UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


FORM
10-K/A




Amendment No. 1




(Mark
One)


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


For the
fiscal year ended: June 30, 2010


or


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


For the
transition period from _______________ to _______________




Commission
file number:  333-149338




Li3
Energy, Inc.


(Exact
name of registrant as specified in its charter)





Nevada
                20-3061907(State
      or other jurisdiction of
                  incorporation
      or organization)
                (IRS
      Employer Identification
No.)





Av.
      Pardo y Aliaga 699 Of. 802
                  San
      Isidro, Lima, Peru(Address
      of principal executive offices)
                (Zip
      Code)




Registrant’s
telephone number, including area code  (51) 1-212-1040




Securities
registered under Section 12(b) of the Act:  None




Securities
registered under Section 12(g) of the Act:  None




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




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




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




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




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




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




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




On
December 31, 2009, the last business day of the registrant’s most recently
completed second fiscal quarter,  48,113,767 shares of its common
stock, par value $0.001 per share (its only class of voting or non-voting common
equity), were held by non-affiliates of the registrant.  The aggregate
market value of such shares was approximately $32,236,224, based on the price at
which the registrant’s common stock was last sold at such time (i.e., $0.67 per share on
December 31, 2009).  For purposes of making this calculation, shares
beneficially owned at such time by each executive officer and director of the
registrant and by each beneficial owner of greater than 10% of the voting stock
of the registrant have been excluded because such persons may be deemed to be
affiliates of the registrant.  This determination of affiliate status is
not necessarily a conclusive determination for other purposes.




As of
October 29, 2010, there were 87,109,033 shares of the registrant's common stock,
par value $0.001, issued and outstanding.




DOCUMENTS
INCORPORATED BY REFERENCE




None.







Explanatory
Note




, for the fiscal year
ended June 30, 2010, is being filed solely to correct the table of persons known
by us to beneficially own more than 5% of our Common Stock
as of October 29, 2010, contained in Part III, Item 12, of this
Report.












TABLE
OF CONTENTS


Item Number and Caption
                                          
                                          PageForward-Looking
      Statements
                                          
                                          3PART
      I
                                          
                                          41.
                                          Business
                                          
                                          41A.
                                          Risk
      Factors
                                          
                                          241B.
                                          Unresolved
      Staff Comments
                                          
                                          372.
                                          Properties
                                          
                                          373.
                                          Legal
      Proceedings
                                          
                                          374.
                                          Submission
      of Matters to a Vote of Security Holders
                                          
                                          37PART
      II
                                          
                                          385.
                                          Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                                          
                                          386.
                                          Selected
      Financial Data
                                          
                                          417.
                                          Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                                          
                                          417A.
                                          Quantitative
      and Qualitative Disclosures About Market Risk
                                          
                                          508.
                                          Financial
      Statements and Supplementary Data
                                          
                                          509.
                                          Changes
      in and Disagreements with Accountants on Accounting, and Financial
      Disclosure
                                          
                                          509A
                                          Controls
      and Procedures
                                          
                                          509B.
                                          Other
      Information
                                          
                                          52PART
      III
                                          
                                          5210.
                                          Directors,
      Executive Officers, and Corporate Governance
                                          
                                          5211.
                                          Executive
      Compensation
                                          
                                          5712.
                                          Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                                          
                                          6213.
                                          Certain
      Relationships and Related Transactions, and Director
      Independence
                                          
                                          6514.
                                          Principal
      Accounting Fees and Services
                                          
                                          66PART
      IV
                                          
                                          6715.
                                          Exhibits,
      Financial Statement Schedules
                                          
                                          67




2


FORWARD-LOOKING
STATEMENTS





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





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





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


3


PART
I





ITEM
      1.
            BUSINESS




Overview
of Our Business




Li3
Energy, Inc. (“Li3 Energy,” the “Company,” “we,” “us” or “our”) is an emerging
exploration company, focused on the discovery and development of lithium and
potassium brine and nitrate and iodine deposits in Chile, Argentina and
Peru.




·
            In
      the course of the fiscal year ended June 30, 2010, we acquired, or signed
      definitive agreements to acquire, several properties in Nevada, Argentina,
      Peru and Chile.




·
            During
      the course of our evaluation of the properties, we determined that the
      Nevada and Chile properties did not meet the requirements of our technical
      and business strategy criteria and decided not to pursue or maintain these
      claims.




·
            The
      results of the exploration work completed over the past year on the
      various Argentina properties were encouraging; however, based on the
      advice of our technical team, we have determined that most of the projects
      do not meet our integration and deposit criteria, and the options for
      these properties were terminated, as further discussed
    below.




·
            We
      have also acquired mineral claims prospective for lithium and potassium
      that cover a total area of 19,500 acres in Peru. We continue to evaluate
      these properties to determine if they meet our
  criteria.




·
            Subsequent
      to the end of the fiscal year, we acquired all of the outstanding share
      capital of Alfredo Holdings, Ltd. (“Alfredo”), which, through its Chilean
      subsidiary, Pacific Road Mining Chile S.A. (“PRMC”), has an option to
      purchase mining concessions on approximately 6,670 acres of mining
      tenements near Pozo Almonte, Chile, from which we expect to produce
      saleable iodine and (aided by the potassium we expect to generate from our
      prospective lithium carbonate brine properties) nitrate
      products.




·
            In
      the course of the year and the interim period since the end of the fiscal
      year, we have focused on evaluating and seeking other opportunities that
      will enhance the opportunities of the Alfredo properties, including
      lithium brine projects and potassium
projects.




Our
strategic plan is to explore and develop our existing projects and to identify
additional opportunities and generate new projects with near-term production
potential, with the goal of becoming a significant player in the lithium and
industrial minerals industry.




We were
incorporated on June 24, 2005, as Mystica Candle Corp. and were originally in
the business of manufacturing, marketing and distributing soy-blend scented
candles and oils. We determined that we could not continue with our business
operations as outlined in our original business plan because of a lack of
financial results and resources; therefore, we redirected our focus towards
identifying and pursuing options regarding the development of a new business
plan and direction. In July 2008 we changed our name from Mystica Candle Corp.
to NanoDynamics Holdings, Inc., to facilitate discussions with NanoDynamics,
Inc., a Delaware corporation, regarding a possible business combination.
However, we determined not to proceed with that business combination.  In
October 2009 we changed our name from NanoDynamics Holdings, Inc., to Li3
Energy, Inc., as we refocused our business strategy on the energy sector and
lithium mining opportunities.


4


Plan
of Operation for the Remainder of Fiscal 2011




Our
primary objective is to become a low cost lithium producer as well as a
significant producer of potassium nitrate. The key to achieving this objective
is to become an integrated chemical company through the strategic acquisition
and development of lithium assets as well as other assets that have by-product
synergies.




Recently,
we acquired an option on the Alfredo project near Pozo Almonte in Chile (the
“Alfredo Property”).  We believe that this is a very important and
economically significant acquisition for us on the road to becoming a low cost
lithium producer.  The property is prospective for potassium nitrate and
iodine, which we believe will be important as part of our integration as a
significant chemical producer. The Alfredo Property hosts caliche
mineralization. Caliche deposits are sources of sodium nitrate and iodine.
Sodium nitrate can be reacted with potash (KCl) to produce potassium nitrate
(KNO3), a
valuable product used in fertilizers, rocket propellants and fireworks and as a
food additive. The property is located in a region of caliche mining and
processing, and we believe it demonstrates reasonable prospects for
development.  We are in the process of obtaining a Canadian National
Instrument 43-101 report (“NI 43-101”) on the Alfredo Property.  The NI
43-101 is a codified set of rules and guidelines for reporting and displaying
information related to mineral properties owned or explored by companies which
generally report these results on stock exchanges within Canada.   We
are not listed on any stock exchanges within Canada.




We are
currently pursuing an advanced lithium and potassium chloride project in Chile,
although there can be no assurance that this project will meet our technical and
other due diligence requirements or that we will successfully negotiate an
acquisition, and we continue to explore other lithium and industrial minerals
prospects in the region, located to complement the Alfredo project, in order to
achieve integration of operations to produce metallurgical grade lithium,
commercial grade fertilizer and pharmaceutical grade iodine.




Lithium
and Lithium Mining





Lithium
is the lightest metal.  It is a soft, silver white metal and belongs to the
alkali group of elements, which includes sodium, potassium, rubidium, caesium
and francium. The chemical symbol for lithium is “Li,” and its atomic number is
3.





Like the
other alkali metals, lithium has a single valence electron that is easily given
up to form a cation (positively charged ion). Because of this, it is a good
conductor of both heat and electricity and highly reactive, though it is the
least reactive of the alkali metals.  Lithium possesses a low coefficient
of thermal expansion (which describes how the size of an object changes with a
change in temperature) and the highest specific heat capacity (a measure of the
heat, or thermal energy, required to increase the temperature of a given
quantity of a substance by one unit of temperature) of any solid
element.


5


No other
metal is as lightweight, better at holding a charge or as good at dissipating
heat as Lithium. These properties make lithium an excellent material for
manufacturing batteries (lithium-ion batteries).  According to the U.S.
Geological Survey’s “Mineral Commodity Summaries 2010,” batteries accounted for
23% of lithium end-usage globally, and we expect demand for lithium from the
battery segment to grow along with demand for such batteries.  Although
lithium markets vary by location, global end-usage was estimated by the U.S.
Geological Survey as follows:  ceramics and glass, 31%; batteries,
23%; lubricating greases, 10%; air treatment, 5%; continuous casting, 4%;
primary aluminum production, 3%; and other uses, 24%.  Lithium use in
batteries expanded significantly in recent years, because rechargeable lithium
batteries are being used increasingly in portable electronic devices and
electrical tools.





As
mentioned earlier, lithium belongs to the alkali group of metals. This group of
metals is typically extracted from solutions called brines, which are associated
with evaporite deposits.  Lithium is also contained in the mineral
spodumene, which occurs in a rock called pegmatite.  To a lesser extent
lithium occurs as a component of certain clay minerals





Historically,
and especially during the period leading up to and during World War II, lithium
was designated a strategic metal, heavily used in the aircraft industry because
it is light and strong. During this period the mineral spodumene (a lithium
aluminum silicate) was mined by open pit hard rock mining methods and processed
to recover the lithium.  During the post-war period, lithium production
from the higher cost hard rock mines was replaced by the lower cost extraction
of lithium from the mineral rich brines associated with evaporite deposits.
Evaporite deposits occur in environments characterized by arid conditions with
extremely high evaporation rates. This environment typically occurs at high
altitudes, greater than 12,000 feet above sea level, so evaporite deposits occur
in only a very few locations in the world, including China (the province of
Qinghai and the Autonomous Region of Tibet); the Puna Plateau, a high altitude
plateau covering part of Argentina, Chile, Bolivia and the southern portion of
Peru; and in a small region in Nevada, which is the core of what is called the
Great Basin of the western United States.  Over 70% of the world’s lithium
is produced from the brines associated with the evaporite deposits on the Puna
Plateau of South America.





Brine
extraction (mining) and the recovery of lithium and other economic compounds is
analogous to pumping water from an aquifer, but instead of fresh water, the
water contains a variety of mineral salts in solution, including lithium,
potassium (K), magnesium (Mg) and sodium (Na).  This form of “mining” is
much more efficient, cost effective and environmentally friendly than open pit
mining.  Lithium production from spodumene can typically cost in the range
of $4,300 to $4,800 per metric ton of lithium carbonate and is a process that is
highly sensitive to energy costs.  On the other hand, lithium production
from brines can be accomplished at costs in the range of $2,200 to $2,600 per
metric ton of lithium carbonate.  However, the processing cost can vary by
a wide range, depending largely on:




·
            lithium
      concentration in the particular
brine;





·
            evaporation
      rates at the site, which determine how quickly the brine can be
      concentrated; and


6


·
            the
      balance of other minerals in the brine, which effects the degree of
      processing needed to remove
impurities.





Lithium
in Batteries





Lithium
demand is being driven by its increasing use in the batteries of portable
consumer electronics, including mobile phones and laptop computers, and in a
range of industrial applications including ceramics and lubricants.  The
most dramatic increase in demand is being spurred by auto makers racing to bring
lithium-ion battery powered and hybrid electric cars to market.





A
lithium-ion battery (Li-ion battery) is a type of rechargeable battery in which
lithium ions move from the anode (negative terminal) to the cathode (positive
terminal) during discharge, and from the cathode to the anode when
charging.  Lithium-ion batteries are one of the most popular types of
battery, because they have one of the best energy-to-weight ratios, no memory
effect (the effect in which certain other rechargeable batteries lose their
maximum energy capacity if they are repeatedly recharged after being only
partially discharged) and a slow loss of charge when not in use.





Rechargeable
battery materials used in electric vehicles include lead-acid (traditional “wet”
and gel or “valve regulated”), nickel-cadmium, nickel-metal-hydride,
lithium-ion, lithium-ion polymer, and, less commonly, zinc-air and molten
salt.  Ideally, a battery for an electric car needs to be light, small,
energy dense, quick to recharge, relatively inexpensive, long lasting, and
safe.  Today’s electric and hybrid vehicles are primarily powered by
nickel-metal-hydride (NiMH) batteries.  NiMH batteries are safe,
abuse-tolerant and offer much longer life cycles than older lead-acid batteries,
while providing reasonable energy density.   However, NiMH batteries
are more expensive than lead-acid batteries, as a result of the high nickel
content.





Li-ion
batteries have a higher energy density than most other types of
rechargeables.  A Li-ion battery can achieve power density of 100-170 watt
hours (Wh) per kilogram (kg) of weight, versus NiMH’s 30-80 Wh/kg.  This
means that for their size or weight they can store more energy than other
rechargeable batteries. Li-ion batteries also operate at higher voltages than
other rechargeables, typically about 3.7 volts for Li-ion vs. 1.2 volts for NiMH
or NiCd.  This means a single cell can often be used rather than multiple
NiMH or NiCd cells.





Finally,
Li-ion batteries have a lower self discharge rate than other types of
rechargeable batteries.  This means that once they are charged they will
retain their charge for a longer time than other types of rechargeable
batteries.  NiMH and NiCd batteries can lose anywhere from 1-5% of their
charge per day, (depending on the storage temperature) even if they are not
installed in a device. Li-ion batteries, on the other hand, can retain most of
their charge even after months of storage.




Ideal
Brine Conditions





The most
important metrics when evaluating lithium brine resources are:


7


1)
              lithium
      content;




2)
            evaporation
      rate;




3)
            magnesium
      to lithium ratio;




4)
            potassium
      content; and




5)
            sulphate
      to lithium ratio.




The boron
content is also important, as it allows for the production of another saleable
product, boric acid.





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





Providing
that lithium contents are high enough, the magnesium to lithium (Mg:Li) ratio is
another important chemical feature in assessing favorable brine chemistry and
the ultimate economic viability of a site at an early stage.  The lower the
ratio the better, as a high ratio means that, during the evaporation process, an
increasing amount of lithium will be trapped (“entrained”) in the magnesium
salts when they crystallize early.  This will ultimately lead to a lower
lithium recovery rate and thus less profitability.  High Mg:Li ratios also
generally mean that more soda ash (Na2CO3) reagent
is required during the processing of the brine (as described below) and,
therefore, may add significantly to costs.





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





The lower
the sulphate (SO4) to
lithium ratio in the final lithium brine pond, the more the brine will be
amenable to lithium extraction via the conventional solar evaporation
process.  This is because lithium sulphate (Li2SO4) is highly
soluble and so, to the extent that it is able to form, the lithium recovery will
suffer.





Key
Stages of Lithium Recovery





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


8


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





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





Potentially
economic salts produced from the salar brine are NaCl, carnallite, sylvinite and
bischoffite, as well as the final end-point brine.  The chemical pond to
pond process from the brine feed from the salar to the end-point brine ready for
the processing plant is as follows:





·
            Calcium
      Chloride (CaCl2) is
      added at the beginning in the first pond in order to precipitate out most
      of the sulphate (SO4) in
      the form of gypsum (CaSO4). 
      Removal of the sulphate is important, as it is detrimental in downstream
      processing.  Furthermore, the gypsum itself has multiple uses from
      agriculture to construction.





·
            In
      the next two ponds and after solar evaporation, sylvinite will begin to
      precipitate, which is a combination of table salt and potash (KCl). 
      The sylvinite can be harvested and sent to a froth flotation circuit to
      produce potash.





·
            Finally,
      the sequential ponding process moves to the lithium ponds until the
      end-point brine is sufficiently rich in lithium.  The lithium is
      still largely in the final ponds, because it is extremely soluble (likes
      to stay dissolved in solution), although there will be some lithium
      entrained in Mg and K salts in previous
ponds.


9








Global
Market





We
believe that the lithium mining industry is just under $1 billion in market size
in terms of annual sales of lithium carbonate, and is characterized by a high
degree of geographic and corporate concentration. In 2008, Chile produced 46% of
the lithium carbonate worldwide, while Argentina and Australia produced 14% and
23%, respectively.





At the
World Lithium Supply and Markets 2009 conference in Santiago, Chile, the world’s
top three lithium producers, Sociedad Quimica y Minera de Chile SA (“SQM”),
Chemetall Lithium and FMC Lithium, along with research groups TRU Group and
Roskill, presented an outlook for lithium. According to the forecast, world
lithium demand is expected to grow as much as three-fold in just over ten years.
Growth is driven by secondary (rechargeable) batteries and electric vehicle (EV)
batteries. Current demand for lithium, measured as lithium carbonate equivalent
(LCE), is around 110,000 metric tons per annum (tpa).  This is expected to
rise to around 250,000 to 300,000 tpa in 2020 driven by rechargeable batteries
and EV batteries, according to the outlook.  Lithium carbonate is
approximately 18.9% lithium by weight, so each metric ton of LCE includes
approximately 189 kilograms of lithium.





According
to the U.S. Geological Survey (“USGS”), Chile is the leading lithium producer in
the world. Argentina, China, and the United States are also major
producers.  The 2010 edition of the USGS Mineral Commodity Summaries gives
the following estimated world lithium mine production and reserves (in metric
tons of lithium content), including the footnoted information:


10





Mine production
                
                
                Reserves12008
                
                
                2009 (est.)United
      States
                
                Withheld
                
                
                Withheld
                
                
                
                38,000Argentina
                
                
                3,170
                
                
                
                2,200
                
                
                
                800,000Australia
                
                
                6,280
                
                
                
                4,400
                
                
                
                580,000Brazil
                
                
                160
                
                
                
                110
                
                
                
                190,000Canada
                
                
                690
                
                
                
                480
                
                
                
                180,000Chile
                
                
                10,600
                
                
                
                7,400
                
                
                
                7,500,000China
                
                
                3,290
                
                
                
                2,300
                
                
                
                540,000Portugal
                
                
                700
                
                
                
                490
                
                
                Not
      availableZimbabwe
                
                
                500
                
                
                
                350
                
                
                
                23,000World
      total (rounded)
                
                
                325,400
                2
                
                
                318,000
                2
                
                
                9,900,000





Identified
lithium resources3 total
2.5 million metric tons in the United States and approximately 23 million metric
tons in other countries. Among the other countries, identified lithium resources
for Bolivia and Chile total 9 million metric tons and in excess of 7.5 million
metric tons, respectively. Argentina and China each contain approximately 2.5
million metric tons of identified lithium resources.





1
            Reserves
      means that part of the reserve base which could be economically extracted
      or produced. The term reserves need not signify that extraction facilities
      are in place and operative. Reserves include only recoverable materials.
      The reserves base is that part of an identified resource that meets
      specified minimum physical and chemical criteria related to current mining
      and production practices, including those for grade, quality, thickness,
      and depth. The reserve base is the in-place demonstrated (measured plus
      indicated) resource from which reserves are estimated. It may encompass
      those parts of the resources that have a reasonable potential for becoming
      economically available within planning horizons beyond those that assume
      proven technology and current economics. The reserve base includes those
      resources that are currently economic (reserves), marginally economic
      (marginal reserves), and some of those that are currently subeconomic
      (subeconomic resources).





2
            Excludes
      U.S. production.





3
            Identified resources are
      resources whose location, grade, quality, and quantity are known or
      estimated from specific geologic evidence. Identified resources include
      economic, marginally economic, and subeconomic
      components.





Iodine
Market and Mining





Iodine is
a chemical element that has the symbol “I,” and its atomic number is 53. It
belongs to the halogen group of elements and is considered to be the heaviest
essential element utilized biologically. In nature, Iodine is a relatively rare
element, ranking 47th in
abundance.





Under
standard conditions, iodine is a bluish black solid that dissolves easily in
most organic solvents due to its lack of polarity. Iodine salts are often very
soluble in water and are found in greater concentrations in seawater than in
rocks. On the other hand, minerals containing iodine include caliche, which are
found in Chile.


11


Caliche
is one of the two sources used for the production of iodine, the other being the
brines of gas and oil fields. The caliche contains sodium nitrate, which is the
main product of mining activities, and small amounts of iodate minerals, sodium
chloride and sodium sulfate, which are extracted during leaching and production
of pure sodium nitrate.





Mining
operations for iodine salt extraction from caliche include drilling, blasting,
loading and hauling to heap leach pads. These pads are constructed with an
impervious membrane and a leached solution collection system. The minerals in
the leach pads are then sprinkled with water in order to dissolve the salts,
leaving brine that contains nitrate and iodine salts as well as sodium sulfate
salt. At the end of the process iodine is packaged after being removed from the
brine via a reaction with sulfur dioxide gas.





One of
the uses of iodine is as a co-catalyst for the production of acetic acid and for
the production of ethylenediammonium diiodide (EDDI), a nutritional supplement
provided to livestock. Elemental iodine is also used as a disinfectant for use
in dairies, food processing plants, hospitals and laboratories. The National
Aeronautics and Space Administration (NASA) uses iodine in its water
disinfection process on all manned space flights and in the international space
station. Iodine is a cost-efficient, effective and simple means of water
disinfection. In addition, iodine is used for nutrition purposes (iodized salt),
as iodine deficiency can cause increased child mortality, irreversible mental
retardation, and reproductive failure. Other uses for iodine are for
pharmaceutical purposes and for the manufacture of liquid crystal displays
(LCD), which are used for electronic equipments including appliances, computers,
digital cameras, personal handheld devices, and televisions.





According
to the U.S. Geological Survey Minerals Yearbook (2008), world consumption of
iodine and its derivatives was estimated to be about 20% for x-ray contrast
media, 13% for pharmaceuticals, 10% of LCD manufacture, 9% each for animal
nutrition and iodophors, 5% each for biocides and nylon manufacture, 3% for
human nutrition, and 26% for other applications.





The
leading consumption regions for iodine was Western Europe with 39% of world
consumption, followed by the Unites States with 24%, China with 8%, Japan with
7%, India with 6%, and other regions with the remaining 16%.





Prices
for iodine and its derivatives have continued to increase over the years. During
2008, the average free alongside ship for exported crude iodine was $18.30 per
kilogram, an increase from $18.16 per kilogram from 2007. The average declared
cost, insurance and freight value imported from Chile, the major source of
imported iodine for the United States, was $23.58 per kilogram in 2008,
representing a 7% increase from 2007. Actual prices for iodine are negotiated on
long and short term contracts between buyers and sellers.





The U.S.
Geological Survey (USGS) report titled “Mineral Commodity Summaries 2010,”
states that demand for iodine in applications such a biocides, iodine salts,
liquid crystal displays (LCD), synthetic fabric treatments, and x-ray contrast
media are expected to increase at a rate of 3.5% to 4% per year over the next
decade. Global shipments of LCD televisions were expected to double by 2012,
which would in turn result in the consumption of iodine by LCD producers. In
addition, as more countries implement legislation mandating salt iodization in
order to combat iodine deficiency, the global demand for iodized salt would be
expected to increase.


12


Chile is
the leading iodine producer in the world and is followed by Japan and the United
States. Chile accounted for more than 50% of world production, with two of the
leading iodine producers in the world based in Chile. A large portion of the
Chilean iodine was produced as a byproduct or co-product of nitrates. Japanese
iodine was extracted from underground natural gas brines.





The 2010
edition of the USGS Mineral Commodity Summaries gives the following estimated
world iodine mine production and reserves (in metric tons of iodine content),
including the footnoted information:





Mine production
                
                
                Reserves12008
                
                
                2009 (est.)United States
                
                Withheld
                
                
                Withheld
                
                
                
                250,000Azerbaijan
                
                
                300
                
                
                
                300
                
                
                
                170,000Chile
                
                
                15,500
                
                
                
                16,000
                
                
                
                9,000,000China
                
                
                570
                
                
                
                580
                
                
                
                4,000Indonesia
                
                
                75
                
                
                
                75
                
                
                
                100,000Japan
                
                
                9,500
                
                
                
                9,300
                
                
                
                4,900,000Russia
                
                
                300
                
                
                
                300
                
                
                
                120,000Turkmenistan
                
                
                270
                
                
                
                300
                
                
                
                170,000Uzbekistan
                
                
                2
                
                
                
                2
                
                
                Not availableWorld
      total (rounded)
                
                
                26,500
                2
                
                
                27,000
                2
                
                
                15,000,000





In
addition to the reserves shown above, seawater contains 0.05 parts per million
iodine, or approximately 34 million tons. Seaweeds of the Laminaria family are
able to extract and accumulate up to 0.45% iodine on a dry basis. Although not
as economical as the production of iodine as a byproduct of gas, nitrate and
oil, the seaweed industry represented a major source of iodine prior to 1959 and
remains a large resource.





1
            See
      definition of “reserves” above.





2
            Excludes
      U.S. production.





Nitrate
Market and Production





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


13


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





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


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


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





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





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





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





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





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





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





Our
Projects





Peru





In
February 2010, we acquired 100% of the assets of the Loriscota, Suches and
Vizcachas Projects located respectively in the Regions of Puno, Tacna and
Moquegua, Peru, from a private owner. The aggregate purchase price for these
assets was $50,000.


14


These
projects are prospective for lithium and potassium and comprise nine mineral
claims that cover a total area of 19,500 acres at an elevation of 14,000 feet
(approximately 4,300 meters) above sea level. The projects are in recently
reinterpreted areas previously studied by the Peruvian Mining Ministry in 1981,
whose survey concluded that the projects contain high lithium and potassium
values. Subsequent to the Mining Ministry’s survey, preliminary sampling was
conducted on these projects and was found to contain similar lithium values to
those reported in the evaporite deposits in the southern parts of the Puna, some
of which are currently under development for commercial production.




To date
there has been no systematic brine sample reported on these properties, and
we continue to evaluate them to determine if they meet our development
criteria.





The maps
below show the project area and the locations of the Loriscota, Suches and
Vizcachas mineral claims.








15








Chile





Alfredo





On August
3, 2010, we acquired all of the outstanding share capital of Alfredo from
Pacific Road Resources Fund A (“Fund A”), Pacific Road Capital B Pty. Limited,
as trustee for Pacific Road Resources Fund B (“Fund B”), and Pacific Road
Capital Management G.P. Limited, as General Partner of Pacific Road Resources
Fund L.P. (“PR Partnership” and, together with Fund A and Fund B,
“Sellers”).  Alfredo, through its Chilean subsidiary PRMC, has an
option to purchase mining concessions with respect to approximately 6,670 acres
of mining tenements near Pozo Almonte, Chile, pursuant to an Option to Purchase
Agreement between PRMC and Sociedad Contractual Minera La Fortaleza (the
“OPA”).





We do not
expect to extract any lithium from the Alfredo Property.  Provided that we
successfully develop the Alfredo Property, we expect it to produce saleable
iodine and (by combining sodium nitrate (NaNO3) from
Alfredo with potassium chloride (potash) that we expect to generate from our
prospective lithium brine properties) potassium nitrate (KNO3).





The
Alfredo Property is located in the Tarapacá Region in northern Chile, which is
southeast of the city of Iquique and has excellent infrastructure access, as it
is situated near the mining community of Pozo Almonte, which is the base of
operations of Chile’s three primary iodine-nitrate production companies. Pozo
Almonte holds a significant pool of experienced caliche mining personnel, who
could be transported by shuttle to and from the property, removing the necessity
of a remote camp. Water and electricity are also available by purchase from
water utility ESSAT and from the Chilean national grid substation,
respectively.


16


Alfredo
comprises six mining concessions that cover a total area of 2,700 hectares
(6,670 acres) at an elevation between 870 and 1,070 meters above sea level. The
Project occupies the southern extension of a rich iodine nitrate belt and is
also located near the operating caliche mines of Sociedad Química y Minera de
Chile S.A. (SQM) and ACF Minera S.A., both of which are producing both iodine
and nitrates. Below is a map showing the location of Alfredo.











The
property is classified as a shallow caliche deposit mineralized by layers of
sand, gravel and clay, which contain iodine and nitrates. This potassium-iodine
caliche deposit has a similar chemical composition and grade to the deposits
currently mined by SQM and Cosayach Nitratos SA. The deposition of the nitrates
and iodine in Alfredo is such that the higher grade iodine is generally separate
from the high nitrates, thus facilitating selective mining. PRMC has previously
conducted certain work on Alfredo to define a nitrate-iodine inferred resource,
and we have engaged an independent qualified person for purposes of preparing an
NI 43-101 report on the property.


17


We have
estimated that three years will be required for feasibility and engineering
studies and have established a 21-year mine plan that would require capital
expenditures of $117 million, which consists of a two phase approach that delays
the production of potassium nitrate until the sixth year, with the higher grade
iodine areas being mined first.





We
believe the Alfredo project would create the following synergies:





·
            We
      are pursuing brine projects that have the potential to produce lithium as
      well as a significant amount of potassium chloride. Production of
      potassium would significantly improve the economics of the Alfredo nitrate
      operation, as sodium nitrate from the caliche deposits can be reacted with
      potassium chloride (potash) to produce potassium nitrate (KNO3).




·
            Surrounding
      the Alfredo property are similar deposits with limited resources, but
      comparable grade, which are too small to be economic.  However, if we
      construct a processing plant at Alfredo, we could seek to acquire these
      properties and/or provide processing capacity to the
    owners.




Pursuant
to the stock purchase agreement (“SPA”), we issued an aggregate of 10,000,000
shares of our common stock (the “Purchase Price Shares”) to the Sellers and
their designees.  Of the Purchase Price Shares, 8,800,000 that we issued
directly to the Sellers are subject to an 18-month lock-up period.  If and
when the following milestones are achieved with respect to a mine that we may
dig on the Alfredo Property to recover iodine or nitrate (the “Alfredo Mine”),
the SPA requires us to make the following additional payments to the
Sellers:





·
            $1,000,000
      upon our Board of Directors’ resolution to commence final engineering and
      design of the Alfredo Mine;





·
            A
      further $2,000,000 upon our Board of Directors’ resolution to commence
      construction of the Alfredo Mine;
and





·
            A
      further $2,500,000 upon commencement of commercial production from the
      Alfredo Mine (meaning production at a rate of 75% of design capacity for 3
      months).





Sellers
have the right to take any or all of the above milestone payments in shares of
our common stock instead of cash, valued at the greater of (i) $0.25 per share
and (ii) the average of the closing price for our common stock on the 30 trading
days immediately preceding the relevant payment date.  We are under no
obligation to achieve or pursue any of the milestones.


18


The SPA
provides Sellers with the right to designate one or more persons to be nominated
for election to our Board of Directors if Sellers hold at least 10% of our
outstanding common stock.  The number of such nominees that Sellers may
designate will be the greater of (i) one and (ii) a portion of our full Board
that is proportional to Sellers’ ownership of our outstanding common stock
(rounding down). This right would allow the Sellers to nominate one Board member
at the date of this filing.  To date, the Sellers have not exercised their
right to nominate Board members.





The SPA
provides Sellers with preemptive rightsin
certain future financing transactions by us, provided that Sellers still own at
least 50% of the Purchase Price Shares.  Such preemptive rights are subject
to customary exceptions, and generally give Sellers the right to purchase up to
25% of the securities that we sell in any offering to which they
apply.





The SPA
also grants Sellers two interrelated options to purchase additional shares of
our common stock.





·
            First,
      within 60 days of closing under the SPA, Sellers may purchase between
      $2,500,000 and $10,000,000 of Units (as defined below) at a price of
      $25,000 per Unit.  Each “Unit” would have consisted of (i) 100,000
      shares of our common stock; and (ii) five-year warrants to purchase
      100,000 shares of our common stock at an exercise price of $0.50 per
      share.  This option has
expired.





·
            Second,
      upon our completion of Canadian National Instrument 43-101 Inferred
      Resource Reports on the Alfredo Property and on at least one lithium
      property in Argentina, Sellers will have the right to subscribe for shares
      of our common stock having an aggregate purchase price of at least
      $2,500,000 if the first option was not exercised, and in any event not
      less than $1,000,000, up to a maximum of $10,000,000 less any amounts
      subscribed for pursuant to the first option.  If Sellers exercise
      this second option, then Sellers will pay a price per share equal to the
      greater of (i) $0.25 per share, and (ii) the thirty day volume-weighted
      average price of our common stock on its principal market at the time we
      notify Sellers of our having completed the relevant 43-101 Inferred
      Resources Reports.





The OPA
gives us the option to acquire 100% of the six mining concessions constituting
the Alfredo Property.  Under the OPA, we must make periodic payments
aggregating $360,000 between June 30, 2010 and December 30, 2010. We paid
$80,000 in August 2010 and must make payments of $100,000 by October 30,
2010 and $180,000 by December 30, 2010 in order to maintain our option
rights.  Then, in order to exercise the option and purchase the Alfredo
Property, we must pay the option exercise price of $4,860,000 by March 30,
2011.





Puna




We had
signed a letter of intent to acquire the assets of Puna Lithium Corporation
(“Puna”), which has an option to acquire up to an aggregate 80% interest in nine
salars covering 123,000 acres on the Puna Plateau of Chile.  The
transaction was subject to legal and financial due diligence by us and
negotiation of definitive documentation. We have determined that these
properties did not meet the requirements of our technical and business strategy
criteria and have decided not to pursue this acquisition.


19


Argentina




Puna Lithium Corporation,
Lacus Minerals S.A and Noto Energy S.ATransactions




On March
12, 2010, the Company entered into an assignment agreement (the “Assignment
Agreement”) whereby the Company would purchase all of Puna Lithium Corporation’s
(“Puna”) interests in and rights under a letter of intent dated November 23,
2009, as amended (the “Letter of Intent”), entered into by Puna, Lacus Minerals
S.A. (“Lacus”), and the shareholders of Noto Energy S.A..  The Company
entered into a Master Option Agreement with Lacus (the “Master Option
Agreement”), for the acquisition of three options (collectively, the “Options”),
to acquire up to an 85% interest in: (a) approximately 70,000 acres situated on
prospective brine salars in Argentina, known as Rincón, Centenario and Pocitos
(the “Master Lacus Properties”); and (b) salt-mining claims on approximately
9,000 additional acres in certain other areas of mutual interest on some of
those same salars (the “Third Parties Properties” and, together with the Master
Lacus Properties, the “Lacus Properties”) that may be acquired upon exercise of
the two options (collectively, the “Third Parties Options”).




In
accordance with the Assignment Agreement, the Company was also required to issue
8,000,000 shares of common stock to Puna upon the date of the closing
(“Closing”) as defined in the Master Option Agreement.  As the Closing did
not occur, the Company did not issue the 8,000,000 shares of common
stock.




In March
2010, we also entered into an agreement to acquire 100% of the issued and
outstanding shares of Noto Energy S.A., an Argentinean corporation ("Noto"),
which beneficially owns a 100% interest over 2,995 acres situated on brine
salars in Argentina, known as Cauchari. In July 2010, we closed on the
acquisition of Noto.




In July
2010, we entered into a preliminary and non-binding Letter of Intent (the “LOI”)
with the shareholders of Lacus  (the “Lacus Shareholders”) for a
proposed transaction that would have involved the restructuring of our existing
Master Option Agreement with Lacus, pursuant to which we would have acquired
100% of the issued and outstanding shares of Lacus, and salt-mining claims on
approximately 156,000 acres on the Centenario, Rincón and Pocitos salars would
be added to our portfolio of mining properties under option.




However,
our Board of Directors has since determined that the brine chemistry results
from surface pit sampling on the Rincon, Pocitos and Centerario salars, received
after signing the LOI, did not meet our criteria for economic brine reserves,
that the work plan recommended by Lacus was not acceptable and that funding of a
drilling program should be suspended.  Subsequently, we received a notice
from Lacus purporting to terminate the Master Option Agreement and the Services
Agreement because of our failure to pay certain amounts alleged to be due under
these agreements.  Accordingly, we have made no further payments under the
Master Option Agreement.  We have notified the Lacus Shareholders that,
based on the unsatisfactory results of our due diligence, we do not intend to
execute any definitive agreements for the transaction detailed in the LOI, and
the LOI has terminated.


20


As
consideration for entering the Master Option Agreement and as a condition to
maintain the first Option in good standing until exercised, we have paid
$942,178 to Lacus (of which $700,000 pertained to work commitments), and were to
pay $500,000 to Lacus on or before March 12, 2011.  We were to complete
$1,688,000 in work commitments on or before August 31, 2010, and an additional
$1,312,000 in work commitments a year from closing. However,
following termination of the Master Option Agreement, we have made no further
payments.We have recorded $965,000 of exploration expenses related to
our obligations under the Master Option Agreement.




Rincón
South





We signed
a letter of intent in January 2010 with a private Argentinean company to acquire
additional lithium brine assets in the Puna region of Argentina. The prospective
location, known as the Rincón South Property, covers approximately 4,250 acres,
comprising 18 claims on the southern portion of the Salar de Rincón. The
proposed transaction was subject to our geological, engineering, legal and
financial due diligence. We have subsequently determined that these properties
do not meet the requirements of our technical and business strategy criteria and
have decided not to pursue this acquisition.





Nevada





In March
2010, we purchased all of Next Lithium Corp.’s interests in (a) an option
agreement (the “CSV, LM and MW Option Agreement”), pursuant to which Geoxplor
Corp, a Nevada corporation (“Geoxplor”), granted to Next Lithium the option to
acquire a 100% beneficial interest in the placer mining claims known as the CSV
Placer Mineral Claims, LM Placer Mineral Claims and MW Placer Mineral Claims;
and (b) an option agreement (the “BSV Option Agreement,” and, together with the
CSV, LM and MW Option Agreement, the “Nevada Option Agreements”), pursuant to
which Geoxplor granted to Next Lithium the option to acquire a 100% beneficial
interest in the placer mining claims known as the BSV Placer Mineral Claims; as
well as all associated rights and records.  The CSV Placer Mineral Claims,
LM Placer Mineral Claims, MW Placer Mineral Claims and BSV Placer Mineral Claims
(the “Nevada Claims”) cover up to approximately 60,600 acres in Big
Smoky Valley near Tonopah in west central Nevada.  During the 1970’s and
1980’s, the USGS carried out a series of reconnaissance geological programs in
Big Smoky Valley, including one hole drilled on the property covered by the
Nevada Claims that intersected geochemically anomalous concentrations of lithium
in the brines, and gravity surveys over the region also confirmed the existence
of various structures that may have created a favorable environment, which
potentially could host commercially viable lithium-rich brines. However, there
has been no systematic brine sampling on the Nevada Claims in Big Smoky
Valley.




We
acquired the options on the Nevada Claims in exchange for 4,000,000 restricted
shares of our common stock.  2,500,000 of these shares of our common stock
are being held in escrow until March 2011 against any indemnifiable liabilities
that may arise.  If the shares of our common stock retained by Next Lithium
cannot be resold under Rule 144 under the Securities Act of 1933 without
restriction at any time following the 13th month after closing due to our status
as a former “shell” company and our failure to file required reports with
the Securities and Exchange Commission, and not because of any fault of Next
Lithium, then we must register such shares for resale under the Securities
Act. Next Lithium assigned to Geoxplor 1,500,000 of the 4,000,000
restricted shares of our common stock received by Next Lithium.  These
1,500,000 shares assigned to Geoxplor will carry “piggyback” registration rights
until the earlier of: (a) February 16, 2012, or (b) the date on which all such
shares may immediately be sold under Rule 144 during any 90-day
period.


21


Under the
CSV, LM and MW Option Agreement, we paid to Geoxplor $236,607.  We also
agreed to pay additional amounts totaling $75,000 contingent upon future
events which had not occurred as of the date of our financial statements or this
filing.  Further, under the BSV Option Agreement, we were required to pay
to Geoxplor $100,000 on June 30, 2010.   The $100,000 owed to GeoXplor
is recorded in accrued expenses as of June 30, 2010.  Under both the Nevada
Option Agreements, we would have paid Geoxplor a 3.0% net smelter return royalty
on the proceeds from production of all ores, minerals, metals, concentrates and
mineral resources (an “NSR”) derived from mining operations on the related
properties.





We have
subsequently determined that these properties do not meet the requirements of
our technical and business strategy criteria and have decided not to pursue
these options.  We have not paid the $100,000 payable under the BSV Option
Agreement on June 30, 2010.





Subsequent
to June 30, 2010, we were also obligated to pay approximately $57,000 of claim
maintenance fees on the Nevada Claims and approximately $32,600 of Nevada state
taxes, which we have not paid.





Competition




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




Compliance
with Government Regulation




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


22


Research
and Development Expenditures




We have
incurred no research and development expenditures over the last fiscal year and
do not anticipate significant future research and development
expenditures.




Employees




Our only
current full-time employee is our Chief Operating Officer.  We currently
have six part-time employees, including our Chief Executive Officer, and we
engage several consultants, including our Interim Chief Financial
Officer.




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




Subsidiaries




We
currently have four subsidiaries:




·
            Li3
      Energy Peru SRL, a private limited company organized under the laws of
      Peru




·
            Alfredo
      Holdings, Ltd., an exempted limited company incorporated under the laws of
      the Cayman Islands




·
            Pacific
      Road Mining Chile, SA, a Chilean corporation (“PRMC”).  PRMC is a
      subsidiary of Alfredo




·
            Noto
      Energy S.A., an Argentinean
corporation.




Intellectual
Property




We do not
own, either legally or beneficially, any patent or trademark nor any material
license, and are not dependent on any such rights.


23


ITEM
      1A.
            RISK
      FACTORS





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





RISKS
RELATED TO OUR BUSINESS AND FINANCIAL CONDITION




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




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




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


24


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





The
Consolidated Financial Statements contained in our report on Form 10-K for the
year ended June 30, 2010 have been prepared assuming we will continue as a going
concern. We have incurred losses since inception, resulting in cumulative losses
of $16,242,392 through June30, 2010. We do not anticipate positive cash flow
from operations before 2013 and cannot predict if and when we may generate
profits.  We expect to finance our operations primarily through future
financings. However, as discussed in Note 3 to our Consolidated Financial
Statements included in this Annual Report on Form 10-K, there exists substantial
doubt about our ability to continue as a going concern because there is no
assurance that we will be able to obtain such capital, through equity or debt
financing, or any combination thereof, on satisfactory terms or at all. 
The Consolidated Financial Statements do not include any adjustments that might
result from the outcome of this uncertainty.





We
have not made certain scheduled payments under agreements with respect to
prospective properties.  If we are deemed to be liable for such payments
(and/or damages arising out of their non-payment), then our business, financial
condition and prospects could be materially adversely affected.




Pursuant
to our Master Option Agreement with Lacus, we have paid $942,178 to Lacus
(of which $700,000 pertained to work commitments), and were to pay an additional
$500,000 to Lacus on or before March 12, 2011.  Furthermore, we were to
complete $1,688,000 in additional work commitments on or before August 31, 2010,
and a further $1,312,000 in work commitments a year from closing.  On
August 24, 2010, we received a notice from Lacus purporting to terminate the
Master Option Agreement and the Services Agreement because of our failure to pay
certain amounts alleged to then be due under such agreements.  We have
recorded $965,000 of exploration expenses related to our obligations under the
Master Option Agreement, however, there can be no assurance that we will not
ultimately pay more than that amount with respect to this matter.




Pursuant
to our Option Agreements with GeoXplor Corp. on the Nevada Claims, we were
required to make periodic and milestone payments and also to maintain the
relevant mineral claims in good standing for certain time periods.  We
failed to make a periodic payment of $100,000 due on June 30, 2010. 
Subsequent to year-end, we were also obligated to pay approximately $57,000 of
claim maintenance fees on the Nevada Claims and approximately $32,600 of Nevada
state taxes, which we have not paid.





If and to
the extent we are found liable for, or deliver value in settlement of, any
claims that may arise from the foregoing, and/or our expenses related to those
matters become significant, then our business, financial condition and prospects
could be materially adversely affected and the value of our stockholders'
interests in us could be impaired.




Proposed
transactions discussed in our Exchange Act reports that have not been
consummated are subject to various conditions and/or further agreement among the
parties, and may ultimately not be consummated on the terms described herein, or
at all.




We
discuss in our Exchange Act reports certain proposed transactions that have not
yet been consummated, including letters of intent and definitive purchase
agreements to acquire mineral interests. There can be no assurance that any such
letter of intent will progress to definitive agreements or that the conditions
to closing of any such definitive agreement will be satisfied and a closing
held. For reasons that may be within or beyond our control, such transactions
may never come to fruition. Nonetheless, we spend funds and management’s
attention on pursuing such transactions which may materially adversely affect
our liquidity and results of operations.


25


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




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




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




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




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




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




Mineral
operations are subject to applicable law and government regulation. Even if we
discover a mineral resource in a commercially exploitable quantity, these laws
and regulations could restrict or prohibit the exploitation of that mineral
resource.




Both
mineral exploration and extraction require permits from various foreign,
federal, state, provincial and local governmental authorities and are governed
by laws and regulations, including those with respect to prospecting, mine
development, mineral production, transport, export, taxation, labor standards,
occupational health, waste disposal, toxic substances, land use, environmental
protection, mine safety and other matters. There can be no assurance that we
will be able to obtain or maintain any of the permits required for the continued
exploration of our mineral properties or for the construction and operation of a
mine on our properties at economically viable costs.


26


We
believe that we are in compliance with all material laws and regulations that
currently apply to our activities but there can be no assurance that we can
continue to remain in compliance. Current laws and regulations could be amended
and we might not be able to comply with them, as amended. Further, there can be
no assurance that we will be able to obtain or maintain all permits necessary
for our future operations, or that we will be able to obtain them on reasonable
terms. To the extent such approvals are required and are not obtained, we may be
delayed or prohibited from proceeding with planned exploration or development of
our mineral properties.




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




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




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




Newer
battery and/or fuel cell technologies could decrease demand for lithium over
time.




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


27


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




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




Lithium,
iodine and nitrates prices are subject to unpredictable
fluctuations.




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




Market
conditions deteriorated for lithium-based products in 2009. Among other
things:


•
                sales volumes for the major
      lithium producers were reported to be down between 15% and 42% by
      mid-2009;


•
            consumption
      by lithium end-use markets for batteries, ceramics and glass, grease, and
      pharmaceuticals all decreased;




•
            a
      major spodumene producer in Canada closed its mine owing to market
      conditions; and




•
            the
      leading lithium producer in Chile announced it would lower its lithium
      prices by 20% in 2010.




There can
be no assurance that market conditions will rebound in the near term or ever, or
that they will not deteriorate further.


28




The
mining industry is highly competitive, and we face competition from many
established domestic and foreign companies.  We may not be able to compete
effectively with these companies.




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




Because
we are small and do not have much capital, we may have to limit our exploration
and developmental mining activity which may result in a loss of your
investment.




Because
we are a small exploration stage company and do not have much capital, we must
limit our exploration and production activity.  As such, we may not be able
to complete an exploration program that is as thorough as we would like. 
In that event, existing reserves may go undiscovered.  Without finding
reserves, we cannot generate revenues and you may lose any investment you make
in our shares.




Compliance
with environmental and other government regulations could be costly and could
negatively impact production.




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




•
            require
      that we acquire permits before commencing extraction
      operations;





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





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





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





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


29


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




Our
business plan includes acquisition, exploration and development of lithium brine
properties.  However, we may pursue this goal by acquiring salt-mining
claims and/or options or other interests in salt-mining claims or other types of
claims, that we intend to seek to have amended to cover lithium
extraction.  There can be no assurance that we will be successful in
amending any such claims timely, economically or at all.




We
may have difficulty managing growth in our business.




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




If
we are unable to keep our key management personnel, then we are likely to face
significant delays at a critical time in our corporate development and our
business is likely to be damaged.




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




Each
of our Chief Executive Officer, our Chief Operating Officer and our Interim
Chief Financial Officer has other substantial business activities that limit the
amount of time that he can devote to managing our business.




Our Chief
Executive Officer, Luis Saenz, currently serves as the President of another
publicly traded company – Loreto Resources Corporation – and our Interim Chief
Financial Officer, Eric E. Marin, currently serves as the Interim Chief
Financial Officer of that same company.  Accordingly, these officers are
only able to devote a portion of their time to our activities.  Our Chief
Operating Officer, R. Thomas Currin, Jr., also has other business
interests.  This may make it more difficult for our management to respond
quickly and completely to challenges and opportunities that we may encounter,
may limit our ability to timely consummate strategic transactions and may have
an adverse effect on our results of operations.


30


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




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




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




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





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





•
            maintain
      policies relating to disclosure controls and
  procedures;





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





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





•
            involve
      to a greater degree our outside legal counsel and accountants in the above
      activities.





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


31


RISKS
RELATED TO OUR COMMON STOCK




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




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




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




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




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




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





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





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





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





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


32


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





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





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





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





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




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




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




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




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




•
            actual
      or anticipated variations in our operating
  results;





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





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


33


•
            adoption
      of new accounting standards affecting our
  industry;





•
            additions
      or departures of key personnel;





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





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





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




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




We are a
reporting company under U.S. securities laws and are obliged to comply with the
provisions of applicable U.S. laws and regulations, including the Securities Act
of 1933, the Securities Exchange Act of 1934, and the Sarbanes-Oxley Act of 2002
and the related rules of the SEC, and the rules and regulations of the relevant
U.S. market, in each case, as amended from time to time.  Preparing and
filing annual and quarterly reports and other information with the SEC,
furnishing audited reports to stockholders and other compliance with these rules
and regulations will involve a material increase in regulatory, legal and
accounting expenses and the attention of management, and there can be no
assurance that we will be able to comply with the applicable regulations in a
timely manner, if at all.




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




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




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




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


34


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




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




You
may experience dilution of your ownership interests because of the future
issuance of additional shares of our common stock.




In the
future, we may issue our authorized but previously unissued equity securities,
resulting in the dilution of the ownership interests of our present stockholders
and the purchasers of our common stock offered hereby.  We are currently
authorized to issue an aggregate of 300,000,000shares of capital stock
consisting of 290,000,000 shares of common stock and 10,000,000 shares of
preferred stock with preferences and rights to be determined by
our  Board of Directors.  As of October 29, 2010, there were87,109,033 shares of our
common stock and no shares of our preferred stock outstanding.  There
are5,000,000
shares of our common stock reserved for issuance under our 2009 Equity Incentive
Plan (the “2009 Plan”).  These numbers do not include shares of our common
stock issuable upon the exercise of outstanding options and warrants and
conversion of outstanding convertible promissory notes.




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


35


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




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




Any
failure to maintain effective internal control over our financial reporting
could materially adversely affect us.




Section
404 of the Sarbanes-Oxley Act of 2002 will require us to include in our annual
reports on Form 10-K, an assessment by management of the effectiveness of our
internal control over financial reporting.  While we intend to document,
review, test and improve our internal control over financial reporting in order
to ensure compliance with Section 404, management may not be able to conclude
that our internal control over financial reporting is effective.  Any of
these events could result in a loss of investor confidence in the reliability of
our financial statements, which in turn could negatively impact the price of our
common stock.




In
particular, we must perform system and process evaluation and testing of our
internal control over financial reporting to allow management to report on the
effectiveness of our internal control over financial reporting, as required by
Section 404.  Our compliance with Section 404 will require that we incur
accounting expense and expend management efforts.  We currently do not have
an internal audit group, and we will need to retain the services of additional
accounting and financial staff or consultants with appropriate public company
experience and technical accounting knowledge to satisfy the ongoing
requirements of Section 404.




Any
material weaknesses or significant deficiencies in our control systems may
affect our ability to comply with SEC reporting requirements and any applicable
listing standards or cause our financial statements to contain material
misstatements, which could negatively affect the market price and trading
liquidity of our common stock and cause investors to lose confidence in our
reported financial information, as well as subject us to civil or criminal
investigations and penalties.


36


OTHER
RISKS




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





ITEM
      1B.
            UNRESOLVED
      STAFF COMMENTS





Not
applicable.





ITEM
      2.
            PROPERTIES





Mining
Properties





The
information set forth above under “Business” relating to our properties is
incorporated herein by reference.





Corporate
Offices





We
sublease approximately 800 square feet of office space in Lima, Peru from Loreto
Resources Corporation, a Nevada Corporation whose Chief Executive Officer and
Interim Chief Financial Officer are also our Chief Executive Officer and Interim
Chief Financial Officer.  Our sublease payments, including shared office
administration costs, are billed to the company at Loreto Resources
Corporation’s cost in proportion to our share of the total space, and totaled
$21,859 for fiscal 2010.  The lease provides for a three percent annual
rent increase and expires on September 30, 2011.





ITEM
      3.
            LEGAL
      PROCEEDINGS





Other
than routine litigation arising in the ordinary course of business that we do
not expect, individually or in the aggregate, to have a material adverse effect
on us, there is no currently pending legal proceeding and, as far as we are
aware, no governmental authority is contemplating any proceeding to which we are
a party or to which any of our properties is subject.  However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters that may arise from time to time may harm our business.





ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS





No
matters were submitted to a vote of security holders, through the solicitation
of proxies or otherwise, during the fourth quarter of the fiscal year covered by
this Annual Report.


37


PART
II





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





Market
Information and Holders




As of
October 29, 2010, there were 87,109,033 shares of our common stock issued and
outstanding, 20,798,460 shares of common stock issuable upon exercise of
outstanding warrants, 1,800,000 shares reserved for issuance pursuant to
outstanding options granted under our 2009 Equity Incentive Plan and  an
award of 2,500,000 restricted shares of common stock granted pursuant under our
2009 Equity Incentive Plan.  In addition, we have an outstanding
convertible note that provides that the principal and interest balance due
thereon are convertible at the holder’s option pursuant to terms to be mutually
agreed upon by us and the holder in writing.  As of October 19, 2010, there
was an aggregate of approximately $50,462 of principal and accrued but unpaid
interest on such convertible note, however, we and the holder have not yet
negotiated the conversion terms thereof.  On October 29, 2010, there were
approximately 52 holders of record of our outstanding common stock.  As of
that date, there are no shares of our common stock outstanding or issuable upon
conversion or exercise of outstanding securities that could be sold under Rule
144.




We
granted registration rights to the investors purchasing “Units” consisting of
shares our common stock and warrants to purchase shares of our common stock in
our private placement offering that closed in June, July and September 2010 (the
“2010 PPO”).  We agreed to use our commercially reasonable efforts to file
a registration statement under the Securities Act of 1933, as amended (the
“Securities Act”), covering the shares of common stock included in the Units and
the shares of common stock issuable upon exercise of the warrants included in
the Units, within 60 days after the final closing of the 2010 PPO (the
“Registration Filing Date”) and to have such registration statement declared
effective within 180 days of such final closing date (the “Registration
Effectiveness Date”).  We will, in certain circumstances, be obliged to pay
the holders of such registrable securities liquidated damages if the
registration statement is not filed by the Registration Filing Date or declared
effective by the Registration Effectiveness Date, or if another Registration
Event, as such term is defined in the Registration Rights Agreement, occurs, in
the amount of 1% of the purchase price in the 2010 PPO of the Units which are
affected by such Registration Event, for each full thirty (30) days during which
such Registration Event continues to affect such shares (which shall be
pro-rated for any period less than 30 days), up to a maximum of 10% of the
purchase price paid in the 2010 PPO for such Units.  We are required to
keep the registration statement effective until the earlier of one year from the
date the registration statement is declared effective or until all of the
registrable securities may be sold under Rule 144 during any 90 day
period.




We also
granted certain “piggy-back” registration rights covering the shares of common
stock included in the Units sold in the 2010 PPO and the shares of common stock
issuable upon exercise of the warrants included in such Units with respect to
registration statements we may file for our own account or for the account of
other security holders or both, with certain exceptions.


38


We
granted “piggy-back” registration rights to the investors purchasing units in
our private placement of common stock and warrants that we closed in November
and December of 2009 (the “2009 Private Placement”).  If we determine to
register for sale for cash any of our common stock for our own account or for
the account of others, then the holders of the common stock and warrants issued
in the 2009 Private Placement will have the right to have such shares, and the
shares of common stock issuable upon exercise of such warrants, included in such
registration statement, subject to customary exceptions and scale
backs.




If the
2,500,000 shares of our common stock held by Next Lithium cannot be resold under
Rule 144 under the Securities Act of 1933 without restriction at any time
following the 13th month after closing due to our status as a former “shell”
company and our failure to file required reports with the Securities and
Exchange Commission, and not because of any fault of Next Lithium, then we must
register such shares for resale under the Securities Act.




The
1,500,000 shares of common stock held by Geoxplor carry “piggyback” registration
rights until the earlier of: (a) February 16, 2012, or (b) the date on which all
such shares may immediately be sold under Rule 144 during any 90-day
period.




We have
no outstanding shares of preferred stock.




Since
July 1, 2006, our common stock had been listed for quotation on the
Over-the-Counter Bulletin Board, originally under the symbol
“MYTC.”  Our symbol changed to “NNDY” in July 2008 in connection with
our name change to NanoDynamics Holdings, Inc.  Our symbol changed to
“LIEG” effective November 18, 2009, in connection with our name change to Li3
Energy, Inc.




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




Period
                  
                  High(1)
                  
                  
                  Low(1)Fiscal
      Year Ending June 30, 2009First
      Quarter
                  
                  $
                  0.0646
                  
                  
                  $
                  0.0243Second
      Quarter
                  
                  
                  0.0646
                  
                  
                  
                  0.0646Third
      Quarter
                  
                  
                  0.0646
                  
                  
                  
                  0.0032Fourth
      Quarter
                  
                  
                  0.0038
                  
                  
                  
                  0.0032Fiscal
      Year Ending June 30, 2010First
      Quarter
                  
                  $
                  0.0038
                  
                  
                  $
                  0.0038Second
      Quarter
                  
                  
                  0.6700
                  
                  
                  
                  0.0032Third
      Quarter
                  
                  
                  1.0800
                  
                  
                  
                  0.6700Fourth
      Quarter
                  
                  
                  0.9150
                  
                  
                  
                  0.3500




(1)
            All
      quotations give retroactive effect to our 3.031578-for-1 forward stock
      split in the form of a dividend which was effected on July 29, 2008, and
      our 15.625-for-1 forward stock split in the form of a dividend which was
      effected on November 16, 2009.


39


Dividends




We have
never declared any cash dividends with respect to our common stock.  Future
payment of dividends is within the discretion of our Board of Directors and will
depend on our earnings, capital requirements, financial condition and other
relevant factors.  Other than provisions of the Nevada Revised Statutes
requiring post-dividend solvency according to certain measures, there are no
material restrictions limiting, or that are likely to limit, our ability to pay
dividends on our common stock.  Nonetheless, we presently intend to retain
future earnings, if any, for use in our business and have no present intention
to pay cash dividends on our common stock.




Securities
Authorized for Issuance under Equity Compensation Plans




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




As of the
date of this report, we have outstanding 1,800,000 nonqualified stock options
under the 2009 Plan, with a weighted average exercise price of approximately
$0.35 per share.  In addition, we have granted an award of restricted stock
to MIZ Comercializadora, S. de R.L. under the 2009 Plan with respect to
2,500,000 shares of restricted stock and have granted such entity an option
under the 2009 Plan to purchase an additional 1,000,000 shares of our common
stock in connection with our employment of R. Thomas Currin, Jr., as Chief
Operating Officer.  For all option grants, our Board of Directors has set
(or will set) the exercise price of the options at a price equal to or greater
than the fair market value of our common stock on the date of grant of the
options.  The 250,000 outstanding vested options under the 2009 Plan vested
immediately upon their grant, and 200,000 of such options have a five year term
and the other 50,000 have a two year term.  The other 600,000 outstanding
options under the 2009 Plan vest in three equal installments on each of the
first, second and third anniversary of the date of grant and have a ten year
term.




The
following table provides information as of June 30, 2010, with respect to the
shares of common stock that may be issued under our existing equity compensation
plans:


40




Plan Category
                    
                    Number of securities to be
                      issued upon exercise of
                      outstanding options,
                      warrants and rights
                    
                    
                    Weighted-average
                      exercise price of
                      outstanding options,
                      warrants and rights
                    
                    
                    Number of securities
                      remaining available for
                      future issuance under equity
                      compensation plans
                      (excluding securities reflected
                      in column (a))(a)
                    
                    
                    (b)
                    
                    
                    (c)Equity
      compensation plans approved by security holders (1)
                    
                    
                    800,000
                    
                    
                    $
                    0.31
                    
                    
                    
                    4,200,000Equity
      compensation plans not approved by security holders
                    
                    
                    —
                    
                    
                    
                    n/a
                    
                    
                    
                    —Total
                    
                    
                    800,000
                    
                    
                    $
                    0.31
                    
                    
                    
                    4,200,000





(1)
            Represents
      the 2009 Equity Incentive Plan.




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





ITEM
      6.
            SELECTED
      FINANCIAL DATA





Not
applicable.





ITEM 7.
            MANAGEMENT’S DISCUSSION AND
      ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS





The
following discussion and analysis of financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this report. This discussion
contains forward-looking statements that involve risks, uncertainties and
assumptions. See “Forward-Looking Statements.” Our actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors discussed in “Risk Factors” and elsewhere in this
report.





The
following discussion and analysis of our financial condition and results of
operations are based on our audited consolidated financial statements, which
have been prepared on the accrual basis of accounting whereby revenues are
recognized when earned, and expenses are recognized when incurred.





Overview
and Going Concern





Li3
Energy is an emerging exploration company, focused on the discovery and
development of lithium brine deposits on the Puna Plateau of Chile and Argentina
and mining projects in Peru.  We have acquired mineral claims prospective
for lithium and potassium that cover a total area of 19,500 acres in Peru. We
continue to evaluate these properties to determine if they meet our criteria for
future development.  We have also acquired an option to purchase mining
concessions with respect to approximately 6,670 acres of mining tenements near
Pozo Almonte, Chile, from which we expect to produce saleable iodine (aided by
the potassium we expect to generate from our prospective lithium carbonate brine
properties) nitrate products.  We are currently evaluating additional
exploration and production opportunities.


41


We were
incorporated on June 24, 2005, as Mystica Candle Corp. and were originally in
the business of manufacturing, marketing and distributing soy-blend scented
candles and oils. We determined that we could not continue with our business
operations as outlined in our original business plan because of a lack of
financial results and resources; therefore, we redirected our focus towards
identifying and pursuing options regarding the development of a new business
plan and direction. In July 2008 we changed our name from Mystica Candle Corp.
to NanoDynamics Holdings, Inc., to facilitate discussions with NanoDynamics,
Inc., a Delaware corporation, regarding a possible business combination.
However, we determined not to proceed with that business combination.  In
October 2009, we changed our name from NanoDynamics Holdings, Inc., to Li3
Energy, Inc., as we refocused our business strategy on the energy sector and
lithium mining opportunities.




Going
Concern





In the
course of our development activities, we have sustained and continue to sustain
losses.  We do not anticipate positive cash flow from operations before
2013 and cannot predict if and when we may generate profits.  In the event
we identify commercial reserves of minerals and lithium, we will require
substantial additional capital to develop those resources. We expect to finance
our operations primarily through future financings. However, there exists
substantial doubt about our ability to continue as a going concern because there
is no assurance that we will be able to obtain such capital, 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 our ultimate capital needs and to support our growth.
If adequate capital cannot be obtained on a timely basis and on satisfactory
terms, our operations would be materially negatively impacted. 
 Therefore, there is substantial doubt as to our ability to continue as a
going concern. Additionally, our independent auditors included an explanatory
paragraph in their report on our consolidated financial statements included in
this report that raises substantial doubt about our ability to continue as a
going concern.





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




Our
audited consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
implies we will continue to meet our obligations and continue our operations for
the next twelve months. Realization values may be substantially different from
carrying values as shown, and our consolidated financial statements do not
include any adjustments relating to the recoverability or classification of
recorded asset amounts or the amount and classification of liabilities that
might be necessary in the event we are unable to continue as a going
concern.


42


Chile





On August
3, 2010, we acquired all of the outstanding share capital of Alfredo, which,
through its Chilean subsidiary PRMC, has an option to purchase mining
concessions with respect to approximately 6,670 acres of mining tenements near
Pozo Almonte, Chile, pursuant to an Option to Purchase Agreement. We issued
an aggregate of 10,000,000 shares of our common stock (the “Purchase Price
Shares”) to the Sellers and their designees.  Of the Purchase Price Shares,
8,800,000 that we issued directly to the Sellers are subject to an 18-month
lock-up period.  If and when the following milestones are achieved with
respect to a mine that we may dig on the Alfredo Property to recover iodine or
nitrate (the “Alfredo Mine”), we will be required to make the following
additional payments to the Sellers:





·
            $1,000,000
      upon our Board of Directors’ resolution to commence final engineering and
      design of the Alfredo Mine;





·
            A
      further $2,000,000 upon our Board of Directors’ resolution to commence
      construction of the Alfredo Mine;
and





·
            A
      further $2,500,000 upon commencement of commercial production from the
      Alfredo Mine (meaning production at a rate of 75% of design capacity for 3
      months).





Sellers
have the right to take any or all of the above milestone payments in shares of
our common stock instead of cash, valued at the greater of (i) $0.25 per share
and (ii) the average of the closing price for our common stock on the 30 trading
days immediately preceding the relevant payment date.  We are under no
obligation to achieve or pursue any of the milestones.





We
granted the Sellers preemptive rights in certain future financing transactions
by us, provided that Sellers still own at least 50% of the Purchase Price
Shares.  Such preemptive rights are subject to customary exceptions,
and generally give Sellers the right to purchase up to 25% of the securities
that we sell in any offering to which they apply.





Upon our
completion of Canadian National Instrument 43-101 Inferred Resource Reports on
the Alfredo Property and on at least one lithium property in Argentina, Sellers
will have the right to subscribe for shares of our common stock having an
aggregate purchase price of at least $2,500,000 up to a maximum of
$10,000,000.  If Sellers exercise this option, then Sellers will pay a
price per share equal to the greater of (i) $0.25 per share, or (ii) the thirty
day volume-weighted average price of our common stock on its principal market at
the time we notify Sellers of our having completed the relevant 43-101 Inferred
Resources Reports.





Through
PMRC, we have the option to acquire 100% of the six mining concessions
constituting the Alfredo Property.  We must make periodic payments
aggregating $360,000 between June 30, 2010 and December 30, 2010.  We
paid $80,000 in August 2010 and must make payments of $100,000 by October 30,
2010 and $180,000 by December 30, 2010 in order to maintain our option
rights.  If we fail to make the required payments, our option rights
will be lost.  Then, in order to exercise the option and purchase the
Alfredo Property, we must pay the option exercise price of $4,860,000 by March
30, 2011.




43





In
addition, we estimate that we would require approximately $8.5 million in order
to develop the Alfredo Property to the stage of a completed feasibility
study.





Argentina




Puna Lithium Corporation,
Lacus Minerals S.A and Noto Energy S.ATransactions




On March
12, 2010, the Company entered into an assignment agreement (the “Assignment
Agreement”) whereby the Company would purchase all of Puna Lithium Corporation’s
(“Puna”) interests in and rights under a letter of intent dated November 23,
2009, as amended (the “Letter of Intent”) entered into by Puna, Lacus Minerals
S.A. (“Lacus”), and the shareholders of Noto Energy S.A..  The Company
entered into a Master Option Agreement with Lacus (the “Master Option
Agreement”), for the acquisition of three options (collectively, the “Options”)
to acquire up to an 85% interest in: (a) approximately 70,000 acres situated on
prospective brine salars in Argentina, known as Rincón, Centenario and Pocitos
(the “Master Lacus Properties”); and (b) salt-mining claims on approximately
9,000 additional acres in certain other areas of mutual interest on some of
those same salars (the “Third Parties Properties” and, together with the Master
Lacus Properties, the “Lacus Properties”) that may be acquired upon exercise of
the two options (collectively, the “Third Parties Options”).




In
accordance with the Assignment Agreement, the Company was also required to issue
8,000,000 shares of common stock to Puna upon the date of the closing
(“Closing”) as defined in the Master Option Agreement.  As the Closing
did not occur, the Company did not issue the 8,000,000 shares of common
stock.




In March
2010, we also entered into an agreement to acquire 100% of the issued and
outstanding shares of Noto Energy S.A., an Argentinean corporation ("Noto"),
which beneficially owns a 100% interest over 2,995 acres situated on brine
salars in Argentina, known as Cauchari. In July 2010, we closed on the
acquisition of Noto.




As
consideration for entering the Master Option Agreement and as a condition to
maintain the first Option in good standing until exercised, we have paid
$942,178 to Lacus (of which $700,000 pertained to work commitments), and were to
pay $500,000 to Lacus on or before March 12, 2011.  We were to
complete $1,688,000 in additional work commitments on or before August 31, 2010,
and a further $1,312,000 in work commitments a year from closing. However,
following termination of the Master Option Agreement, we have made no further
payments.




In August
2010, our Board of Directors determined that the brine chemistry results from
surface pit sampling on the Rincon, Pocitos and Centerario salars did not meet
our criteria for economic brine reserves and that funding of a drilling program
should be suspended.  Subsequently, we received a notice from Lacus
purporting to terminate the Master Option Agreement and a related services
agreement because of our failure to pay certain amounts alleged to be due under
these agreements. Accordingly, we have made no further payments under the
Master Option Agreement.  We have recorded $965,000 of exploration
expenses related to our obligations under the Master Option
Agreement.


44





Nevada




Under the CSV, LM and MW Option
Agreement, we paid to Geoxplor $236,607. We also agreed to payadditional amounts totaling $75,000
contingent upon future events which had not occurred as of the date of our
financial statements or this filing.  Under the BSV Option Agreement, we were
required to pay to Geoxplor$100,000 onJune30, 2010.The $100,000 owed to GeoXplor is
recorded in accrued expenses as of June 30, 2010.Under both the Nevadaoptionagreements, we would have paid Geoxplor
a 3.0% net smelter return royalty on the proceeds from production of all ores,
minerals, metals, concentrates and mineral resources (an “NSR”) derived from
mining operations on the related properties.





We
acquired the options on the Nevada Claims in exchange for 4,000,000 restricted
shares of our common stock.   2,500,000 of these shares of our common
stock are being held in escrow until March 2011 against any indemnifiable
liabilities that may arise.





We have
subsequently determined that these properties do not meet the requirements of
our technical and business strategy criteria and have decided not to pursue
these options.  As of the date of this filing, we have not paid the
$100,000 payable under the BSV Option Agreement on June 30,
2010.





Subsequent
to year-end, we were also obligated to pay approximately $57,000 of claim
maintenance fees on the Nevada Claims and approximately $32,600 of Nevada state
taxes, which we have not paid.




Peru




On
February 23, 2010, we acquired 100% of the assets of the Loriscota, Suches and
Vizcachas Projects for an aggregate purchase price of $50,000.  We
currently do not anticipate spending material amounts on exploration work with
respect to these projects over the next 12 months.




If we
succeed in acquiring any other projects, then we would expect to incur
additional financial commitments with respect to such properties that are not
reflected in the above discussion.





Results
of Operations




The
following is a comparison of our results of operations for the years ended June
30, 2010 and 2009.




Revenues




We had no
revenues during the years ended June 30, 2010 and 2009,
respectively.




Operating
Expenses




Mineral
Rights Impairment Expense




During
the years ended June 30, 2010 and 2009, mineral rights impairment expense was
$4,718,785, and $0, respectively.  The increase for the year ended
June 30, 2010 is a result of the impairment of the Puna ($742,178) and Nevada
($3,976,607) projects.  In each of these projects, after further
review, we determined that the projects did not meet our requirements for
additional mining development activities.


45


Exploration
expenses




During
the years ended June 30, 2010 and 2009, we incurred exploration expenses of
$2,335,779 and $0, respectively.  The expenses incurred during the
year ended June 30, 2010 related to our efforts to secure strategic mineral
rights in North and South America and include direct expenses, consulting
expenses in connection with prospective mining operation investment
opportunities, and travel.




General
and administrative Expenses




During
the years ended June 30, 2010 and 2009, we incurred general and administrative
expenses of $2,762,102 and $63,364, respectively.  The increase in
expenses incurred related primarily to consultancy fees, travel expenses and
professional fees incurred in connection with the day-to-day operation of our
business.




Other Income
(Expense)





Other
expense for the year ended June 30, 2010, was $6,232,016 compared to other
expense of $4,541 for the year ended June 30, 2009, and increased primarily due
to our recognition, during the year ended June 30, 2010, of an unrealized loss
from the increase in the fair value of the derivative liability related to our
outstanding warrant instruments of $6,223,547. Interest income in the amount of
$4,404 was earned on our cash deposits during the 2010 fiscal year as compared
to $11 during the 2009 fiscal year. Interest expense amounted to $7,713
during the year ended June 30, 2010 as compared to $4,552 during the year ended
June 30, 2009, and were incurred in connection with interest bearing notes that
we sold to finance our short-term working capital needs.  During the
years ended June 30, 2010 and 2009, we incurred a loss on foreign currency
translation of $5,160 and $0, respectively, and such losses related to our
operations in Peru.





Liquidity
and Capital Resources




Overview




Due to
our brief history and historical operating losses, our operations have not been
a source of liquidity, and our sources of liquidity primarily have been
debt and proceeds from the sale of Units in two private
placements.




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


46




Various
factors outside of our control, including the price of lithium and other
minerals, overall market and economic conditions, the downturn and volatility in
the US equity markets and the trading price of our common stock may limit our
ability to raise the capital needed to execute our plan of
operations.  We recognize that the US economy is currently
experiencing a period of uncertainty and that the capital markets have been
depressed from recent levels.  These or other factors could adversely
affect our ability to raise additional capital.  As a result of an
inability to raise additional capital, our short-term or long-term liquidity and
our ability to execute our plan of operations could be significantly
impaired.




In
November and December 2009, we raised gross proceeds of $3,500,000 ($3,339,524
after offering expenses) from the sale of units of our equity securities in our
2009 Private Placement.  We sold an aggregate of 14,000,000 units,
each consisting of (i) one share of our common stock, (ii) five-year warrants to
purchase one-half of one (0.5) share of common stock at an exercise price of
$0.50 per whole share and (iii) five-year warrants to purchase one-half of one
(0.5) share of common stock at an exercise price of $1.00 per whole
share. Under the anti-dilution provisions of these warrants, as a result of
the 2010 offering described below, the exercise prices of the warrants were
adjusted to $0.4788 and $0.9026 per whole share, respectively.





In June,
July and September 2010, we raised gross proceeds of $1,540,000 ($1,237,906
after offering expenses) from the sale of units of our equity securities in
our 2010 Private Placement.  We sold an aggregate of 6,160,000 units,
each consisting of (i) one share of our common stock and (ii) a warrant to
purchase one share of common stock at an exercise price of $0.50 per share. The
warrants will be exercisable until September 13, 2015.





In
addition to utilizing our capital to acquire properties and pay other corporate
costs, we periodically issue shares of our common stock as consideration in lieu
of cash to conserve our cash and meet our obligations.  We likely will
continue to issue common stock for these purposes where feasible, if we
determine that it is in our economic best interests.





We have
been using the net proceeds from the 2009 and 2010 private placements towards
the implementation of our business development plan and for general working
capital purposes.  We will require additional capital to pay our
obligations and to execute our exploration and development plans for our
existing lithium mining properties and any others that we may be successful in
acquiring.  We plan to seek to raise such capital through additional
sales of our equity or debt securities.  There can be no assurance,
however, that such financing will be available to us or, if it is available,
that it will be available on terms acceptable to us and that it will be
sufficient to fund our expected needs.  If we are unable to obtain
sufficient financing, we may not be able to proceed with our exploration and
development plans or meet our ongoing operational working capital
needs.




At June
30, 2010, we had cash and cash equivalents of $302,821, as compared to $9,703 at
June 30, 2009.  The increase in cash and cash equivalents from June
30, 2009 to June 30, 2010 was due to cash provided from the net proceeds from
the issuance of common stock of ($4,089,320), partially offset by cash used in
operating activities ($2,377,417) and cash used in investing activities
($1,418,785).


47




Accounts
payable and accrued expenses increased by $1,630,892 to $1,639,650 at June 30,
2010, from $8,758 at June 30, 2009.  The increase was primarily
attributable to mineral acquisition costs and the additional legal and
professional fees associated with the ramping up of our business and costs
related to the 2009 and 2010 private placements.





Our
liquidity could be materially adversely affected by claims related to the
termination of the Argentinean and Nevada projects if we are required to fulfill
the obligations contemplated in these agreements.





We expect
to require an aggregate of approximately $11 million over the next 12 months to
pay our acquisition costs and exploration and development costs and other
liabilities associated with the various projects described above as
well as our currently anticipated general and administrative and other
costs.  Furthermore, if we succeed in acquiring any other projects,
then we would expect to incur additional financial commitments with respect to
such projects.  We will require substantial additional funds to
execute our planned activities over the next 12 months.  While we may
seek to raise such funds through the sale of our equity or debt securities,
there can be no assurance that we will be able to do so in a timely manner, on
reasonably favorable terms or at all.  If our financing efforts are
unsuccessful, then we will need to reduce our planned activities or cease
operations altogether.





Off-Balance
Sheet Arrangements





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




Critical
Accounting Policies




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 a commercially mineable property. Costs incurred to maintain current
production or to maintain assets on a standby basis are charged to operations.
If we do not continue with exploration after the completion of the feasibility
study, the 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 these costs are in excess of their recoverable amount
periodic evaluation of carrying value of capitalized costs and any related
property and equipment costs are based upon expected future cash flows and/or
estimated salvage value in accordance with Accounting Standards Codification
(ASC) 360-10-35-15, Impairment
or Disposal of Long-Lived Assets.




48


Share-based
Payments




We
determine the fair value of stock option awards granted to employees in
accordance with FASB ASC Topic No. 718 – 10 (formerly SFAS No. 123(R),
“Share-Based Payments”) and to non-employees in accordance with FASB ASC Topic
No. 505 – 50 (formerly EITF 96-18 “Accounting for Equity Instruments Issued to
Non-Employees for Acquiring, or in Conjunction with Selling, Goods or
Services”).




Fair
Value of Equity Transactions




Many of
or equity transactions require us to determine the fair value of an equity
instrument in order to properly record the transaction in our financial
statements. Fair value is generally determined by applying widely acceptable
valuation models, (e.g., the Black Scholes and binomial lattice valuation
models) using the trading price of the underlying instrument or by comparison to
instruments with comparable maturities and terms.




New
Accounting Pronouncements




In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
TM and the Hierarchy of Generally Accepted Accounting Principles – a replacement
of FASB Statement No. 162” (“SFAS 168”). The FASB Accounting Standards
Codification TM , (“Codification” or “ASC”) became the source of authoritative
GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. On the effective date of
SFAS 168, the Codification superseded all then-existing non-SEC accounting and
reporting standards. All other non-grandfathered non-SEC accounting literature
not included in the Codification became non-authoritative.





Following
SFAS 168, the FASB no longer issues new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it
issues Accounting Standards Updates (ASU’s). The FASB does not consider ASU’s as
authoritative in their own right; rather these updates serve only to update the
Codification, provide background information about the guidance, and provide the
bases for conclusions on the change(s) in the Codification. SFAS No. 168 is
incorporated in ASC Topic 105, Generally Accepted Accounting
Principles.  We adopted SFAS No. 168 in the first quarter of 2010, and
we will provide reference to both the Codification topic reference and the
previously authoritative references related to Codification topics and
subtopics, as appropriate.





Effective
July 1, 2009, we adopted FASB ASC Topic No. 815 – 40, Derivatives and Hedging -
Contracts in Entity’s Own Stock (formerly Emerging Issues Task Force Issue No.
07-5, Determining Whether an Instrument or Embedded Feature is Indexed to an
Entity’s Own Stock). The adoption of FASB ASC Topic No. 815 – 40’s requirements
can affect the accounting for warrants and many convertible instruments with
provisions that protect holders from a decline in the stock price (or
“down-round” provisions). For example, warrants with such provisions will no
longer be recorded in equity.  Down-round provisions reduce the
exercise price of a warrant or convertible instrument and/or modify the
potential shares issuable if a company either issues equity shares for a price
that is lower than the exercise price of those instruments or issues new
warrants or convertible instruments that have a lower exercise price. We
evaluate whether warrants or convertible instruments contain provisions that
protect holders from declines in our stock price or otherwise could result in
modification of the exercise price and/or shares to be issued under the
respective debt, warrant or preferred stock agreements based on a variable that
is not an input to the fair value of a “fixed-for-fixed” option as defined under
FASB ASC Topic No. 815 – 40.


49





ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable.





ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA





Our
audited consolidated financial statements as of, and for the years ended, June
30, 2010 and 2009, and for the period from June 24, 2005 (inception) through
June 30, 2010, are included beginning on Page F-1 immediately following the
signature page to this report.  See Item 15 for a list of the
financial statements included herein.





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





None.





ITEM
      9A
            CONTROLS
      AND PROCEDURES




(a)
Evaluation of Disclosure Controls and Procedures.




We
maintain disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the reports that we file or submit to
the SEC under the Exchange Act, is recorded, processed, summarized, and reported
within the time periods specified by the SEC’s rules and forms, and that
information is accumulated and communicated to our management, including our
chief executive and chief financial officers, as appropriate to allow timely
decisions regarding required disclosure.




The chief
executive officer and the chief financial officer have concluded, based on their
evaluation as of June 30, 2010 that, as a result of the material weaknesses
described below, disclosure controls and procedures were not effective in
providing reasonable assurance that material information is made known to them
by others within the Company.


50





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





Our
management, with the participation of the chief executive officer and chief
financial officer, carried out an evaluation of the effectiveness of our
internal controls over financial reporting, using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated
Framework, (as defined in the Exchange Act) Rules 13a-15(3) and
15-d-15(3) as of the end of the period covered by this report (the “Evaluation
Date”). The following material weaknesses were noted in the evaluation of our
internal controls over financial reporting:





·
            There
      are inadequate controls over the creation and posting of journal entries
      to ensure they are authorized, accurate, complete and
    timely.





·
            There
      are inadequate controls over the timely quantification, recording and
      disclosure of amounts due under contractual
  obligations.





·
            There
      are inadequate controls over the valuation of financial
      instruments.





·
            We
      have not established an Audit Committee independent of
      management.





·
            We
      did not maintain proper financial statement close procedures to ensure our
      financials statements were filed with the SEC on a timely
      basis.





These
material weaknesses have been disclosed to our Board of Directors, and we are
continuing our efforts to improve and strengthen our control processes and
procedures. Our management and directors will continue to consult with our
auditors to ensure that our controls and procedures are adequate and
effective.





As a
result of the existence of these material weaknesses as of June 30, 2010,
management has concluded that we did not maintain effective internal control
over financial reporting as of June 30, 2010, based on the criteria set forth by
the COSO inInternal
Control-Integrated Framework.





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





(c)
Changes in Internal Controls.





There
were no changes in our internal controls over financial reporting, known to the
chief executive officer or to the chief financial officer that occurred during
the fourth quarter of our 2010 fiscal year that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.


51





ITEM
      9B.
            OTHER
      INFORMATION





On
October 25, 2010, Antonio Ortúzar resigned as a member of our Board of
Directors.  Mr. Ortúzar did not have any disagreement with us on any
matter relating to our operations, policies or practices.




PART
III





ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE





Executive
Officers and Directors




Below are
the names and certain information regarding the Company’s current executive
officers and directors:




Name
              
              Age
              
              Title
              
              Date First AppointedLuis
      Francisco Saenz
              
              40
              
              Chief
      Executive Officer and Director
              
              October
      19, 2009David
      Rector
              
              63
              
              President,
      Treasurer, Secretary and Director
              
              June
      6, 2008Eric
      E. Marin
              
              48
              
              Interim
      Chief Financial Officer
              
              January
      13, 2010R.
      Thomas Currin, Jr.
              
              54
              
              Chief
      Operating Officer
              
              August
      11, 2010Anthony
      Hawkshaw
              
              57
              
              Director
              
              December
      10, 2009Kjeld
      Thygesen
              
              63
              
              Director
              
              December
      10, 2009David
      G. Wahl
              
              66
              
              Director
              
              February
      18, 2010





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




The SPA
with the Alfredo Sellers provides the Sellers with the right to designate one or
more persons to be nominated for election to our Board of Directors if Sellers
hold at least 10% of our outstanding common stock.  The number of such
nominees that Sellers may designate will be the greater of (i) one and (ii) a
portion of our full Board that is proportional to Sellers’ ownership of our
outstanding common stock (rounding down).  This right would allow the
Sellers to nominate one Board member at the date of this filing.  To
date, the Sellers have not exercised their right to nominate Board
members.





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


52


Luis Francisco Saenz joined
our Board of Directors on October 19, 2009.  Mr. Saenz has been our
Chief Executive Officer since October 19, 2009.  Mr. Saenz does not
have an employment agreement with us and receives no cash compensation for his
services to us.  Mr. Saenz has over 18 years of experience in the
mining industry.  He is currently, and has been since July 21, 2008,
the CEO and President and a Director of the publicly traded Loreto Resources
Corporation (LRTC.OB).  Mr. Saenz was formerly employed at Standard
Bank (“Standard”) with Standard’s investment banking unit, Standard Americas,
Inc.  Mr. Saenz joined Standard in New York in 1997 and relocated to
Peru in 1998 to establish Standard’s Peru representative
office.  While in Peru, Mr. Saenz led Standard’s mining and metals
organization effort in the Latin America region.  Mr. Saenz returned
to New York in 2007 to head Standard’s mining and metals team in the
Americas.  Mr. Saenz previously worked for Pechiney World Trade in the
base metals trading area before joining Merrill Lynch as Vice-President for
Commodities in Latin America.  Mr. Saenz graduated from Franklin and
Marshall College in 1991 with a Bachelor of Arts degree in economics and
international affairs.




As a
result of Mr. Saenz’s outside activities, in particular his service as President
of Loreto Resources Corporation, Mr. Saenz only devotes his part-time efforts to
our activities.




David Rector joined our board
of directors on June 6, 2008.  Mr. Rector has served as our President,
Treasurer and Secretary since June 6, 2008, and he also served as our Chief
Executive Officer from June 6, 2008 until October 19, 2009 and as our Chief
Financial Officer from June 6, 2008 until January 13, 2010.  Mr.
Rector served as the Chief Executive Officer, Chief Financial Officer,
President, Secretary, Treasurer, and Director of Nevada Gold Holdings, Inc.
(formerly known as Nano Holdings International, Inc.) from April 19, 2004
through December 31, 2008.  He has served as the Chief Executive
Officer, Chief Financial Officer, President, Secretary, Treasurer, and Director
of Standard Drilling, Inc. since November 2007, and of Universal Gold Mining
Corp. (f/k/a Federal Sports & Entertainment, Inc.) since September 30,
2008.  Mr. Rector previously served as President, Chief Executive
Officer and Chief Operating Officer of Nanoscience from June 2004 to December
2006, when he resigned as an officer and Director of Nanoscience.  Mr.
Rector also served as President, Chief Executive Officer, Chief Financial
Officer and Treasurer of California Gold Corp. (f/k/a US Uranium, Inc.) from
June 15, 2007 to July 11, 2007 and again from August 8, 2007 to November 12,
2007.  Since June 1985, Mr. Rector has been the principal of the David
Stephen Group, which provides enterprise consulting services to emerging and
developing companies in a variety of industries. From January 1995 until June
1995, Mr. Rector served as the General Manager of the Consumer Products Division
of Bemis-Jason Corporation. Mr. Rector was employed by Sunset Designs Inc., a
manufacturer and marketer of consumer product craft kits from June 1980 until
June 1985. From June 1983 until June 1985, Mr. Rector served as President and
General Manager of Sunset, from August 1981 until May 1985, Mr. Rector served as
an Administrative and International Director of Sunset, and from June 1980 until
August 1981, Mr. Rector served as Group Product Manager for Sunset.




Mr.
Rector currently serves, or has served during the last five years, on the Board
of Directors of each of the following public companies for the respective
tenures indicated below.




Public Company Name
                
                Tenure as DirectorSenesco
      Technologies, Inc. (AMEX:SNT)
                
                February
      2002-presentDallas
      Gold & Silver Exchange (AMEX:DSG)
                
                May
      2003-presentNevada
      Gold Holdings, Inc. (NGHI.OB)
                
                April
      2004-presentUS
      Uranium, Inc. (USUI.OB)
                
                June
      2007-presentCalifornia
      Gold Corp. (CLGL.OB)
                
                June
      2007-presentStandard
      Drilling, Inc.(STDR.PK)
                
                November
      2007-presentUniversal
      Gold Mining Corp. (FEDS.PK)
                
                September
      2008-presentRxElite,
      Inc. (RXEI.OB)
                
                September
      2007-February 2009Superior
      Galleries, Inc. (SPGR.OB)
                
                May
      2003-May 2007Nanoscience
      Technologies, Inc. (NANS.OB)
                
                June
      2004-December 2006




53





Mr.
Rector obtained his Bachelor’s Degree in Business Administration from Murray
State University in 1969.





Eric E. Marin has been our
interim Chief Financial Officer since January 13, 2010.  Since March
of 2009, Mr. Marin has been the interim chief financial officer of Loreto
Resources Corporation.  Mr. Marin has worked in the Management and
Information Technology Consulting business for almost 20 years.  Mr.
Marin is the President and CEO of Marin Management Services, a privately-held
consultancy firm offering management, financial, and information technology
consulting services to companies.  From April 2006 to April 2009, Mr.
Marin was a vice president of Quorum Business Solutions where he was responsible
for building and managing client relations and overseeing operational budget,
strategic planning, business development and organizational leadership services
for various Fortune 500 companies.  Prior to that, from December 2003
through March 2006, Mr. Marin was the president and founder of Marin Medical
Services LLC, a company providing front and back-office services to the
healthcare industry.  From April 1996 to November 2003, Mr. Marin was
a partner with Accenture Ltd. where Mr. Marin was responsible for providing
management and IT consulting services to Fortune 100 companies.  From
February 1994 to April 1996, Mr. Marin was project manager of Insource
Management Group, where he managed IT consulting services for a number of
companies.  Mr. Marin received a Masters of Business Administration
degree from the University of Houston in 1992, and a Bachelor of Science degree
in Computer Science from Texas A&M University in 1986.




As a
result of Mr. Marin’s outside activities, in particular his service as Interim
Chief Financial Officer of Loreto Resources Corporation, the amount of time that
Mr. Marin has to devote to our activities is limited.




R. Thomas Currin, Jr., has
been our interim Chief Operating Officer since August 11, 2010.  Mr.
Currin is the founder and President, since 1993, of Limtech Technologies, Inc.,
a privately held company providing engineering services, lithium chemical
products and recycling services to the lithium chemical
industry.  From June 2004 to June 2009, Mr. Currin served as Chairman
of Limtech Carbonate, Inc., a privately held Canadian company which declared
bankruptcy in June 2009 and was liquidated in August 2009.  From 1981
to 1993, Mr. Currin served in various capacities with FMC, Inc., a diversified
chemicals, mining and machinery company, including as Division Planning
Coordinator for FMC’s Lithium Division.  Prior to FMC, Mr. Currin was
Production and Process Engineer from 1978 to 1981 of Reynolds Metals Company, an
international mining and chemical company.  Mr. Currin earned a
Bachelor of Science degree in Chemical Engineering from North Carolina State
University in 1978.  Mr. Currin holds or has held memberships in the
Combustible Metals Committee of the National Fire Protection Association, in the
Metals Section Executive Committee of the National Safety Council and in the
American Institute of Chemical Engineers.


54


Anthony Hawkshaw was appointed
to our Board of Directors on December 10, 2009.  Mr. Hawkshaw is the
current CFO and a director of Rio Alto Mining Limited (TSX.V: RIO), and has been
a director of Statesman Resources Ltd (TSX.V: SRR) since 2006.  Mr.
Hawkshaw has over 25 years experience in the mining industry, and has extensive
experience in the marketing of metals in refined and concentrate form and in
metals trading.  He has arranged debt, equity and convertible debt
financings with institutional investors, commercial banks and multilateral
lending agencies.  From 2005 to 2007, Mr. Hawkshaw was the CFO of
Grove Energy Limited, a London and Toronto listed oil and gas development
company.  In 2004, Mr. Hawkshaw was the CFO of Chariot Resources
Limited for a period of 12 months.  Prior to Chariot, Mr. Hawkshaw was
CFO of Pan American Silver Corp from 1995 to 2003.  Mr. Hawkshaw is a
Chartered Accountant and holds a Bachelor Degree in Business Management from the
Ryerson University in Toronto.




Kjeld Thygesen was appointed
to our Board of Directors on December 10, 2009.  Mr. Thygesen has been
a director of Ivanhoe Mines, Ltd. (TSX: IVN - News) since 2001, and has over 30
years experience as a resource analyst and fund manager within the mining
industry.  Mr. Thygesen co-founded Lion Resource Management, a
specialist investment manager in the mining and natural resources sector, in May
1989 and is currently a Managing Director.  In 1979, Mr. Thygsen
joined N.M. Rothschild & Sons Limited as manager of its Commodities and
Natural Resources Department with overall responsibility for strategy and
management of commodity trusts and precious metal funds.  Mr. Thygesen
became an executive director of N.M. Rothschild Asset Management Limited in 1984
and N.M. Rothschild International Asset Management Limited from 1987 until May
1989.  Mr. Thygesen previously worked for James Capel & Co. as
part of that company's highly rated research team.  Mr. Thygesen is a
graduate of the University of Natal in South Africa and a member of the
Institute of Corporate Directors.




David G. Wahl was appointed to
our Board of Directors on February 18, 2010.  From 2005 to the
present, Mr. Wahl has been the President and CEO of Southampton Associates -
Consulting Engineers & Geoscientist, a private consulting concern
specializing in mining and technical issues for corporate clients, financial
institutions and governments.  From May 2002 to the present, Mr. Wahl
has served as a member of the Board of Directors of Temex Resources Corp.
(TSX.V: TME, Frankfurt: TQ1), a precious metals and minerals
company.  From July 2006 to the present, Mr. Wahl has served as a
member of the Board of Directors of Dumont Nickel, Inc., (TSX.V: DNI, Frankfurt:
DG7), a holding company for mining properties in certain Canadian
provinces.  From August, 2006 to the present, Mr. Wahl has served as a
member of the Board of Directors of Latin American Minerals Inc. (TSX.V: LAT), a
mineral exploration company.  Mr. Wahl also has served in a technical
advisory capacity to certain financial institutions, government agencies, and
national legal and accounting firms.  Mr. Wahl is a graduate of the
Colorado School of Mines and received a degree as an Engineer of Mines in
1968.




Director
Independence




We are
not currently subject to listing requirements of any national securities
exchange or inter-dealer quotation system which has requirements that a majority
of the board of directors be “independent” and, as a result, we are not at this
time required to have our Board of Directors comprised of a majority of
“Independent Directors.”  Accordingly, our Board of Directors has not
determined whether any of its members are “Independent Directors.”




55


Board
Committees




We have
not yet established any committees of our Board of Directors.  Our
Board of Directors may designate from among its members an executive committee
and one or more other committees in the future.  We do not have a
nominating committee or a nominating committee charter.  The entire
Board of Directors performs all functions that would otherwise be performed by
committees.  Given the present size of our board, we do not believe
that it is practical for us to have committees.  If we are able to
grow our business and increase our operations, we intend to expand the size of
our board and allocate responsibilities accordingly.




Audit
Committee Financial Expert




We have
no separate audit committee at this time.  The entire Board of
Directors oversees our audits and auditing procedures.




Shareholder
Communications




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




Code
of Ethics




We have
adopted a Code of Ethics that applies to our principal executive officer,
principal financial officer, principal accounting officer or controller, or
persons performing similar functions.  A copy of our Code of Ethics
will be provided to any person requesting same without charge.  To
request a copy of our Code of Ethics please make written request to our
President c/o Av. Pardo y Aliaga 699 Of. 802, San Isidro, Lima,
Peru.  We believe our code of ethics is reasonably designed to deter
wrongdoing and promote honest and ethical conduct; provide full, fair, accurate,
timely and understandable disclosure in public reports; comply with applicable
laws; ensure prompt internal reporting of code violations; and provide
accountability for adherence to the code.




Compliance
with Section 16(a) of the Exchange Act





Our
common stock is not registered pursuant to Section 12 of the Exchange
Act.  Accordingly, our officers, directors and principal shareholders
are not subject to the beneficial ownership reporting requirements of Section
16(a) of the Exchange Act.


56





ITEM
      11.
            EXECUTIVE
      COMPENSATION





The
following table sets forth information concerning the total compensation paid or
accrued by us during the last two fiscal years ended June 30, 2010 to (i) all
individuals that served as our principal executive officer or acted in a similar
capacity for us at any time during the fiscal year ended June 30, 2010; and (ii)
all individuals that served as executive officers of ours at any time during the
fiscal year ended June 30, 2010 that received annual compensation during such
fiscal year in excess of $100,000.




Summary
Compensation Table




Name and
                                                                Principal Position
                                                              
                                                              Year
                                                              
                                                              Salary
                                                                ($)
                                                              
                                                              Bonus
                                                                ($)
                                                              
                                                              Stock
                                                                Awards
                                                                ($)
                                                              
                                                              Option
                                                                Awards
                                                                ($)
                                                              
                                                              Non-
                                                                Equity
                                                                Incentive
                                                                Plan
                                                                Compen-
                                                                sation ($)
                                                              
                                                              Change
                                                                in
                                                                Pension
                                                                Value
                                                                and Non-
                                                                qualified
                                                                Deferred
                                                                Compen-
                                                                sation
                                                                Earnings
                                                                ($)
                                                              
                                                              All Other
                                                                Compensation
                                                                ($)
                                                              
                                                              Total($)Luis
      Francisco Saenz
                                                              
                                                              2010
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              4,800
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              4,800Chief
      Executive Officer(1)David
      RectorPresident,
      Treasurer,
                                                              
                                                              2010
                                                              
                                                              6,000
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              6,000Secretary
      and Former Chief
                                                              
                                                              2009
                                                              
                                                              6,000
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              6,000Executive
      Officer(2)Eric
      E. MarinInterim
      Chief Financial
                                                              
                                                              2010
                                                              
                                                              21,600
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              —
                                                              
                                                              21,600Officer
      (3)


__________________


(1)
            Mr.
      Saenz was appointed our Chief Executive Officer as of October 19,
      2009.  Mr. Saenz does not have an employment agreement with
      us.  We granted Mr. Saenz 1,500,000 shares of our restricted
      common stock upon his initial hire, and we have not paid him any other
      compensation for his services to us as our Chief Executive
      Officer.




(2)
            Mr.
      Rector has served as our President, Treasurer and Secretary since June 6,
      2008.  In addition, from June 6, 2008 until October 19, 2009,
      Mr. Rector was our Chief Executive Officer.  We pay Mr. Rector a
      salary of $500 per month for his services to us as our President,
      Treasurer and Secretary.




(3)
            Mr.
      Marin was appointed our Interim Chief Financial Officer on January 13,
      2010.  Mr. Marin is compensated through our Engagement Letter
      with Marin Management Services, LLC, dated January 7, 2010 (the “Marin
      Agreement”), pursuant to which we pay $200 per hour for Mr. Marin’s
      services to us as Interim Chief Financial
  Officer.




57


Outstanding
Equity Awards at Fiscal Year-End




We have
not issued any stock options or maintained any stock option or other incentive
plans other than our 2009 Equity Incentive Plan. (See “Market for Common Equity
and Related Stockholder Matters – Securities Authorized for Issuance under
Equity Compensation Plans,” above).  The following table sets forth
information regarding stock options held by the Company’s Named Executive
Officers at June 30, 2010.





Outstanding
Equity Awards at Fiscal Year-End


Option Awards


Name
                          
                          Number of
                            securities
                            underlying
                            unexercised
                            options
                            exercisable
                            (#)
                          
                          Number of
                            securities
                            underlying
                            unexercised
                            options
                            unexercisable
                            (#)
                          
                          Equity
                            incentive
                            plan
                            awards:
                            Number of
                            securities
                            underlying
                            unexercised
                            unearned
                            options
                            (#)
                          
                          Option
                            exercise
                            price
                            ($)
                          
                          Option
                            expiration dateLuis
      Saenz, Chief Executive Officer
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -David
      Rector, President, Treasurer, Secretary and Former Chief Executive
      Officer
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -Eric
      E. Marin, Interim Chief Financial Officer
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -
                          
                          
                          -




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




Employment
Agreements with Executive Officers




We do not
have employment agreements with any of our executive
officers.  However, each of our Interim Chief Financial Officer and
our Chief Operating Officer is compensated through an agreement between us and
his affiliate.




Engagement
Letter with Marin Management Services




Pursuant
to the terms of the Marin Agreement, we pay Marin Management Services, LLC, an
affiliate of Eric Marin, at the rate of $200 per hour for providing us with Mr.
Marin’s services as our Interim Chief Financial Officer.  In addition,
the Marin Agreement provides that we shall pay all expenses incurred in
providing such services.


58


Employment
Services Agreement with MIZ Comercializadora




We have
retained Mr. Currin’s services as our Chief Operating Officer under an
Employment Services Agreement, dated as of August 11, 2010, with MIZ
Comercializadora, S. de R.L. (“MIZ”), a corporation owned in part by Mr.
Currin.  Under the Employment Services Agreement, we will pay MIZ a
base fee of $200,000 per year (the “Base Fee”), in monthly
installments.  After the first year, the base fee may be increased on
each anniversary of the Employment Services Agreement at the sole discretion of
our Board of Directors.  We will pay MIZ a signing bonus of $100,000,
payable as $10,000 in cash and $90,000 in 236,842 restricted shares of our
common stock valued at $0.38 per share, the fair market value on August 11,
2010.  MIZ will be eligible to receive an annual cash
bonus.  With respect to the first annual bonus, up to $100,000 will be
payable upon the achievement of certain milestones set forth in the Employment
Services Agreement, and up to $50,000 will be payable as the Board may determine
in its sole discretion, based upon both Mr. Currin’s performance and our
performance overall.  The annual bonus in subsequent years will be in
such amount (up to 75% of the then applicable base fee) as the Board may
determine in its sole discretion, based upon both Mr. Currin’s achievement of
certain performance milestones to be established annually by the Board in
discussion with MIZ and our performance overall.  In the event the
Board and MIZ are unable to agree to milestones, the amount of the bonus shall
be determined by the Board on a discretionary basis.




Pursuant
to the Employment Services Agreement, we have granted to MIZ an award under the
2009 Plan pursuant to which we shall issue 2,500,000 restricted shares of our
common stock (the “Restricted Stock”).  The shares of Restricted Stock
vest in installments of between 300,000 and 1,000,000 shares upon the
achievement of certain milestones set forth in the Employment Services
Agreement, subject to acceleration upon a change of control or a termination of
Mr. Currin’s employment by MIZ for Good Reason (as defined in the Employment
Services Agreement) or by us for any reason other than for Cause (as defined in
the Employment Services Agreement).  If his employment is terminated
by us for Cause, or by Mr. Currin for any reason other than Good Reason, then
all unvested Restricted Stock will immediately expire.




Pursuant
to the Employment Services Agreement, we have granted to MIZ an option to
purchase an aggregate of 1,000,000 shares of our common stock under the 2009
Plan, exercisable at a price of $0.38 per share, the fair market value per share
of common stock on August 11, 2010, with a term of ten years.  One
third of such options vest on each of August 11, 2011, 2012 and
2013.  If we terminate Mr. Currin’s employment for Cause, then all
such options, whether or not vested, will immediately expire.  If his
employment is terminated voluntarily by MIZ without Good Reason, then all
unvested options will immediately expire.  Vested options, to the
extent unexercised, will expire one month after the termination of employment
(or nine months in the case of his death or permanent disability).  If
his employment is terminated (a) in connection with a Change of Control (as
defined in the Employment Services Agreement), (b) by us without Cause or (c) by
MIZ for Good Reason, then all unvested options will immediately vest and will
expire nine months after such event.




Mr.
Currin’s employment with the Company is “at-will” and terminable at any time for
any reason or for no reason.  If Mr. Currin’s employment is terminated
by us without Cause, we must continue to pay MIZ the base fee at the rate then
in effect for a period of 18 months and, with respect to the first annual bonus,
to the extent the milestones therefor are achieved, pay MIZ a pro rata portion
of the annual bonus.  If MIZ terminates the Employment Services
Agreement for Good Reason, or in the event of a termination of employment due to
a permanent disability, we will continue to pay MIZ the base fee at the rate
then in effect for a period of 18 months.


59


For the
duration of the employment period and, unless we terminate Mr. Currin’s
employment without Cause, for a period of 18 months thereafter, both MIZ and Mr.
Currin have agreed not to directly or indirectly compete with us anywhere within
the countries in which we are at that time operating; provided, however, that
Mr. Currin may continue to participate in the following previously established
business activities through MIZ:  supply of lithium recovery systems
(including brine to carbonate systems); lithium recovery from commercial
by-products in the United States; technology fees from the development of a high
purity lithium carbonate; and agriculture and energy projects in
Honduras.




The
foregoing is a summary of the principal terms of the Employment Services
Agreement, the Restricted Stock and the options granted pursuant thereto, and is
qualified in its entirety by the detailed provisions of the relevant documents,
which are filed as exhibits to this Annual Report and are incorporated herein by
reference.




Compensation
of Non-Employee Directors




As of
June 30, 2010, we had no formal policy for compensation of our non-employee
directors.  Certain of our directors were compensated for their
services in shares of common stock or by stock option grants.  Also,
their expenses in attending meetings were reimbursed.




Equity
Compensation Plan Information




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




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




Administration




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




Grants




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


60


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




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




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




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




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




Duration,
Amendment and Termination




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




Grants
to Officers and Directors




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




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




61





In
connection with Mr. Perkins’s departure from our Board on February 18, 2010, the
options granted to him on December 9, 2009, terminated.  At such time,
Mr. Perkins entered into a consulting arrangement with us, and the Board granted
him non-statutory stock options under the 2009 Plan to purchase 50,000 shares of
our common stock at an exercise price of $1.00 per share, which option vested
immediately and expires after two years.




In
addition, the Chief Executive Officer gave Anthony Hawkshaw 50,000 of his common
stock shares for services rendered during the year ended June 30,
2010.





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




The
following table sets forth information with respect to the beneficial ownership
of our common stock known by us as of October 29, 2010 by:




·
            each
      person or entity known by us to be the beneficial owner of more than 5% of
      our common stock;




·
            each
      of our directors;




·
            each
      of our executive officers; and




·
            all
      of our directors and executive officers as a
  group.




Except as
otherwise indicated, the persons listed below have sole voting and investment
power with respect to all shares of our common stock owned by them, except to
the extent such power may be shared with a spouse.  Information given
with respect to beneficial owners who are not officers or directors of ours is
to the best of our knowledge.  However, as we do not have a class of
stock registered under the Exchange Act, beneficial owners of our securities are
not required to file Williams Act or Section 16 reports, which limits our
ability to determine whether a person or entity is a beneficial owner of more
than 5% of our common stock and the extent of any such beneficial owner’s
holdings or the relationships among beneficial owners.




Unless
otherwise indicated in the following table, the address for each person named in
the table is c/o Li3 Energy, Inc., Av Pardo y Aliaga 699 Of. 802, San Isidro,
Lima, Peru.


62


Title
of Class: Common Stock


Name and Address of Beneficial Owner
                                        
                                        Amount and Nature
                                          of
                                          Beneficial
                                          Ownership(1)
                                        
                                        
                                        Percentage
                                          of
                                          Class(2)David
      Rector
                                        
                                        
                                        0
                                        
                                        
                                        
                                        *Luis
      Francisco Saenz
                                        
                                        
                                        1,325,000
                                        
                                        
                                        
                                        1.5
                                        %Eric
      E. Marin
                                        
                                        
                                        0
                                        
                                        
                                        
                                        *Anthony
      Hawkshaw
                                        
                                        
                                        66,667
                                        (3)
                                        
                                        
                                        *Kjeld
      Thygesen
                                        
                                        
                                        566,667
                                        (4)
                                        
                                        
                                        *David
      G. Wahl
                                        
                                        
                                        0
                                        
                                        
                                        
                                        *All
      directors and executive officers as a group (7 persons)
                                        
                                        
                                        4,695,176
                                        (3)(4)(5)
                                        
                                        
                                        5.2
                                        %Grafton
      Resource Investments, Ltd.
                                          11
      Albermarle Street
                                          London
      W1S 4HH
                                        
                                        
                                        12,000,000
                                        (6)
                                        
                                        
                                        12.9
                                        %Pacific
      Road Capital Management G.P. Limited, as General Partner of Pacific Road
      Resources Fund L.P.
                                          89
      Nexus Way
                                          Camana
      Bay
                                          Grand
      Cayman KY1-9007
                                          Cayman
      Islands
                                        
                                        
                                        8,800,000
                                        (7)(8)
                                        
                                        
                                        10.1
                                        %




63


*
            Indicates
      less than one percent.




1
            Beneficial
      ownership is determined in accordance with the rules of the SEC and
      generally includes having or sharing voting or investment power with
      respect to securities.  Shares of common stock subject to
      options or warrants currently exercisable or convertible, or exercisable
      or convertible within 60 days of October 29, 2010, are deemed outstanding
      for computing the percentage of the person holding such option or warrant
      but are not deemed outstanding for computing the percentage of any other
      person.




2
            Percentages
      are based upon 87,109,033 shares of Common Stock issued and outstanding as
      of October 29, 2010, which does not, however, include an additional
      2,500,000 shares that we are obligated to issue pursuant to an award of
      restricted stock granted under the 2009 Plan that was outstanding at such
      time.




3
            Includes
      16,667 shares of our common stock issuable upon exercise of options
      granted under the 2009 Plan, which are exercisable within 60
      days.  Does not
      include 33,333 shares of our common stock issuable upon the exercise of
      options granted under the 2009 Plan, which are not exercisable within 60
      days.





4
            Includes
      200,000 shares of our common stock issuable upon the exercise of warrants
      that are exercisable within 60 days.  Includes 166,667 shares of our
      common stock issuable upon exercise of options granted under the 2009
      Plan, which are exercisable within 60 days.Does not
      include 333,333 shares of our common stock issuable upon the exercise of
      options granted under the 2009 Plan, which are not exercisable within 60
      days.




5
            Includes
      2,500,000 shares of Restricted Stock we are obligated to issue to MIZ
      Comercializadora, S. de R.L. (“MIZ”) pursuant to a restricted stock grant
      made under the 2009 Plan.  While such shares are subject to
      various vesting milestones, MIZ has voting power with respect to such
      shares unless and until they are forfeited.  Our Chief Operating
      Officer, R. Thomas Currin, Jr., may be deemed beneficially to own the
      securities held by MIZ.  Does not include (a) 1,000,000 shares
      of our common stock issuable upon exercise of options granted under the
      2009 Plan which are not exercisable within 60
  days.




64


6
            Includes
      6,000,000 shares of our common stock issuable upon the exercise of
      warrants that are exercisable within 60
days.




7
            Estimate
      of beneficial ownership, based on information available to
      us.  The shares indicated as beneficially owned may include
      shares held in street name, which may have been disposed of and/or
      acquired without our knowledge.





8
            Includes
      873,840 shares of our common stock held by Pacific Road Capital A Pty.
      Limited, as trustee for Pacific Road Resources Fund A (“Fund A”) and
      873,840 shares of common stock held by Pacific Road Capital B Pty.
      Limited, as trustee for Pacific Road Resources Fund B (“Fund B”), which we
      believe may be deemed affiliates of the listed
      stockholder.Pacific
      Road Capital Management G.P. Limited (“GP Limited”), Fund A and Fund B may
      be deemed a “group” (as that term is defined under Section 13(d) of the
      Securities Exchange Act of 1934 (the “Exchange Act”)) by virtue of being
      parties to the SPA.  Pacific Road Capital Management Holdings Pty
      Limited (“Holdings”) is the sole shareholder of Pacific Road Capital
      Management Pty Ltd (“PRCM”).  PRCM is the sole manager of Fund A
      and Fund B and the investment advisor to GP Limited.  Each of
      Holdings and PRCM may be deemed to indirectly “beneficially own” (as that
      term is defined in Rule 13d-3 under the Exchange Act) the shares directly
      owned by Fund A, Fund B and GP Limited.  Each of Holdings and
      PRCM disclaims beneficial ownership of such shares except to the extent of
      its own pecuniary interest therein.
              
              The
      number of shares does not include shares of common stock that may be
      acquired by the listed stockholder, Fund A and Fund B (collectively, “PR
      Sellers”) pursuant to an option to subscribe for shares of our common
      stock having an aggregate purchase price of at least $2,500,000 and up to
      $10,000,000.  Such option would become exercisable upon our
      completion of Canadian National Instrument 43-101 Inferred Resource
      Reports on the Alfredo Property and on at least one lithium property in
      Argentina.  If this option becomes exercisable, the exercise
      price per share thereof will be equal to the greater of (i) $0.25 per
      share, and (ii) the thirty day volume-weighted average price of our common
      stock on its principal market at the time we notify PR Sellers of our
      having completed the relevant 43-101 Inferred Resources
      Reports.




Securities
Authorized for Issuance Under Equity Compensation Plans




Our Board
of Directors adopted, and our stockholders approved, the 2009 Plan on October
19, 2009.  The 2009 Plan reserves a total of 5,000,000 shares of our
common stock for issuance pursuant to awards granted thereunder.  If
an incentive award granted under the 2009 Plan expires, terminates, is
unexercised or is forfeited, or if any shares are surrendered to us in
connection with an incentive award, the shares subject to such award and the
surrendered shares will become available for further awards under the 2009
Plan.  As of the date hereof, we have granted option awards under the
2009 Plan exercisable for an aggregate of 1,800,000shares
of our common stock.  In addition, we have granted a restricted stock
award under the 2009 Plan pursuant to which we shall issue 2,500,000 shares of
common stock.  We have not maintained any other equity compensation
plans since our inception.




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS,
AND


DIRECTOR
      INDEPENDENCE





We
sublease approximately 800 square feet of office space in Lima, Peru, from
Loreto Resources Corporation, a Nevada Corporation whose Chief Executive Officer
and Interim Chief Financial Officer are also our Chief Executive Officer and
Interim Chief Financial Officer.  Our sublease payments, including
shared administrative costs, are billed to the company at Loreto Resources
Corporation’s cost in proportion to our share of the total space, and will total
$21,859 for 2010.




Pursuant
to the terms of the Marin Agreement, we pay Marin Management Services, LLC, an
affiliate of Eric Marin, at the rate of $200 per hour for providing us with Mr.
Marin’s services as our Interim Chief Financial Officer.  In addition,
the Marin Agreement provides that we shall pay all expenses incurred in
providing such services.


65


Antonio
Ortúzar, who served on our Board of Directors from February 18, 2010, to October
25, 2010, is a Partner in Baker & McKenzie, a law firm that we have engaged
to perform certain legal services for us.  We pay for such legal
services at the standard rates that the firm charges its unrelated
clients.  For our fiscal year ending June 30, 2010, the total legal
fees we have incurred to such firm was approximately $30,000.  We have
continued to incur legal fees payable to such firm in fiscal 2011.




We have
retained Mr. Currin’s services as our Chief Operating Officer under an
Employment Services Agreement, dated as of August 11, 2010, with MIZ
Comercializadora, S. de R.L. (“MIZ”), a corporation owned in part by Mr.
Currin.  The description of such agreement set forth above under “Item
11, Executive Compensation - Employment Services Agreement with MIZ
Comercializadora” is incorporated herein by reference.




See
“Directors, Executive Officers, and Corporate Governance—Executive Officers and
Directors” above for information regarding certain rights of the Alfredo Sellers
to designate one or more persons to be nominated for election to our Board of
Directors.




Director
Independence




We are
not currently subject to listing requirements of any national securities
exchange or inter-dealer quotation system which has requirements that a majority
of the board of directors be “independent” and, as a result, we are not at this
time required to have our Board of Directors comprised of a majority of
“Independent Directors.”  Accordingly, our Board of Directors has not
determined whether any of its members are “Independent Directors.”




ITEM
      14.
            PRINCIPAL
      ACCOUNTING FEES AND SERVICES





Audit
Fees.




The
aggregate fees billed to us by our principal accountant for services rendered
during the fiscal years ended June 30, 2010 and 2009 are set forth in the table
below:





Fee Category
                        
                        Fiscal year ended June 30, 2010
                        
                        
                        Fiscal year ended June 30, 2009Audit
      fees (1)
                        
                        $
                        86,425
                        
                        
                        $
                        10,000Audit-related
      fees (2)
                        
                        
                        —
                        
                        
                        
                        —Tax
      fees (3)
                        
                        
                        —
                        
                        
                        
                        —All
      other fees (4)
                        
                        
                        —
                        
                        
                        
                        —Total
      fees
                        
                        $
                        86,425
                        
                        
                        $
                        10,000





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


66




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





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





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





Audit Committee’s
Pre-Approval Practice




Our Board
currently has no separate Audit Committee.  Accordingly, the entire
Board of Directors functions as our audit committee.  Our Board is
directly responsible for the appointment, compensation, retention and oversight
of the work of any registered public accounting firm engaged by us for the
purpose of preparing or issuing an audit report or performing other audit,
review or attest services for us, and each such registered public accounting
firm must report directly to the Board.  It is our Board’s policy to
approve in advance all audit, review and attest services and all non-audit
services (including, in each case, the engagement fees there for and terms
thereof) to be performed by our independent auditors, in accordance with
applicable laws, rules and regulations.  During fiscal 2010 and 2009,
all such services were pre-approved by the Board in accordance with this
policy.




Our Board
selected GBH CPAs, PC as our independent registered public accounting firm for
purposes of auditing our financial statements for the year ended June 30,
2010.  In accordance with Board’s practice, GBH CPAs, PC was
pre-approved by the Board to perform these audit services for us prior to its
engagement.





Chang G.
Park, CPA was our independent registered public accounting firm for purposes of
auditing our financial statements for the year ended June 30, 2009, and was
pre-approved to perform such audit services for us prior to its
engagement.





PART
IV





ITEM
15.         EXHIBITS, FINANCIAL
STATEMENT SCHEDULES





Financial
Statement Schedules





The
consolidated financial statements of Li3 Energy, Inc. are listed on the Index to
Financial Statements on this annual report on Form 10-K beginning on page
F-1.





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


67


Exhibits





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




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





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





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





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





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





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




Exhibit
                                Number
                              
                              Description3.1
                              
                              Articles
      of Incorporation of Registrant as filed with the Nevada Secretary of State
      on June 24, 2005 (1)3.2
                              
                              Certificate
      of Amendment to Articles of Incorporation of Registrant as filed with the
      Nevada Secretary of State on July 11, 2008 (2)3.3
                              
                              Certificate
      of Amendment to Articles of Incorporation of Registrant as filed with the
      Nevada Secretary of State on October 19, 2009 (4)3.4
                              
                              Bylaws
      of the Registrant (1)4.1
                              
                              Form
      of Investor A Warrant of the Registrant, issued in connection with a
      private placement of which several closings were held in November and
      December of 2009 (5)4.2
                              
                              Form
      of Investor B Warrant of the Registrant, issued in connection with a
      private placement of which several closings were held in November and
      December of 2009  (5)4.3
                              
                              Form
      of Warrant of the Registrant, issued in connection with a private
      placement of which several closings were held in June, July and September
      of 2010
(10)


68





10.1  †
                                            
                                            Registrant’s
      2009 Stock Incentive Plan adopted October 19, 2009 (5)10.2  †
                                            
                                            Form
      of Stock Option Agreement under the Registrant’s 2009 Equity Incentive
      Plan (5)10.3
                                            
                                            Form
      of Subscription Agreement between the Registrant and each subscriber in a
      private placement offering of units (5)10.4
                                            
                                            Split-Off
      Agreement between the Registrant and John Suk, dated as of October 19,
      2009 (8)10.5
                                            
                                            General
      Release Agreement between the Registrant and John Suk, dated as of October
      19, 2009 (8)10.6
                                            
                                            Asset
      Purchase Agreement, dated as of February 16, 2010, among the Registrant,
      Next Lithium Corp. and Next Lithium (Nevada) Corp. (7)10.7
                                            
                                            Option
      Agreement, dated October 30, 2009, among GeoXplor Corp. and the Registrant
      (as successor to Next Lithium Corp. and Next Lithium (Nevada) Corp.),
      relating to the CSV Placer Mineral Claims, LM Placer Mineral Claims and MW
      Placer Mineral Claims (7)10.8
                                            
                                            Option
      Agreement, dated October 30, 2009, among GeoXplor Corp. and the Registrant
      (as successor to Next Lithium Corp. and Next Lithium (Nevada) Corp.),
      relating to the BSV Placer Mineral Claims (7)10.9
                                            
                                            Amendment
      to CSV, LM and MW Option Agreement, dated as of February 16, 2010, among
      GeoXplor Corp. and the Registrant (as successor to Next Lithium Corp. and
      Next Lithium (Nevada) Corp.) (7)10.10
                                            
                                            Amendment
      to BSV Option Agreement, dated as of February 16, 2010, among GeoXplor
      Corp. and the Registrant (as successor to Next Lithium Corp. and Next
      Lithium (Nevada) Corp.) (7)10.11
                                            
                                            Consent
      to Assignment Agreement, dated as of February 16, 2010, among GeoXplor
      Corp., Next Lithium Corp., Next Lithium (Nevada) Corp. and the Registrant,
      relating to the CSV, LM and MW Option Agreement and the BSV Option
      Agreement (7)10.12
                                            
                                            Registration
      Rights Agreement, dated as of February 16, 2010, among the Registrant,
      Next Lithium Corp. and Next Lithium (Nevada) Corp. (7)10.13
                                            
                                            Escrow
      Agreement, dated as of February 16, 2010, among the Registrant, Next
      Lithium Corp., Next Lithium (Nevada) Corp. and Gottbetter & Partners,
      LLP, as escrow agent (7)10.14  †
                                            
                                            Engagement
      Letter, dated January 7, 2010, between the Registrant and Marin Management
      Services, LLC (8)10.15
                                            
                                            Assignment
      Agreement, dated as of March 12 , 2010, between Puna Lithium Corporation
      and the Registrant (8)10.16
                                            
                                            Master
      Option Agreement, dated as of March 12, 2010, between Lacus Minerals S.A.
      and the Registrant
(8)


69





10.17
                                
                                Share
      Purchase Agreement, dated as of March 12, 2010, among the Registrant,
      Beatriz Silvia Vasques Nístico and Daniel Boris Gordon
  (8)10.18
                                
                                Form
      of Subscription Agreement between the Registrant and each subscriber in
      the private placement of which several closings were held in June, July
      and September of 2010 (10)10.19
                                
                                Form
      of Registration Rights Agreement between the Registrant and the
      subscribers in the private placement of which several closings were held
      in June, July and September of 2010 (9)10.20
      *
                                
                                Addendum
      to Master Option Agreement between Lacus Minerals S.A. and the Registrant,
      dated as of July 29, 201010.21
                                
                                Stock
      Purchase Agreement, dated as of August 3, 2010, among the Registrant,
      Pacific Road Capital A Pty. Limited, as trustee for Pacific Road Resources
      Fund A, Pacific Road Capital B Pty. Limited, as trustee for Pacific Road
      Resources Fund B, and Pacific Road Capital Management G.P. Limited, as
      General Partner of Pacific Road Resources Fund L.P.
(11)10.22
      *†
                                
                                Employment
      Services Agreement, dated as of August 11, 2010, between the Registrant
      and MIZ Comercializadora, S. de R.L.10.23
      *†
                                
                                Form
      of Restricted Stock Agreement, dated as of August 11, 2010, between the
      Registrant and MIZ Comercializadora, S. de R.L.14.1
                                
                                Code
      of Ethics (3)16.1
                                
                                Letter
      from Chang G. Park, CPA, dated January 22, 2010, to the Securities and
      Exchange Commission regarding statements included in the Registrant’s Form
      8-K, dated January 13, 2010. (6)21.1
      *
                                
                                List
      of
Subsidiaries




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




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




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




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




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




70


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




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




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




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




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




(11)
            Filed
      with the Securities and Exchange Commission on August 9, 2010 as an
      exhibit to the Registrant’s current report on Form 8-K, which exhibit is
      incorporated herein by reference.




*       Filed
herewith.




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




† Management
contract or compensatory plan or arrangement


71


SIGNATURES





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





Li3
      ENERGY, INC.Dated:  November
      5, 2010
              By:
              /s/ Luis SaenzLuis
      SaenzChief
      Executive OfficerBy:
              /s/ Eric E. MarinEric
      E. MarinInterim
      Chief Financial Officer(principal
      financial officer and principal accounting
  officer)





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





SIGNATURE
              
              TITLE
              
              DATE/s/ Luis Saenz
              
              Chief
      Executive Officer (principal
              
              November
      5, 2010Luis
      Saenz
              
              executive
      officer), and Director/s/ Anthony Hawkshaw
              
              Director
              
              November
      5, 2010Anthony
      Hawkshaw/s/ David Rector
              
              Director
              
              November
      5, 2010David
      Rector/s/ Kjeld Thygesen
              
              Director
              
              November
      5, 2010Kjeld
      Thygesen/s/ David G. Wahl
              
              Director
              
              November
      5, 2010David
      G. Wahl





LI3
ENERGY, INC.


(An
Exploration Stage Company)


INDEX
TO FINANCIAL STATEMENTS




PageReports
      of Independent Registered Public Accounting Firms
                  
                  
                  F-2Consolidated
      Balance Sheets as of June 30, 2010 and 2009
                  
                  
                  F-4Consolidated
      Statements of Operations for the years ended June 30, 2010 and 2009and for the period
      from June 24, 2005 (Inception) through June 30, 2010
                  
                  
                  F-5Consolidated
      Statement of Changes in Stockholders’ Equity (Deficit) for the period from
      June 24, 2005 (Inception) through June 30, 2010
                  
                  
                  F-6Consolidated
      Statements of Cash Flows for the years ended June 30, 2010 and 2009 and
      for the period from June 24, 2005 (Inception) through June 30,
      2010
                  
                  
                  F-7Notes
      to Consolidated Financial Statements
                  
                  
                  F-8


F-1


Report
of Independent Registered Public Accounting Firm





To the
Board of Directors


Li3
Energy, Inc.


(formerly
NanoDynamics Holdings, Inc.)


(An
Exploration Stage Company)


San
Isidro, Lima, Peru





We have
audited the accompanying consolidated balance sheet of Li3 Energy, Inc.
(formerly NanoDynamics Holdings, Inc.) (an Exploration Stage Company) as of June
30, 2010, and the related consolidated statements of operations, shareholders'
equity (deficit), and cash flows for the year then ended and for the period from
June 24, 2005 (inception of the exploration stage) to June 30, 2010. These
consolidated financial statements are the responsibility of Li3 Energy, Inc.’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit. The consolidated financial statements
for the period from June 24, 2005 (inception) through June 30, 2009 were audited
by other auditors whose reports expressed unqualified opinions on those
statements. The consolidated financial statements for the period from June 24,
2005 (inception) through June 30, 2009 include total revenues and net loss of
$2,278 and $193,710, respectively. Our opinion on the consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the period from
June 24, 2005 (inception) through June 30, 2010, insofar as it relates to
amounts for prior periods through June 30, 2009, is based solely on the reports
of other auditors.





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





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Li3 Energy, Inc., as of June
30, 2010, and the results of its operations and its cash flows for the year then
ended and for the period from June 24, 2005 (inception of the exploration stage)
to June 30, 2010 in conformity with accounting principles generally accepted in
the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has negative working capital and
has suffered recurring losses from operations, which raises substantial doubt
about its ability to continue as a going concern. Management’s plans regarding
those matters are also described in Note 3. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





/s/
      GBH CPAs, PCwww.gbhcpas.comHouston,
      TexasOctober
      27, 2010


F-2


Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Stockholders


NanoDynamics
Holdings, Inc.


(Formerly
Mystica Candle Corp.)


(A
Development Stage company)





We have
audited the accompanying balance sheet of NanoDynamics Holdings, Inc. (formerly
Mystica Candle Corp. (A Development Stage “Company”)) as of June 30, 2009 and
the related statements of operations, changes in shareholders’ equity and cash
flows for the year then ended and for the period from June 24, 2005 (inception)
to June 30, 2009. These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these financial statements based on our audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of NanoDynamics Holdings, Inc.
(formerly Mystica Candle Corp.) as of June 30, 2009, and the results of its
operations and its cash flows for the year then ended and for the period from
June 24, 2005 (inception) to June 30, 2009 in conformity with U.S. generally
accepted accounting principles.





/s/ Chang G. ParkCHANG
      G. PARK, CPASeptember
      2, 2009San
      Diego, CA. 92108


F-3


PART
I – FINANCIAL INFORMATION





Item
1. Financial Statements





Li3
ENERGY, INC.


(An
Exploration Stage Company)


Consolidated
Balance Sheets





As
      of
                                      
                                      
                                      As
      ofJune 30, 2010
                                      
                                      
                                      June 30, 2009AssetsCurrent
      Assets:Cash
                                      
                                      $
                                      302,821
                                      
                                      
                                      $
                                      9,703Prepaid
      expenses and advances
                                      
                                      
                                      56,476
                                      
                                      
                                      
                                      -Total
      current assets
                                      
                                      
                                      359,297
                                      
                                      
                                      
                                      9,703Mineral
      rights
                                      
                                      
                                      340,000
                                      
                                      
                                      
                                      -Property
      and equipment, net of accumulated depreciation of $15,249 and $11,350,
      respectively
                                      
                                      
                                      3,946
                                      
                                      
                                      
                                      7,845Total
      non- current assets
                                      
                                      
                                      343,946
                                      
                                      
                                      
                                      7,845Total
      assets
                                      
                                      $
                                      703,243
                                      
                                      
                                      $
                                      17,548Liabilities
      and Stockholders' DeficitCurrent
      Liabilities:Accounts
      payable
                                      
                                      $
                                      657,100
                                      
                                      
                                      $
                                      3,921Accrued
      expenses
                                      
                                      
                                      982,550
                                      
                                      
                                      
                                      4,837Payable
      to related party
                                      
                                      
                                      10,671
                                      
                                      
                                      
                                      -Loans
      payable
                                      
                                      
                                      95,000
                                      
                                      
                                      
                                      95,000Total
      current liabilities
                                      
                                      
                                      1,745,321
                                      
                                      
                                      
                                      103,758Derivative
      liabilities - warrant instruments
                                      
                                      
                                      8,029,728
                                      
                                      
                                      
                                      -Total 
      Liabilities
                                      
                                      
                                      9,775,049
                                      
                                      
                                      
                                      103,758Commitments
      and contingenciesStockholders'
      Deficit:Preferred
      stock, $0.001 par value, 10,000,000 shares  authorized; 0
      shares issued and outstanding as of June 30, 2010 and
      2009
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Common
      stock, $0.001 par value, 290,000,000 shares authorized;
      74,625,095 and 121,052,721 shares issued and outstanding as of June
      30, 2010 and 2009, respectively
                                      
                                      
                                      74,625
                                      
                                      
                                      
                                      121,052Additional
      paid-in capital
                                      
                                      
                                      7,095,961
                                      
                                      
                                      
                                      (13,552
                                      )Deficit
      accumulated during exploration stage
                                      
                                      
                                      (16,242,392
                                      )
                                      
                                      
                                      (193,710
                                      )Total
      stockholders' deficit
                                      
                                      
                                      (9,071,806
                                      )
                                      
                                      
                                      (86,210
                                      )Total
      liabilities and stockholders' deficit
                                      
                                      $
                                      703,243
                                      
                                      
                                      $
                                      17,548





See
accompanying notes to the consolidated financial
statements.


F-4





Li3
ENERGY, INC.


(An
Exploration Stage Company)


Consolidated
Statements of Operations





June
      24, 2005Years
      Ended
                          
                          
                          (Inception)June
      30,
                          
                          
                          through2010
                          
                          
                          2009
                          
                          
                          June 30, 2010Revenues
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          2,278Cost
      of goods sold
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,182Gross
      profit
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,096Operating
      expenses:Inventory
      impairment
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,469Mineral
      rights impairment expense
                          
                          
                          4,718,785
                          
                          
                          
                          -
                          
                          
                          
                          4,718,785Exploration
      expenses
                          
                          
                          2,335,779
                          
                          
                          
                          -
                          
                          
                          
                          2,335,779General
      and administrative expenses
                          
                          
                          2,762,102
                          
                          
                          
                          63,364
                          
                          
                          
                          2,950,613Total
      operating expenses
                          
                          
                          9,816,666
                          
                          
                          
                          63,364
                          
                          
                          
                          10,006,646Other
      income (expense):Unrealized
      loss – change in fair value of warrant derivative
    liabilities
                          
                          
                          (6,223,547
                          )
                          
                          
                          -
                          
                          
                          
                          (6,223,547
                          )Foreign
      currency – gains/(losses)
                          
                          
                          (5,160
                          )
                          
                          
                          -
                          
                          
                          
                          (5,160
                          )Interest
      income
                          
                          
                          4,404
                          
                          
                          
                          11
                          
                          
                          
                          4,415Interest
      expense
                          
                          
                          (7,713
                          )
                          
                          
                          (4,552
                          )
                          
                          
                          (12,550
                          )Net
      loss
                          
                          $
                          (16,048,682
                          )
                          
                          $
                          (67,905
                          )
                          
                          $
                          (16,242,392
                          )Basic
      and diluted loss per share
                          
                          $
                          (0.19
                          )
                          
                          $
                          0.00Weighted
      average number of common shares outstanding - basic and
      diluted
                          
                          
                          83,014,592
                          
                          
                          
                          121,052,721





See
accompanying notes to the consolidated financial statements.


F-5


Li3
ENERGY, INC.


(An
Exploration Stage Company)


Consolidated
Statement of Changes in Stockholders’ Equity (Deficit)


From
June 24, 2005 (Inception) through June30, 2010




DeficitAccumulatedCommon
                      
                      
                      Additional
                      
                      
                      DuringCommon
                      
                      
                      Stock
                      
                      
                      Paid-In
                      
                      
                      ExplorationStock
                      
                      
                      Amount
                      
                      
                      Capital
                      
                      
                      Stage
                      
                      
                      TotalBalance
      at June 24, 2005 (Inception)
                      
                      
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Stock
      issued for cash on June 24, 2005 at $0.000105 per
    share
                      
                      
                      35,526,336
                      
                      
                      
                      35,526
                      
                      
                      
                      (31,776
                      )
                      
                      
                      -
                      
                      
                      
                      3,750Stock
      issued for cash on June 24, 2005 at $0.000105 per share
                      
                      
                      35,526,336
                      
                      
                      
                      35,526
                      
                      
                      
                      (31,776
                      )
                      
                      
                      -
                      
                      
                      
                      3,750Net
      loss, period ended June 30, 2005
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Balance,
      June 30, 2005
                      
                      
                      71,052,672
                      
                      
                      
                      71,052
                      
                      
                      
                      (63,552
                      )
                      
                      
                      -
                      
                      
                      
                      7,500Stock
      issued for cash on March 14,  2006 at $0.0019 per
      share
                      
                      
                      47,368,454
                      
                      
                      
                      47,368
                      
                      
                      
                      2,632
                      
                      
                      
                      -
                      
                      
                      
                      50,000Net
      loss, year ended June 30, 2006
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (14,068
                      )
                      
                      
                      (14,068
                      )Balance,
      June 30, 2006
                      
                      
                      118,421,126
                      
                      
                      
                      118,420
                      
                      
                      
                      (60,920
                      )
                      
                      
                      (14,068
                      )
                      
                      
                      43,432Net
      loss, year ended June 30, 2007
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (16,081
                      )
                      
                      
                      (16,081
                      )Balance,
      June 30, 2007
                      
                      
                      118,421,126
                      
                      
                      
                      118,420
                      
                      
                      
                      (60,920
                      )
                      
                      
                      (30,149
                      )
                      
                      
                      27,351Stock
      issued for cash on February 7, 2008 at $0.019 per share
                      
                      
                      2,631,595
                      
                      
                      
                      2,632
                      
                      
                      
                      47,368
                      
                      
                      
                      -
                      
                      
                      
                      50,000Net
      loss, year ended June 30, 2008
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (95,656
                      )
                      
                      
                      (95,656
                      )Balance,
      June 30, 2008
                      
                      
                      121,052,721
                      
                      
                      
                      121,052
                      
                      
                      
                      (13,552
                      )
                      
                      
                      (125,805
                      )
                      
                      
                      (18,305
                      )Net
      loss, year ended June 30, 2009
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (67,905
                      )
                      
                      
                      (67,905
                      )Balance,
      June 30, 2009
                      
                      
                      121,052,721
                      
                      
                      
                      121,052
                      
                      
                      
                      (13,552
                      )
                      
                      
                      (193,710
                      )
                      
                      
                      (86,210
                      )October
      2009, cancellation of former officer's shares
                      
                      
                      (71,052,626
                      )
                      
                      
                      (71,052
                      )
                      
                      
                      71,052
                      
                      
                      
                      -
                      
                      
                      
                      -October
      2009, stock issued to the chief executive officer for services at $0.0032
      per share
                      
                      
                      1,500,000
                      
                      
                      
                      1,500
                      
                      
                      
                      3,300
                      
                      
                      
                      -
                      
                      
                      
                      4,800November
      10, 2009, common stock sold in private placement offering at $0.25 per
      share, less offering cost totaling $42,392
                      
                      
                      6,400,000
                      
                      
                      
                      6,400
                      
                      
                      
                      1,018,222
                      
                      
                      
                      -
                      
                      
                      
                      1,024,622November
      12, 2009, common stock sold in private placement offering at $0.25 per
      share, less offering cost totaling $5,350
                      
                      
                      2,120,000
                      
                      
                      
                      2,120
                      
                      
                      
                      299,447
                      
                      
                      
                      -
                      
                      
                      
                      301,567November
      17, 2009, common stock sold in private placement offering at $0.25 per
      share, less offering cost totaling $31,243
                      
                      
                      1,820,000
                      
                      
                      
                      1,820
                      
                      
                      
                      234,944
                      
                      
                      
                      -
                      
                      
                      
                      236,764December
      15, 2009, common stock sold in private placement offering at $0.25 per
      share, less offering cost totaling $4,859
                      
                      
                      1,900,000
                      
                      
                      
                      1,900
                      
                      
                      
                      260,222
                      
                      
                      
                      -
                      
                      
                      
                      262,122December
      23, 2009, common stock sold in private placement offering at $0.25 per
      share, less offering cost totaling $76,632
                      
                      
                      1,760,000
                      
                      
                      
                      1,760
                      
                      
                      
                      167,361
                      
                      
                      
                      -
                      
                      
                      
                      169,121December
      2009, stock issued to a consultant for services at $0.61 per
      share
                      
                      
                      750,000
                      
                      
                      
                      750
                      
                      
                      
                      456,750
                      
                      
                      
                      -
                      
                      
                      
                      457,500February
      2010, stock issued to a consultant for services at $0.93 per
      share
                      
                      
                      375,000
                      
                      
                      
                      375
                      
                      
                      
                      348,375
                      
                      
                      
                      -
                      
                      
                      
                      348,750March
      12, 2010, stock issued for acquisition of mineral rights at $0.91 per
      share
                      
                      
                      4,000,000
                      
                      
                      
                      4,000
                      
                      
                      
                      3,636,000
                      
                      
                      
                      -
                      
                      
                      
                      3,640,000June
      9, 2010 common stock sold in private placement offering at $0.25 per
      share, less offering cost totaling $253,204
                      
                      
                      4,000,000
                      
                      
                      
                      4,000
                      
                      
                      
                      284,943
                      
                      
                      
                      -
                      
                      
                      
                      288,943Stock
      options issued to consultant for services
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      114,783
                      
                      
                      
                      -
                      
                      
                      
                      114,783Amortization
      of stock-based compensation expense
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      84,614
                      
                      
                      
                      -
                      
                      
                      
                      84,614Stock
      issued by CEO to employees and director for services
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      129,500
                      
                      
                      
                      -
                      
                      
                      
                      129,500Net
      loss, year ended June 30 , 2010
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (16,048,682
                      )
                      
                      
                      (16,048,682
                      )Balance,
      June 30, 2010
                      
                      
                      74,625,095
                      
                      
                      $
                      74,625
                      
                      
                      $
                      7,095,961
                      
                      
                      $
                      (16,242,392
                      )
                      
                      $
                      (9,071,806
                      )





See
accompanying notes to the consolidated financial
statements.


F-6


Li3
ENERGY, INC.


(An
Exploration Stage Company)


Consolidated
Statements of Cash Flow




June
      24, 2005(inception)Year Ended June 30,
                      
                      
                      through2010
                      
                      
                      2009
                      
                      
                      June 30,2010Cash
      Flows from Operating ActivitiesNet
      loss
                      
                      $
                      (16,048,682
                      )
                      
                      $
                      (67,905
                      )
                      
                      $
                      (16,242,392
                      )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
                      
                      
                      3,899
                      
                      
                      
                      3,900
                      
                      
                      
                      15,554Stock-based
      compensation
                      
                      
                      1,139,947
                      
                      
                      
                      -
                      
                      
                      
                      1,139,947Unrealized
      loss on change in fair value of warrant derivative
    liabilities
                      
                      
                      6,223,547
                      
                      
                      
                      -
                      
                      
                      
                      6,223,547Inventory
      impairment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      1,469Mineral
      rights impairment expense
                      
                      
                      4,718,785
                      
                      
                      
                      -
                      
                      
                      
                      4,718,785Changes
      in operating assets and liabilities:Increase
      in inventory
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (1,469
                      )Increase
      in prepaid expenses and advances
                      
                      
                      (56,476
                      )
                      
                      
                      -
                      
                      
                      
                      (56,476
                      )Increase
      (decrease) in accounts payable
                      
                      
                      653,179
                      
                      
                      
                      (644
                      )
                      
                      
                      657,100Increase
      in accrued expenses
                      
                      
                      977,713
                      
                      
                      
                      4,552
                      
                      
                      
                      982,550Increase
      in payable to related party
                      
                      
                      10,671
                      
                      
                      
                      -
                      
                      
                      
                      10,671Net
      cash used in operating activities
                      
                      
                      (2,377,417
                      )
                      
                      
                      (60,097
                      )
                      
                      
                      (2,550,714
                      )Cash
      Flows from Investing ActivitiesAcquisition
      of mineral rights
                      
                      
                      (1,418,785
                      )
                      
                      
                      -
                      
                      
                      
                      (1,418,785
                      )Acquisition
      of equipment
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (9,500
                      )Increase
      in leasehold improvement
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      (10,000
                      )Net
      cash used in investing activities
                      
                      
                      (1,418,785
                      )
                      
                      
                      -
                      
                      
                      
                      (1,438,285
                      )Cash
      Flows from Financing ActivitiesIncrease
      in loans payable
                      
                      
                      -
                      
                      
                      
                      45,000
                      
                      
                      
                      95,000Proceeds
      from issuance of common stock, net of offering costs
                      
                      
                      4,089,320
                      
                      
                      
                      -
                      
                      
                      
                      4,196,820Net
      cash provided by financing activities
                      
                      
                      4,089,320
                      
                      
                      
                      45,000
                      
                      
                      
                      4,291,820Net
      increase (decrease) in cash
                      
                      
                      293,118
                      
                      
                      
                      (15,097
                      )
                      
                      
                      302,821Cash
      at beginning of year
                      
                      
                      9,703
                      
                      
                      
                      24,800
                      
                      
                      
                      -Cash
      at end of year
                      
                      $
                      302,821
                      
                      
                      $
                      9,703
                      
                      
                      $
                      302,821Supplemental
      disclosure of cash flow information:Cash
      paid during the period for:Income
      taxes
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Interest
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Non-cash
      investing and financing transactions:Common
      stock cancelled
                      
                      $
                      71,052
                      
                      
                      $
                      -
                      
                      
                      $
                      71,052Issuance
      of common stock for acquisition of mineral rights
                      
                      $
                      3,640,000
                      
                      
                      $
                      -
                      
                      
                      $
                      3,640,000Fair
      value of derivative warrant instruments in private
    offerings
                      
                      $
                      1,806,181
                      
                      
                      $
                      -
                      
                      
                      $
                      1,806,181





See
accompanying notes to the consolidated financial
statements.


F-7


NOTE
1.   ORGANIZATION AND DESCRIPTION OF BUSINESS





Li3
Energy, Inc. (“Li3 Energy” or the “Company”) was incorporated under the laws of
the State of Nevada on June 24, 2005.  Initially, the Company’s principal
products were soy-blend wax candles (the “Legacy Business”). In 2009, the
Company decided to redirect its business focus and strategy toward identifying
and pursuing business opportunities in lithium and industrial
minerals mining in North and South America.




On
October 19, 2009, the Company filed an amendment to its articles of
incorporation with the Secretary of State of the State of Nevada, pursuant to
which it changed its name from NanoDynamics Holdings, Inc. to Li3 Energy, Inc.,
to reflect the Company’s plans to focus its business strategy on the energy
sector and related lithium mining opportunities in North and South
America.





As of
June 30, 2010, the Company had one subsidiary, Li3 Energy Peru SRL, a
wholly owned subsidiary in Peru, to explore mining opportunities in Peru
and in South America. Subsequently, the Company has established three additional
subsidiaries: Alfredo Holdings, Ltd., an exempted limited company incorporated
under the laws of the Cayman Islands; Pacific Road Mining Chile, SA, a Chilean
corporation (“PRMC”).  PRMC is a subsidiary of Alfredo; and Noto
Energy S.A., an Argentinean corporation.





Split-off
of Legacy Business




In
connection with the discontinuation of the Company’s previous business and the
redirecting of its business strategy to focus on lithium and industrial
minerals mining in North and South America, the Company split off and sold
all of the assets and liabilities of the Legacy Business (the “Split-Off”) to
Jon Suk, the Company’s founding stockholder. The Split Off closed on October 19,
2009. As more fully described in a Form 8-K filed by the Company with the SEC on
December 14, 2009, the Company contributed all of its assets and liabilities
relating to the Legacy Business, whether accrued, contingent or otherwise, and
whether known or unknown, to a newly organized, wholly-owned subsidiary, Mystica
Candle, Inc., a Nevada corporation (“Split-Off Sub”), and immediately thereafter
sold all of the outstanding capital stock of Split-Off Sub to Mr. Suk in
exchange for 71,052,626 shares of the Company’s common stock, $0.001 par value
per share that Mr. Suk then owned. The 71,052,626 shares surrendered by Mr. Suk
have been cancelled.





NOTE
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





a.  Principles
of Consolidation





The
consolidated financial statements include the accounts of Li3 Energy Peru SRL,
the Company’s wholly owned subsidiary, after the elimination of significant
intercompany accounts and transactions.





b.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 (formerly Statement of Financial Accounting Standards
(“SFAS”) No.7, “Accounting and
Reporting by Development Stage Enterprises”).  Its activities
to date have been limited to capital formation, organization, and development of
its business, including acquisition of mineral assets.


F-8


c.  Cash
Equivalents




The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.  At June 30,
2010, the Company had cash deposits of approximately $298,681 in a single
account at a U.S. bank, which is $48,681 in excess of the FDIC’s $250,000
current insured limits. The Company has not experienced any losses on its
deposits of cash and cash equivalents.





d.  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 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 these costs are in excess of
their recoverable amount, periodic evaluation of carrying value of
capitalized costs and any related property and equipment costs are based
upon expected future cash flows and/or estimated salvage value in
accordance with Accounting Standards Codification (ASC) 360-10-35-15, Impairment or Disposal of Long-Lived
Assets.





e.  Property
and Equipment




Property
and equipment are stated at cost. Equipment and fixtures are being depreciated
using the straight-line method over the estimated useful lives ranging from 3 to
7 years.





f.   Income
Taxes




Income
taxes are provided in accordance with FASB ASC Topic No. 740 (formerly SFAS No.
109, “Accounting for Income
Taxes”).  A deferred tax asset or liability is recorded for all
temporary differences between financial and tax reporting and net operating loss
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.




g.   Share-based
Payments





The
Company determines the fair value of stock option awards granted to employees in
accordance with FASB ASC Topic No. 718 – 10 (formerly SFAS No. 123(R), “Share-Based
Payments”) and to non-employees in accordance with FASB ASC Topic
No. 505 – 50 (formerly EITF 96-18 “Accounting for Equity Instruments Issued to
Non-Employees for Acquiring, or in Conjunction with Selling, Goods or
Services”).





h.   Earnings
(Loss) per Share




The
Company accounts for earnings (loss) per share in accordance with FASB ASC Topic
No. 260 – 10 (formerly SFAS No. 128,“Earnings per Share”), which
specifies the computation, presentation and disclosure requirements for earnings
(loss) per share for entities with publicly held common stock and requires the
presentation of basic earnings (loss) per share and diluted earnings (loss) per
share.


F-9


Basic net
loss per share amounts are computed by dividing the net loss 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 as the effect would be
anti-dilutive.  The effects of the 15.625 for 1 forward stock split on
October 19, 2009 have been reflected in the Company’s calculation of basic and
diluted net loss per share.





i.
Foreign Currency





The U.S.
dollar is the functional currency of our foreign operating subsidiaries. 
The books and records of  our foreign operating subsidiary are
remeasured to our functional currency.  Foreign currency transaction gains
and losses are included in the statements of operations in accordance with ASC
830.





j. Use of Estimates and
Assumptions




The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Management has made
significant estimates related to the fair value of the warrant derivative
liability, accrued expenses and contingencies.




k.  Recent
Accounting Pronouncements




In June
2009, the FASBissued SFAS No.
168,“The FASB Accounting
Standards CodificationTMand the Hierarchy of Generally
Accepted Accounting Principles – a replacement of FASB Statement No. 162
” (“SFAS 168”). The FASBAccounting Standards
CodificationTM , (“Codification” or “ASC”) became the source of
authoritative GAAP recognized by the FASB to be applied by nongovernmental
entities. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative GAAP for SEC registrants. On
the effective date of SFAS 168, the Codification superseded all then-existing
non-SEC accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the Codification became
non-authoritative.





Following
SFAS 168, the FASB will no longer issue new standards in the form of Statements,
FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will
issue Accounting Standards Updates (ASU’s). The FASB will not consider ASU’s as
authoritative in their own right; rather these updates will serve only to update
the Codification, provide background information about the guidance, and provide
the bases for conclusions on the change(s) in the Codification. SFAS
No. 168 is incorporated in ASC Topic 105,Generally Accepted Accounting
Principles. The Company adopted SFAS No. 168 in the first
quarter of 2010, and the Company will provide reference to both the Codification
topic reference and the previously authoritative references related to
Codification topics and subtopics, as appropriate.





Effective
January 1, 2009, the Company adopted FASB ASC Topic No. 815 – 40,Derivatives and Hedging - Contracts
in Entity’s Own Stock (formerly Emerging Issues Task Force Issue No.
07-5,Determining Whether an
Instrument or Embedded Feature is Indexed to an Entity’s Own Stock). The
adoption of FASB ASC Topic No. 815 – 40’s requirements can affect the accounting
for warrants and many convertible instruments with provisions that protect
holders from a decline in the stock price (or “down-round” provisions). For
example, warrants with such provisions will no longer be recorded in
equity.  Down-round provisions reduce the exercise price of a warrant
or convertible instrument and/or modify the potential shares issuable if a
company either issues equity shares for a price that is lower than the exercise
price of those instruments or issues new warrants or convertible instruments
that have a lower exercise price. The Company evaluates whether warrants or
convertible instruments contain provisions that protect holders from declines in
the Company’s stock price or otherwise couldresult in modification
of the exercise price and/or shares to be issued under the respective debt,
warrant or preferred stock agreements based on a variable that is not an input
to the fair value of a “fixed-for-fixed” option as defined under FASB ASC
Topic No. 815 – 40.


F-10


l.
Subsequent Events





The
Company evaluated material events occurring between the end of our fiscal year,
June 30, 2010, and through the date when the consolidated financial
statements were issued.





m. Reclassifications





Certain
reclassifications have been to the 2009 financial statements to conform to the
current year presentation.





NOTE
3.   GOING CONCERN





The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  The Company currently
has no sources of recurring revenue and has generated net losses of $16,242,392
and negative cash flows from operations of $2,550,714 during the period from
June 24, 2005 (inception) through June 30, 2010.





In the
course of its development activities, the Company has sustained and continues to
sustain losses.  The Company does not anticipate positive cash flow
from operations before 2013 and 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.  The Company expects to finance its operations
primarily through future financings. However, there exists substantial doubt
about the Company’s ability to continue as a going concern because there is no
assurance that it will be able to obtain such capital, through equity or debt
financing, or any combination thereof, on satisfactory terms or at all.
Additionally, no assurance can be given that any such financing, if obtained,
will be adequate to meet the Company’s ultimate capital needs and to support its
growth. If adequate capital cannot be obtained on a timely basis and on
satisfactory terms, then the Company’s operations would be materially negatively
impacted.





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





These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. The Company’s continuation as a going concern is dependent on its
ability to meet its 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
this uncertainty.


F-11


NOTE
4.  MINERAL RIGHTS





Year ended
                      June 30,
                      2010Acquisition
      costs
                    
                    $
                    5,058,785Less:
      impairments
                    
                    
                    (4,718,785
                    )Net
      mineral rights
                    
                    $
                    340,000





Peru
Acquisition





On
February 23, 2010, the Company acquired, through a new wholly-owned
subsidiary, Li3 Energy Peru SRL, 100% of the assets of the Loriscota, Suches and
Vizcachas Projects (the “Projects”) located in the Provinces of Puno, Tacna and
Moquegua, Peru.  The assets consist solely of undeveloped mineral
rights and were recorded as an asset purchase.  The aggregate purchase
price for the assets was $50,000 which was paid in cash and recorded in mineral
rights in the consolidated balance sheet as of June 30, 2010.





Alfredo





In
connection with our acquisition activities related to the Alfredo property, the
Company capitalized $90,000 as mineral rights, which was paid prior to June 30,
2010, but pursuant to the acquisition which closed after June 30,
2010.





Noto
Acquisition





Pursuant
to an Assignment Agreement dated as of March 12, 2010 (the “Assignment
Agreement”), the Company purchased all of Puna Lithium Corporation’s (“Puna”)
interests in and rights for the acquisition of Noto Energy S.A. (”Noto”) under a
letter of intent dated November 23, 2009, as amended (the “Letter of Intent”),
entered into by and among Puna, Lacus Minerals S.A., and the shareholders of
Noto Energy S.A. (“Noto Shareholders”), an Argentinian corporation.





On March
12, 2010, the Company entered into a Share Purchase Agreement with the Noto
Shareholders (the “Share Purchase Agreement”) for the acquisition of one hundred
percent (100%) of the issued and outstanding shares of Noto, an Argentinean
corporation which beneficially owns a one hundred percent (100%) undeveloped
mineral interest in over 2,995 acres situated on brine salars in Argentina,
known as Cauchari (the “Noto Properties”).





Under the
Share Purchase Agreement, the Company acquired upon closing on July 30, 2010,
one hundred percent (100%) of the issued and outstanding shares of Noto, for
$300,000 in cash, of which $200,000 was paid during the year ending June 30,
2010 and recorded in mineral rights in the consolidated balance sheet, and
$100,000 was paid subsequent to year-end on July 30, 2010 when the transaction
closed. Noto’s only asset was the mineral interest in the Noto
Properties.  Accordingly, the entire acquisition price was recorded as
mineral rights in July 2010.


F-12


Nevada
Impairment





On March
12, 2010, pursuant to an Asset Purchase Agreement (the “Nevada APA”) between the
Company, Next Lithium Corp., an Ontario corporation, and Next Lithium (Nevada)
Corp., a Nevada corporation (together, “Next Lithium”), the Company acquired all
of Next Lithium’s interests in and rights under (a) an agreement dated October
30, 2009 and a subsequent amendment (the “CSV, LM and MW Option Agreement, as
amended”), pursuant to which GeoXplor Corp., a Nevada corporation (“GeoXplor”),
granted to Next Lithium the sole right and option (the “CSV, LM and MW Option”),
to acquire a 100% interest in the associated placer mining claims known as the
CSV Placer Mineral Claims, LM Placer Mineral Claims and MW Placer Mineral
Claims; and (b) an agreement dated October 30, 2009 (the “BSV Option Agreement,”
and, together with the CSV, LM and MW Option Agreement, the “Option
Agreements”), pursuant to which GeoXplor granted to Next Lithium the sole right
and option (the “BSV Option,” and, together with the CSV, LM and MW Option, the
“Nevada Options”), to acquire a 100% interest in the association placer mining
claims known as the BSV Placer Mineral Claims.





Under the
terms of the Nevada APA, the Company acquired the Nevada Options in exchange for
4,000,000 shares of its common stock with a fair value of $3,640,000 on the date
of acquisition based on our stock price.  As of June 30, 2010, the
4,000,000 shares are issued, and 2,500,000 of these shares are held in escrow
for one year against any indemnifiable liabilities that may arise.





Under the
CSV, LM and MW Option Agreement, as amended, the Company paid GeoXplor
$236,607. The Company also is obligated to pay amounts totaling $75,000
contingent upon future events which had not occurred as of the date of June 30,
2010.





Under the
BSV Option Agreement, as amended, the Company was required to pay to GeoXplor
$100,000 on June 30, 2010, which the Company has not paid.  The
$100,000 owed to GeoXplor is recorded in accrued expenses as of June 30,
2010.





Upon
further analysis of the mineral composition of the Nevada Claims, the Company
determined that the Nevada Claims did not meet the Company’s requirements for
mining operations planned by the Company, thus the Company terminated the Nevada
Options and recorded impairment expense of $3,976,607 for all amounts previously
capitalized as mineral rights in the consolidated balance sheet.





These
amounts consisted of cash of $236,607 paid to GeoXplor on the closing of the
acquisition under the Nevada APA, and common stock issued in connection with the
acquisition valued at $3,640,000, and $100,000 owed in connection with the BSV
Option Agreement as of June 30, 2010.





Subsequent
to year-end, the Company was obligated to pay approximately $57,000 of claim
maintenance fees on the Nevada Claims and approximately $32,600 of Nevada state
taxes, which the Company has not paid.





Puna
Lithium Impairment





On March
12, 2010, the Company entered into an assignment agreement (the “Assignment
Agreement”) whereby the Company would purchase all of the Puna Lithium
Corporation’s (“Puna”) interests in and rights under a letter of intent dated
November 23, 2009, as amended (the “Letter of Intent”) entered into by Puna,
Lacus Minerals S.A. (“Lacus”), and the shareholders of Noto Energy S.A., and the
Company entered into a certain Master Option Agreement with Lacus (the “Master
Option Agreement”), for the acquisition of three options (collectively, the
“Options”), to acquire up to an 85% interest in: (a) approximately 70,000 acres
situated on prospective brine salars in Argentina, known as Rincón, Centenario
and Pocitos (the “Master Lacus Properties”); and (b) salt-mining claims on
approximately 9,000 additional acres in certain other areas of mutual interest
on some of those same salars (the “Third Parties Properties” and, together with
the Master Lacus Properties, the “Lacus Properties”) that may be acquired upon
exercise of the two options (collectively, the “Third Parties
Options”).


F-13


As
consideration to Lacus for entering into the Master Option Agreement (“MOA”),
the Company paid Lacus aggregate payments of $942,178, which included $242,178
for acquisition costs and $700,000 for exploration related
expenses.  The Company is also required to pay Lacus $500,000 on March
12, 2011 as consideration for the agreement.  As further consideration
for entering the MOA and as a condition to maintain the first option under the
MOA in good standing until exercised, the Company was to pay $3,000,000 for work
commitments on dates to be determined at closing.  The MOA did not
close as of June 30, 2010.  On July 30, 2010, the Company and Lacus
amended the MOA (“Amended MOA”) to clarify that the work commitment payments
were due as follows:  $237,000 due on or before July 30, 2010;
$1,079,000 due on or before August 15, 2010; $372,000 due on or before August
31, 2010 and $1,312,000 due over the one year period subsequent to closing of
the MOA on a schedule to be determined by the MOA executive
committee.





In August
2010, the Company determined that the Rincon, Pocitos and Centerario
salars did not meet the Company’s criteria for economic brine reserves,
that the work plan recommended by Lacus was not acceptable and that funding of a
drilling program should be suspended. Lacus subsequently terminated the
Master Option Agreement on August 24 2010.  The Company expensed
$742,178 of capitalized acquisition costs as impairment expense in the
consolidated statement of operations during the year ended June 30, 2010. In
accordance with the Assignment Agreement, the Company was also required to issue
8,000,000 shares of common stock to Puna upon the date of the closing
(“Closing”) as defined in the Master Option Agreement.  As the Closing
did not occur, the Company did not issue the 8,000,000 shares of common stock.
As of June 30, 2010, the Company has recorded $765,000 in accrued expenses
related to acquisition costs and exploration expenses under the agreements.The MOA was amended
subsequent to June 30, 2010.





Contingent
Obligations Related to Terminated Agreements





In
connection with our obligations under the Nevada APA and the Puna MOA, the
Company may be directly or contingently obligated to fulfill certain commitments
for payments under the agreements related to option payments, permitting costs,
maintenance costs, and funding requirements under work
commitments.  Total unpaid commitments under the Nevada APA and the
Lacus MOA including development costs related to these projects were $264,600
and $3,500,000, respectively.  To date, claims amounting to $275,000
have been made by Lacus.  Although the Company believes it will not be
required to pay the majority of these commitments under the termination
provisions of the respective agreements, it could be obligated for substantial
payments.





NOTE
5.  PROPERTY AND EQUIPMENT




Property
and equipment consists of the following:




June 30,
                    2010
                  
                  
                  June 30,
                    2009Office
      leasehold improvement and equipment
                  
                  $
                  19,195
                  
                  
                  $
                  19,195Less:
      Accumulated depreciation
                  
                  
                  (15,249
                  )
                  
                  
                  (11,350
                  )Net
      property and equipment
                  
                  $
                  3,946
                  
                  
                  $
                  7,845




Depreciation
expense for the years ended June 30, 2010 and 2009 was $3,899 and $3,900,
respectively.


F-14


NOTE
6.   RELATED PARTY TRANSACTIONS





Payable to Related
Party





Starting
in November 2009, Li3 Energy started utilizing the administrative personnel and
office space of a company, with an office located in Lima, Peru in which Li3
Energy’s Chief Executive Officer and Interim Chief Financial Officer function in
the same capacities (the “Related Party Company”).  As such, certain
net common costs initially paid by the Related Party Company for the year ended
June 30, 2010 and 2009, were allocable to Li3 Energy, as follows:





Year Ended
                    June 30,2010
                  
                  
                  2009Administrative
      salaries
                  
                  $
                  5,100
                  
                  
                  $
                  -Rent,
      utilities and maintenance expenses
                  
                  
                  16,759
                  
                  
                  
                  -$
                  21,859
                  
                  
                  $
                  -





During
the year ended June 30, 2010, Li3 Energy paid $11,188 to the Related Party
Company. As of June 30, 2010, the payable due to the Related Party Company
arising from these net common costs amounting to $10,671 is presented as
“Payable to related party” in Li3 Energy’s consolidated balance
sheet.





Services





One of
the Company’s directors is a Partner in a law firm that the Company has engaged
to perform certain legal services.  The Company pays for such legal
services at the standard rates that the firm charges its unrelated
clients.  For the Company’s fiscal year ending June 30, 2010, the
total legal fees that the Company incurred to such firm was approximately
$30,000.





NOTE
7.  LOANS PAYABLE





The
Company issued a $50,000 unsecured Promissory Note dated June 5, 2008
(the”Note”) to Milestone Enhanced Fund Ltd. (“Milestone”) in connection with
Milestone’s $50,000 working capital loan to the Company, and the terms and
conditions of such Note allow for prepayment of the principal and accrued
interest any time without penalty. The interest rate is 8% per annum and the
maturity date was June 5, 2010. The total interest accrued at June 30, 2010 is
$8,298.  This Note is in default as of June 30, 2010 and remains
payable to Milestone.





The
Company issued an unsecured Convertible Promissory Note (the “Convertible Note”)
dated April 30, 2009, bearing an interest rate of 8.25% per annum, in the amount
of $45,000, due on November 8, 2010 to Milestone.  The Convertible
Note provides that principal and interest balance due on the Convertible Note
are convertible at Milestone’s option pursuant to terms to be mutually agreed
upon by the Company and Milestone in writing at a later date.  The
Company and Milestone have not yet negotiated such conversion
terms.  The total interest accrued on the Convertible Note at June 30,
2010 is $4,252.


F-15


NOTE
8. DERIVATIVE LIABILITIES





The
Company determined that warrants, initially exercisable to purchase a total
of 14,203,000 shares of common stock, issued in the 2009 Unit Offering and
warrants, initially exercisable to purchase a total of 4,000,000 shares of
common stock, issued in the June 9, 2010 closing of the 2010 Unit Offering
contain provisions that protect holders from declines in the Company’s stock
price that could result in modification of the exercise price under the
warrant based on a variable that is not an input to the fair value of a
“fixed-for-fixed” option as defined under FASB ASC Topic No. 815 –
40.  As a result, these warrants were determined to be not indexed
to the Company’s own stock.





The
warrants issued in connection with the 2009 Unit Offering and the 2010 Unit
Offering contain anti-dilution provisions that provide for a reduction in the
exercise price of such warrant in the event that future common stock (or
securities convertible into or exercisable for common stock) is issued 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 and all warrants
issued to agents under both the 2009 and 2010 unit offerings will be increased
inversely proportionally 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 these 2009 Unit Offering warrants and 2010 Unit Offering warrants was
recognized as derivative warrant instruments at issuance and will be measured at
fair value at each reporting period.  The Company measured the fair
value of these warrant instruments as of June 30, 2010, and recorded $6,223,547
unrealized loss in the statement of operations for the year ended June 30, 2010.
The Company determined the fair values of these securities using a modified
lattice valuation model.





Activity
for derivative warrant instruments during the year ended June 30, 2010 was as
follows:




Balance
      at
                            June
      30,
                            2009
                          
                          
                          Initial
      valuation
                            of
      derivative
                            liabilities
      upon
                            issuance
      of new
                            warrants
      during
                            the
      period
                          
                          
                          Increase
                            (Decrease) in
                            Fair Value of
                            Derivative
                            Liability
                          
                          
                          Balance
      at June
                            30, 20102009
      Unit Offering - Derivativewarrant
      instruments
                          
                          $
                          —
                          
                          
                          $
                          1,345,328
                          
                          
                          $
                          4,968,441
                          
                          
                          $
                          6,313,7692010
      Unit Offering – Derivative warrant instruments
                          
                          
                          —
                          
                          
                          
                          460,853
                          
                          
                          $
                          1,255,106
                          
                          
                          
                          1,715,959$
                          —
                          
                          
                          $
                          1,806,181
                          
                          
                          $
                          6,223,547
                          
                          
                          $
                          8,029,728


F-16


The fair
value of the derivative warrant instruments is estimated using a modified
lattice valuation model and the following assumptions provide information
regarding the warrants as of the initial valuation of the 2009 Unit Offering in
November and December of 2009, 2010 Unit Offering in June 2010, and as of June
30, 2010:





2009
      Unit
                            Offering
                          
                          
                          2010
      Unit
                            Offering
                          
                          
                          June
      30,
                            2010Common
      stock issuable upon exercise of warrants
                          
                          
                          14,203,000
                          
                          
                          
                          4,280,000
                          
                          
                          
                          18,493,150Market
      value of common stock on measurement date (1)
                          
                          $
                          0.60-$0.65
                          
                          
                          $
                          0.38
                          
                          
                          
                          0.39Adjusted
      Exercise price
                          
                          $
                          0.50-$1.00
                          
                          
                          $
                          0.25
      - $0.50
                          
                          
                          $
                          0.25 - $0.93Risk
      free interest rate (2)
                          
                          
                          0.25%
      - 4.41
                          %
                          
                          
                          1.99
                          %
                          
                          
                          1.79
                          %Warrant
      lives in years
                          
                          
                          5
                          
                          
                          
                          5
                          
                          
                          
                          4.36
      – 4.94Expected
      volatility (3)
                          
                          
                          150
                          %
                          
                          
                          150
                          %
                          
                          
                          150
                          %Expected
      dividend yield (4)
                          
                          
                          0
                          %
                          
                          
                          0
                          %
                          
                          
                          0
                          %Assumed
      stock offerings per year over next five years (5)
                          
                          
                          1
                          
                          
                          
                          1
                          
                          
                          
                          1Probability
      of stock offering in any year over five years (6)
                          
                          
                          100
                          %
                          
                          
                          100
                          %
                          
                          
                          100
                          %Range
      of percentage of existing shares offered (7)
                          
                          
                          10%
      - 30
                          %
                          
                          
                          10%
      - 30
                          %
                          
                          
                          10%
      - 30
                          %Offering
      price range (8)
                          
                          $
                          0.25
      - $1.50
                          
                          
                          $
                          0.25
      - $1.50
                          
                          
                          $
                          0.25
      - $1.50





(1)
            The
      market value of common stock is the stock price at the close of trading on
      the date of issuance or June 30, 2010, as
  applicable.


(2)
            The
      risk-free interest rate was determined by management using the 5 year
      Treasury Bill as of the 2010 Unit Offering and as of June 30,
      2010.  The risk free interest rate was determined by management
      using a forecast of 3 month Libor for the 2009 Unit
    Offering.


(3)
            Because
      the Company does not have adequate trading history to determine its
      historical trading volatility, the volatility factor was estimated by
      management using the historical volatilities of comparable companies in
      the same industry and region.


(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 one stock offering in each of the next 5
      years.


(6)
            Management
      has determined that the probability of a stock offering is 100% in each of
      the next five years.


(7)
            Management
      estimates that the range of percentage of existing shares offered in each
      stock offering will be between 10% and 30% of the shares
      outstanding.


(8)
            Management
      estimates that the offering price range in the future offerings will be
      between $0.25 and $1.50 per share.





NOTE
9.  STOCKHOLDERS’ EQUITY





Common
Stock splits





On July
11, 2008, the Company declared a 3.031578 for 1 forward stock split on each
share of its common stock issued and outstanding at the close of business on
July 21, 2008, in the form of a stock dividend. All share and per share amounts
have been retroactively adjusted for all periods presented.





On
October 19, 2009, the Company’s Board of Directors declared a 15.625 for 1
forward stock split in the form of a dividend.  The record date for
this stock dividend was November 20, 2009, and the payment and effective date
was November 23, 2009. Shares issued prior to November 20, 2009 and per share
amounts have been retroactively restated to reflect the impact of the stock
split.


F-17


Common
Stock issued for services





On
October 19, 2009, the Company’ Board of Directors authorized the issuance of
1,500,000 shares of its common stock to its Chief Executive Officer as
compensation for services to be rendered to the Company. Management determined
the fair value of the stock issued to the Chief Executive Officer at $0.0032 per
share based on the last sale price of the common stock on the OTC Bulletin Board
on October 19, 2009. Accordingly, stock-based compensation expense of $4,800 was
recognized in the accompanying statement of operations for the year ended June
30, 2010.





On
December 22, 2009, the Company’ Board of Directors authorized the issuance of
750,000 shares of its common stock in exchange for consulting services.
Management determined the fair value of the stock issued to the consultant to be
$0.61 per share based on the last sale price of the common stock on the OTC
Bulletin Board on December 22, 2009. Accordingly, stock-based compensation
expense of $457,500 was recognized in the accompanying statement of operations
for the year ended June 30, 2010.





In
February 2010, the Company’ Board of Directors authorized the issuance of
375,000 shares of its common stock in exchange for consulting services.
Management determined the fair value of the stock issued to the consultant to be
$0.93 per share based on the last sale price of the common stock on the OTC
Bulletin Board on February 16, 2010. Accordingly, stock-based compensation
expense of $348,750 was recognized in the accompanying statement of operations
for the year ended June 30, 2010.





The
Company’s chief executive officer gave certain of his common stock shares to
four employees and a director for services rendered.  The Company
recognized stock compensation expense of $129,500 for these services during the
year ended June 30, 2010 at the fair value of the stock on the date of grant
based on our trading price.





Common
Stock issued for acquisition of mineral rights





On March
12, 2010, the Company’ Board of Directors authorized the issuance of 4,000,000
shares of its common stock valued at $3,640,000  as part of its
acquisition of mineral rights from Next Lithium (see Note 4). Management
determined the fair value of the stock issued to be $0.91 per share based on the
last sale price of the common stock on the OTC Bulletin Board on that
date.





Common
Stock sales





On June
24, 2005, the Company issued 35,526,336 shares of common stock to a director for
cash valued at approximately $0.000105 per share for total consideration of
$3,750.





On June
24, 2005, the Company issued 35,526,336 shares of common stock to a director for
cash valued at approximately $0.000105 per share for total consideration of
$3,750.





On March
14, 2006, the Company issued 47,368,454 shares of common stock for cash valued
at approximately $0.001056 per share for total consideration of
$50,000.





On
February 7, 2008, the Company issued 2,631,595 shares of common stock for cash
valued at approximately $0.019 per share for a total consideration of
$50,000.





On
October 19, 2009, the Board of Directors authorized the Company to offer up to a
maximum of 16,000,000 units (the “2009 Unit Offering”) at an offering price of
$0.25 per 2009 Unit. Each 2009 Unit consisted of (i) one share of the Company’s
common stock, (ii) warrants representing the right to purchase one-half of one
(0.5) share of common stock, exercisable for a period of five years at an
exercise price of $0.50 per whole share (the “A Warrants”), and (iii) warrants
representing the right to purchase one-half of one (0.5) share of common stock,
exercisable for a period of five years at an exercise price of $1.00 per whole
share (the “B Warrants,” and together with the A Warrants, the “2009 Warrants”).


F-18


On
November 10, 2009 (the “Initial Closing’), the Company sold 6,400,000 2009 Units
for total proceeds to the Company of $1,600,000 ($1,557,608 net after offering
expenses).  A total of $532,986 of the proceeds were allocated to the
value of the warrant instruments.





On
November 12, 2009, the Company completed the second closing (the “Second
Closing”) of the 2009 Unit Offering. In the Second Closing, the Company sold
2,120,000 2009 Units for an aggregate of $530,000 ($524,650 net after offering
expenses). A total of $223,083 of the proceeds were allocated to the value
of the warrant instruments.





On
November 17, 2009, the Company completed the third closing (the “Third Closing”)
of the 2009 Unit Offering.  In the Third Closing, the Company sold
1,820,000 2009 Units for an aggregate of $455,000 ($423,757 after offering
expenses). A total of $186,993 of the proceeds were allocated to the value
of the warrant instruments.





On
December 15, 2009, the Company completed the fourth closing (the “Fourth
Closing”) of the 2009 Unit Offering.  In the Fourth Closing, the
Company sold 1,900,000 2009 Units for an aggregate of $475,000 ($470,141 net
after offering expenses). A total of $208,019 of the proceeds were
allocated to the value of the warrant instruments.





On
December 23, 2009, the Company completed the fifth and final closing (the “Final
Closing”) of the 2009 Unit Offering.  In the Final Closing, the
Company sold 1,760,000 2009 Units for an aggregate of $440,000 ($363,368 net
after offering expenses). A total of $194,247 of the proceeds were
allocated to the value of the warrant instruments.





In the
aggregate, the Company sold 14,000,000 2009 Units for gross proceeds of
$3,500,000 ($3,339,524 net after offering expenses) during the 2009 Unit
Offering.  In connection with the 2009 Unit Offering, the Company
issued an aggregate of 101,500 additional A Warrants and 101,500 additional B
Warrants (together the “2009 Agent Warrants”) as compensation to finders and
placement agents.





On June
16, 2010, Board of Directors authorized the Company to offer up to a maximum of
20,000,000 units (the “2010 Unit Offering”), plus up to an additional 8,000,000
units to cover over-allotments, at a purchase price of $0.25 per 2010 Unit.
 Each 2010 Unit consisted of (i) one share of the Company’s common stock,
and (ii) a warrant (a “2010 Warrant”) representing the right to purchase one
share of common stock, exercisable for a period of two years at an exercise
price of $0.70 per share.





On June
9, 2010, the Company sold 4,000,000 2010 Units (the “Initial 2010 Unit Offering
Closing”) for total proceeds to the Company of $1,000,000 ($749,796, net after
offering expenses).  In connection with the Initial 2010 Unit Offering
Closing, the Company also became obligated to issue to a placement agent
five-year warrants (“Agent Warrants”) to purchase an aggregate of 280,000 shares
of common stock at an exercise price of $0.25 per share, and incurred placement
agent fees of $175,000.    A total of $460,853 of the
proceeds were allocated to the value of the warrant instruments.. On June 23,
2010, the Company revised the terms of the 2010 Warrants to decrease the warrant
exercise price to $0.50/share (from $0.70/share) and increase the term to five
years, from two years.





The 2009
Warrants and the 2010 Warrants each contain anti-dilution provisions that
provide for a reduction in the exercise price of such warrant in the event that
future common stock (or securities convertible into or exercisable for common
stock) is issued at a price per share (a “Lower Price”) that is less than the
exercise price of such warrant at the relevant time.  See Note
8.


F-19


The
Company’s issuance of securities in connection with the 2010 Unit Offering
triggered the adjustments to the exercise prices and number of shares issuable
upon exercise of the 2009 Warrants pursuant to the anti-dilution provisions
thereof.  Immediately following the Initial 2010 Unit Offering Closing
(and the revision to the exercise price of the 2010 Warrants):  (i)
the A Warrants (initially exercisable to purchase an aggregate of 7,101,500
shares of common stock at $0.50 per share) were exercisable, in the aggregate,
to purchase 7,104,480 shares of common stock for approximately $0.4857 per
share; and (ii) the B Warrants (initially exercisable to purchase an aggregate
of 7,101,500 shares of common stock at $1.00 per share) were exercisable, in the
aggregate, to purchase 7,108,663 shares of common stock for approximately
$0.9341 per share.





The table
below reflects the allocation of the gross proceeds from the 2009 Unit
Offering:




Par
      value of common stock issued
                  
                  $
                  14,000Paid-in
      capital
                  
                  
                  1,980,196Derivative
      warrant liabilities
                  
                  
                  1,345,328Offering
      expenses
                  
                  
                  160,476Total
      gross proceeds
                  
                  $
                  3,500,000





The table
below reflects the allocation of the gross proceeds from the Initial 2010 Unit
Offering Closing:





Par
      value of common stock issued
                  
                  $
                  4,000Paid-in
      capital
                  
                  
                  284,943Derivative
      warrant liabilities
                  
                  
                  460,853Offering
      expenses
                  
                  
                  250,204Total
      gross proceeds
                  
                  $
                  1,000,000





Common
Stock cancelled





On
October 19, 2009, 71,052,626 shares of the Company’s common stock owned by the
founding director, were surrendered in exchange for the Company’s interest in a
wholly-owned subsidiary of the Company (“Split-Off Subsidiary”) to which the
Company had contributed the assets and liabilities of the Legacy
Business.  The net assets of the Split-Off Subsidiary were $0 as of
October 19, 2009.  Therefore, this transaction was valued at
$0.





2009
Equity Incentive Plan





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





Stock
Option Awards





On December 9, 2009, the Company
grantednon-statutoryoptions to purchase (i)
500,000shares of itscommonstock to a newly appointed director and
(i) 50,000 shares of itscommonstock to each of two newly appointed
directors.These were granted with an exercise
price equal to $0.25 per share, which was the price at which the
Company wasselling 2009
Units in the contemporaneous 2009 Unit Offering.The stock price on the grant date was
$0.46 per share.  As a result, the intrinsic value for these options
on the grant date was $126,000. These optionsvest in three equal
installments on each of the first, second and third anniversaries of the date of
grant and expire after ten years.


F-20


A
director resigned on February 18, 2010 and in connection with this termination,
50,000 stock options were forfeited. The resigning director entered into a
consulting arrangement with the Company at such time, and subsequently received
a separate option under the 2009 Plan to purchase 50,000 shares of common stock
with a two-year term and an exercise price equal to $1.00 per share that
immediately vested.  The fair value of the options on the date of
issuance was $37,091 and the options had no intrinsic value





On April
22, 2010, the Company’s Board of Directors granted options under the 2009 Plan
to purchase 200,000 shares of its common stock to a consultant.  These
options vested immediately and have a 5 year term. They were granted with an
exercise price equal to $0.32 per share. The stock price on the grant date
was $0.67 per share.  As a result, the intrinsic value and fair value
for these options on the grant date was $70,000 and $114,783,
respectively.




Stock
option activity summary covering options is presented in the table
below:





Number of
                  Shares
                
                
                Weighted-
                  average
                  Exercise
                  Price
                
                
                Weighted-
                  average
                  Remaining
                  Contractual
                  Term (years)
                
                
                Aggregate
                  Intrinsic
                  ValueOutstanding
      at June 30, 2008
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Granted
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Exercised
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Expired/Forfeited
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Outstanding
      at June 30, 2009
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Granted
                
                
                850,000
                
                
                $
                0.31
                
                
                
                7.83
                
                
                
                98,000Exercised
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Expired /
      Forfeited
                
                
                (50,000
                )
                
                $
                0.25
                
                
                
                9.81
                
                
                
                (7,000
                )Outstanding
      at June 30, 2010
                
                
                800,000
                
                
                $
                0.31
                
                
                
                7.73
                
                
                $
                91,000Exercisable
      at June 30, 2010
                
                
                250,000
                
                
                $
                0.46
                
                
                
                3.96
                
                
                $
                $14,000





During
the year ended June 30, 2010, the 850,000 options that were granted had a
weighted average grant-date fair value of $0.47 per share.  During the
year ended June 30, 2010, the Company recognized stock-based compensation
expense of $199,397 related to stock options.  As of June 30, 2010,
there was approximately $150,682 of total unrecognized compensation cost related
to non-vested stock options which is expected to be recognized ratably over a
weighted-average period of approximately 2.44 years.





The fair
value of the options granted during the year ended June 30, 2010 was estimated
at the date of grant using the Black-Scholes option-pricing model with the
following assumptions:





Market
      value of stock on grant date
                      
                      $.46-$.91
                      (1)Risk-free
      interest rate (1)
                      
                      2.57%
      - 3.23
                      %Dividend
      yield
                      
                      0.00
                      %Volatility
      factor
                      
                      133.67
      % - 188.7
                      %Weighted
      average expected life (2)
                      
                      2.0-6.5 years
                      (2)Expected
      forfeiture rate
                      
                      5
                      %





(1)
            The
      risk-free interest rate was determined by management using the U.S.
      Treasury zero-coupon yield over the contractual term of the option on date
      of grant.


F-21


(2)
            Due
      to a lack of stock option exercise history, the Company uses the
      simplified method under SAB 107 to estimate expected
  term.





Warrants





Summary
information regarding common stock warrants issued and outstanding as of June
30, 2010 is as follows:





Warrants
                                                    
                                                    
                                                    Weighted
      Average
                                                      Exercise PriceOutstanding
      at year-ended June 30, 2009
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    $
                                                    -Issued
                                                    
                                                    
                                                    18,493,150
                                                    
                                                    
                                                    
                                                    0.66Exercised
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Cancelled
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Expired
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    
                                                    -Outstanding
      at June 30, 2010
                                                    
                                                    
                                                    18,493,150
                                                    
                                                    
                                                    $
                                                    0.66




Warrants
outstanding and exercisable as of June 30, 2010





Date
                              
                              Exercise
                                Price
                              
                              
                              Outstanding Number
                                of Shares
                              
                              Remaining
                                Life
                              
                              Exercisable
                                Number of SharesNovember
      10, 2009
                              
                              $
                              0.4857
                              
                              
                              
                              3,200,000
                              
                              4.36
      years
                              
                              
                              3,200,000November
      10, 2009
                              
                              $
                              0.9341
                              
                              
                              
                              3,200,000
                              
                              4.36
      years
                              
                              
                              3,200,000November
      12, 2009
                              
                              $
                              0.4857
                              
                              
                              
                              1,060,000
                              
                              4.37
      years
                              
                              
                              1,060,000November
      12, 2009
                              
                              $
                              0.9341
                              
                              
                              
                              1,060,000
                              
                              4.37
      years
                              
                              
                              1,060,000November
      17, 2009
                              
                              $
                              0.4857
                              
                              
                              
                              910,000
                              
                              4.38
      years
                              
                              
                              910,000November
      17, 2009
                              
                              $
                              0.9341
                              
                              
                              
                              910,000
                              
                              4.38
      years
                              
                              
                              910,000December
      15, 2009
                              
                              $
                              0.4857
                              
                              
                              
                              1,007,649
                              
                              4.46
      years
                              
                              
                              1,007,649December
      15, 2009
                              
                              $
                              0.9341
                              
                              
                              
                              1,009,951
                              
                              4.46
      years
                              
                              
                              1,009,951December
      23, 2009
                              
                              $
                              0.4857
                              
                              
                              
                              926,840
                              
                              4.48
      years
                              
                              
                              926,840December
      23, 2009
                              
                              $
                              0.9341
                              
                              
                              
                              928,710
                              
                              4.48
      years
                              
                              
                              928,710June
      9, 2010
                              
                              $
                              0.50
                              
                              
                              
                              4,000,000
                              
                              4.94
      years
                              
                              
                              4,000,000June
      9, 2010
                              
                              $
                              0.25
                              
                              
                              
                              280,000
                              
                              4.94
      years
                              
                              
                              280,00018,493,150
                              
                              
                              
                              
                              18,493,150





The
intrinsic value of warrants outstanding at June 30, 2010 was
$39,200.





NOTE
10.   FAIR VALUE MEASUREMENTS




As
defined in FASB ASC Topic No. 820 – 10 (formerly SFAS 157), fair value is the
price that would be received upon the sale of an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. FASB ASC Topic No. 820 – 10 requires disclosure that
establishes a framework for measuring fair value and expands disclosure about
fair value measurements. The statement requires fair value measurements be
classified and disclosed in one of the following categories:


F-22





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 (formerly SFAS 157), financial assets
and liabilities are classified based on the lowest level of input that is
significant to the fair value measurement. The Company’s assessment of the
significance of a particular input to the fair value measurement requires
judgment, and may affect the valuation of the fair value of assets and
liabilities and their placement within the fair value hierarchy levels. The
estimated fair value of the derivative warrant instruments was calculated using
a modified lattice valuation model (see Note 8).





Fair
Value on a Recurring Basis




The
following table sets forth, by level within the fair value hierarchy, the
Company’s financial assets and liabilities that were accounted for at fair value
on a recurring basis as of June 30, 2010:




Quoted
                                                                    PricesIn Active
                                                                  
                                                                  
                                                                  SignificantMarkets for
                                                                  
                                                                  
                                                                  Other
                                                                  
                                                                  
                                                                  SignificantIdentical
                                                                  
                                                                  
                                                                  Observable
                                                                  
                                                                  
                                                                  Unobservable
                                                                  
                                                                  
                                                                  TotalAssets
                                                                  
                                                                  
                                                                  Inputs
                                                                  
                                                                  
                                                                  Inputs
                                                                  
                                                                  
                                                                  CarryingDescription
                                                                  
                                                                  (Level 1)
                                                                  
                                                                  
                                                                  (Level 2)
                                                                  
                                                                  
                                                                  (Level 3)
                                                                  
                                                                  
                                                                  ValueDerivative
      liabilities - warrant instruments
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  -
                                                                  
                                                                  
                                                                  $
                                                                  8,029,728
                                                                  
                                                                  
                                                                  $
                                                                  8,029,728


F-23


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





Significant Unobservable Inputs (Level 3)Year EndedJune 30,2010
                    
                    
                    2009Beginning
      balance
                    
                    $
                    -
                    
                    
                    $
                    -Gains/(losses)
                    
                    
                    (6,223,547
                    )
                    
                    
                    -Additions
                    
                    
                    (1,806,181
                    )
                    
                    
                    -Ending
      balance
                    
                    $
                    (8,029,728
                    )
                    
                    $
                    -Change
      in unrealized gains (losses) included in earnings relating to derivatives
      still held as of June 30, 2010 and 2009
                    
                    $
                    (6,223,547
                    )
                    
                    $
                    -





NOTE
11. INCOME TAXES





The
Company files a U.S. federal income tax return.  The Company’s foreign
subsidiaries file income tax returns in their jurisdictions. The components of
the consolidated taxable net loss  (which for the year ended June 30,
2010 exclude the unrealized loss related to the change in the fair value of
derivative warrant instruments ($6,223,547), stock based compensation
($1,139,947) and common stock issued for the acquisitions of mineral rights
($3,640,000) are as follows as of the year ended June 30:





2010
                  
                  
                  2009U.S.
                  
                  $
                  4,725,533
                  
                  
                  $
                  67,905Foreign
                  
                  
                  319,655
                  
                  
                  
                  -Total
                  
                  $
                  5,045,188
                  
                  
                  $
                  67,905





The
components of the Company’s deferred tax assets at June 30, 2010 and 2009 are as
follows:





2010
                  
                  
                  2009Deferred
      tax assets:Net
      operating loss carry-forwards
                  
                  $
                  1,744,423
                  
                  
                  $
                  29,059Valuation
      allowance
                  
                  
                  (1,744,423
                  )
                  
                  
                  (29,059
                  )Net
      Deferred tax asset
                  
                  $
                  -
                  
                  
                  $
                  -





These net
operating loss carry-forwards expire twenty years from the date the loss was
incurred and are available to reduce future taxable income.  Federal
tax laws limit the time during which the net operating loss carry-forwards may
be applied against future taxes, and if the Company fails to generate taxable
income prior to the expiration dates it may not be able to fully utilize the net
operating loss carry-forwards to reduce future income taxes. As the Company has
had cumulative losses and there is no assurance of future taxable income,
valuation allowances have been recorded to fully offset the deferred tax asset
at June 30, 2010 and 2009.


F-24


NOTE
12.  COMMITMENTS AND CONTINGENCIES





Alfredo
Acquisition





On April
20, 2010, the Company entered into a non-binding term sheet with Pacific Road
Capital A Pty. Limited, as trustee for Pacific Road Resources Fund A (“Fund A”),
Pacific Road Capital B Pty. Limited, as trustee for Pacific Road Resources Fund
B (“Fund B”), and Pacific Road Capital Management G.P. Limited, as General
Partner of Pacific Road Resources Fund, L.P. (“PR Partnership” and, together
with Fund A and Fund B, “Sellers”), pursuant to which the Company was granted
the exclusive option to acquire all of the outstanding share capital of Alfredo
Holdings, Ltd. (“Alfredo”) in exchange for a cash payment of $90,000, which the
Company paid during the year ended June 30, 2010.





Alfredo
owns 100% of the share capital of Pacific Road Mining Chile, SA, a Chilean
Corporation (“PRMC”).  PRMC is a special purpose Chilean corporation
which entered into an Option to Purchase Agreement, dated June 6, 2008, that
gives PRMC the option to acquire 100% of six mining concessions with respect to
approximately 6,669 acres of mining tenements near Pozo Almonte, Chile (the
“Alfredo Property”).  Under the Option to Purchase Agreement, PRMC
must make periodic payments aggregating $360,000 between June 30, 2010 and
December 30, 2010.  We paid $80,000 in August 2010 and must make
payments of $100,000 by October 30, 2010 and $180,000 by December 30, 2010 in
order to maintain our option rights.  Then, in order to exercise the
option and purchase the Alfredo Property, PRMC must pay the option exercise
price of $4,860,000 by March 30, 2011.





On August
3, 2010, the Company entered into a Stock Purchase Agreement (“SPA”) with the
Sellers to acquire all of the outstanding shares of Alfredo. Pursuant to
the SPA, the Company issued an aggregate of 10,000,000 shares of common stock
(the “Purchase Price Shares”) to Sellers and their designees.  Of the
Purchase Price Shares, 8,800,000that the Company issued directly to Sellers are subject to an 18 month
lock-up period pursuant to the SPA.  If and when the following
milestones are achieved with respect to a mine that the Company may develop on
the Alfredo Property to recover iodine or nitrate (the “Alfredo Mine”), the SPA
requires the Company to make the following additional payments to the
Sellers:





a)
            $1,000,000
      upon the Board of Directors’ resolution to commence final engineering and
      design of the Alfredo Mine;




b)
            A
      further $2,000,000 upon the Board of Directors’ resolution to commence
      construction of the Alfredo Mine;
and




c)
            A
      further $2,500,000 upon commencement of commercial production from the
      Alfredo Mine (meaning production at a rate of 75% of design capacity for 3
      months).





The
Sellers have the right to take any or all of the above milestone payments in
shares of the Company’s common stock instead of cash, valued at the greater of
(i) $0.25 per share or (ii) the average of the closing price of the common stock
on the 30 trading days immediately preceding the relevant payment
date.  The Company is under no obligation to achieve or pursue any of
the milestones.





The SPA
provides Sellers with preemptive rights in certain future financing transactions
by the Company, provided that Sellers still own at least 50% of the Purchase
Price Shares.  Such preemptive rights generally give Sellers the right
to purchase up to 25% of the securities that the Company sells in any offering
to which they apply.


F-25


The SPA
also grants Sellers two interrelated options to purchase additional shares of
common stock of the Company.





1)
            First,
      within 60 days of closing under the SPA, Sellers may purchase between
      $2,500,000 and $10,000,000 of Units (as defined below) at a price of
      $25,000 per Unit.  Each “Unit” consists of (i) 100,000 shares of
      common stock; and (ii) five-year warrants to purchase 100,000 shares of
      common stock at an exercise price of $0.50 per share.  The
      option expired on October 3, 2010.





2)
            Upon
      the Company’s completion of Canadian National Instrument 43-101 Inferred
      Resource Reports on the Alfredo Property and on at least one lithium
      property in Argentina, Sellers will have the right to subscribe for shares
      of the Company’s common stock having an aggregate purchase price of at
      least $2,500,000 if the first option was not exercised, and in any event
      not less than $1,000,000, up to a maximum of $10,000,000 less any amounts
      subscribed for pursuant to the first option.  If Sellers
      exercise this second option, then Sellers will pay a price per share equal
      to the greater of (i) $0.25 per share, and (ii) the thirty day
      volume-weighted average price of the Company’s common stock on its
      principal market at the time the Company notifies Sellers of its having
      completed the relevant 43-101 Inferred Resources
  Reports.





NOTE
13. SUBSEQUENT EVENTS





Stock
transactions





On July
13, 2010, the Company held a second closing of the 2010 Unit Offering, selling a
total of 2,000,000 2010 Units for aggregate gross proceeds of $500,000,$452,780
net after offering costs, at an offering price of $0.25 per 2010
Unit.  In connection with the second 2010 Unit Offering Closing, the
Company also became obligated to issue to a placement agent five-year warrants
to purchase an aggregate of 140,000 shares of common stock at an exercise price
of $0.25 per share, and incurred placement agent fees of $35,000.





On
September 13, 2010, the Company held the  final closing of the
2010 Unit Offering, selling an additional aggregate of 160,000 2010 Units for
aggregate gross proceeds of $40,000, $35,330 net after offering costs, at an
offering price of $0.25 per Unit.





As a
result of the additional 2010 Units and Agent Warrants issued in the second 2010
Unit Offering closing and the final 2010 Unit Offering closing, the exercise
prices and number of shares issuable upon exercise of the 2009 Warrants was
further adjusted.  After September 13, 2010:  (i) the A
Warrants were exercisable, in the aggregate, to purchase 7,106,004 shares of
common stock for approximately $0.4788 per share; and (ii) the B Warrants were
exercisable, in the aggregate, to purchase 7,112,456 shares of common stock for
approximately $0.9026 per share.





Noto
Acquisition





Under the
Share Purchase Agreement, the Company acquired upon closing on July 30, 2010,
one hundred percent (100%) of the issued and outstanding shares of Noto, for
$300,000 in cash, of which $200,000 was paid during the year ending June 30,
2010 and recorded in mineral rights in the consolidated balance sheet, and
$100,000 was paid subsequent to year-end on July 30, 2010 when the transaction
closed. Noto’s only asset was the mineral interest in the Noto
Properties.  Accordingly, the transaction was recorded as an asset
purchase in July 2010.


F-26


MIZ





The
Company retained Mr. Currin’s services as its Chief Operating Officer under an
Employment Services Agreement, dated as of August 11, 2010, with MIZ
Comercializadora, S. de R.L. (“MIZ”), a corporation owned in part by Mr.
Currin.  The Company will pay MIZ a signing bonus of $100,000, payable
as $10,000 in cash and $90,000 in 236,842 restricted shares of the Company’s
common stock valued at $0.38 per share, the fair market value on August 11,
2010.




Pursuant
to the Employment Services Agreement, the Company has granted to MIZ an award
under the 2009 Plan pursuant to which the Company shall issue 2,500,000
restricted shares of its common stock (the “Restricted Stock”).  The
shares of Restricted Stock vest in installments of between 300,000 and 1,000,000
shares upon the achievement of certain milestones set forth in the Employment
Services Agreement, subject to acceleration upon a change of control or a
termination of Mr. Currin’s employment by MIZ for Good Reason (as defined in the
Employment Services Agreement) or by the Company for any reason other than for
Cause (as defined in the Employment Services Agreement).  If his
employment is terminated by the Company for Cause, or by Mr. Currin for any
reason other than Good Reason, then all unvested Restricted Stock will
immediately expire.




Pursuant
to the Employment Services Agreement, the Company has granted to MIZ an option
to purchase an aggregate of 1,000,000 shares of common stock under the 2009
Plan, exercisable at a price of $0.38 per share, the fair market value per share
of common stock on August 11, 2010, with a term of ten
years.  One-third of such options vest on each of August 11, 2011,
2012 and 2013.


F-27