-average		Remaining		Aggregate
	Number of		Exercise		Contractual		Intrinsic
	Shares		Price		Term (years)		Value
Outstanding at June 30, 2013		1,450,000	$	0.22		3.03	$	-
Granted		-		-		-		-
Exercised		-		-		-		-
Expired/Forfeited		-		-		-		-
Outstanding at March 31, 2014		1,450,000	$	0.22		2.28	$	-
Exercisable at March 31, 2014		1,450,000	$	0.22		2.28	$	-

During the nine months ended March 31, 2014 and 2013, the Company recognized stock-based compensation expense of $3,593 and $54,313, respectively, related to stock options.

Warrants

Summary information regarding common stock warrants issued and outstanding at March 31, 2014, is as follows:

			Weighted-average
	Exercise of		Exercise
	Warrants		Price
Outstanding at June 30, 2013		163,227,532		0.22
Issued		-		-
Additional shares issuable upon exercise of warrants as a result of adjustments pursuant to anti-dilution provisions		6,273,430		n/a
Exercised		-		-
Outstanding at March 31, 2014		169,500,963		0.18

Warrants outstanding as of March 31, 2014 are as follows:

			Outstanding			Exercisable
	Exercise		number		Remaining	number
Issuance Date	price		of shares		life	of shares
November 10, 2009 - December 23, 2009	$	0.20		7,253,572	0.6 - 0.7 years		7,253,572
November 10, 2009 - December 23, 2009	$	0.29		7,344,844	0.6 - 0.7 years		7,344,844
June 9, 2010 - September 13, 2010	$	0.20		15,029,962	1.2 - 1.5 years		15,029,962
June 9, 2010 - July 13, 2010	$	0.14		772,641	1.2 - 1.5 years		772,641
November 8-15, 2010	$	0.04		1,735,066	1.6 years		1,735,066
December 9, 2010 - March 24, 2011	$	0.12		6,208,844	1.7 - 1.9 years		6,208,844
March 24, 2011	$	0.28		6,931,189	2.0 years		6,931,189
April 7, 2011	$	0.25		11,960,050	0.1 years		11,960,050
April 7, 2011	$	0.25		1,913,606	0.1 years		1,913,606
May 2, 2011	$	0.26		1,500,000	2.1 years		1,500,000
May 2, 2011	$	0.22		75,000	2.1 years		75,000
June 27, 2011	$	0.23		800,000	0.1 years		800,000
September 14, 2011	$	0.16		38,095,300	0.5 years		38,095,300
August 17, 2012	$	0.16		62,499,938	1.4 years		62,499,938
August 17, 2012	$	0.15		5,000,000	0.4 years		5,000,000
August 17, 2012	$	0.21		2,380,950	3.4 years		2,380,950
				169,500,963			169,500,963

The warrants outstanding at March 31, 2014 had no intrinsic value. During April, 2014, 13,873,656 of the 2011 Unit Offering warrants issued on April 7, 2011 expired unexercised. Also on April 6, 2014, 800,000 of the warrants for advisory services issued on June 27, 2011 expired unexercised. The fair value of the expired warrants recorded in the consolidated balance sheets at March 31, 2014 was $-0-.

NOTE 14. FAIR VALUE MEASUREMENTS

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

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2: Quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability. This category includes those derivative instruments that the Company values using observable market data. Substantially all of these inputs are observable in the marketplace throughout the term of the derivative instruments, can be derived from observable data, or supported by observable levels at which transactions are executed in the marketplace.

Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e. supported by little or no market activity). The Company’s valuation models are primarily industry standard models. Level 3 instruments include derivative warrant instruments. The Company does not have sufficient corroborating evidence to support classifying these assets and liabilities as Level 1 or Level 2.

As required by FASB ASC Topic No. 820 - 10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The estimated fair value of the derivative warrant instruments was calculated using a modified lattice valuation model (See Note 12).

The following table sets forth, by level within the fair value hierarchy, the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2014:

	Quoted Prices
	In Active		Significant				Total
	Markets for		Other		Significant		Carrying
	Identical		Observable		Unobservable		Value as of
	Assets		Inputs		Inputs		March 31,
Description	(Level 1)		(Level 2)		(Level 3)		2014
Derivative liabilities - warrant instruments	$	-	$	-	$	3,609,218	$	3,609,218
Derivative liabilities - embedded derivative instruments		-		-		134,674		134,674
Derivative liabilities	$	-	$	-	$	3,743,892	$	3,743,892

	Quoted Prices
	In Active		Significant				Total
	Markets for		Other		Significant		Carrying
	Identical		Observable		Unobservable		Value as of
	Assets		Inputs		Inputs		June 30,
Description	(Level 1)		(Level 2)		(Level 3)		2013
Derivative liabilities - warrant instruments	$	-	$	-	$	3,785,302	$	3,785,302
Derivative liabilities - embedded derivative instruments		-		-	$	204,547	$	204,547
Derivative liabilities	$	-	$	-	$	3,989,849	$	3,989,849

The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as Level 3 in the fair value hierarchy:

	Significant Unobservable Inputs (Level 3)
	Nine months ended March 31,
	2014			2013
Beginning balance as of June 30,	$	(3,989,849	)	$	(7,653,928	)
Change in fair value		1,419,026			243,205
Additions		(53,000	)		(4,478,014	)
Warrant modification		-			(171,150	)
Exercise of warrants		-			-
Ending balance as of September 30,	$	(2,623,823	)	$	(12,059,887	)
Change in fair value		1,272,678			5,997,501
Exercise of warrants		-			-
Fair value of embedded derivative liability reclassified to equity upon conversion of debt to common stock		87,098			-
Ending balance as of December 31,	$	(1,264,047	)	$	(6,062,386	)
Change in fair value		(2,569,137	)		213,163
Additions		(53,000	)		-
Exercise of warrants		-			-
Fair value of embedded derivative liability reclassified to equity upon conversion of debt to common stock and repayment of debt		142,292			-
Ending balance as of March 31,	$	(3,743,892	)	$	(5,849,223	)
Change in unrealized gains (losses) included in earnings for the three months ended March 31, 2014 and 2013	$	(2,569,137	)	$	213,163
Realized gains included in equity for the three months ended March 31, 2014 and 2013	$	142,292		$	-
Change in unrealized gains included in earnings for the nine months ended March 31, 2014 and 2013	$	122,567		$	6,453,869
Realized gains included in equity for the nine months ended March 31, 2014 and 2013	$	229,390		$	-

NOTE 15. EARNINGS PER SHARE

Following is a reconciliation of basic earnings per share (“EPS”) and diluted EPS for the three months and nine months ended March 31, 2014 and 2013:

	Three months ended March 31, 2014								Three months ended March 31, 2013
	Net					Per Share			Net					Per Share
	Loss			Shares		Amount			Income			Shares		Amount
Basic EPS	$	(83,949	)		407,695,115	$	(0.00	)	$	(1,183,769	)		394,002,697	$	(0.00	)
Dilutive effect of convertible debt		-			-		-			-			-		-
Dilutive effect of warrants calculated using the treasury stock method		-			-		-			-			-		-
Dilutive effect of restricted stock and restricted stock units		-			-		-			-			-		-
Diluted EPS	$	(83,949	)		407,695,115	$	(0.00	)	$	(1,183,769	)		394,002,697	$	(0.00	)

	Nine months ended March 31, 2014								Nine months ended March 31, 2013
	Net					Per Share			Net					Per Share
	Loss			Shares		Amount			Income			Shares		Amount
Basic EPS	$	(5,383,677	)		399,503,984	$	(0.01	)	$	1,991,482			380,373,535	$	0.01
Dilutive effect of convertible debt		-			-		-			100,001			14,859,842		-
Dilutive effect of warrants calculated using the treasury stock method		-			-		-			(21,201	)		204,814		-
Dilutive effect of restricted stock and restricted stock units		-			-		-			-			402,975		-
Diluted EPS	$	(5,383,677	)		399,503,984	$	(0.01	)	$	2,070,282			395,841,166	$	0.01

NOTE 16. COMMITMENTS AND CONTINGENCIES

2011 Offering - Registration Rights Penalties

On March 22, 2011, the Board of Directors approved a private placement offering (the “2011 Offering”) to investors of up to $10,000,000 worth of units of securities at an offering price of $0.27 per unit (“G Unit”). Each G Unit consisted of (i) one share of our common stock, par value $0.001 per share, and (ii) a warrant to purchase one-half of a share of common stock, at an exercise price of $0.40 per whole share (“G Warrant”, or “2011 Unit Offering warrant”).

Pursuant to a registration rights agreement for the 2011 Offering, the Company agreed to file a registration statement with the Securities and Exchange Commission within 75 days after the closing date to register the shares of common stock and the shares of common stock underlying the G Warrants under the Securities Act of 1933, as amended, and to use its best efforts to cause such registration statement to become effective within 150 days after the filing date, all at the Company’s own expense. Pursuant to the registration rights agreement, in the event the Company does not meet these deadlines, the Company has agreed to pay the investors monetary penalties of 2% of their investment per month until such failures are cured. In accordance with the registration rights agreement, the Company has recorded $518,243 of monetary penalties(plus accrued interest of $204,686, 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 March 31, 2014. No demands have been made with respect to the registration rights penalties.

Gain Contingency

As of March 31, 2014, the Company has provided a reserve for deferred tax benefit of its payment of Chilean value-added taxes (“VAT”) amounting to $795,359 arising from various purchases of goods and services in Chile. The Company expensed $7,855 and $14,207 during the nine months ended March 31, 2014 and 2013, respectively, due to uncertainty of recoverability and these amounts are included in general and administrative expenses on the consolidated statement of operations. Under Chilean regulation, this VAT is recoverable from future VAT payable.

Operating Leases

Rental expense for office operating leases was $37,213 and $71,179 during the nine months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, rental commitments for the next year under non cancellable facilities operating leases are $7,124. The Company has no non cancellable operating leases that extend beyond one year.

NOTE 17. SUBSEQUENT EVENTS

On April 29, 2014, the Company issued 1,944,445 restricted shares of common stock to certain Directors of the Company in settlement of $49,000 in accrued directors’ fees. The closing price of the common stock on the measurement date was $0.02 per share.

On April 7, 2014, 233,333 shares of common stock of the Company were issued to the Company’s CEO in relation to the restricted stock units which vested on January 15, 2014. Also on April 7, 2014, 83,333 shares of common stock of the Company were issued to the Company’s CFO in relation to the restricted stock units which vested on March 1, 2014.

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

This discussion contains forward-looking statements. Please see “Statement Regarding Forward-Looking Information” above and “Risk Factors” included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2013, filed with the SEC, for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

You should read this discussion and analysis together with our consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.

Overview

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

All of the Company’s mineral rights in SLM Litio 1-6 and the Cocina Mining Concessions are held by Minera Li, and during January 2014, the Company sold 51% of its ownership interest in Minera Li to a third party. The Company retains 49% ownership of Minera Li.

As of March 31, 2014, Minera Li owned (a) a 40% interest in SLM Litio 1-6, which consists of mining concessions covering an area of approximately 1,438 hectares in the Salar de Maricunga in northern Chile; and (b) the Cocina Mining Concessions, covering 450 hectares located adjacent to the existing SLM Litio 1-6 mining concessions.

The Company is currently evaluating additional exploration and production opportunities.

Going Concern

At March 31, 2014, the Company had no source of current revenue, a cash balance on hand of $120,287, negative working capital of $2,485,701and the Company recognized negative cash flows from operations of $23,614,587 during the period from June 24, 2005 (inception) through March 31, 2014.

In order to address the Company’s funding requirements to execute its business plan for the development of its primary mining concession assets (the Maricunga Project), on January 27, 2014, Li3 Energy executed an agreement (the “BBLTransaction”) with BBL SpA, (“BBL”), under which BBL acquired 51% of Minera Li. Also on January 27, 2014, the Company executed an agreement (the “Tierras Agreement”) with Tierras Raras SpA, an affiliate of BBL.

Pursuant to the terms of the BBL Transaction and the Tierras Agreement:

Li3 Energy will receive $1,000,000 upon completion of certain Maricunga Project Milestones, or at the latest, on January 27, 2016.

The Company believes that the transaction described above should provide sufficient working capital to maintain its basic operations for at least the next 12 months.

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

Summary of Operations and Financings

BBL

On January 27, 2014, Li3 Energy entered into a Purchase and Sale Agreement with BBL, a Chilean corporation, pursuant to which BBL acquired from the Company eleven of its sixty shares of Minera Li (the “Share Purchase”) for a cash payment of $1,500,000 which was received by the Company on January 28, 2014. In connection with the Share Purchase, Minera Li held a shareholders’ meeting, pursuant to which Minera Li issued forty additional shares (the “Additional Shares”) to BBL in exchange for a cash payment of $5,500,000 (the “Issuance”, and together with the “Share Purchase”, the “BBL Transaction”). As a result of the BBL Transaction, BBL became the majority shareholder of Minera Li, with the Company retaining a 49% interest in Minera Li.

The Company determined that immediately following the BBL Transaction, it ceased to have voting and management control of Minera Li and therefore accounted for the sale of the 51% of Minera Li by deconsolidating the subsidiary from its consolidated financial statements in accordance with ASC 810 - Consolidation. The Company´s remaining 49% interest in Minera Li has been treated as an equity investment in accordance with ASC 323 - Investments - Equity Method and Joint Ventures. The Company determined that the fair value of the Company´s remaining investment in Minera Li immediately following the BBL Transaction was $7,679,014, and a loss on sale of investments of $47,815 relating to the deconsolidation was recorded in the consolidated statement of operations for the nine months ended March 31, 2014.

Maricunga project

The Maricunga project is comprised 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 at March 31, 2014 consisted of our 29.4% interest in SLM Litio 1-6 and our 40% interest in the Cocina Mining Concessions.

In September 2011, in order to provide funding to begin the initial assessments of producible minerals from 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 the exploitation of 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.

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.

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 was to be paid on October 16, 2013 and $100,000 was 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 July 16, 2013 payment of $2,000,000, and verbally agreed with the Sellers to defer the payment until October 2013 for an additional payment of $300,000, which the Company recorded as debt modification expense during the nine months ended March 31, 2014.

On November 13, 2013, the Company entered into an agreement with the Sellers of the Cocina Mining Concessions and BBL in which it was agreed that the total purchase price of the Cocina Mining Concessions would be reduced from $7,600,000 (being $7,300,000 per the Purchase Agreement plus a penalty for late payment of $300,000) to $6,600,000 and that BBL would assume the remaining payment obligations required to be made to the Sellers of $4,600,000, with payment due no later than March 30, 2014. Pursuant to the agreement, Minera Li was required to pay the $4,600,000 to BBL by May 31, 2014. The amount payable to BBL of $4,600,000 was paid in connection with the BBL Transaction which was completed in January 2014.

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 were pursuing these concessions as a producer of potash. The NI 43-101 report 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 the Maricunga project has been focused on the development of the Cocina Mining Concessions to produce lithium carbonate and potash and 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 represented events or changes in circumstances indicating 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 and the consideration paid in the acquisition of the Cocina property 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.

The Company determined that the BBL Transaction provided additional evidence regarding the estimated fair value of SLM Litio 1-6 at December 31, 2013, and in accordance with ASC 855 - Subsequent Events, recognized a further impairment charge of $6,485,438 to write the mineral rights down from their carrying value to their estimated fair value of 10,761,936.

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 utilization of this technology as the means of extraction could offer significant efficiencies over traditional extraction methods.

Maricunga Minority Shareholders’ Lawsuit

Certain of the Company´s minority shareholders (“the Minority Shareholders”) did not make payments to the Company for their respective shares of the exploration expenses incurred on SLM Litio 1-6. As a result, all of the expenses incurred by the Maricunga Companies up to the BBL Transaction date were funded by the Company. The Company recorded 40% of the expenses incurred by the Maricunga Companies to the non-controlling interest, or $2,596,551 and $187,898, respectively, for the nine months ended March 31, 2014 and 2013.

The Company had filed lawsuits distributed to four civil courts of Copiapo, third regions 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 lawsuits were at various stages.

In conjunction with the BBL Transaction, Tierras Raras SpA (“Tierras Raras”), an affiliate of BBL, entered into an agreement with Minera Li (the “Tierras Agreement”). Pursuant to the Tierras Agreement, Tierras Raras agreed to purchase all of the interests of the SLM Litio 1-6 Minority Shareholders, and, in conjunction with the purchase, to pay $1,600,000 to Minera Li, which in turn would pay the funds to Li3, as consideration for the settlement and release by the Company of its claims against the SLM Litio 1-6 Minority Shareholders. The transactions contemplated by the Tierras Agreement closed in February 2014, and the Company received $1,555,000 in settlement on February 26, 2014, which was recorded as a gain on settlement in the consolidated financial statements for the nine months ended March 31, 2014.

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. We believe 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, Minera Li acquired the Cocina Mining Concessions, which consists of 450 hectares located adjacent to the 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 the 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. The 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 1-6 properties. 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.

Following the completion of the BBL Transaction, BBL and the Company are fully committed to advancing the Maricunga Project to the stage of full permitting.

Results of Operations

Three Months Ended March 31, 2014 Compared with Three Months Ended March 31, 2013

Revenues

We had no revenues during the three months ended March 31, 2014 and 2013.

Exploration expenses

During the three months ended March 31, 2014 and 2013, we incurred exploration expenses of $42,098 and $79,336, respectively. The decrease in exploration expenses during the three months ended March 31, 2014 is a result of delayed exploration activities due to the revision of the project timeline as a result of the BBL Transaction. The expenses incurred during the three months ended March 31, 2014 relate primarily to storage costs and legal fees while the expenses incurred during the three months ended March 31, 2013 relate to our efforts to obtain environmental permits required to take the project to a feasibility stage.

Losses from equity method investments

During the three months ended March 31, 2014, we incurred a loss from equity method investments of $5,133. There was no loss from equity method investments during the three months ended March 31, 2013. The loss incurred during the three months ended March 31, 2014 resulted from the Company’s sale of its controlling interest in Minera Li on January 27, 2014, resulting in the deconsolidation of Minera Li from the consolidated accounts of the Company with the retained investment of 49% recorded as an equity method investment. The losses from equity method investments for the three months ended March 31, 2014 of $5,133 reflect our share of the losses incurred by Minera Li from the date of its deconsolidation until March 31, 2014.

Gain (loss) on settlements, net

During the three months ended March 31, 2014, we recorded a gain on settlement of $1,530,285. There was no gain on settlement incurred during the three months ended March 31, 2013. The gain incurred during the three months ended March 31, 2014 is a result of the receipt of $1,555,000 in settlement of lawsuits between the Company and the SLM Litio 1-6 Minority Shareholders, offset by settlement agreements entered into by the Company with respect to an aggregate of $62,998 of obligations, under which the Company issued an aggregate of 5,043,562 shares of the Company’s common stock.

General and administrative expenses

Our general and administrative expenses for the three months ended March 31, 2014 and 2013 consisted of the following:

	Three months ended			Three months ended		Increase
	March 31, 2014			March 31, 2013		(Decrease)
Rent	$	7,809		$	3,720	$	4,089
Office expenses		2,410			4,505		(2,095	)
Communications		5,611			11,468		(5,857	)
Travel expenses		29,325			35,707		(6,382	)
Legal fees		53,429			239,402		(185,973	)
Accounting &finance fees		21,215			63,960		(42,745	)
Audit fees		25748			44,015		(18,267	)
Other professional fees		33,020			76,162		(43,142	)
Marketing & investor relations		29,531			2,971		26,560
Directors fees		54,999			61,000		(6,001	)
Bank fees		1,660			1,767		(107	)
Salaries & wages		118,822			217,589		(98,767	)
Relocation expenses		-			24,414		(24,414	)
Stock-based compensation		(1,809,930	)		489,705		(2,299,635	)
Depreciation & amortization		1,850			7,027		(5,177	)
Penalties		40,000			-		40,000
Other		(466	)		8,218		(8,685	)
	$	(1,384,967	)	$	1,291,630	$	(2,676,597	)

We incurred negative general and administrative expenses of $1,384,967 for the three months ended March 31, 2014 compared to general and administrative expenses of $1,291,630 for the three months ended March 31, 2013, a decrease of $2,676,597, comprised mainly of decreases in:

•

Legal fees of $185,973 mainly due to fees relating to CEOL ($103,411), Blue Wolf ($46,750) and the Company´s lawsuit against the Minority Shareholders ($32,921) in the prior period;

•

Accounting & finance fees of $42,745 due to reduced reliance on external accountants as a result of employment of Financial Controller;

•

Other professional fees of $43,142 due to resignation of the COO ($15,000), costs incurred in the prior period on Maricunga scoping study ($9,884) and SEC filing fees for S-1 Registration Statement and documents relating to the Blue Wolf transaction ($18,054);

•

Salaries & wages of $98,767 as a result of bonus expense in the prior period ($20,000), resignation of the VP in August 2013 ($36,592) and resignation of the Chile Manager in December 2013 ($37,800); and

•

Stock-based compensation of $2,299,635 due to reversal of the POSCAN anti-dilution provision on the repayment of the zero-coupon convertible debt and the First and Second Asher Notes ($2,285,209) and reduced amortization of stock-based compensation of $12,361 as the restricted stock units and options granted reach their vesting date.

Other income/expense

Other expense for the three months ended March 31, 2014 was $2,952,290compared to other income of $155,463 for the three months ended March 31, 2013. The decrease in other income was mainly a result of recording a loss on change in fair value of warrant derivative liabilities of $2,569,137 during the three months ended March 31, 2014 compared to a gain on change in fair value of warrant derivative liabilities of $213,163 in the prior period and an increase in interest expense of $262,611.

A loss on sale of investments of $47,815 was incurred during the three months ended March 31, 2014 in relation to the sale of 51% of Minera Li. The loss reflects the difference between the gross proceeds received of $11,897,060 and the net assets of Minera Li on the date of the sale of $11,944,875.

A loss on debt extinguishment of $45,594 was recorded during the three months ended March 31, 2014 in relation to the settlement of the zero-coupon convertible notes.

During the three months ended March 31, 2014, we recorded a loss of $2,569,137on the change in fair value of derivative liability - warrant instruments, compared to a gain of $213,163 during the three months ended March 31, 2013. 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 our stock price increasing during the three months ended March 31, 2014 compared to the decrease in our stock price during the three months ended March 31, 2013.

During the three months ended March 31, 2014 a gain on foreign currency transactions amounted to $30,141compared to a loss on foreign currency transactions of $426 for the three months ended March 31, 2013. The activity during both periods was related to our operations in Peru and Chile.

Net interest expense amounted to $319,885 and $57,274 during the three months ended March 31, 2014 and 2013, respectively, an increase of $262,611. The increase is mainly due to additional debt funding during the current period from the Asher Notes (interest of $15,277and amortization of debt discount of $47,474) and LAC Credit Facility (interest of $21,023), as well as the amortization of the beneficial conversion feature on the zero-coupon convertible notes ($159,479). For the three months ended March 31, 2013, the Company also recorded interest income of $18,050 on funds placed on deposit. There was no interest income recorded during the three months ended March 31, 2014.

Nine Months Ended March 31, 2014 Compared with Nine Months Ended March 31, 2013

Revenues

We had no revenues during the nine months ended March 31, 2014 and 2013.

Exploration expenses

During the nine months ended March 31, 2014 and 2013, we incurred exploration expenses of $47,240 and $456,945, respectively. The significant decrease in exploration expenses during the nine months ended March 31, 2014 is a result of delaying exploration activities due to limited funds available and the revision of the project timeline as a result of the BBL Transaction. The expenses incurred during the nine months ended March 31, 2014 relate primarily to storage costs and legal fees while the expenses incurred during the nine months ended March 31, 2013 relate to our efforts to obtain environmental permits required to take the project to a feasibility stage.

Losses from equity method investments

During the nine months ended March 31, 2014, we incurred a loss from equity method investments of $5,133. There was no loss from equity method investments during the nine months ended March 31, 2013. The loss incurred during the nine months ended March 31, 2014 resulted from the Company’s sale of its controlling interest in Minera Li on January 27, 2014, resulting in the deconsolidation of Minera Li from the consolidated accounts of the Company with the retained investment of 49% recorded as an equity method investment. The losses from equity method investments for the nine months ended March 31, 2014 of $5,133 reflect our share of the losses incurred by Minera Li from the date of its deconsolidation until March 31, 2014.

Mineral rights impairment expense

During the nine months ended March 31, 2014, we incurred impairment expense of $6,485,438 a result of the Company executing the BBL Transaction, under which BBL acquired 51% of Minera Li. The Company determined that the BBL Transaction provided additional evidence regarding the estimated fair value of SLM Litio 1-6 as at December 31, 2013, and in accordance with ASC 855 - Subsequent Events, recognized the impairment charge to reduce the carry amount of the mineral rights to the estimated fair value. There was no mineral rights impairment expense incurred during the nine months ended March 31, 2013.

Gain on sale of mineral rights

On December 16, 2013, the Company agreed to sell certain mining concessions located in Chile (“Amarillo Ocho” and “Amarillo Diez” mining concessions) to a third party for $120,000. The mining concessions were acquired by the Company in 2012, and the sale price has been recognized as other income during the nine months ended March 31, 2014.

Debt modification expense

A debt modification expense of $300,000 was recorded during the nine months ended March 31, 2014 as a result of deferring a payment due in July 2013 for acquisition of the Cocina Mineral Rights and as agreed on the extinguishment of the debt with the Cocina Sellers. There was no such expense incurred during the nine months ended March 31, 2013.

Gain (loss) on settlements, net

During the nine months ended March 31, 2014 and 2013, we recorded a gain on settlement of $1,536,822 and a loss on settlement of $5,816, respectively. The gain incurred during the nine months ended March 31, 2014 is a result of the receipt of $1,555,000 in settlement of lawsuits between the Company and the SLM Litio 1-6 Minority Shareholders, offset by settlement agreements entered into by the Company with respect to an aggregate of $271,498 of obligations, under which the Company issued an aggregate of 14,731,276 shares of the Company’s common stock. During the nine months ended March 31, 2013, the Company recorded a loss on settlement of $5,816 as a result of settlement agreements with respect to an aggregate of $390,336 of obligations, under which the Company issued an aggregate of 5,825,761 shares of the Company’s common stock, valued at $396,152.

General and administrative expenses

Our general and administrative expenses for the nine months ended March 31, 2014 and 2013 consisted of the following:

	Nine months ended		Nine months ended		Increase
	March 31, 2014		March 31, 2013		(Decrease)
Rent	$	32,713	$	71,179	$	(38,466	)
Office expenses		12,418		32,119		(19,701	)
Communications		23,344		46,105		(22,761	)
Travel expenses		60,271		139,645		(79,374	)
Legal fees		428,454		590,779		(162,325	)
Accounting &finance fees		63,895		252,575		(188,680	)
Audit fees		114,013		178,640		(64,627	)
Other professional fees		153,446		209,816		(56,370	)
Marketing & investor relations		60,042		26,946		33,096
Directors fees		166,998		183,000		(16,002	)
Bank fees		4,180		6,012		(1,832	)
Salaries & wages		450,619		1,046,200		(595,581	)
Relocation expenses		-		40,479		(40,479	)
Stock-based compensation		98,328		819,804		(721,476	)
Depreciation & amortization		13,415		31,113		(17,698	)
Penalties		40,000		-		40,000
Other		2,715		25,917		(23,203	)
	$	1,724,851	$	3,700,329	$	(1,975,478	)

We incurred total general and administrative expenses of $1,724,851 for the nine months ended March 31, 2014 compared to $3,700,329 for the nine months ended March 31, 2013, a decrease of $1,975,478, comprised mainly of decreases in:

•

Travel expenses of $79,374 due to continuing efforts by the Company to reduce costs and the reduction in staff incurring travel expenses;

•

Legal fees of $162,325 due to the termination of previous legal counsel in December 2012 ($88,349), non-recurring fees incurred in the prior period in respect of filing of a registration statement on Form S-1 ($40,565), exploring potential listing opportunities on the Toronto Stock Exchange ($32,572) and POSCAN funding ($29,589), along with higher fees incurred in the prior period relating to the CEOL process ($136,319) and lawsuit against the Minority Shareholders ($33,969). The decrease in these fees has been partially offset by an increase in fees during the nine months ended March 31, 2014 relating to the potential Blue Wolf merger ($174,968) and the closing down of our Argentinean subsidiary ($18,936);

•

Accounting & finance fees of $188,680 due to employment of Financial Controller in October 2012, reducing the reliance on external accountants;

•

Audit fees of $64,627, mainly due to fees relating to the Company´s SEC and quarterly filing requirement;

•

Other professional fees of $56,370 as a result of a decrease in IT support costs ($13,914), costs incurred in the prior period on the Maricunga scoping study ($9,884) and SEC filing fees for S-1 Registration Statement and documents relating to the Blue Wolf transaction ($30,149);

•

Salaries &wages of $595,581 as a result of closure of the office in Peru ($198,390), the expense of bonuses in the prior period ($172,000 - the Company has not incurred bonus expense in the current period), the resignation of the COO in December 2012 ($93,750), the resignation of the VP in August 2013 ($80,001) and the resignation of the Chile Manager in December 2013 ($40,225); and

•

Stock-based compensation of $721,476 due to a reduction in the POSCAN anti-dilution provision of $403,907 from the prior year, reduced amortization of stock-based compensation of $278,122 as the stock units and options granted reach their vesting date, stock compensation expense to MIZ of $20,700 in the prior period and the modification of MIZ stock options in the prior period of $16,682.

Other income/expense

Other expense for the nine months ended March 31, 2014 was $1,074,388 compared to other income of $5,966,674 for the nine months ended March 31, 2013. The decrease in other income was mainly a result of a decrease in the gain on change in fair value of warrant derivative liabilities of $6,331,302, a decrease in warrant modification expense of $171,150 and an increase in interest expense of $883,299.

A loss on sale of investments of $47,815 was incurred during the nine months ended March 31, 2014 in relation to the sale of 51% of Minera Li. The loss reflects the difference between the gross proceeds received of $11,897,060 and the net assets of Minera Li on the date of the sale of $11,944,875.

We recognized a loss on debt extinguishment of $19,988for the nine months ended March 31, 2014, compared with a loss of $37,235 for the nine months ended March 31, 2013. During the nine months ended March 31, 2014, a loss on debt extinguishment of $23,906 was recognized when the Company entered into a Third Amendment Agreement with the holders of the zero-coupon convertible notes whereby the terms of the notes were extended and the conversion price was reduced from $0.095 to $0.02 per share, and a loss on debt extinguishment of $45,594 was recorded in relation to the settlement of the zero-coupon convertible notes. This loss was partially offset by a gain of $49,512 recorded in relation to the extinguishment of the long term debt payable to the Sellers of the Cocina Mining Concessions. During the nine months ended March 31, 2013, the Company entered into a waiver agreement with the holders of the zero-coupon convertible notes whereby the terms of the notes were extended and the conversion price was reduced from $0.12 per share to $0.095 per share, resulting in a loss on debt extinguishment of $37,235. 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.

During the nine months ended March 31, 2014 and 2013, we recorded a gain on the change in fair value of derivative liability - warrant instruments, of $122,567 and $6,453,869, respectively. 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 each of the nine month periods.

We recognized warrant modification expense in conjunction with the closing of POSCAN’s second tranche of investment on August 17, 2012, when the Company adjusted the exercise price of the warrants previously issued to POSCAN from $0.40 to $0.21 per share. The incremental value of the warrants before and after the modification was $171,150 and was reported as warrant modification expense for the nine months ended March 31, 2013. There were no warrant modifications during the nine months ended March 31, 2014.

During the nine months ended March 31, 2014 and 2013, gains on foreign currency transactions amounted to $52,680 and $19,723, respectively, and such activity was related to our operations in Peru and Chile.

Net interest expense amounted to $1,181,832 and $298,533 during the nine months ended March 31, 2014 and 2013, respectively, and the increase is a result of additional debt funding. Additional interest charges arose from the LAC Credit Facility of $54,290 and the Asher Notes of $23,381, along with additional amortization of debt discount on the Asher Notes of $200,604 and amortization of deferred financing cost of a long term debt of $30,592, and amortization of beneficial conversion feature on the zero-coupon convertible notes of $546,286. For the nine months ended March 31, 2013, the Company also recorded interest income of $34,999 on funds placed on deposit compared to $52 interest income recorded during the nine months ended March 31, 2014.

Liquidity and Capital Resources

We are primarily engaged in exploration and acquisition of new properties and do not generate income from operations currently. As of March 31, 2014, our only source of liquidity had been debt and equity financing. In order to address the Company’s funding requirements to execute its business plan for the development of SLM Litio 1-6 and the Cocina Mining Concessions, on January 27, 2014, Li3 Energy executed the BBL Transaction under which BBL acquired 51% of Minera Li. Also on January 27, 2014, Li3 Energy executed the Tierras Agreement with Tierras Raras SpA an affiliate of BBL. All of the Company’s mineral rights in SLM Litio 1-6 and the Cocina Mining Concessions are held by Minera Li.

Pursuant to the BBL Transaction, BBL agreed to finance the Company’s exploration and development expenses until the Maricunga Project reaches full permitting and is ready for construction by providing loans due 24 months from receipt. The loans will be secured by the Company’s ownership interest in Minera Li. Specific limits or terms for these loans have not been established and will be negotiated in good faith between BBL and Li3 Energy.

BBL further agreed to provide Li3 Energy with a line of Credit of $1,800,000 as of April 1, 2014 to provide Li3 Energy working capital. The credit facility allows Li3 Energy to draw $100,000 during April 2014, and $200,000 per month thereafter, until the maximum $1,800,000 is reached. Repayment terms of each drawdown will be 12 months from the drawdown date, at 12% interest per annum.

The Company believes that the funding provided by the agreements should provide sufficient working capital to maintain its basic operations for at least 12 months subject to being able to maintain a reduced cost structure while seeking to raise additional capital.

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

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

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.

The Company did not make the required July 16, 2013 payment of $2,000,000, and agreed with the Sellers to defer the payment until October 2013 for an additional payment of $300,000, which the Company recorded which the Company recorded in operating expenses as debt modification expense during the nine months ended March 31, 2014.

On November 13, 2013, the Company entered into an agreement with the Sellers of the Cocina Mining Concessions and BBL in which it was agreed that the total purchase price of the Cocina Mining Concessions would be reduced from $7,600,000 ($7,300,000 per the Purchase Agreement plus a penalty for late payment of $300,000) to $6,600,000 and that BBL would assume the remaining payment obligations required to be made to the Sellers of $4,600,000, with payment due no later than March 30, 2014. Pursuant to the agreement, Minera Li must repay the $4,600,000 to BBL by May 31, 2014. The amount payable to BBL of $4,600,000 was paid in connection with the BBL Transaction which was completed in January 2014.

Convertible Notes Payable

On May 14, 2013, the Company issued an unsecured Convertible Promissory Note (the “First Asher 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. On July 15, 2013, the Company issued an unsecured Convertible Promissory Note to Asher (the “Second Asher Note”), bearing an interest rate of 8% per annum, in the amount of $53,000 with a Maturity Date of April 17, 2014. On January 8, 2014, the Company issued an unsecured Convertible Promissory Note to Asher (the “Third Asher Note”), bearing an interest rate of 8% per annum, in the amount of $53,000 with a Maturity Date of October 10, 2014. Under the terms of the notes, any amount of principal and interest that is not paid when due will be subject to interest of 22% per annum (“Default Interest”). The notes 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 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.

In accordance with the provisions of the First Asher Note, during the nine months ended March 31, 2014, Asher elected to convert a total of $135,000 in principal amounts of the note into an aggregate of 22,516,341 shares of the Company´s common stock. The principal amount outstanding under the First Asher Note following these conversions was $23,500, and the Company settled the principal amount (including interest outstanding) on February 5, 2014.

On January 29, 2014, the Company paid the amount outstanding to Asher under the Second Asher Note.

Notes Payable

On August 16, 2013, the Company entered into an Offer to Finance agreement with a third party lender (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.

The Company repaid the Credit Facility on February 28, 2014.

On October 30, 2013, the Company entered into a loan agreement with BBL pursuant to which BBL agreed to lend the Company $500,000 to be repaid no later than May 31, 2014, with an interest rate of 3.5% adjusted for inflation according to changes in the Unidad de Fomento (“UF”) rate between the date of the loan agreement and the date of complete repayment. Under the terms of the loan agreement, the loan proceeds must be used to settle existing debts of the Company. The loan agreement also requires that the assets of Minera Li be pledged as a guarantee of this loan. The proceeds from the loan were received by the Company on November 5, 2013 and equated to $498,845 net of local Chilean taxes of $1,155. The loan from BBL of $500,000 was paid in connection with the BBL Transaction which was completed in January 2014.

Credit 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.

The Third Amendment Agreement also reduced the conversion price of the zero-coupon bridge notes from $0.095 to $0.02 per share.

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.

On February 27, 2014, the Company paid $1,930,000 to the holders of the zero-coupon convertible notes in full settlement of the notes.

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 March 31, 2014 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 March 31, 2014

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of disclosure of controls and procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2014. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. To address the material weakness, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles in the United States of America. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

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

Changes in internal controls over financial reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

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.

The Company had filed lawsuits against the Minority Shareholders of SLM Litio 1-6 seeking either payment of their pro rata portion of costs or an auction of their 40% share of the properties. The lawsuits were at various stages.

In conjunction with the BBL Transaction, Tierras Raras, an affiliate of BBL, entered into an agreement with Minera Li. Pursuant to the Tierras Agreement, Tierras Raras agreed to purchase all of the interests of the SLM Litio 1-6 Minority Shareholders, and, in conjunction with the purchase, to pay $1,600,000 to Minera Li, which in turn would pay the funds to Li3, as consideration for the settlement and release by the Company of its claims against the SLM Litio 1-6 Minority Shareholders. The transactions contemplated by the Tierras Agreement closed in February 2014, and the Company received $1,555,000 in settlement on February 26, 2014. As a result, the lawsuits filed by the Company have been terminated.

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in the Form 10-K we filed with the SEC on October 9, 2013, under Part I, Item 1A, “Risk Factors,” therein.

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

In accordance with the provisions of the First Asher Note, during the three months ended March 31, 2014, Asher elected to convert a total of $70,000 in principal amounts of the note into an aggregate of 13,729,261 shares of the Company´s common stock as follows:

Date of conversion	Principal converted		Number of shares issued		Conversion price per share
January 14, 2014	$	20,000		3,921,569	$	0.0051
January 23, 2014	$	25,000		5,000,000	$	0.0050
January 29, 2014	$	25,000		4,807,692	$	0.0052
	$	70,000		13,729,261

The issuance of the shares of common stock upon conversion of the First Asher Note were made without registration under the Securities Act of 1933, as amended (the “Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Act and Regulation D under the Act and in reliance on similar exemptions under applicable state laws, based upon representations made by the investor (who is an “accredited investor” as such term is defined in Rule 501(a) of Regulation D).

The following issuance of shares of common stock for services were also made during the three months ended March 31, 2014, without registration under the Securities Act of 1933, as amended (the “Act”), in reliance on the exemptions provided by Section 4(a)(2) of the Act and Regulation D under the Act and in reliance on similar exemptions under applicable state laws:

•

On January 30, 2014, the Company agreed to issue 1,413,932 restricted shares of common stock to a certain third party in settlement of $13,998 in travel expenses, at an issue price of $0.01 per share. The shares were issued on February 25, 2014.

Item 3. Defaults upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Mine Safety and Health Administration Regulations

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

Our Chilean exploration properties are not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the fiscal quarter ended March 31, 2014, despite the fact the Company is outside the Mine Act jurisdiction, the Company had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number		Exhibit Title

3.1		Amended and Restated By-laws (incorporated by reference to exhibit 3.1 in our Current Report on Form 8-K, filed on January 30, 2014)

10.1		Shares Purchase-Sale of Minera Li Energy SPA from Li3 Energy, Inc to BBL SPA, dated January 27, 2014

10.2		Third Extraordinary Shareholders Meeting of Minera Li Energy SPA, dated January 27, 2014

10.3		Shareholders´ Agreement of Minera Li Energy SPA, dated January 27, 2014

10.4		Assignment of Contentious Rights and Credit Sociedad Legal Minera Litio 1 de la Sierra Hoyada de Maricunga and Others and Inversiones Tierras Raras SPA, dated January 27, 2014

31.1		Certification of Principal Executive Officer, pursuant to Securities Exchange Act Rules 13a - 14(a) and 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer, pursuant to Securities Exchange Act Rules 13a - 14(a) and 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS *		XBRL Instance Document

101.SCH *		XBRL Taxonomy Schema

101.CAL *		XBRL Taxonomy Calculation Linkbase

101.DEF *		XBRL Taxonomy Definition Linkbase

101.LAB *		XBRL Taxonomy Label Linkbase

101.PRE *		XBRL Taxonomy Presentation Linkbase

* 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 otherwise is not subject to liability under these sections.

SIGNATURES

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

Date: May 15, 2014	LI3 ENERGY, INC.

	By:	/s/ Luis F. Saenz
		Luis F. Saenz
		Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ Luis Santillana
		Luis Santillana
		Chief Financial Officer
		(Principal Financial Officer)

EXHIBIT INDEX

*Exhibit* *Number*		Exhibit Title

10.1		Shares Purchase-Sale of Minera Li Energy SPA from Li3 Energy, Inc to BBL SPA, dated January 27, 2014

10.2		Third Extraordinary Shareholders Meeting of Minera Li Energy SPA, dated January 27, 2014

10.3		Shareholders´ Agreement of Minera Li Energy SPA, dated January 27, 2014

10.4		Assignment of Contentious Rights and Credit Sociedad Legal Minera Litio 1 de la Sierra Hoyada de Maricunga and Others and Inversiones Tierras Raras SPA, dated January 27, 2014

31.1		Certification of Principal Executive Officer, pursuant to Securities Exchange Act Rules 13a - 14(a) and 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Principal Financial Officer, pursuant to Securities Exchange Act Rules 13a - 14(a) and 15(d) - 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101. INS*		XBRL Instance Document

101.SCH *		XBRL Taxonomy Schema

101.CAL *		XBRL Taxonomy Calculation Linkbase

101.DEF *		XBRL Taxonomy Definition Linkbase

101.LAB *		XBRL Taxonomy Label Linkbase

101.PRE *		XBRL Taxonomy Presentation Linkbase