UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K



(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended:June 30, 2012

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                                                
|(State or other jurisdiction of                       
|incorporation or organization)                        
|                                                      
|Marchant Pereira 150                                  
|Of. 803                                               
|Providencia, Santiago de Chile                        
|Chile                                                 
|                                                      
|(Address of principal executive offices)              



|Registrant’s telephone number, including area code    | (56) 2-896-9100                         
|----------------------------------------------------- | ----------------------------------------
|                                                      |                                         
|Securities registered under Section 12(b) of the Act: | None                                    
|                                                      |                                         
|Securities registered under Section 12(g) of the Act: | Common Stock, $0.001 par value per share



Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. Yes  ̈   No x



Indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes  ̈   No x



Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.  Yes x   No  ̈



Indicate by check mark 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 companyx        



Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act).  Yes  ̈ No x



On December 31, 2011, the last business
day of the registrant’s most recently completed second fiscal quarter, 151,169,670 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 $10,581,877, based on the price at which the registrant’s common
stock was last sold at such time (i.e., $0.07 per share on December 31, 2011).  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 8, 2012, there were 392,108,252
shares of the registrant's common stock, par value $0.001, issued and outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



None.











TABLE OF CONTENTS



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











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.



2







PART I



|ITEM 1. | BUSINESS
|------- | --------



Corporate Summary:



Li3 Energy, Inc., (“Li3,” “we,”
“our” or “us”) is a South America based and U.S. listed exploration company in the lithium and mining sector.
We aim to acquire, develop and commercialize a significant portfolio of lithium brine deposits in the Americas. We are currently
focused on further exploring, developing and commercializing its 60% controlling interest in its flagship Maricunga Project, located
in the northeast section of the Salar de Maricunga in Region III of Atacama, in northern Chile. The recently completed technical
report produced in accordance with National Instrument 43 101 of the Canadian Securities Administrator proves Maricunga’s
attractive lithium and potassium grades and recommends the project to advance to the Feasibility Study stage. We are seeking to
be a low cost producer of lithium, potassium nitrate and other mineral products.



In Chile, our assets consist of 1,438 hectares
located within the Salar de Maricunga as well as 4,900 hectares of other prospective land holdings that are strategically located
within close proximity to the Salar de Maricunga that could serve as potential processing sites for the project. Together, our
total Chilean land holdings consist of 6,338 hectares, and to the best of our knowledge, we are one of the only companies with
an advanced stage lithium and potassium project within Salar de Maricunga. We plan to continue exploring other synergistic opportunities
to further augment and strengthen this property and its land portfolio throughout the region.



Through our strategic partners, we have
been evaluating the use of advanced process technologies that may further improve upon the economics and shorten the commercial
production timeline of its Maricunga Project. We plan to further evaluate these technologies in pilot/demonstration and test facilities
that will measure both effectiveness and economic feasibility when measured against the conventional lithium commercialization
process.



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



| | · | May 2011 – Completed acquisition of 60% Controlling Interest in Maricunga Project.
| | - | ----------------------------------------------------------------------------------

| | · | June 2011 – Maricunga identified as “Top 11 Lithium Projects in the World” –
signumBOX.
| | - | ---------------------------------------------------------------------------------------

| | · | August 2011 – Strategic Partnership with POSCO Canada Ltd., a wholly owned subsidiary of
POSCO (NYSE: PKX), which established an $18 million Exploration and Development program for Maricunga, among other things.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | September 2011 – Completed $8 million funding tranche with POSCAN and launched $8 million
Phase One Plan.
| | - | ---------------------------------------------------------------------------------------------------------

| | · | January 2012 – Executed agreement with R3 Fusion Inc. for Pilot / Demonstration Facility.
| | - | -----------------------------------------------------------------------------------------

| | · | March 2012 – MOU with POSCO to construct Test Facility (advanced process technology).
| | - | -------------------------------------------------------------------------------------

| | · | April 2012 – As required by POSCAN, we issued a technical report, which was prepared in accordance
with National Instrument 43-101 of the Canadian Securities Administrators validating our earlier exploration campaign at Maricunga
recommending the project to advance to the Feasibility Study stage.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | August 2012 – Completed a $10 million funding tranche from POSCAN.
| | - | ------------------------------------------------------------------



We believe that if we are successful in
advancing the Maricunga Project through the Feasibility Study stage, obtain the necessary Chilean government approvals/licenses,
close and acquire additional land acreage to support further development of the Maricunga project, achieve a Definitive Feasibility
Study, and raise the necessary capital, we could begin commercial production and begin generating revenues by the end of calendar
year 2015. However, there can be no assurance that we will achieve our stated objectives.



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



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



3







Strategic Plan:



Part of our strategic plan is to explore
and develop our existing projects as well as to identify other synergistic opportunities with new projects with production potential
that that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium and other
industrial minerals properties.  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. The third leg of our strategic
plan is to develop improved technologies for the extraction of lithium from brines.



A) Acquisition of Additional Accretive
Land Acreage for Potential Processing Facility:



On May 11, 2012, we signed an agreement
to receive 100% ownership from a group of 18 concessions, named Verde 1, 2, 3, 4, 5, 6, 7, and Amarillo 2, 3, 4, 5, 6, 7, 8, 9,
10, 11, 12. These concessions are located in Region III of Atacama in northern Chile, 55km northeast of the city of Copiapo and
70 km west of the Maricunga Project. Collectively, these concessions cover a total area of 4,900 hectares. We paid approximately
$10,000 to acquire the property concessions. We are evaluating Llano de Varas as a potential site for processing facilities.



B) Value added Nitrate Project:



We believe that Maricunga, when combined
with a potential nitrate acquisition, would create the following rooted synergies:



| | · | Based on preliminary chemical analysis,
the Maricunga Project has the potential to produce lithium as well as a significant amount of potassium chloride. We believe that
production of potassium would significantly improve the economics of any potential Nitrate Acquisition, as sodium nitrate from
the caliche deposit can be reacted with potassium chloride (potash) to produce a value added potassium nitrate (KNO3). Potassium
nitrate is a valuable product used in fertilizers, which could create additional revenue.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | A stand-alone potential Nitrate project
would produce iodine and a sodium sulfate byproduct, which is needed to remove magnesium from brines in order to purify the lithium
product. The sodium sulfate can then be used as a low cost raw material which can be employed in Maricunga, subsequently improving
its economics. This would generate a credit for the lithium carbonate (Li2CO3) produced at Maricunga.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------







C) Evaluation of Advanced Process Technologies:



As such, the third aspect of our strategic
plan involves exploring the use of technologies that, when measured against the conventional approach to lithium commercialization
could possibly improve the project economics and shorten time to market. We believe that the lithium industry (specifically the
juniors) has not embarked upon much R&D efforts addressing several critical areas that we hope to gain a competitive edge if
it can improve upon:



1) The approximately
60% lithium yield loss from brine to end-product;

2) The land
and capital intensive (CAPEX) foot-print necessary for solar evaporation ponds; and

3) The typical
4 year speed to market of a typical lithium project from start to commercial production.



In the current lithium market, in which
three large global companies supply 80% of the world’s lithium with few mid-tier producers, we feel that in order to compete,
we must address these critical areas. Accordingly, we have sought strategic partners who we believe are capable of deploying both
the intellectual and financial capital necessary to assist us in these initiatives.



4







Project Overview:



Chile - Maricunga Project:



Location



The Salar de Maricunga is located in Region
III of northern Chile at an elevation of approximately 3,750 m. It is classified as a mixed type of salar of the Na-Cl-Ca/SO4 system.
The Salar de Maricunga was originally sampled by CORFO (the Chilean governmental organization that promotes economic growth in
Chile) in the early 1980s. Based on the due diligence conducted in connection with the acquisition of our Maricunga interest and
on our recent issued technical report, which was prepared in accordance with National Instrument 43-101 of the Canadian Securities
Administrator (“NI 43 101 report”), our management believes the local brine contains high grades of lithium and potassium
with reasonable magnesium levels and low sulphate content and the salar had a highly productive aquifer system within the extensive
colluvial/alluvial sediments surrounding the salar.



Location of the Salar de Maricunga







Maricunga Project within the Salar







5







The Maricunga property is undeveloped and
covers an area of approximately 3,553 acres (1,438 hectares), comprising six exploitation mining concessions granted by the Chilean
government, each held by one of the Maricunga Companies, and is located in the northeast section of the Salar de Maricunga in Region
III of Atacama in northern Chile.  Each mining concession grants the owner the right to explore for, but not develop
commercially, mineral deposits at the Maricunga property.  These mining properties are not subject to royalties or other
agreements.  However, we must pay annual licenses in March of each year, aggregating approximately $15,000 per year.



On May 20, 2011, we and the
Maricunga Sellers signed the Framework Contract of Mining Project Development and Buying and Selling of Shares of Sociedades
Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga, (the “Acquisition Agreement”) whereby we, through
our Chilean subsidiary, Minera Li Energy SPA (“Minera Li”), acquired from the Maricunga Sellers a 60% interest in each of
the Maricunga Companies. The purchase price was $6,370,000 in cash, including amounts paid to agents, and 127,500,000
restricted shares of our common stock (the “Maricunga Purchase Price Shares”), 50% of which was restricted from
sale for nine months and the remainder of which is restricted from sale for 18 months as provided in the Acquisition
Agreement (the “Lock-Up”).  The Lock-Up will terminate if (a) we sign an agreement with one or more
investors for them to finance the necessary development of the project to the stage of commercial production; (b) an offer
with characteristics of a take-over bid is made for our shares; (c) our current CEO sells his shares in the Company, or (d)
we agree to sell our shares in Minera Li and/or Minera Li agrees to the sale of the
Shares.  In the event of (d) above, we have agreed that the sale price in any such sale will be based on at least
two valuations carried out by institutions with recognized experience in these types of mining assets. Pursuant to the
Acquisition Agreement, on June 2, 2011, upon the registration in Chile of the transfer of the shares in the Maricunga
Companies to Minera Li, closing occurred and Maricunga Purchase Price Shares were paid to the
Maricunga Sellers.  Although we had agreed to register, under the Securities Act, half of the Maricunga Purchase
Price Shares by January 31, 2012, and the remainder by October 31, 2012, we have not yet registered any of the
Maricunga Purchase Price Shares. Our agreement with the Maricunga Sellers does not provide for liquidated damages in the
event of delay in filing a registration statement or having it declared effective.



As part of the acquisition, we agreed with
the Maricunga Sellers:  (a) to increase the number of directors constituting our Board of Directors to seven; (b) that
the Maricunga Sellers will have the right to nominate three of our directors and that a fourth director (who shall hold of the
position of Chairman of the Board) will be jointly nominated by the Maricunga Sellers and by our management (such persons, or any
successors thereto nominated by the Maricunga Sellers or by the Maricunga Sellers and management, as the case may be, the “Nominees”),
and that the Board shall appoint such Nominees to fill vacancies created in the Board by the increase in the number of directors
and by resignations, to serve until the next annual meeting of shareholders; (c) that the Nominees shall continue to be nominated
as directors by our management at the next and subsequent annual meetings of our shareholders, and at any special meeting of the
shareholders at which directors are to be elected (collectively, a “Meeting”), during the period of the Lock-Up (but
the Nominees will be subject to reelection by the shareholders as provided in our By-Laws); and (d) that if any Nominee is not
elected by the shareholders pursuant to the By-Laws, the Maricunga Sellers, or the Maricunga Sellers and management, as the case
may be, will have the right to designate the same or another person as their Nominee at the next Meeting, provided it is within
the period of the Lock-Up. Pursuant to these provisions, our Board of Directors was expanded and Messrs. De Aguirre, Campos
and Fraser were appointed to our Board as Nominees of the Maricunga Sellers.



We currently maintain 60% ownership of
the Maricunga project, with minority shareholders owning the remaining 40%. The Chilean Mining Code requires shareholders of legal
mining companies (such as the Maricunga Companies) to contribute their pro rata portion of exploration and exploitation expenses
that are established at a shareholders meeting (“Required Contributions”).



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



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



6







As the majority
shareholder of each of the six Maricunga Companies, we have filed lawsuits distributed to four civil courts of Copiapo, third Region
of Atacama, Chile, against the minority shareholders. Certain minority shareholders have filed counterclaims against our Company
to declare, among other things, the invalidation of the shareholders meetings on October 6, 2011 at which, Required Contributions
were established that such minority shareholders failed to make. We are currently preparing our response. Our future plans
are not dependent on the outcome of this matter with respect to the development of the Maricunga project



The mining industry in Chile is
regulated by the Political Constitution of Chile (Constitution), the Constitutional Organic Mining Law (COM) and the Chilean
Mining Code (MC) along with other general and special regulations.  Specifically, the Constitution provides that
the national government is the owner of all mines, although any individual or company may apply for an Exploration Concession
or Exploitation Concession to explore or mine mineral deposits; the COM regulates all concessions and claims; and the MC
elaborates on the provisions of the Constitution and the COM. The civil courts receive applications for concessions, grant
concessions, terminate and resolve issues arising with respect to concessions. The National Geology and Mining Service (NGMS)
within the Chilean Ministry of Mining is responsible for approving the technical requirements related to the form, boundary
and location of concessions. The NGMS also maintains a public record of concessions and supervises technical compliance with
mining regulations. There is no binding legal code for reporting on mineral resources and reserves. However, a code prepared
by the Chilean Institute of Mining Engineers and other entities including the Chilean Securities and Exchange Commission,
representatives of the private sector and sponsored by the Chilean Ministry of Mining was issued in December 2003. This code
is based on the Australian Joint Ore Reserves Committee system. The right to explore or exploit a designated area, and apply for
concessions is on a first come first served basis, subject to an Exploration concession holder's exclusive right to file for
an exploitation concession in respect of their concession area. Concessions can be freely assigned or transferred, mortgaged,
and in general subject to any legal contracts.  The ownership rights of a concession can be enforced against the
government of Chile or any other party.



The ownership rights of a concession holder
differ from the ownership rights of a surface title holder in that a concession holder has the right to:



| | (a) | upon providing the agreed indemnity payment to the surface land holder, occupy as much of the surface land as is necessary for the exploration or exploitation works;                                                                                                                                                                                                                                 
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (b) | impose an easement on an unwilling surface land holder through a simple and summary procedure before the relevant civil court. Certain restrictions will apply where surface land is covered by dwellings and/ or is land where vineyards and fruit trees are planted. The respective surface land holder is entitled to compensation, fixed by mutual agreement or judicial resolution, as requested.



The significant differences between an
Exploration Concession and an Exploitation Concession are summarized below:



An exploration concession:

| | (i)   | is granted by the Chilean Ministry of Mines for an initial period of two years with a right to apply for a further two year period prior to expiry of the initial concession. Where an extension is granted, the concession holder must relinquish half of the original designated area;
| | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)  | requires annual payment;                                                                                                                                                                                                                                                                
| | (iii) | enables exploration over the concession area and provides an exclusive right to file for an Exploitation Concession in respect of that concession area;                                                                                                                                 
| | (iv)  | must be greater than 100 hectares and less than or equal to 15,000 hectares in area;                                                                                                                                                                                                    
| | (v)   | does not require an environmental authorization for exploration works; unless the exploration is inside a protected zone;                                                                                                                                                               
| | (vi)  | does not require work to be undertaken on the concession area in order to maintain interest in that concession; and                                                                                                                                                                     
| | (vii) | does not authorize its owner to exploit the minerals in that concession.                                                                                                                                                                                                                



An exploitation concession:

| | (i)    | is of unlimited duration;                                                                                                                                                                              
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (ii)   | requires annual payment;                                                                                                                                                                               
| | (iii)  | involves a more onerous process for filing and higher costs for filing and compliance;                                                                                                                 
| | (iv)   | does not require work to be undertaken on the concession in order to maintain interest in that concession;                                                                                             
| | (v)    | must be greater than 1 hectare and less than or equal to 5,000 hectares in area;                                                                                                                       
| | (vi)   | does not require an environmental authorization for exploration works unless the exploration is inside a protected zone and indeed require said authorization and closing plans for exploitation works;
| | (vii)  | grants mining rights which prevail over third party claims; and                                                                                                                                        
| | (viii) | entitles the owner to exploit the minerals in that concession area.                                                                                                                                    



Our Lithium exploitation mining concessions
have the following grant numbers:



7







| | (a) | Litio 1- 1/29 is registered in folio 478 overleaf N° 158 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------
| | (b) | Litio 2- 1/29 is registered in folio 485 overleaf N° 159 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.
| | (c) | Litio 3- 1/58 is registered in folio 491 overleaf N° 160 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.
| | (d) | Litio 4- 1/60 is registered in folio 498 N° 161 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.         
| | (e) | Litio 5- 1/60 is registered in folio 504  N° 162 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.        
| | (f) | Litio 6- 1/60 is registered in folio 511 N° 163 year 2004 of the Property Registry kept by the Mine Registrar of Copiapo.         



The area of each of our concessions is:



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



2011 Maricunga Project Exploration
and Drilling Campaign:



We plan to utilize co-by-product credits
in the commercialization of its Maricunga Project. The Maricunga project is being explored as a source of lithium carbonate and
potassium chloride, with co-product boric acid. Lithium carbonate would be sold in the open market as battery grade material.  Potassium
chloride production is planned to be used in the production of potassium nitrate from a potential sodium nitrate/iodine project.
If we are successful in acquiring it, or another sodium nitrate/iodine project, a portion of the by-product sodium sulphate production
from any iodine operation that we may have, could be returned to Maricunga to adjust the sulphate balance for calcium removal in
the lithium brine.



In December 2011, we completed on schedule,
the $8 million Phase One of the $18 million Exploration and Development Program established in August 2011. We
reported the initial results from brine samples taken during the sonic and reverse circulation well drilling program initiated
in October 2011. The drilling contractors used by us in Maricunga are leading Sonic Drilling Contractors and leading Reverse
Circulation Well Drilling Contractors. We carried out sonic drilling for the collection of undisturbed
samples from continuous core for porosity determinations and brine samples for laboratory chemical analyses.  Six sonic
boreholes for a total of 900 meters were drilled and completed to a depth of 150 meters each. We carried out reverse circulation
well drilling with isolated brine sampling. A total of 884 meters of 6-inch monitoring wells were drilled and a total of 300 meters
of 17 inch production wells were drilled.



From the Phase One Program, a total of
431 samples were taken during the drilling and were submitted to the University of Antofagasta in Antofagasta, Chile for analysis.
The preliminary laboratory analysis of the 431 Maricunga brine samples, demonstrated the following values and characteristics:



|MARICUNGA |  |        |       |        |        |       | Ratio | Ratio | Ratio 
|--------- |  | ------ | ----- | ------ | ------ | ----- | ----- | ----- | ------
|(mg/l)    |  | K      | Li    | Mg     | Ca     | SO4   | K/Li  | Mg/Li | SO4/Li
|Average   |  | 8,988  | 1,240 | 8,284  | 12,417 | 718   | 7.2   | 6.7   | 0.6   
|Maximum   |  | 14,669 | 2,050 | 15,100 | 31,600 | 2,960 | 7.2   | 7.4   | 1.4   



Other Properties



We have acquired other interest in certain
Peruvian and Argentina properties during 2010. We have determined that these properties were not economically feasible, and as
a result, we have impaired any investment in these properties and will not be pursuing them any further. We have recorded an impairment
of $300,000 in fiscal 2012 and $50,000 in fiscal 2011 relating to these properties.



Strategic Partners:



POSCO / POSCAN



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



8







The SPA further provided that POSCAN would
purchase an additional 47,619,000 Units at the same $0.21 price per Unit (for an aggregate additional purchase price of approximately
$10 million) upon satisfaction of certain conditions, including:  (i) completion of a resource report prepared in accordance
with National Instrument 43-101 of the Canadian Securities Administrators, that concludes that our Maricunga property meets certain
technical requirements and that proceeding to the feasibility study phase for the Maricunga project is warranted; (ii) completion
of a work program agreed to by us and POSCAN; and (iii) having the necessary permits and approvals in place for building and operating
a brine test facility on the Maricunga property. In addition to being the relevant milestone under our agreement with POSCAN, we
believe that the Canadian standards for Resource Reports are generally perceived as the industry standard, having marketability
worldwide.  The SPA provides that we are to use the proceeds from such investments exclusively for activities related
to the development of the Maricunga project, pursuant to budgets mutually agreeable to us and POSCAN. However, we and POSCAN ultimately
modified the terms of POSCAN’s second tranche investment as described below.



The SPA includes provisions for POSCAN
to purchase brine from the Maricunga property and test it at POSCAN’s test facility in Korea.  In addition, the
SPA provides that we and POSCAN will discuss and evaluate the development, financing and construction of a brine testing facility
on the Maricunga property, and that if such facility is built, we would (i) supply the test facility with brine and other materials
and utilities and (ii) assist POSCAN in obtaining any rights, licenses and permits required to build and operate such facility.



The securities purchased by POSCAN will
be locked up and may not be sold (subject to customary exceptions) until the earlier of nine months from their issuance and November
20, 2012.  Pursuant to the IRA, we have granted POSCAN the right to demand registration of the common stock included
in the Units, and issuable upon exercise of the warrants included in the Units, commencing 12 months after the date of issuance
of the Units and ending five years after the date of the IRA.  As of the date of this filing, POSCAN has not required
a registration of such shares. Our obligation to register any such shares shall terminate once they may be sold without registration
in any 30 day period pursuant to Rule 144 under the Securities Act.  Upon a registration demand made by POSCAN pursuant
to the IRA, we must file a registration statement covering the relevant shares within 75 calendar days of such demand, and use
our best efforts to have it declared effective within 120 calendar days of filing.  If we do not meet these deadlines,
we must pay liquidated damages of 2% of the purchase price of the relevant securities per month until such failures are cured (up
to an aggregate maximum of 10%).  POSCAN will also have “piggy-back” registration rights with respect to
such shares.



The IRA provides that we will appoint a
director nominated by POSCAN to our Board of Directors, and will continue to nominate a POSCAN-designee at each annual meeting
for as long as POSCAN owns not less than 10% of the issued and outstanding shares of our common stock.  So long as POSCAN
holds any shares of our common stock (subject to customary exceptions), we shall not issue any new securities to any person unless
we have also offered to POSCAN the right to purchase its pro rata share of such securities on the same terms and conditions as
are offered, as to maintain its then percentage interest in our outstanding capital.  The IRA also provides that, until
the earlier of (i) POSCAN owning less than 10% of our issued and outstanding common stock and (ii) our aggregate market capitalization
exceeding $250 million, we may not undertake certain actions without the approval of POSCAN (which approval may be evidenced by
the affirmative vote or consent of POSCAN’s director nominee), including:  a liquidation, merger or reorganization;
a sale of all or substantially all of our assets; incurring indebtedness in excess of $1,000,000 (subject to certain exceptions);
create or take any action that results in our holding the capital stock of any subsidiary that is not wholly owned (with certain
exceptions); transfer or license our proprietary technology to a third party; substantially change the scope of our business; or
amend or waive any non-competition or non-solicitation provision applicable to our Chief Executive Officer or Chief Operating Officer.



POSCO (with its subsidiaries) is a diversified
company, with operations in energy, chemicals and materials and is one of the largest steel manufacturers in the world.   There
can be no assurance that any final agreement will be reached with POSCAN with respect to a pilot plant, a commercial plant, any
further investment by POSCAN, any purchase by POSCAN of our production, or otherwise.



On February 23, 2012, POSCO announced that
it has developed technology that may improve lithium recovery from brine and shorten processing times compared to the conventional
processes currently being used in the lithium market. On March 7, 2012, we and POSCO executed a Non-Binding Memorandum of Understanding
to construct a test facility for the recovery of lithium and other products at POSCO’s expense, with technical support from
us as necessary. The parties expect that products from the test facility will not be commercialized and will be for testing purposes
only. Upon successful completion of the test facility, evaluating the merits and validation of the technology, the parties may
discuss commercialization of the products in detail, including off-take agreements between the parties.



On August 17, 2012, we entered into an
Additional Agreement to Stock Purchase Agreement (the “Additional Agreement”) with POSCAN which, among other things,
modified certain provisions of the SPA. Also on August 17, 2012, we closed on POSCAN’s second tranche of investment under
the SPA, selling 62,499,938 Units to POSCAN for $9,999,990, with each “Unit” consisting of one share of common stock
and a three-year warrant to purchase one share of common stock for $0.21 per share.



9







The Additional Agreement reduced POSCAN’s
purchase price per Unit for the second tranche of investment from $0.21 per share to $0.16 per share, and reduced the exercise
price of all of the warrants sold under the SPA (the “POSCAN Unit Warrants”) from $0.40 per share to $0.21 per share.
Pursuant to the Additional Agreement, we also agreed to issue to POSCAN a two-year warrant (the “POSCAN Bonus Warrant”)
to purchase 5,000,000 shares of our common stock at an exercise price of $0.15 per share. Furthermore, the Additional Agreement
provides that, subject to certain exceptions, we must issue additional shares of our common stock to POSCAN in the event that we
issue or sell any such shares to third parties for a price of less than $0.16 per share at any time during the 18 months immediately
following August 17, 2012.



The Additional Agreement provides restrictions
on our use of the proceeds from the Second Closing, and includes our agreement to use our best efforts to obtain a Chilean lithium
production concession and to take certain steps towards commercialization of our flagship Maricunga property.



R3 Fusion, Inc.



R3 Fusion, Inc. (“R3”) is a
technology company that has developed, patented, demonstrated and is currently commercializing its Short Path Condensate Recovery
(SPaCeR) technology, which utilizes waste process heat and engineering designed to achieve a highly cost effective means of environmentally
friendly fluid processing.



We believe the SPaCeRTM technology
may speed the rate of mineral recovery from brine. However there can be no assurance that it will do so on a commercially favorable
basis or at all. Not only do we believe R3’s SPaCer technology can aid in the recovery of lithium,
but we believe it will allow brine mining operations to use smaller facilities, reducing their footprint by as much as 1,000-fold.



On January 13, 2012, we entered into an
agreement with R3 (the “R3 Agreement”),to apply R3’s SPaCeR in processing brine from our properties. Pursuant
to the R3 Agreement, R3 will provide us with a demonstration plant consisting of two units having a design flow capacity of at
least 1.6 liters per second each, and on-site training. Upon installation of the facilities, we will pay R3 equipment use fees
of $37,500 per month for the first twelve months following successful installation and commissioning of the system, and, if we
elect to keep the equipment on site thereafter, $12,500 per month for up to an additional thirty-six months.



The R3 Agreement also provides that we
will be given the exclusive license (the “Exclusive Rights”), subject to final negotiations, to exploit R3’s
SPaCeR technology throughout the world for the processing of lithium-containing brine for so long as we are using such systems
in the processing of brine at our facilities in South America.

Lithium Exploitation Permitting in Chile:



The mining industry is heavily regulated
and changes in international laws and regulations can be significant. 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.



In Chile, lithium is not exploitable via
regular mining concessions. The Chilean Mining Code (“CMC”) establishes the reserve of lithium to the State of Chile
and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can
be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation
contracts, fulfilling the requirements and conditions set forth by the President of the Republic of Chile for each case. Currently
neither the Company nor its subsidiaries have sufficient authority (or permits) to exploit lithium in Chile. However, the government
of Chile has introduced a process to increase the exploitation of lithium in Chile In February 2012, the Chilean Government outlined
plans to improve its worldwide competiveness. The Boost Competitive Agenda (a package of reforms intended to remove regulatory
red tape, to encourage entrepreneurship, innovation, competition and boost productivity of the economy), is coordinated by the
Office of Competiveness of the Ministry of Economy and was initiated in August, 2011. In February 2012, the Office of Competitiveness
introduced ten new measures to extend the government’s commitment to ensure that development continues to reach Chile, including
“Re-launching the Chilean Lithium Industry”, which Chile’s Minister of Economy stated seeks to lift restrictions
and implement mechanisms to improve competitiveness within the industry, promote further investment and protect the country’s
market share and standing in the world lithium market.



The Chilean Government’s Ministry
of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations
Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately
530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we
formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for
the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, on September
14 2012, the Consortium submitted its bid for the CEOLs.



10







On September 24, 2012, the Ministry of
Mining opened the bids and informed us that the Consortium’s bid was not the winning bid.



On October 1, 2012, the Ministry of
Mining informed us that the Chilean Government decided to invalidate the CEOL process and the results announced on September 24,
2012, due to an administrative error.



We are currently in the process of
pursuing the Chilean Government to reconsider its decision to invalidate the CEOL process. We requested that the Chilean
Government award the CEOL to the second highest bidder, the Consortium ́s offer. We submitted a “Request for
Reconsideration” (RFR).   This is deemed to be a friendly recourse which anybody can request an authority to
change their decision.



If such action is denied, a fast track Court Action
called “Protection Recourse” might take place. Under that circumstance, the Courts would rule
whether or not the Government is abusing by its action.   If they rule in our favor, the Government would be forced
to complete the process and grant the CEOL to the Consortium.



Pending the outcome of the permitting process,
we are exploring other strategies that could enable us to obtain rights to exploit lithium in Chile, whether from our flagship
Maricunga project or otherwise. Additionally, we are evaluating the Maricunga project as a potential producer of potassium nitrate.
However, there can be no assurance that we will be able to do so in the near future or at all.



Other Permits:



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.
| | - | ----------------------------------------------------------------------------------------------------------------------------



Companies who operate must meet, maintain
and abide by strict environmental regulations in accordance with state, federal and international laws and regulations. We will
also have to abide and comply with National Labor Laws that protect and govern its employees. Additionally, we believe that between
our management team, the consultants and experts we have hired, they will be able to satisfy any and all regulatory and compliance
requirements.



Brine Exploration Phases:



The life cycleof a brinemining operation can be divided into five phases:



| | · | Mining activity begins with
the “exploration phase,” in which one seeks to define thetype, extent, location and value of deposits and to
estimate the grade and size of the deposits;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | The “feasibility phase” then
ensues to address the financial viability of the project (including any permitting requirements) and to determine whether or not
to proceed to development – the end of the feasibility stage is marked by the conclusion of a feasibility study;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | If the decision is made to move forward after the feasibility stage, then the “development
phase” follows, in which the infrastructure needed to begin operations is constructed;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Upon completion of such infrastructure,
a project enters the “production phase,” during which the applicable minerals are extracted, produced and sold;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------



| | · | Once all economically extractable minerals
have been produced, a mine is closed and it entersthe “reclamation phase,” in which the
area is made suitable for future uses.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



11







Competition:



We are currently categorized as a junior
mineral resource exploration company that competes with other mineral resource exploration companies for financing, personnel and
equipment and for the acquisition of mineral properties. Although our commissioned report which was prepared in accordance with
National Instrument 43-101 of the Canadian Securities Administrators completed by Hains Technology and Associates deemed Maricunga
suitable to advance to the Feasibility Study stage and a Chilean based independent research firm signumBOX listed Maricunga as
one of the top lithium salars in the world, many of the mineral resource exploration companies with whom we compete have greater
financial and technical resources than those available to us. Accordingly, these competitors may be able to spend greater amounts
on acquisitions of mineral properties of merit, on exploration of their mineral properties and on development of their mineral
properties and on exploration and development. This competition could result in competitors having mineral properties of greater
quality and interest to prospective investors who may finance additional exploration and/or development. This competition could
adversely impact on our ability to finance further exploration and to achieve the financing necessary for us to develop our mineral
properties.



Compliance with Government Regulation:



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



Employees:



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



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



Subsidiaries:



We currently have six wholly owned subsidiaries:



| | 1. | Li3 Energy Peru SRL, a private limited company organized under the laws of Peru;
| | -- | --------------------------------------------------------------------------------

| | 2. | Minera Li Energy SPA, a wholly owned subsidiary in Chile;
| | -- | ---------------------------------------------------------

| | 3. | Alfredo Holdings, Ltd., an exempted limited company incorporated under the laws of the Cayman Islands;
| | -- | ------------------------------------------------------------------------------------------------------

| | 4. | Pacific Road Mining Chile, S.A. a Chilean corporation, which is a subsidiary of Alfredo;
| | -- | ----------------------------------------------------------------------------------------

| | 5. | Noto Energy S.A., an Argentinean corporation; and
| | -- | -------------------------------------------------

| | 6. | Li3 Energy Caymans, Inc., an exempted limited company incorporated under the laws of the Cayman
Islands.
| | -- | --------------------------------------------------------------------------------------------------------



We also own 60% of each of Sociedades Legales
Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga, a group of six Chilean mining companies, which are wholly owned by Minera
Li Energy SPA.



Intellectual Property:



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



Lithium and Lithium Mining



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



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



12







No other metal is as lightweight, better
at holding a charge or as good at dissipating heat as lithium. These properties make lithium an excellent material for manufacturing
batteries (lithium-ion batteries).  According to the U.S. Geological Survey’s (“USGS”) “Mineral Commodity
Summaries 2011,” 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 USGS 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
| | - | ---------------------------------------------------------------------------------------------



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



Lithium use 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, as major automobile manufacturers are forming partnerships
with established battery manufacturers to build battery plants for their mass production. In addition, lithium-ion batteries used
in transportation is expected to increase to approximately $8 billion by 2015 from $876 million in 2010, largely fueled by government
subsidies and incentives.



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 rechargeable.  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 rechargeable, 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.



13







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:



| | 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 percentages. The higher the lithium concentration, the better. However,
high local evaporation rates can compensate for lower lithium concentrations.



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



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



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



Key Stages of Lithium Recovery



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



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



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



14







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 (SO 4)
in the form of gypsum (CaSO 4).  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.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Global Market



Based on the most recent available information
from the United States Geological Survey (“USGS”), market conditions improved for lithium-based products in 2011, as
sales volumes for major lithium producers in Australia in Chile were reported to increase by more than 20% in the third quarter
of 2011, compared with those of the same period in 2010. Consumption by lithium end-use products such as batteries, ceramics and
glass, grease, and other industrial applications all increased. In 2011, Chile produced 37.1% of the lithium carbonate worldwide,
while Argentina and Australia produced 9.4% and 33.2%, respectively. Many new companies have been reported to be exploring worldwide.



The increase in 2011 production was due
primarily to the increase of the lithium-ion battery market, as global sales were $13.9 billion during 2011. These sales are projected
to rise to $16.1 billion in 2012, $18.6 billion in 2013, $23.6 billion in 2015, and $34.3 billion in 2020. Other lithium end uses
have increased, but not at the same rates as lithium-ion batteries. According to Roskill Information Services Ltd., lithium-ion
batteries were the largest single end use for lithium in 2011 (22% of total end use) , but glass & ceramics were still important
(21% of total use in 2011).



According to the USGS, Chile is the leading
lithium producer in the world.  Argentina, Australia, China, and the United States are also major producers.  The
2012 edition of the USGS Mineral Commodity Summaries gives the following estimated world lithium mine production (in metric tons
of lithium content):





|                      |  | Mine production |         
|--------------------- |  | --------------- | --------
|                      |  | 2011 (est.)     |         
|Chile                 |  |                 | 12,600  
|Australia             |  |                 | 11,300  
|China                 |  |                 | 5,200   
|Argentina             |  |                 | 3,200   
|Portugal              |  |                 | 820     
|Zimbabwe              |  |                 | 470     
|Brazil                |  |                 | 160     
|United States         |  |                 | Withheld
|World total (rounded) |  |                 | 33,750 1



1.    Excludes U.S. production.



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



15







Nitrate Market and Production



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



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



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

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.



16







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



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



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



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



The consolidated financial statements contained
herein have been prepared assuming we will continue as a going concern. At June 30, 2012, we had no source of current revenue,
had a cash balance of $27,689, negative working capital of $6,940,769 and negative cash flows from operations of $15,571,101 during
the period from June 24, 2005 (inception) through June 30, 2012. On August 17, 2012, we received $10,000,000 in funding from POSCAN,
resulting in a positive working capital as of September 21, 2012 of approximately $2,500,000. We believe this positive working
capital position is sufficient to maintain our basic operations, which does not include future exploration and acquisition activities,
for at least the next 12 months. We cannot predict if and when we may generate profits.  After that, we expect to finance
our operations primarily through future equity or debt financing. However, as discussed in the notes to our consolidated financial
statements included in this Report, there exists substantial doubt about our ability to continue as a going concern because there
is no assurance that we will be able to obtain such capital, through equity or debt financing, or any combination thereof, on satisfactory
terms or at all.  The consolidated financial statements do not include any adjustments that might result from the outcome
of this uncertainty.



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



On August 3, 2010, we signed an agreement
to acquire Alfredo Holdings, Ltd. which held an option to acquire six mining concessions in Pozo Almonte, Chile. We allowed the
option to expire because we determined that the project was not economically viable. Pursuant to an amendment to our agreement
with the Alfredo Sellers, if and when certain milestones are achieved with respect to any future Li3 Energy Chilean iodine nitrate
project, we must make additional payments to the Alfredo Sellers in an aggregate amount of up to $5.5 million.



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



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



17







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



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



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



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



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.



In Chile, lithium is not exploitable via
regular mining concessions. The Chilean Mining Code (“CMC”) establishes the reserve of lithium to the State of Chile
and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium) can
be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation
contracts, fulfilling the requirements and conditions set forth by the President of the Republic of Chile for each case. Currently,
neither the Company nor its subsidiaries have sufficient authority (or permits) to explore and exploit lithium in Chile.



The Chilean Government’s Ministry
of Mining established its first ever auction for the award of lithium, production quotas and licenses (Special Lithium Operations
Contracts, or “CEOL”) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately
530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we
formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for
the purpose of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, on September
14, 2012, the Consortium submitted its bid for the CEOLs.



On September 24, 2012, the Ministry of
Mining opened the bids and informed us that the Consortium’s bid was not the winning bid.



On October 1, 2012, the Ministry of
Mining informed us that the Chilean Government decided to invalidate the CEOL process and the results announced on September 24,
2012, due to an administrative error.



We are currently in the process of
pursuing the Chilean Government to reconsider its decision to invalidate the CEOL process. We requested that the Chilean
Government award the CEOL to the second highest bidder, the Consortium ́s offer. We submitted a “Request for
Reconsideration” (RFR).   This is deemed to be a friendly recourse which anybody can request an authority to
change their decision.



If such action is denied, a fast track Court Action
called “Protection Recourse” might take place. Under that circumstance, the Courts would rule
whether or not the Government is abusing by its action.   If they rule in our favor, the Government would be forced
to complete the process and grant the CEOL to the Consortium.



18







Pending the outcome of the permitting process,
we are exploring other strategies that could enable us to obtain rights to exploit lithium in Chile, whether from our flagship
Maricunga project or otherwise. Additionally, we are evaluating the Maricunga project as a potential producer of potassium nitrate.
However, there can be no assurance that we will be able to do so in the near future or at all.



Accordingly, there can be no assurance
that we will be able to obtain the permits necessary to exploit any minerals that our exploration activities discover in a timely
manner or at all. Any such delay or failure would have a material adverse effect on our development horizon for Maricunga and our
prospects.



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 and convertible notes, 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 super capacitors made from paper coated with ink made of carbon nanotubes and silver nanowires; the material charges and discharges
very quickly, making it potentially useful in hybrid and electric vehicles, which need rapid power for acceleration and would benefit
from quicker charging than is available with current technologies. We cannot predict which new technologies may ultimately prove
to be commercializable and on what time horizon. While lithium battery technology is currently among the best available for electronics,
vehicles and other applications, commercialized battery technologies that offer superior weight, capacity, charging time and/or
cost could significantly adversely affect the demand for lithium in the future and thus could significantly adversely impact our
prospects and future revenues.



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



19







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.



20







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.



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, which we intend to seek to have amended to cover
lithium extraction.  There can be no assurance that we will be successful in amending any such claims timely, economically
or at all.  See Risk Factors – “Mineral operations are subject to applicable law and government regulation
” above.



We may 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 Executive Officer, Chief Operating Officer, Chief Financial
Officer and Vice President.  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.



21







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 control over financial reporting in compliance with the requirements of Section
404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | • | maintain policies relating to disclosure controls and procedures;
| | - | -----------------------------------------------------------------



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



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



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



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



22







RISKS RELATED TO OUR COMMON STOCK



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



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



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



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



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



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



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



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



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



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



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



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.



23







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



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



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



| | • | actual or anticipated variations in our operating results;
| | - | ----------------------------------------------------------



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



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



| | • | adoption of new accounting standards affecting our industry;
| | - | ------------------------------------------------------------



| | • | additions or departures of key personnel;
| | - | -----------------------------------------



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



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



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



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



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



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.



24







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 1,000,000,000shares of capital stock consisting of 990,000,000 shares of common stock and 10,000,000 shares of preferred stock with preferences
and rights to be determined by our Board of Directors.  As of October 8, 2012, there are392,108,252 shares of
our common stock and no shares of our preferred stock outstanding.  There are4,200,000 shares of our common stock
reserved for issuance under our 2009 Equity Incentive Plan (the “2009 Plan”), of which we have 1,450,000 nonqualified
stock options, 950,000 restricted stock units and 1,700,000 shares of restricted stock outstanding. Furthermore, we have committed
to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares
authorized for issuance under our 2009 Plan to satisfy all of these obligations. In addition, there are 157,698,684 shares of our
common stock issuable upon the exercise of outstanding warrants and another approximately 20,614,977 shares issuable upon conversion
of outstanding convertible promissory notes.



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



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



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



OTHER RISKS



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



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------



Not applicable for smaller reporting companies.

25







|ITEM 2. | PROPERTIES
|------- | ----------



The information set forth above under “Business”
relating to our exploration properties (primarily Maricunga) is incorporated herein by reference.



We lease approximately 800 square feet
of office space in Lima, Peru, on which our lease payments were $48,262 for fiscal year 2012.  We also lease approximately
1,500 square feet of office space in Santiago, Chile, with monthly rent of approximately $3,454. This lease commenced on July
1, 2011, and we paid rent during fiscal year 2012 amounting to $36,762. This lease expires June 30, 2014. We believe
our leased facilities are adequate for our needs at present.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------



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



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



As the majority
shareholder of each of the six Maricunga Companies, we have filed lawsuits distributed to four civil courts of Copiapo, third Region
of Atacama, Chile, against the minority shareholders. Certain minority shareholders have filed counterclaims against us to declare,
among other things, the invalidation of the shareholders meetings on October 6, 2011, at which required contributions were established
that such minority shareholders failed to make. We are currently preparing our response. Our future plans are not dependent
on the outcome of this matter with respect to the development of the Maricunga project



|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.



26







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 8, 2012, there were 392,108,252
shares of our common stock issued and outstanding, 157,698,684 shares issuable upon exercise of outstanding warrants and other
rights, approximately 20,614,977 shares issuable upon conversion of outstanding convertible notes, 1,700,000 unvested
shares of restricted stock, 950,000 restricted stock units, and 1,450,000 shares issuable upon exercise of outstanding options.
Furthermore, we have committed to grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not
currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. On October 8,
2012, there were approximately 185 holders of record of shares of our common stock.



Since July 1, 2006, our common stock has
been listed for quotation on the over-the-counter market, 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 over-the-counter market.  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 over-the-counter market does not necessarily represent
its fair market value.



|Period                           |  | High |        |  | Low |  
|-------------------------------- |  | ---- | ------ |  | --- | -
|                                 |  |      |        |  |     |  
|Fiscal Year Ending June 30, 2011 |  |      |        |  |     |  
|First Quarter                    |  | $    | 0.4200 |  |     | $
|Second Quarter                   |  |      | 0.3200 |  |     |  
|Third Quarter                    |  |      | 0.5100 |  |     |  
|Fourth Quarter                   |  |      | 0.4500 |  |     |  



|Fiscal Year Ending June 30, 2012 |  |   |        |  |  |  
|-------------------------------- |  | - | ------ |  |  | -
|First Quarter                    |  | $ | 0.2300 |  |  | $
|Second Quarter                   |  |   | 0.1300 |  |  |  
|Third Quarter                    |  |   | 0.1400 |  |  |  
|Fourth Quarter                   |  |   | 0.1000 |  |  |  
|                                 |  |   |        |  |  |  



Dividends



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



Securities Authorized for Issuance under
Equity Compensation Plans



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



27







As of the date of this Report, we have
outstanding 1,450,000 nonqualified stock options under the 2009 Plan, with a weighted average exercise price of approximately $0.38
per share, of which options for 866,666 are currently vested.  In addition, we have granted (a) an award of 2,500,000 shares
of restricted stock under the 2009 Plan, of which 800,000 shares are currently issued and vested, and (b) awards of restricted
stock units with respect to 950,000 shares of common stock, 233,333 of which are currently vested.  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.  Of the outstanding options under the 2009 Plan, 866,666
have vested.  200,000 of such options vested immediately and have a five year term, 1,000,000 options 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, and the remaining
250,000 options vest in after eighteen months from the date of grant and have a five year term Furthermore, we have committed to
grant Restricted Stock Units with respect to an aggregate of 900,000 shares; however, we do not currently have enough shares authorized
for issuance under our 2009 Plan to satisfy all of these obligations.



The following table provides information as of June 30, 2012,
with respect to the shares of common stock that may be issued under our existing equity compensation plans:



|                                                           |  |                      |           |  | Weighted-         |   |      |                                 | 
|---------------------------------------------------------- |  | -------------------- | --------- |  | ----------------- | - | ---- | ------------------------------- | 
|                                                           |  |                      |           |  | average           |   |      | Number of securities            | 
|                                                           |  | Number of securities |           |  | Exercise price of |   |      | remaining available for         | 
|                                                           |  | to be issued upon    |           |  | Outstanding       |   |      | future issuance under equity    | 
|                                                           |  | exercise of          |           |  | options,          |   |      | compensation plans              | 
|                                                           |  | outstanding options, |           |  | Warrants and      |   |      | (excluding securities reflected | 
|                                                           |  | warrants and rights  |           |  | rights            |   |      | in column (a))                  | 
|Plan Category                                              |  | (a)                  |           |  | (b)               |   |      | (c)                             | 
|Equity compensation plans approved by security holders (1) |  |                      | 1,450,000 |  |                   | $ | 0.38 |                                 | 
|Equity compensation plans not approved by security holders |  |                      | —         |  |                   |   | —    |                                 | 
|Total                                                      |  |                      | 1,450,000 |  |                   | $ | 0.38 |                                 | 



|(1) | Represents the 2009 Equity Incentive Plan.                                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------
|(2) | 950,000 of such shares are reserved for issuance pursuant to Restricted Stock Units granted under the 2009 Plan, 233,333 of which have vested.



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



Unregistered Sales of Equity Securities



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



|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------



Not applicable for smaller reporting companies.



28









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



We are a South America based and US listed
exploration company in the lithium and mining sector. We aim to acquire, develop and commercialize a significant portfolio of
lithium brine deposits in the Americas.



We own (a) a 60% interest in the Maricunga
project, which consists of mining concessions covering an area of approximately 3,553 acres (1,438 hectares) prospective for lithium
and potassium brines, and is located in the Salar de Maricunga in northern Chile; (b) a mining concession on 2,995 acres (1,212
hectares) situated on brine salars in Argentina, known as Cauchari; and (c) undeveloped mineral claims prospective for lithium
and potassium covering a total area of 19,500 acres (7,890 hectares) located in the Regions of Puno, Tacna and Moquegua, Peru.
We are currently evaluating additional exploration and production opportunities.



We were initially incorporated on June
24, 2005, as Mystica Candle Corp. in the business of manufacturing, marketing and distributing soy-blend scented candles and oils.
It was determined that we could not continue with the original business plan. In July 2008, we changed our name to NanoDynamics
Holdings, Inc., to facilitate discussions with NanoDynamics, Inc. regarding a possible business combination that was not completed.
In October 2009, we changed our name to Li3 Energy, Inc. as we refocused our business strategy on the energy sector and lithium
mining opportunities.



The following discussion highlights
the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital
resources for the periods described. This discussion contains forward-looking statements. Please see “Forward-Looking Statements”
above and “Risk Factors” included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2012,
filed with the Securities and Exchange Commission (“SEC”) (the “Form 10-K”), for a discussion of the uncertainties,
risks and assumptions associated with these forward-looking statements.



The following discussion and analysis
of our financial condition and results of operations as of, and for the years ended, June 30, 2012 and 2011, are based
on our audited consolidated financial statements as of June 30, 2012, and for the years ended June 30, 2012 and 2011.



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



Going Concern



At June 30, 2012, we had no source of
current revenue, had a cash balance of $27,689, a negative working capital of $6,940,769 and negative cash flows from operations
of $15,571,101 during the period from June 24, 2005 (inception) through June 30, 2012. On August 17, 2012, we received $10,000,000
in funding from POSCAN, resulting in a positive working capital as of September 21, 2012, of approximately $2,500,000.
We believe this positive working capital position is sufficient to maintain our basic operations, which does not include future
exploration and acquisition activities, for at least the next 12 months.



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



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



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



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



29







Operational Update



Mineral Rights



Maricunga



On May 20, 2011, we and the shareholders
(the “Maricunga Sellers”) of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga, a group of six
private companies (the “Maricunga Companies”), signed the Framework Contract of Mining Project Development and Buying
and Selling of Shares of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga (the “Acquisition Agreement”),
whereby we, through our Chilean subsidiary, Minera Li, acquired from the Maricunga Sellers a 60% interest in each of the Maricunga
Companies. The purchase price, including amounts paid to agents, was $6,370,000 in cash and 127,500,000 restricted shares of our
common stock (the “Maricunga Purchase Price Shares”), which had a fair value of $31,875,000 based on the market price
on the date of issuance. 50% of the common stock issued was restricted from sale for nine months and the remainder of which is
restricted from sale for 18 months as provided in the Acquisition Agreement (the “Lock-Up”).  The Lock-Up
will terminate if (a) we sign an agreement with one or more investors for them to finance the necessary development of the project
to the stage of commercial production; (b) an offer with characteristics of a take-over bid is made for our shares; (c) our current
CEO sells his shares in the Company, or (d) we agree to sell our shares in Minera Li Energy SPA and/or Minera Li Energy SPA agrees
to the sale of the Maricunga Shares.  In the event of (d) above, we have agreed that the sale price in any such sale
will be based on at least two valuations carried out by institutions with recognized experience in these types of mining assets.



The Maricunga property is an exploration
property and covers an area of approximately 3,553 acres (1,438 hectares), comprising six concessions, each held by a separate
legal entity, and is located in the northeast section of the Salar de Maricunga in Region III of Atacama in northern Chile. Each
concession grants the owner the right to explore for mineral deposits at the Maricunga property.



We agreed with the Maricunga Sellers:
(a) to increase the number of directors constituting our Board of Directors to seven; (b) that the Maricunga Sellers will have
the right to nominate three of our directors and that a fourth director (who shall hold the position of Chairman of the Board)
will be jointly nominated by the Maricunga Sellers and by our management (such persons, or any successors thereto nominated by
the Maricunga Sellers or by the Maricunga Sellers and management, as the case may be, the “Nominees”), and that the
Board shall appoint such Nominees to fill vacancies created in the Board by the increase in the number of directors and by resignations,
to serve until the next annual meeting of stockholders; (c) that the Nominees shall continue to be nominated as directors by our
management at the next and subsequent annual meetings of our stockholders, and at any special meeting of the stockholders at which
directors are to be elected (collectively, a “Meeting”), during the period of the Lock-Up (but the Nominees will be
subject to reelection by the stockholders as provided in our By-Laws); and (d) that if any Nominee is not elected by the stockholders
pursuant to the By-Laws, the Maricunga Sellers, or the Maricunga Sellers and management, as the case may be, will have the right
to designate the same or another person as their Nominee at the next Meeting, provided it is within the period of the Lock-Up.



In September 2011, POSCO Canada Ltd. (“POSCAN”),
a wholly owned subsidiary of POSCO (a South Korean company), purchased 38,095,300 Units of our securities for approximately $8
million, with each “Unit” consisting of one share of our common stock and a three-year warrant to purchase one share
of our common stock at an exercise price of $0.40 per share. POSCAN agreed to purchase an additional 47,619,000 Units at the same
$0.21 price per Unit (for an aggregate additional purchase price of approximately $10 million) upon satisfaction of certain conditions.
The agreement with POSCAN includes provisions for POSCAN to purchase brine from the Maricunga property and test it at POSCAN’s
test facility in Korea. In addition, we and POSCAN will discuss and evaluate the development, financing and construction of a
brine testing facility on the Maricunga property, and if such a facility is built, we would supply the test facility with brine
and other materials and utilities and assist POSCAN in obtaining any rights, licenses and permits required to build and operate
such facility. POSCO (with its subsidiaries) is a diversified company, with operations in energy, chemicals and materials and
is one of the largest steel manufacturers in the world.



In December 2011, we completed
our phase one exploration work on Maricunga with the $8 million funding from POSCAN. We hired independent Qualified Persons
in order to complete a NI 43-101 of the Canadian Securities Administrators based on its 2011 exploration and development
plan.



The POSCAN agreement required us to produce
a Technical Report in accordance with National Instrument 43-101 of the Canadian Securities Administrators (“NI 43-101”)
as a milestone for the second tranche of funding. In April 2012, we reported the completion of the NI 43-101 that summarizes and
validates the results of our $8 million Phase One Exploration and Development Program on our Maricunga Project in Chile, completed
in December 2011, subsequently followed by the second tranche of funding by POSCAN in August 2012. The Technical Report was prepared
by Donald H. Hains, P. Geo., Principal of Hains Technology Associates, who is a Qualified Person as defined by NI 43-101. The
key highlights of the Compliant Measured Report include:



| | · | Further
                                                                                                               exploration work
                                                                                                               and expenditures
                                                                                                               are warranted to
                                                                                                               advance the Maricunga
                                                                                                               Project to the
                                                                                                               Feasibility Stage
                                                                                                               (economic assessment);
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



30





| | · | The
                                                                                                               property holds
                                                                                                               significant potential
                                                                                                               for development
                                                                                                               as a source of
                                                                                                               lithium, potassium
                                                                                                               and boron;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Exploration
                                                                                                               work indicates
                                                                                                               that the brines
                                                                                                               in the property
                                                                                                               are enriched in
                                                                                                               lithium and potassium
                                                                                                               and that the brine
                                                                                                               has a Mg/Li ratio
                                                                                                               permitting lithium
                                                                                                               recovery.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As a result of the POSCAN second tranche
of investment under the SPA (the “Second Closing”), 62,499,938 Units were issued to POSCAN for $9,999,990, with each
“Unit” consisting of one share of common stock and a three-year warrant to purchase one share of common stock for
$0.21 per share.



On the same date, we entered into an additional
agreement to the SPA (the “Additional Agreement”) with POSCAN which, among other things, modifies certain provisions
of the SPA. The Additional Agreement reduced POSCAN’s purchase price per Unit (as defined below) for the Second Closing
(as defined below) from $0.21 per share to $0.16 per share, and reduced the exercise price of all of the warrants sold under the
SPA (the “Unit Warrants”) from $0.40 per share to $0.21 per share.



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



The Additional Agreement provides restrictions
on our use of the proceeds from the Second Closing, and includes our agreement to use our best efforts to obtain a Chilean lithium
production concession and to take certain steps towards commercialization of our flagship Maricunga property.



We plan to apply the bulk of those funds
towards the necessary expenditures in order to complete a feasibility study on Maricunga. In the event producible quantities of
minerals are determined to be economically feasible, we will still be required to obtain permits from the Chilean government to
exploit the mineral reserves. There is no assurance that our testing or feasibility analysis will indicate economically producible
quantities or that we will be able to obtain the necessary permits to exploit the mineral resources.



The minority shareholders of the Maricunga
Companies have defaulted on their obligations, established at shareholders meetings held on October 6, 2011, to fund an aggregate
of 40% of each Maricunga Company’s exploration expenses by January 4, 2012.



The Chilean Mining Code requires shareholders
of legal mining companies (such as the Maricunga Companies) to contribute their pro rata portion of exploration and exploitation
expenses that are established at a shareholders meeting (the “Required Contribution”). Furthermore, the Chilean Mining
Code permits any legal mining company to initiate an executive trial, the final resolution of which would state that shares held
by shareholders who fail to make any Required Contribution must be sold at a public auction. The Chilean Mining Code establishes
that the minimum bid in such auction shall be the amount of the Required Contribution that the defaulting shareholders failed
to contribute (the “Default Amount”). The proceeds of such auction shall go first to the relevant legal mining company
in the amount of the Default Amount, and any proceeds in excess thereof shall be paid to the defaulting shareholders. If the minimum
bid is not achieved in the auction, then the defaulting shareholders’ shares in the legal mining company will be cancelled
and each non-defaulting shareholder’s funding obligations will increase proportionally.



As the majority
shareholder of each of the six Maricunga Companies, we have filed lawsuits distributed to four civil courts of Copiapo, third
Region of Atacama, Chile, against the minority shareholders. Certain minority shareholders have filed counterclaims against us
to declare, among other things, the invalidation of the shareholders meetings on October 6, 2011, at which, required contributions
were established that such minority shareholders failed to make. We are currently preparing our response. Our future plans
are not dependent on the outcome of this matter with respect to the development of the Maricunga project



We may also seek to acquire additional
properties for any processing site and we also plan to make improvements to the Maricunga site infrastructure, camp, and property.



The Chilean Government’s Ministry
of Mining established its first ever auction for the award of a lithium production quotas and licenses (Special Lithium Operations
Contracts, or CEOLs), which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000
tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty. In September 2012, we formed
a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”) for the purpose
of participating in such CEOL auction. As required under the rules established by the Ministry of Mining, on September 14, 2012,
the Consortium submitted its bid for the CEOLs.



On September 24, 2012, the Ministry of
Mining opened the bids and informed us that the Consortium’s bid was not the winning bid.



On October 1, 2012, the Ministry
of Mining informed us that the Chilean Government decided to invalidate the CEOL process and the results announced on September
24, 2012, due to an administrative error.



31







We are currently in the process of pursuing
the Chilean Government to reconsider its decision to invalidate the CEOL process. We requested that the Chilean Government
award the CEOL to the second highest bidder, the Consortium ́s offer. We submitted a “Request for Reconsideration”
(RFR).   This is deemed to be a friendly recourse which anybody can request an authority to change their decision.



If such action is denied, a fast track Court Action
called “Protection Recourse” might take place. Under that circumstance, the Courts would rule
whether or not the Government is abusing by its action.   If they rule in our favor, the Government would be forced
to complete the process and grant the CEOL to the Consortium.



Pending the outcome of the permitting
process, we are exploring other strategies that could enable us to obtain rights to exploit lithium in Chile, whether from our
flagship Maricunga project or otherwise. Additionally, we are evaluating the Maricunga project as a potential producer of potassium
nitrate. However, there can be no assurances that we will be able to do so in the near future or at all.



Alfredo



On August 3, 2010, we signed an agreement
to acquire Alfredo Holdings, Ltd., which held an option to acquire six mining concessions in Pozo Almonte, Chile. We allowed the
option to expire because we determined that the project was not economically viable. Pursuant to an amendment to our agreement
with the Alfredo Sellers, if and when certain milestones are achieved with respect to any future Li3 Energy Chilean iodine nitrate
project, we must make additional payments to the Alfredo Sellers in an aggregate amount of up to $5.5 million.



Other Properties



We have acquired other interest in certain
Peruvian and Argentina properties during 2010. We have determined that these properties were not economically feasible, and as
a result, we have impaired any investment in these properties and will not be pursuing them any further. We have recorded an impairment
of $300,000 in fiscal 2012 and $50,000 in fiscal 2011 relating to these properties.



Strategic Plan



Part of our strategic plan is to explore
and develop our existing projects as well as to identify other synergistic opportunities with new projects with production potential
that that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium, potassium,
nitrates and other industrial minerals properties.  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. The
third leg of our strategic plan is to develop improved technologies for the extraction of lithium from brines.



We have acquired a 60% interest in the
Maricunga project, an advanced lithium and potassium chloride project in Chile, and we continue to explore other lithium and industrial
minerals prospects in the region.



Our current strategy principally involves
the exploration of the Maricunga property and the acquisition of a source of iodine and nitrate. On the Maricunga project, we
have received $8 million of funding from POSCAN, which was spent to complete our Phase One Exploration and Development Plan. Such
plan has been completed, and we have successfully produced a technical report in accordance with National Instrument 43-101 of
the Canadian Securities Administrators for Maricunga. Upon achieving the NI 43-101 compliant resource, we satisfied the conditions
to receive the additional $10 million of funding from POSCAN. In August 2012, we received the $10 million second tranche funding
as committed by POSCAN.



We now expect to spend the necessary funds
in order to complete a feasibility study on Maricunga (a “feasibility study” means a comprehensive study of a mineral
deposit in which all geological, engineering, legal, operating, economic, social, environmental and other relevant factors are
considered in sufficient detail that it could reasonably serve as the basis for a final decision whether to advance the development
of the deposit for mineral production).



In the event that we ultimately do not
obtain the necessary permits for lithium exploitation for our current Maricunga properties, we will pursue a strategy for the
production of potassium from those properties. Our Technical Report in accordance with National Instrument 43-101 of the
Canadian Securities Administrators (“NI 43-101”) shows that potassium resources are available in the Maricunga properties.
As part of our strategic plan, we always had plans to produce a potassium by-product alongside the lithium. Potassium exploitation
does not require special permits and is exploitable via regular mining concessions, according to the Chilean Mining Code.



During this process, we will still recover
the lithium, but we will not be able to sell it without a permit. It is expected that this legislation will change in due course
and thus we will be able to eventually sell our lithium production.



32







Our alternative would be producing
potash that in combination with sodium nitrates will mix to produce potassium nitrate (KNO3). Potassium nitrate is a valuable
product used in fertilizers. Potassium nitrate is used extensively as a fertilizer. Its advantage over commodity based
fertilizers such as potash is that it provides two essential elements (nitrogen and potassium) in a single product. Because
it has no sodium chloride content, it does not rot or damage delicate plants such as tobacco or the roots of fruit trees. As
it is totally water soluble, naturally-derived potassium nitrate is especially suitable for use in organic farming and in
hydroponic (soil free) agriculture. There is an increase in demand for this product, particularly in China, India, and
Brazil. Chile is today the largest producer of potassium nitrate.



In the event we were to develop a potassium
nitrate production on the Maricunga properties, we would complete a feasibility study of the economics of the project and would
be required to raise approximately between $130 million to $150 million to bring the project into production.



To produce potassium nitrate, we
will also be required to obtain a source of sodium nitrate which could come from either 1) developing a sodium nitrate and
iodine project; or 2) buying the sodium nitrate from different producers in the north of Chile. The Atacama Desert in the
north of Chile is rich in sodium nitrate. The company previously had an option on the Alfredo iodine and nitrates project. At
the time we decided not to pursue that option because we were focused in developing the Maricunga properties as a lithium
project. This property is still available for development. There are also a number of other projects in the north of Chile
with the same characteristics that we have evaluated in the past and can pursue if this is the strategy going forward. Also,
there are a number of producers of iodine in the north of Chile that have nitrates stockpiled which, as nitrates by
themselves, are not economically profitable. There would be opportunities for us to acquire these to complement our potassium
production.



In parallel to these efforts, we continue
to consider various alternatives to continue to pursue our lithium strategy. These include the acquisition of nearby properties
within the same Maricunga Salar that do not require special lithium permits for exploitation.



Application of Intensified Evaporative
Technology (R3 Fusion)



R3 Fusion, Inc. (“R3”) is
a technology company that has developed, patented, demonstrated and is currently commercializing its Short Path Condensate Recovery
(SPaCeR) technology, which utilizes waste process heat and engineering designed to achieve a highly cost effective means of environmentally
friendly fluid processing.



We believe the SPaCeRTM technology
may speed the rate of mineral recovery from brine, however, there can be no assurance that it will do so on a commercially favorable
basis or at all. Not only do we believe R3’s SPaCer technology can aid in the recovery of lithium,
but we believe it will allow brine mining operations to use smaller facilities, reducing their footprint by as much as 1,000-fold.



On January 13, 2012, we entered into an
agreement, (the “R3 Agreement”), with R3 Fusion, Inc. (“R3”) to apply R3’s SPaCeR in processing
brine from our properties. Pursuant to the R3 Agreement, R3 will provide us with a demonstration plant consisting of two units
having a design flow capacity of at least 1.6 liters per second each, and on-site training. Upon installation of the facilities,
we will pay R3 equipment use fees of $37,500 per month for the first twelve months following successful installation and commissioning
of the system, and, if we elect to keep the equipment on site thereafter, $12,500 per month for up to an additional thirty-six
months.



The R3 Agreement also provides that we
will be given the exclusive license (the “Exclusive Rights”), subject to final negotiations, to exploit R3’s
SPaCeR technology throughout the world for the processing of lithium-containing brine for so long as we are using such systems
in the processing of brine at our facilities in South America.



Results of Operations



Fiscal Year Ended June 30, 2012 Compared
with Fiscal Year Ended June 30, 2011



Revenues



We had no revenues during the years ended
June 30, 2012 and 2011.



Operating Expenses



Exploration Expenses



During the years ended June 30, 2012 and
2011, we incurred exploration expenses of $6,193,533 and $560,075, respectively. The expenses incurred during the year ended June
30, 2012, relate to our efforts to begin exploration activities on our Maricunga project in Chile and principally include drilling
expenses and other related expenses. The expenses incurred during the year ended June 30, 2011, relate primarily to
our other properties which we no longer are exploring.



33







Mineral Rights Impairment Expense



During the
years ended June 30, 2012 and 2011, we incurred impairment expenses of $300,000 and $4,120,000, respectively.Mineral rights
impairment expense for the year ended June 30, 2012, is a result of the impairment of the Noto properties. Mineral
rights impairment expense recorded during the year ended June 30, 2011is a result of the impairments of the Alfredo property
($4,070,000) and the Peru property ($50,000). We determined that these projects did not meet our requirements
for additional mining development activities.



Loss on Settlements, Net



During the year ended June 30, 2011, we
recorded a loss on settlement of $1,920,000 as a result of issuing 6,000,000 shares of the our common stock in connection with
a settlement related to the Puna property obligation.  In addition, we recorded a gain on settlement of $422,500 as
a result of a settlement with Lacus (payment of $150,000 in cash and 500,000 shares of the Company’s common stock), which
was less than we had accrued for these expenses as of June 30, 2010. The Puna and Lacus settlements were related to the Argentinian
properties that were terminated. There were no similar transactions during the year ended June 30, 2012.



General and Administrative Expenses



Our general
and administrative expenses for the years ended June 30, 2012 and 2011 consisted of the
following:



|                                                 |  |               |           |  |               |   |           | Increase   | 
|------------------------------------------------ |  | ------------- | --------- |  | ------------- | - | --------- | ---------- | 
|                                                 |  | June 30, 2012 |           |  | June 30, 2011 |   |           | (Decrease) | 
|Professional fees-legal                          |  | $             | 1,210,123 |  |               | $ | 1,021,198 |            | 
|Wages and salaries                               |  |               | 1,115,824 |  |               |   | 571,337   |            | 
|Travel expenses                                  |  |               | 896,898   |  |               |   | 697,729   |            | 
|Stock based compensation                         |  |               | 649,580   |  |               |   | 1,941,862 |            | 
|Registration rights penalties                    |  |               | 479,777   |  |               |   | 38,750    |            | 
|Write-offs of deposits on potential acquisitions |  |               | 400,000   |  |               |   | -         |            | 
|Marketing and investor relations                 |  |               | 395,416   |  |               |   | 232,289   |            | 
|Professional fees-others                         |  |               | 375,881   |  |               |   | 45,868    |            | 
|Professional fees-finance/accounting             |  |               | 330,798   |  |               |   | 414,804   |            | 
|Office expenses                                  |  |               | 307,320   |  |               |   | 91,864    |            | 
|Board of Directors expenses                      |  |               | 215,935   |  |               |   | -         |            | 
|Professional fees-audit                          |  |               | 205,273   |  |               |   | 150,710   |            | 
|Insurance                                        |  |               | 100,079   |  |               |   | 63,828    |            | 
|Filing fees                                      |  |               | 99,791    |  |               |   | 57,536    |            | 
|Other                                            |  |               | 213,348   |  |               |   | 120,892   |            | 
|                                                 |  | $             | 6,996,043 |  |               | $ | 5,448,667 |            | 



We incurred total general and administrative
expenses of $6,996,043 for the year ended June 30, 2012 compared to $5,448,667 for the year ended June 30, 2011, a $1,547,376
increase, which comprised of:



| | · | Professional
                                                                                                               fees-legal increased
                                                                                                               by $188,925 due
                                                                                                               to due diligence
                                                                                                               expenses in connection
                                                                                                               to potential acquisitions
                                                                                                               and the POSCAN
                                                                                                               funding;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Wages
                                                                                                               and salaries expense
                                                                                                               increased by $544,487
                                                                                                               due to the increase
                                                                                                               in hiring of new
                                                                                                               employees, including
                                                                                                               a CEO, a full time
                                                                                                               CFO, and office
                                                                                                               staff;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Travel
                                                                                                               expenses increased
                                                                                                               by $199,169 due
                                                                                                               to investor relations
                                                                                                               activities in relation
                                                                                                               to seeking sources
                                                                                                               of funding;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Registration
                                                                                                               rights penalties
                                                                                                               increased by $441,027
                                                                                                               due to penalties
                                                                                                               incurred in connection
                                                                                                               with the failure
                                                                                                               to file a timely
                                                                                                               registration statement;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Write-offs
                                                                                                               of deposits on
                                                                                                               potential acquisitions
                                                                                                               increased by $400,000 due to
                                                                                                               write-offs of payments
                                                                                                               to New World Resource
                                                                                                               Corp. and to the
                                                                                                               Claritas and Bongos
                                                                                                               properties;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Marketing
                                                                                                               and investor relations
                                                                                                               increased by $163,127
                                                                                                               due to activities
                                                                                                               for actively seeking
                                                                                                               various sources
                                                                                                               of funding;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



34







| | · | Professional
                                                                                                               fees-others increased
                                                                                                               by $330,013 due
                                                                                                               to consulting fees
                                                                                                               related to the
                                                                                                               acquisition and
                                                                                                               development of
                                                                                                               the Maricunga project;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Office
                                                                                                               expenses increased
                                                                                                               by $215,456 mainly
                                                                                                               due to the opening
                                                                                                               of our new office
                                                                                                               in Chile;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Board
                                                                                                               of Directors fees
                                                                                                               increased by $215,935
                                                                                                               due to the approval
                                                                                                               of fees to be paid
                                                                                                               to the Board of
                                                                                                               Directors in 2012;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Professional
                                                                                                               fees-audit increased
                                                                                                               by $54,563 due
                                                                                                               to higher activity
                                                                                                               as a result of
                                                                                                               the development
                                                                                                               of the Maricunga
                                                                                                               project;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Insurance
                                                                                                               increased by $36,251
                                                                                                               mainly due to insurance
                                                                                                               costs related to
                                                                                                               the new Chile location;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Filing
                                                                                                               fees increased
                                                                                                               by $42,255 mainly
                                                                                                               due to the Form
                                                                                                               S-1 filings during
                                                                                                               the year 2012,
                                                                                                               XBRL requirements
                                                                                                               which started during
                                                                                                               2012 and an increase
                                                                                                               in press release
                                                                                                               activities in 2012;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Other
                                                                                                               expenses increased
                                                                                                               by $92,456 mainly
                                                                                                               due to the higher
                                                                                                               activity as result
                                                                                                               of the development
                                                                                                               of the Maricunga
                                                                                                               project.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | These
                                                                                                               increases were
                                                                                                               partially offset
                                                                                                               by an $84,006 decrease
                                                                                                               in professional
                                                                                                               fees-finance/accounting
                                                                                                               due to the hiring
                                                                                                               of new employees
                                                                                                               during 2012 and
                                                                                                               a $1,292,282 decrease
                                                                                                               in stock compensation
                                                                                                               to as a result
                                                                                                               of fewer services
                                                                                                               paid for with stock.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



35







Other (Income) Expense



Loss on Debt Extinguishment



We incurred
a loss on debt extinguishment of $841,752 during the year ended June 30, 2012 as a result of entering into a waiver agreement
with the lenders whereby the terms of the notes were extended and the conversion price was reduced from $0.40 per share to $0.12
per share, which resulted in us expensing all unamortized deferred financing costs and recording the difference between the carrying
value of the notes and the estimated fair value of the post-modification notes as expense.There were no similar transactions
during the year ended June 30, 2011.



Change in Fair Value of Derivative
Liability – Warrant Instruments



During the year ended June 30, 2012, we
recorded a gain of $10,780,342 on the change in fair value of derivative liability – warrant instruments, compared to a
loss of $6,116,147 during the year ended June 30, 2011.  The change in fair value of our
derivative warrant liability has no impact on our cash flows from operations and was primarily a result of the decrease in our
stock price during the year ended June 30, 2012.



Warrant Modification Expense



During the year ended June 30, 2011, we
modified certain warrants by which new warrants were issued in exchange for the exercise of previously issued warrants.  The
newly issued warrants were treated as derivatives as they contain certain anti-dilution features.  We valued the new
warrants issued as a result of the modification using a modified lattice model and recorded expense of $1,068,320 during the year
ended June 30, 2011. There were no similar transactions during the year ended June 30, 2012.



Interest Expense



During the years ended June 30, 2012 and
2011, interest expense was $1,150,634 and $410,056, respectively.  The increase in interest
expense was a result of interest and amortization of the debt discount on the $1.5 million zero coupon convertible notes issued
in May 2011, and interest on new promissory notes issued during the second half of fiscal year 2012.



Gain on Foreign Currency Transactions



During the years ended June 30, 2012 and
2011, gain on foreign currency transactions amounted to $14,142 and $1,383, respectively.



Net Loss



Net loss for the year ended June 30, 2012
was $4,687,478 compared to a net loss of $19,219,382 for the year ended June 30, 2011.  The decrease is primarily
due to an unrealized gain on the change in fair value of derivative liabilities - warrant instruments of $10,780,342 in 2012 compared
to an unrealized loss of $6,116,147 in 2011. This decrease was partially offset by a $1,863,334 increase
in our total operating expenses in 2012, compared to the prior year.



Net Loss Attributable to Non-Controlling
Interest



During the years ended June 30, 2012 and
2011, the net loss attributable to non-controlling interests was $2,375,407 and $-0-, respectively.  This
represents the non-controlling interest’s 40% share of expenses relating to the exploration of the Maricunga Property.



Liquidity and Capital Resources



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



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



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



36







On August 24, 2011, we entered into a
Securities Purchase Agreement (the “SPA”) and an Investor Rights Agreement (the “IRA”) with POSCO Canada
Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO (a Korean company), (together, the POSCAN Agreements”),
pursuant to which on September 14, 2011, POSCAN purchased 38,095,300 Units for $0.21 per Unit or $8,000,013 ($7,314,069 after
offering expenses), with each “Unit” consisting of one share of our common stock and a three-year warrant (“POSCAN
Warrants”) to purchase one share of our common stock at an exercise price of $0.40 per share.



During the
year ended June 30, 2012, we raised net proceeds of $7,314,069 from an investment from POSCAN, $210,000 from the exercise of warrants
and $1,500,000 from the issuance of short-term notes. During the year ended June 30, 2011, we raised net proceeds of $7,935,828
from private placement offerings, $1,433,575 from the exercise of warrants and $1,500,000 from the issuance of zero-coupon convertible
notes. In the aggregate, we issued 38,085,300 warrants at an exercise price of $0.21 per share (as ultimately amended) in connection
with equity and debt arrangements in 2012 and 46,750,323 warrants at prices ranging from $0.05 per share and $0.50 per sharein connection with such instruments in 2011 (after issuance, the share and price per share amounts of certain of these warrants
have been adjusted pursuant to the anti-dilution provisions thereof).



The SPA includes provisions for POSCAN
to purchase brine from the Maricunga property and test it at POSCAN’s test facility in Korea. In addition, the SPA provides
that we and POSCAN will discuss and evaluate the development, financing and construction of a brine testing facility on the Maricunga
property, and that if such facility is built, we would (i) supply the test facility with brine and other materials and utilities
and (ii) assist POSCAN in obtaining any rights, licenses and permits required to build and operate such facility.



The securities purchased by POSCAN are
restricted and may not be sold (subject to customary exceptions) until the earlier of nine months from their issuance or November
20, 2012. Pursuant to the IRA, we have granted POSCAN the right to demand registration of the common stock included in the Units,
and issuable upon exercise of the warrants included in the Units, commencing 12 months after the date of issuance of the Units
and ending five years after the date of the IRA. Our obligation to register any such shares shall terminate once they may be sold
without registration in any 30 day period pursuant to Rule 144 under the Securities Act. Upon a registration demand made by POSCAN
pursuant to the IRA, we must file a registration statement covering the shares within 75 calendar days of such demand, and use
our best efforts to have it declared effective within 120 calendar days of filing. If we do not meet these deadlines, we must
pay liquidated damages of 2% of the purchase price of the securities per month until such failures are cured (up to an aggregate
maximum of 10%). POSCAN will also have “piggy-back” registration rights with respect to such shares.



In connection with the transactions with
POSCAN, we have entered into an Amendment and Waiver Agreement with the holders of our zero-coupon bridge notes, dated as of August
25, 2011 (the “Waiver Agreement”). Pursuant to the Waiver Agreement, effective upon the closing of POSCAN’s
initial $8 million investment, the zero-coupon bridge notes were then due on June 30, 2012, and we were not required to make any
prepayment out of the proceeds of the POSCAN investment. The Waiver Agreement does not alter the principal amount of the zero-coupon
bridge notes; however, it provided that such notes will accrue interest at a rate of 15% per annum from February 2, 2012, until
June 30, 2012. The Waiver Agreement also reduces the conversion price of the zero-coupon bridge notes to $0.12 per share. In connection
with the Waiver Agreement, we have agreed to pay an arranger a cash fee of $30,000. The foregoing is a summary of the principal
terms of the Waiver Agreement and is qualified in its entirety by the detailed provisions of the actual agreement, which is an
exhibit to this annual report and is incorporated herein by reference.



Events subsequent to June 30, 2012



| | o | Funding
                                                                                                                               Activity
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------



In August 2012, as a result
of the POSCAN second tranche of investment under the SPA (the “Second Closing”), 62,499,938 Units were issued to POSCAN
for $9,999,990, with each “Unit” consisting of one share of common stock and a three-year warrant to purchase one
share of common stock for $0.21 per share.



On the same date, we entered
into an additional agreement to the SPA (the “Additional Agreement”) with POSCAN which, among other things, modifies
certain provisions of the SPA. The Additional Agreement reduced POSCAN’s purchase price per Unit (as defined below) for
the Second Closing (as defined below) from $0.21 per share to $0.16 per share, and reduced the exercise price of all of the warrants
sold under the SPA (the “Unit Warrants”) from $0.40 per share to $0.21 per share.



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



37







The Additional Agreement provides
restrictions on our use of the proceeds from the Second Closing, and includes the Company’s agreement to use its best efforts
to obtain a Chilean lithium production concession and to take certain steps towards commercialization of its flagship Maricunga
property.



| | o | Chilean
                                                                                                                               Exploitation
                                                                                                                               Permits
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Chilean Government’s
Ministry of Mining established its first ever auction for the award of a lithium production quotas and licenses (Special Lithium
Operations Contracts, or CEOLs), which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately
530,000 tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty.  In September 2012,
we formed a consortium consisting of us, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”)
for the purpose of participating in such CEOL auction.  As required under the rules established by the Ministry of Mining,
on September 14th, 2012, the Consortium submitted its bid for the CEOLs.



On September 24, 2012, the Ministry
of Mining opened the bids and informed us that the Consortium’s bid was not the winning bid.



On October 1, 2012, the Ministry
of Mining informed us that the Chilean Government decided to invalidate the CEOL process and the results announced on September
24, 2012, due to an administrative error.



We are currently in the
process of pursuing the Chilean Government to reconsider its decision to invalidate the CEOL process. We requested that the
Chilean Government award the CEOL to the second highest bidder, the Consortium ́s offer. We submitted a
“Request for Reconsideration” (RFR).   This is deemed to be a friendly recourse which anybody can
request an authority to change their decision.



If such action is denied, a fast track Court
Action called “Protection Recourse” might take place. Under that circumstance, Courts would rule whether
or not the Government is abusing by its action.   If they rule in our favor, the Government would be forced to complete
the process and grant the CEOL to the Consortium.



Pending the outcome of the permitting
process, we are exploring other strategies that could enable us to obtain rights to exploit lithium in Chile, whether from our
Maricunga project or otherwise. Additionally, we are evaluating the Maricunga project as a potential producer of potassium nitrate. 
However, there can be no assurances that we will be able to do so in the near future or at all.



| | o | Shares
                                                                                                                               for
                                                                                                                               Debt
                                                                                                                               Settlement
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



In addition to utilizing our
capital to acquire properties and pay other corporate costs, we periodically issue shares of our common stock as consideration
in lieu of cash to conserve our cash and meet our obligations. We likely will continue to issue common stock for these purposes
where feasible, if we determine that it is in our economic best interests. In September 2012, we issued 5,825,761 shares
of our common stock for the settlement of $390,326 relating to some outstanding liabilities at June 30, 2012.



Off-Balance Sheet Arrangements



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



Critical Accounting Policies



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



38







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



Use of Estimates and Assumptions



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



Mineral Exploration and Development
Costs



All exploration expenditures are expensed
as incurred. Costs of acquisition and option costs of mineral rights are capitalized upon acquisition. Mine development costs
incurred to develop new ore deposits, to expand the capacity of mines, or to develop mine areas substantially in advance of current
production are also capitalized once proven and probable reserves exist and the property is determined to be a commercially mineable
property. Costs incurred to maintain current production or to maintain assets on a standby basis are charged to operations. If
we do not continue with exploration after the completion of the feasibility study, the cost of mineral rights will be expensed
at that time. Costs of abandoned projects are charged to mining costs, including related property and equipment costs. To determine
if capitalized costs are in excess of their recoverable amount, periodic evaluation of the carrying value of capitalized costs
and any related property and equipment costs are performed based upon expected future cash flows and/or estimated salvage value
in accordance with ASC 360-10-35-15,Impairment or Disposal of Long-Lived Assets.



Share-Based Payments



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



Fair Value Measurements



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



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



Non-Controlling Interests



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



| | ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
| | -------- | ----------------------------------------------------------



Not applicable for smaller reporting companies.



| | ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
| | ------- | -------------------------------------------



Our audited consolidated financial statements
as of, and for the years ended, June 30, 2012 and 2011, and for the period from June 24, 2005 (inception) through June
30, 2012, 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.



39







| | 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 carried out an evaluation, under the
supervision and with the participation of our management, including our principal executive officer and principal financial officer
of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of
June 30, 2012. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as
of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information
required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the required time periods and is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.



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



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



Our management is responsible for establishing
and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under
the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of June 30, 2012,
based on the framework in Internal Control—Integrated Framework and the Internal Control over Financial Reporting—Guidance
for Smaller Public Companies, both issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented
or detected on a timely basis. We have identified the following material weakness:



As of June 30, 2012, certain
controls related to the financial statement close and reporting process were not functioning effectively to properly accrue
certain expenses and classify some expenses in the financial statements. Management concluded that this control deficiency
constituted a material weakness at June 30, 2012. We are currently in the exploration stage, and we have focused on hiring
individuals to assist in identifying and pursuing business opportunities in lithium and industrial minerals mining. Although
we have hired qualified resources to carry out our day-to-day accounting and financial reporting obligations, we have not yet
reached the point at which we have adequate resources to address all accounting procedures, especially the process to close
our financial records at each reporting period in a timely manner. These control weaknesses were, in part, due to lack of
adequate funding during the period in which the financial statements were being prepared.



40







Because of this material weakness, management
has concluded that our Company did not maintain effective internal control over financial reporting as of June 30, 2012, based
on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.



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



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



(c) Changes in Internal Controls.



As a result of the recent additional funding
from POSCAN, the Board of Directors has mandated management to remedy the identified deficiency. We are in the process of engaging
the necessary resources to ensure that this weakness will not occur in the future. This would include increasing our staff complement
and use of third party resources to formalize, evaluate and test the financial closing process and the internal review procedures
in an effort to ensure that our consolidated financial statements accurately reflect our financial condition and results of operations



| | ITEM 9B. | OTHER INFORMATION
| | -------- | -----------------



None.



41







PART III



| | ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
| | -------- | -------------------------------------------------------



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



|Name                  |  | Age |  | Title                                |  | Date First Appointed
|--------------------- |  | --- |  | ------------------------------------ |  | --------------------
|Luis Francisco Saenz  |  | 41  |  | Chief Executive Officer and Director |  | October 19, 2009    
|R. Thomas Currin, Jr. |  | 55  |  | Chief Operating Officer              |  | August 11, 2010     
|Luis Santillana       |  | 36  |  | Chief Financial Officer              |  | July 1, 2012        
|Patrick Cussen        |  | 63  |  | Chairman of the Board                |  | December 5, 2011    
|Alan S. Fraser        |  | 50  |  | Director                             |  | October 23, 2011    
|Patricio A. Campos    |  | 66  |  | Director                             |  | October 23, 2011    
|Eduardo G. de Aguirre |  | 65  |  | Director                             |  | October 23, 2011    
|Hyundae Kim           |  | 42  |  | Director                             |  | September 14, 2011  
|Harvey McKenzie       |  | 66  |  | Director                             |  | June 27, 2011       
|David G. Wahl         |  | 67  |  | Director                             |  | February 18, 2010   



The following person served as an executive
officer of our Company until his resignation at the close of business on the last day of fiscal 2012:



|Name          |  | Age |  | Title                           |  | Date First Appointed
|------------- |  | --- |  | ------------------------------- |  | --------------------
|Eric E. Marin |  | 51  |  | Interim Chief Financial Officer |  | January 13, 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.



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



Luis Francisco Saenz joined our
Board of Directors on October 19, 2009. Mr. Saenz has been our Chief Executive Officer since October 19, 2009. He is currently,
and has been since July 21, 2008, the President and a Director of the publicly traded Loreto Resources Corporation (LRTC.OB),
and he also served as their Chief Executive Officer from July 21, 2008 until August 25, 2011. Mr. Saenz was formerly employed
at Standard Bank (“Standard”) with Standard’s investment banking unit, Standard Americas, Inc. Mr. Saenz joined
Standard in New York in 1997 and relocated to Peru in 1998 to establish Standard’s Peru representative office. While in
Peru, Mr. Saenz led Standard’s mining and metals organization effort in the Latin America region. Mr. Saenz returned to
New York in 2007 to head Standard’s mining and metals team in the Americas. Mr. Saenz previously worked for Pechiney World
Trade in the base metals trading area before joining Merrill Lynch as Vice-President for Commodities in Latin America. Mr. Saenz
graduated from Franklin and Marshall College in 1991 with a Bachelor of Arts degree in economics and international affairs.



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.



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



42







Patrick Cussenjoined our Company
as Chairman of the Board of Directors in September 2011. Mr. Cussen brings us 40 years of mineral and mining expertise and is
currently the President of Celta, a Chilean mining consulting and service company to the Latin American mining industry advising
global clients including: Antofagasta Minerals, Vale, Phelps Dodge (Freeport), Placer Dome (Barrick), Codelco, Citibank, LS-Nikko
Copper and Royal Gold. From 1972 – 1985, Mr. Cussen held numerous positions within Codelco, the world’s largest copper
producer, culminating as Managing Director, Chile Copper Ltd., a London based Codelco subsidiary. From 1985 – 1990, Mr.
Cussen was VP Sales, Empresa Minera de Mantos Blancos S.A. (subsidiary of Anglo American Chile). Mr. Cussen is currently Chairman
of the Board of the Center for Copper and Mining Studies, Cesco, the Chilean think-tank on mining. Mr. Cussen is also a former
member of the board of the Chilean Copper Commission. Mr. Cussen is an industrial civil engineer and holds an MA in economics
from the University of Chile.



Patricio Camposjoined our Board
of Directors in September 2011. Mr. Campos brings us valuable domain expertise having over 39 years’ experience in the mining
industry, specifically in project exploration, evaluation, technical and economic preparation. His mineral and mining experience
includes copper, gold and non-metallic (coal, phosphate, limestone, nitrate and iodine, lithium (brines) minerals, boran and potassium
chloride projects. Mr. Campos has also acted as a consultant in the evaluation of ore deposit reserves, copper, gold, iodine,
nitrate, coal, phosphate, lithium salares, boron, potassium chloride and potassium sulphate projects. Prior to joining our Company,
Mr. Campos previously led and supervised the construction of several plants (iodine, bagging) for Chemical & Mining Co. of
Chile Inc. (NYSE: SQM), a multi-national global producer and seller of fertilizers and specialty chemicals and Bifox Ltd. (phosphoric
acid, grinding, crushing). Additionally, Mr. Campos has worked as a consultant spanning 30 years for companies such as Anglo American
(Salar de Atacama Project), SQM (Salar de Atacama Project), Falcon Mines, MAGSA, ACF Minera S.A., SCM Montevideo & Montecristo,
and Sociedad Minera Isla Riesco. Mr. Campos has also actively participated in due diligence processes and negotiations for assets
such as Algorta Norte S.A.’s iodine project, SQM’s Salar de Atacama and Antucoya copper projects, Codelco ́s
El Hueso gold mine and other exploration projects, Phelp Dodge’s Safford project, among others. Mr. Campos is a former Professor
of Mining Economy at the Mining Department, Universidad de Chile and a former Professor for due diligence, Mining Department,
Escuela de Ingenieria, Unversidad de Chile and Instituto de Indenieros de Minas de Chile. Currently Mr. Campos is a member of
the Comité de Recursos Mineros del IIMCh (Mining Resources Committee, Chile). Mr. Campos received his Civil Mining Engineering
degree from Universidad de Chile and Graduated in economic evaluation and project preparation, Bid-Odeplan-Universidad Católica
de Chile.



Alan S. Fraserjoined our Board
in September 2011 and brings us over 24 years of experience in Engineering Business Development specifically for Mining Projects,
Mining Project Evaluations, Due Diligence Studies, Process Plants, Power Plants, Petrochemical Process Plants, Sulphuric Acid
Plants, Infrastructure and Environmental Assessments. Currently, Mr. Fraser is the Managing Director and shareholder of P3 Consultores
S.A, a Project Management Services Company providing risk administration to clients including Anglo American, Colahuasi and others.
From 2001 to 2009, Mr. Fraser held numerous positions, culminating as the Director, Business Development for Fluor, Chile S.A.
servicing global clients including BHP Billiton Base Metals, Rio Tinto, Anglo American, Xstrata, Codelco, Antofagasta Minerals,
Southern Peru Copper Corporation, General Atomics. While in this capacity, Mr. Fraser actively participated in numerous resource
projects including; winning the Gaby SX-EW EPCM Project for Codelco, ($900 million), Pascua Lama EPC Project for Barrack Gold
($2.3 billion), Gold Mill EPCM Project for Minera Yanacocha ($240 million), Sulphide Leach EPCM Project of Minera Escondida Ltda.
($780 million), Ilo Smelter Modernization EPCM Project ($400 million), and engineering studies as Codelco Minco 230 k tpd, Salobo
Feasibility Study for CVRD (Brazil), additional work for Newmont/Minera Yanacocha including the Gold Mill Project, Collahuasi
SX/EW expansion studies and Material Handling support, Minera Escondida Water Supply Studies. Also recent detail engineering services
for the expansion of Lomas Bayas ($47 million) and the Feasibility Study of the El Morro project ($1.5 billion). Mr. Fraser is
a Civil Mining Engineer, Universidad de Chile, Santiago, Chile.



Eduardo de Aguirrejoined our Board
of Directors in October 2011. Mr. de Aguirre brings us over 35 years' experience in business development, project management and
finance. Since 2007, Mr. de Aguirre has served as Legal Representative to General Dynamics Installation Services Inc., Chile who
are building and commissioning radio telescopes for the ALMA Project for a total value of about $150MMUS. ALMA is the largest
astronomical project in existence in the world, now in construction in the Atacama desert in Chile and will be fully operational
in 2013. Its total cost is in the range of billions of dollars. In addition, since 2005, he has acted as Consultant and Sales
Representative for Latin America to General Dynamics SATCOM Technologies Inc. Prior to that, from 2000 – 2011, he acted
as a consultant for various Chilean entities including Target-DDI, AACA, ASL, Filmosonido and ViaSat. From 1989 – 2000,
Mr. de Aguirre served as Regional Manager in South America and as General Manager of the Chilean Subsidiary of Scientific Atlanta,
Inc. Mr. de Aguirre is a Civil Industrial Engineer and attended Engineering School at the Catholic University, Santiago, Chile.



43







Hyundae Kim was appointed to our
Board of Directors on September 14, 2011, in connection with the closing of POSCAN’s initial investment in our securities.  Mr.
Kim has accumulated various experiences both in the private and the government sectors.  Mr. Kim worked in the Korean
Central Government‘s Ministry of Commerce, Industry and Energy from 1994 until 2006 mainly dealing with industrial policy,
trade policy and international trade negotiation.  After that, Mr. Kim moved to the private sector and, from July 2006
to October 2009, he served as Managing Director for New Investment Development and Strategy and ILGIN Materials, a Korean B2B
company.  In November 2009, Mr. Kim joined POSCO (one of the biggest steel companies in the world) and has been serving
as a director in its Growth and Investment Division.  At ILGIN Materials and POSCO, Mr. Kim has worked on investment
alternatives including mergers and acquisitions, joint venture and organic growth projects.  Mr. Kim graduated with
a Bachelor of Economics from Seoul National University in Korea and received an MBA from INSEAD in France.



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



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



Eric E. Marin served as our interim
Chief Financial Officer from January 13, 2010 until June 30, 2012.. Mr. Marin has worked in the Management and Information Technology
Consulting business for almost 20 years. Mr. Marin is the Managing Partner of R&M Global Advisors,
LLC, 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.



Rights to Nominate Directors



We have agreed with the Maricunga Sellers:  (a)
to increase the number of directors constituting our Board of Directors to seven; (b) that the Maricunga Sellers will have the
right to nominate three of our directors and that a fourth director (who shall hold the position of Chairman of the Board) will
be jointly nominated by the Maricunga Sellers and by our management (such persons, or any successors thereto nominated by the
Maricunga Sellers or by the Maricunga Sellers and management, as the case may be, the “Nominees”), and that the Board
shall appoint such Nominees to fill vacancies created in the Board by the increase in the number of directors and by resignations,
to serve until the next annual meeting of stockholders; (c) that the Nominees shall continue to be nominated as directors by our
management at the next and subsequent annual meetings of our stockholders, and at any special meeting of the stockholders at which
directors are to be elected (collectively, a “Meeting”), during the period of the Lock-Up (but the Nominees will be
subject to reelection by the stockholders as provided in our By-Laws); and (d) that if any Nominee is not elected by the stockholders
pursuant to the By-Laws, the Maricunga Sellers, or the Maricunga Sellers and management, as the case may be, will have the right
to designate the same or another person as their Nominee at the next Meeting, provided it is within the period of the Lock-Up.  To
date, the Maricunga Sellers have exercised their right to nominate the following Board members: Eduardo de Aguirre, Patricio Campo,
and Alan Fraser. All three Nominees were appointed to our Board of Directors on October 23, 2011. Thereafter, our Chairman of
the Board, Patrick Cussen, was appointed to our Board on December 5, 2011.



44







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



Director Independence



We are not currently subject to listing
requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the
board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors
comprised of a majority of “Independent Directors.”  However, our Board of Directors has determined that each
of Messrs. De Aguirre, Campos, Cussen, Fraser, Kim, McKenzie and Wahl- is an “Independent Director” within the meaning
of the rules of the Nasdaq Stock Market. Furthermore, our Board has determined that each member of the Audit Committee is “independent”
within the meaning of Rule 10A-3(b)(1) under the Exchange Act.



Board of Director Meetings



Our business is under the general oversight
of the Board of Directors as provided by the laws of Nevada and our bylaws. During the fiscal year ended June 30, 2012, the Board
of Directors held seven meetings and took action by unanimous written consent in lieu of a meeting two times. Except as set forth
below, each incumbent director attended at least 75% of the Board of Directors meetings and the meetings of the committees on
which he served during fiscal 2012 (or the portion thereof during which he has been a director).



|Director        |  | Percentage of meetings attended |   
|--------------- |  | ------------------------------- | --
|Hyundae Kim     |  |                                 | 11
|Patricio Campos |  |                                 | 50
|David Wahl      |  |                                 | 57
|Eduardo Aguirre |  |                                 | 63



Board Committees



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



Audit Committee



The purpose of the Audit Committee of
the Board of Directors is to represent and assist the Board in monitoring (i) accounting, auditing, and financial reporting processes;
(ii) the integrity of our financial statements; (iii) our internal controls and procedures designed to promote compliance with
accounting standards and applicable laws and regulations; and (iv) the appointment of and evaluating the qualifications and independence
of our independent registered public accounting firm. The Audit Committee’s responsibilities are set forth in its formal
charter. The Audit Committee consists of Mr. McKenzie (Chairperson) and Messrs. Cussen and Fraser. The Audit Committee was formed
on December 5, 2011, and has met two times during fiscal 2012.



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



Compensation Committee



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



45







Health, Safety, Environment and Community
Committee



The purpose of the Health, Safety, Environment
and Community Committee of the Board of Directors is to assist the Board in discharging its responsibilities with respect to (i)
employee health and safety, (ii) the protection of the environment, and (iii) our relationship to the local communities affected
by our operations. The Health, Safety, Environment and Community Committee’s specific responsibilities are set forth in
its formal charter. The Health, Safety, Environment and Community Committee currently consists of Mr. Campos (Chairman) and Messrs.
Fraser and Wahl. The Health, Safety, Environment and Community Committee was formed on December 5, 2011, and has not met during
fiscal 2012.



Nominating and Corporate Governance
Committee



The purpose of the Nominating and Corporate
Governance Committee of the Board of Directors is to assist the Board in identifying qualified individuals to become Board members,
in determining the composition of the Board and its committees, in monitoring a process to assess Board effectiveness and in developing
and implementing corporate procedures and policies. The Nominating and Corporate Governance Committee’s specific responsibilities
are set forth in its formal charter. The Nominating and Corporate Governance Committee currently consists of Mr. Cussen (Chairman)
and Messrs. McKenzie and Saenz. Mr. Saenz, as Chief Executive Officer, is not independent within the meaning of the rules of the
Nasdaq Stock Market; nonetheless, we believe that his presence on the Nominating and Corporate Governance Committee is productive,
given the size and history of the Company. The Nominating and Corporate Governance Committee was formed on December 5, 2011, and
has not met during fiscal 2012.



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



Whistle Blowing Policy



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



Compliance with Section 16(a) of the
Exchange Act



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



46







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



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



* Form 3 Initial Statement of Beneficial Ownership of Securities



47







| | 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, 2012 and June 30, 2011
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, 2012; and (ii) all individuals that served as executive officers of ours at any time during the
fiscal year ended June 30, 2011 that received annual compensation during such fiscal year in excess of $100,000.



Summary Compensation Table



|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  |            |  |         | Change       |  |  |              |  |  |           |  
|------------------------------------- |  | ---- | ---- |  | ------ |  | ------- | ----- |  |  | ------- |  |  | ------ | --------- |  | ---------- |  | ------- | ------------ |  |  | ------------ |  |  | --------- | -
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  |            |  |         | in           |  |  |              |  |  |           |  
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  |            |  |         | Pension      |  |  |              |  |  |           |  
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  |            |  |         | Value        |  |  |              |  |  |           |  
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  | Non-Equity |  |         | and Non-     |  |  |              |  |  |           |  
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  | Incentive  |  |         | qualified    |  |  |              |  |  |           |  
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  | Plan       |  |         | Deferred     |  |  |              |  |  |           |  
|Name and                              |  |      |      |  |        |  |         |       |  |  | Stock   |  |  | Option |           |  | Compen-    |  |         | Compensation |  |  | All Other    |  |  |           |  
|Principal                             |  |      |      |  | Salary |  |         | Bonus |  |  | Awards  |  |  | Awards |           |  | sation     |  |         | Earnings     |  |  | Compensation |  |  |           |  
|Position                              |  | Year |      |  | ($)    |  |         | ($)   |  |  | ($)     |  |  | ($)    |           |  | ($)        |  |         | ($)          |  |  | ($)          |  |  | Total ($) |  
|Luis Francisco Saenz                  |  |      | 2012 |  |        |  | 225,000 |       |  |  | 200,000 |  |  |        | -         |  |            |  | -       |              |  |  | -            |  |  |           | -
|Chief Executive Officer   (1)         |  |      | 2011 |  |        |  | 75,000  |       |  |  | -       |  |  |        | 154,000   |  |            |  | -       |              |  |  | -            |  |  |           | -
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  |            |  |         |              |  |  |              |  |  |           |  
|Thomas E. Currin                      |  |      | 2012 |  |        |  | 212,500 |       |  |  | -       |  |  |        | -         |  |            |  | -       |              |  |  | -            |  |  |           | -
|Chief Operating Officer   (2)         |  |      | 2011 |  |        |  | 75,000  |       |  |  | 100,000 |  |  |        | 1,232,500 |  |            |  | 343,310 |              |  |  | -            |  |  |           | -
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  |            |  |         |              |  |  |              |  |  |           |  
|Luis Santillana                       |  |      | 2012 |  |        |  | 61,667  |       |  |  | 20,000  |  |  |        | 34,500    |  |            |  | 30,725  |              |  |  | -            |  |  |           | -
|Chief Financial Officer   (3)         |  |      | 2011 |  |        |  | —       |       |  |  | -       |  |  |        | -         |  |            |  | -       |              |  |  | -            |  |  |           | -
|                                      |  |      |      |  |        |  |         |       |  |  |         |  |  |        |           |  |            |  |         |              |  |  |              |  |  |           |  
|Eric E. Marin                         |  |      | 2012 |  |        |  | 201,772 |       |  |  | -       |  |  |        | -         |  |            |  | -       |              |  |  | -            |  |  |           | -
|Interim Chief Financial Officer   (4) |  |      | 2011 |  |        |  | 10,000  |       |  |  | -       |  |  |        | -         |  |            |  | -       |              |  |  | -            |  |  |           | -



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



| | (2) | Mr. Currin was appointed our Chief
                                                           Operating Officer on August 11, 2010.  We granted 2,500,000
                                                           shares of restricted stock to MIZ under the 2009 Plan, which vest upon
                                                           the achievement of certain milestones, and the grant date fair value
                                                           of which is $950,000.  During the year ended June 30, 2011,
                                                           we also granted to MIZ 736,842 shares of common stock outside of the
                                                           2009 Plan with a grant date fair value of $282,500.  In connection
                                                           with our hiring of Mr. Currin, we granted 1,000,000 stock options under
                                                           the 2009 Plan to MIZ, having a grant date fair value of $343,310.  Mr.
                                                           Currin’s base salary was $200,000 per annum.  However,
                                                           pursuant to an amendment to the our Employment Services Agreement with
                                                           MIZ, we issued an aggregate of 500,000 shares of our common stock in
                                                           lieu of (i) all base salary earned in calendar year 2010 and (ii) one-half
                                                           of the base salary for the first calendar quarter of 2011. On May 2,
                                                           2012, our Board of Directors approved an increase to Mr. Currin’s
                                                           compensation from $200,000 per annum to $225,000 per annum, retroactive
                                                           as of January 1, 2012.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Mr. Santillana served as our Vice President
                                                           of Finance from March 1, 2012 until June 30, 2012, when he was appointed
                                                           Chief Financial Officer. Mr. Santillana has an employment agreement
                                                           with us as described below. We agreed to grant Mr. Santillana restricted
                                                           stock units under our 2009 Plan with respect to 250,000 shares of our
                                                           common stock and options under our 2009 Plan to purchase another 250,000
                                                           shares of our common stock, however, such grants have not yet been
                                                           made. We paid Mr. Santillana a $20,000 bonus during fiscal year 2012,
                                                           and we have been paying Mr. Santillana at the rate of $185,000 per
                                                           annum for the entire period of his employment.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



48







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



Outstanding Equity Awards at Fiscal
Year-End



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



The following tables set forth information
regarding stock options held by the Company’s Named Executive Officers at June 30, 2012.



|Option Awards      
|-------------------
|                   
|                   
|                   
|                   
|                   
|                   
|                   
|Name               
|Luis Saenz (2)     
|Luis Santillana (3)
|Thomas Currin (4)  
|Eric E. Marin      



|Stock Awards      
|------------------
|Name              
|Luis Saenz (2)    
|Luis Santillana(3)
|Thomas Currin (4) 
|Eric E. Marin     



| | (1) | Value is based on last sale price
                                                                 of our common stock on June 30, 2012, which was $0.09 per share.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | In May 2011, Mr. Saenz received
                                                                 a grant of 700,000 restricted stock units (each unit is equivalent
                                                                 to one common share) under the 2009 Plan of which 233,333 units
                                                                 vested on January 15, 2012 and the remaining 466,667 units will
                                                                 vest in equal installments on January 15, 2013 and 2014, respectively.
                                                                 The vested units have not been issued as of June 30, 2012.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (3) | Pursuant to an Employment Agreement,
                                                                 we have agreed to grant Mr. Santillana 250,000 restricted stock
                                                                 units under our 2009 Equity Incentive Plan, which shall vest
                                                                 in three equal installments on each of March 1, 2013, 2014 and
                                                                 2015. We have also agreed to grant Mr. Santillana an option under
                                                                 our 2009 Equity Incentive Plan to purchase an aggregate of 250,000
                                                                 shares of our common stock, exercisable for a term of five years
                                                                 at an exercise price of $0.40 per share, which option shall vest
                                                                 in its entirety on September 1, 2013.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



49







| | (4) | Consists of awards granted to
                                                                 MIZ Comercializadora, S. de R.L. (“MIZ”), a corporation
                                                                 owned in part by Mr. Currin.  Mr. Currin was granted
                                                                 2,500,000 restricted common shares under the 2009 Plan subject
                                                                 to vesting upon achievement of various milestones.  800,000
                                                                 shares have vested as of June 30, 2012. Also includes options
                                                                 granted under the 2009 Plan to purchase 1,000,000 shares of common
                                                                 stock which vests in three equal installments on each of August
                                                                 10, 2011, 2012 and 2013.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Agreements with Executive Officers



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



Employment Agreement with Luis Saenz



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



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



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



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



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



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



Employment Services Agreement with
MIZ Comercializadora



We retained Mr. Currin’s services
as our Chief Operating Officer under an Employment Services Agreement, dated as of August 11, 2010, with MIZ Comercializadora,
S. de R.L. (“MIZ”), a corporation owned in part by Mr. Currin.  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 paid MIZ a signing bonus of $100,000, in a combination of cash and restricted shares. On June 27,
2011, MIZ was awarded a bonus of $100,000 which was paid during October 2011 Any further bonuses will be subject to Board approval.
On May 2, 2012 Mr. Curin’s remuneration was increased to $225,000 per year.



Pursuant to the Employment Services Agreement,
we have granted to MIZ an award under the 2009 Plan pursuant to which we issued 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). To date, 800,000 shares
of the Restricted Stock have vested. 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.



50







In February 2011, the Employment Services
Agreement was amended. Under the Amendment, MIZ received a combination of 500,000 shares of common stock, and $25,000 in lieu
of salaries for the nine months ended March 31, 2011.



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, 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 agreement is subject to a non-compete clause
for a period of 18 months after termination of the employment agreement.



Mr. Currin’s employment with us
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.



Employment Services Agreement with
Luis Santillana



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



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



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



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



Compensation of Non-Employee Directors



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



51







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



Equity Compensation Plan Information



On October 19, 2009, our Board of Directors
adopted, and our stockholders approved, the 2009 Equity Incentive Plan (the “2009 Plan”), which reserved a total of
5,000,000 shares of our common stock for issuance under the 2009 Plan (800,000 shares of which have been issued and the restrictions
thereon lapsed).  If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited,
or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered
shares will become available for further awards under the 2009 Plan.



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



Administration



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



Grants



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



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



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



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



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



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



Duration, Amendment and Termination



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



52







Grants to Officers and Directors



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



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



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.



Upon Mr. Thygesen’s resignation
from the Board of Directors on September 14, 2011, his options, to the extent unvested, terminated immediately.  Accordingly,
only 166,667 of his options remained outstanding following such resignation, and they expired unexercised on December 14, 2011. 
Upon Mr. Hawkshaw’s resignation from the Board of Directors on October 14, 2011, his options, to the extent unvested, terminated
immediately.  Accordingly, only 16,667 of his options remain outstanding following such resignation, and they expired on
January 14, 2012.



As noted above, 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 vests 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.



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



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



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



53







| | 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 8, 2012 by:



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



| |  ̈ | each of our
                                                                                                               directors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------



| |  ̈ | each of our
                                                                                                               executive officers;
                                                                                                               and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  ̈ | all of our
                                                                                                               directors and executive
                                                                                                               officers as a group.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Title of Class: Common Stock



|                                                                                                                                              |  | Amount and Nature |             |             |                | 
|--------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | ----------- | -------------- | 
|                                                                                                                                              |  | of 
Beneficial    |             |             | Percentage
 of | 
|Name and Address of Beneficial Owner                                                                                                          |  | Ownership(1)      |             |             | Class (2)      | 
|                                                                                                                                              |  |                   |             |             |                | 
|Luis Francisco Saenz                                                                                                                          |  |                   | 3,324,378   | (3)         |                | 
|Eric E. Marin                                                                                                                                 |  |                   | 0           |             |                | 
|Luis Santillana                                                                                                                               |  |                   | 298,507     | (4)         |                | 
|Eduardo Guillermo de Aguirre                                                                                                                  |  |                   | 443,388     | (5)         |                | 
|Alan Stuart Fraser                                                                                                                            |  |                   | 358,209     | (5)         |                | 
|Patricio Antonio Campos                                                                                                                       |  |                   | 18,818,388  | (5)(6)(12)  |                | 
|Harvey McKenzie                                                                                                                               |  |                   | 605,589     | (5)(7)      |                | 
|David G. Wahl                                                                                                                                 |  |                   | 358,209     | (5)         |                | 
|R. Thomas Currin, Jr.                                                                                                                         |  |                   | 3,903,508   | (8)         |                | 
|Patrick A. Cussen                                                                                                                             |  |                   | 3,113,060   | (9)         |                | 
|Hyundae Kim                                                                                                                                   |  |                   | 0           | (5)         |                | 
|                                                                                                                                              |  |                   |             |             |                | 
|All directors and executive officers as a group
    (11 persons)                                                                              |  |                   | 29,523,236  | (3)(9) (12) |                | 
|                                                                                                                                              |  |                   |             |             |                | 
|POSCO Canada Ltd.
        650 W. Georgia St., Suite 2350
        Vancouver, British Columbia
        V6B 4N9
        Canada                   |  |                   | 206,190,476 | (11)        |                | 
|                                                                                                                                              |  |                   |             |             |                | 
|Calcata Sociedad Anónima
        S.A.
        San Antonio N°19, Of. 1601
        Santiago, Santiago
        Chile                             |  |                   | 51,041,666  | (10)(12)    |                | 
|                                                                                                                                              |  |                   |             |             |                | 
|Campos Mineral Asesorias Profesionales
        Limitad
        Mardoqueo Fernández N°
        128
        Providencia, Santiago
        Chile |  |                   | 18,375,000  | (10)(12)    |                | 
|                                                                                                                                              |  |                   |             |             |                | 
|Roberto Gaona Velasco
        Los Gomeros N° 1643
        Vitacura, Santiago
        Chile                                                    |  |                   | 16,333,334  | (10)(12)    |                | 
|                                                                                                                                              |  |                   |             |             |                | 
|Christian Hidalgo Reyes
        Luz N° 340 Apt. 601,
        Las Condes, Santiago
        Chile                                               |  |                   | 16,333,334  | (10)(12)    |                | 
|                                                                                                                                              |  |                   |             |             |                | 
|Jorge Barrozo Sankan
        Irarrazaval N°1729, Apt. 201
        Ñuñoa, Santiago
        Chile                                               |  |                   | 12,250,000  | (10)(12)    |                | 
|                                                                                                                                              |  |                   |             |             |                | 
|Jean Pierre Naciff Catalano
        Maipú N° 446
        Copiapo
        Chile                                                                |  |                   | 8,166,666   | (10)(12)    |                | 



54







*           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 October
                                                          82012, 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 392,108,252
                                                          shares of Common Stock issued and outstanding as of October 8, 2012.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3 | Includes 233,333 shares of common stock
                                                          issuable pursuant to Restricted Stock Units granted to Mr. Saenz under
                                                          the 2009 Plan that vested on January 15, 2012. Does not include 466,667
                                                          shares of common stock issuable pursuant to Restricted Stock Units granted
                                                          to Mr. Saenz under the 2009 Plan that have not yet vested. Until such
                                                          Restricted Stock Units vest, Mr. Saenz has no voting or dispositive
                                                          power with respect to such shares.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4 | Does
                                                                                            not include 250,000 shares of common
                                                                                            stock issuable pursuant to Restricted
                                                                                            Stock Units and 250,000 shares of
                                                                                            common stock issuable upon exercise
                                                                                            of options which are not exercisable
                                                                                            within 60 days of October 8, 2012.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5 | Does not include 100,000 shares of common
                                                          stock issuable pursuant to restricted stock units that the Board determined
                                                          to grant under the 2009 Plan, but which have not yet been granted due
                                                          to an insufficient number of shares being authorized for issuance pursuant
                                                          to awards granted under the 2009 Plan. 33,333 of such restricted stock
                                                          units were scheduled to have vested within 60 days of October 8, 2012.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| | 7 | Includes 37,037 shares of our common
                                                          stock issuable upon the exercise of warrants that are exercisable within
                                                          60 days of October 8, 2012.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 8 | Includes 1,536,842 shares of common
                                                          stock held by MIZ Comercializadora, S. de R.L. (“MIZ”).
                                                          Also includes 1,700,000 shares of Restricted Stock issued to MIZ pursuant
                                                          to a restricted stock grant made under the 2009 Plan.  While
                                                          such shares of Restricted Stock 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.  Includes
                                                          666,666 shares of our common stock issuable upon exercise of options
                                                          granted under the 2009 Plan, which are exercisable within 60 days.  Does
                                                          not include 333,334 shares of our common stock issuable upon exercise
                                                          of options granted under the 2009 Plan which are not exercisable within
                                                          60 days.
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



55







| | 9 | Includes 750,000 shares of our common
                                                          stock issuable upon the exercise of warrants that are exercisable within
                                                          60 days. Does not include 555,556 shares of common stock held by Celta
                                                          Consultores Limitada (“Celta”) or 227,778 shares of common
                                                          stock issuable upon exercise of warrants held by Celta. Although Mr.
                                                          Cussen owns a minority equity interest in Celta, he does not have voting
                                                          or dispositive power over the securities held by Celta and disclaims
                                                          beneficial ownership thereof, except to the extent of his pecuniary
                                                          interest therein. Does not include 300,000 shares of common stock issuable
                                                          pursuant to restricted stock units that the Board determined to grant
                                                          under the 2009 Plan, but which have not yet been granted due to an insufficient
                                                          number of shares being authorized for issuance pursuant to awards granted
                                                          under the 2009 Plan. 100,000 of such restricted stock units were scheduled
                                                          to have vested within 60 days of October 8, 2012.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10 | Estimate of beneficial ownership, based
                                                           on information available to us.  The beneficial owner may have
                                                           acquired shares held in street name, of which we are not aware.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11 | Includes 105,595,238 shares of our
                                                           common stock issuable upon the exercise of the warrants that are currently
                                                           exercisable.  Does not include any additional shares that
                                                           may become issuable pursuant to the Additional Agreement to Stock Purchase
                                                           Agreement in the event we sell or are deemed to sell common stock for
                                                           less than $0.16 per share.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 12 | Because of the arrangements described
                                                           in “Directors, Executive Officers, Promoters and Control Persons,
                                                           Rights to Nominate Directors” above these persons  may
                                                           be deemed to constitute a group as defined in Section 13(d) of the
                                                           Exchange Act.  However, each such person (a) disclaims membership
                                                           in a group and (b) disclaims beneficial ownership of the shares of
                                                           Common Stock beneficially owned by any other such person or any other
                                                           person.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Securities Authorized for Issuance
under Equity Compensation Plans



Our Board of Directors adopted, and our
stockholders approved, the 2009 Plan on October 19, 2009.  The 2009 Plan reserved a total of 5,000,000 shares of our
common stock for issuance pursuant to awards granted thereunder (800,000 of which have been issued and the restrictions with respect
thereto have lapsed).  If an incentive award granted under the 2009 Plan expires, terminates, is unexercised or is forfeited,
or if any shares are surrendered to us in connection with an incentive award, the shares subject to such award and the surrendered
shares will become available for further awards under the 2009 Plan.  As of the date hereof, we have outstanding option
awards under the 2009 Plan exercisable for an aggregate of 1,450,000shares of our common stock, 866,666 of which
have vested  In addition, we have granted a restricted stock award under the 2009 Plan with respect to 2,500,000 shares
of common stock, 800,000 of which have vested. We also have outstanding Restricted Stock Units under the 2009 Plan with respect
to 950,000 shares, of which 233,333 have vested. Furthermore, we have committed to grant Restricted Stock Units with respect to
an aggregate of 900,000 shares; however, we do not currently have enough shares authorized for issuance under our 2009 Plan to
satisfy all of these obligations.  We have not maintained any other equity compensation plans since our inception.



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



| | o | In
                                                                                                                               November
                                                                                                                               2009,
                                                                                                                               we
                                                                                                                               started
                                                                                                                               utilizing
                                                                                                                               the
                                                                                                                               administrative
                                                                                                                               personnel
                                                                                                                               and
                                                                                                                               office
                                                                                                                               space
                                                                                                                               with
                                                                                                                               an
                                                                                                                               office
                                                                                                                               located
                                                                                                                               in
                                                                                                                               Lima,
                                                                                                                               Peru,
                                                                                                                               in
                                                                                                                               which
                                                                                                                               our
                                                                                                                               Chief
                                                                                                                               Executive
                                                                                                                               Officer
                                                                                                                               functioned
                                                                                                                               in
                                                                                                                               the
                                                                                                                               same
                                                                                                                               capacities
                                                                                                                               (the
                                                                                                                               “Related
                                                                                                                               Party
                                                                                                                               Company”),
                                                                                                                               for
                                                                                                                               which
                                                                                                                               we
                                                                                                                               were
                                                                                                                               obligated
                                                                                                                               for
                                                                                                                               reimbursement
                                                                                                                               of
                                                                                                                               administrative
                                                                                                                               salaries,
                                                                                                                               rent,
                                                                                                                               utilities
                                                                                                                               and
                                                                                                                               maintenance
                                                                                                                               expenses.
                                                                                                                               On
                                                                                                                               July
                                                                                                                               31,
                                                                                                                               2010,
                                                                                                                               we
                                                                                                                               were
                                                                                                                               assigned
                                                                                                                               the
                                                                                                                               lease
                                                                                                                               from
                                                                                                                               the
                                                                                                                               Related
                                                                                                                               Party
                                                                                                                               Company
                                                                                                                               and
                                                                                                                               as
                                                                                                                               a
                                                                                                                               result,
                                                                                                                               we
                                                                                                                               did
                                                                                                                               not
                                                                                                                               incur
                                                                                                                               related
                                                                                                                               party
                                                                                                                               expenses
                                                                                                                               related
                                                                                                                               to
                                                                                                                               this
                                                                                                                               lease
                                                                                                                               during
                                                                                                                               the
                                                                                                                               years
                                                                                                                               ended
                                                                                                                               June
                                                                                                                               30,
                                                                                                                               2012
                                                                                                                               and
                                                                                                                               2011.
                                                                                                                               As
                                                                                                                               of
                                                                                                                               June
                                                                                                                               30,
                                                                                                                               2012
                                                                                                                               and
                                                                                                                               2011,
                                                                                                                               the
                                                                                                                               payable
                                                                                                                               due
                                                                                                                               to
                                                                                                                               the
                                                                                                                               Related
                                                                                                                               Party
                                                                                                                               Company
                                                                                                                               is
                                                                                                                               $11,400
                                                                                                                               and
                                                                                                                               $10,986,
                                                                                                                               respectively.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | Wehave
                                                                                                                                             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.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | o | We
                                                                                                                               are
                                                                                                                               party
                                                                                                                               to
                                                                                                                               a
                                                                                                                               services
                                                                                                                               agreement
                                                                                                                               (the
                                                                                                                               “R&M
                                                                                                                               Agreement”)
                                                                                                                               between
                                                                                                                               R&M
                                                                                                                               Global
                                                                                                                               Advisors,
                                                                                                                               LLC.
                                                                                                                               (“R&M
                                                                                                                               Global
                                                                                                                               Advisors”)
                                                                                                                               and
                                                                                                                               us,
                                                                                                                               in
                                                                                                                               which
                                                                                                                               Eric
                                                                                                                               Marin
                                                                                                                               (a
                                                                                                                               partial
                                                                                                                               owner
                                                                                                                               of
                                                                                                                               R&M
                                                                                                                               Global
                                                                                                                               Advisors)
                                                                                                                               served
                                                                                                                               as
                                                                                                                               our
                                                                                                                               interim
                                                                                                                               Chief
                                                                                                                               Financial
                                                                                                                               Officer.
                                                                                                                               R&M
                                                                                                                               Global
                                                                                                                               Advisors
                                                                                                                               was
                                                                                                                               paid
                                                                                                                               $145,187
                                                                                                                               and
                                                                                                                               $10,000
                                                                                                                               in
                                                                                                                               cash
                                                                                                                               for
                                                                                                                               compensation
                                                                                                                               during
                                                                                                                               the
                                                                                                                               years
                                                                                                                               ended
                                                                                                                               June
                                                                                                                               30,
                                                                                                                               2012
                                                                                                                               and
                                                                                                                               2011,
                                                                                                                               respectively.
                                                                                                                               As
                                                                                                                               of
                                                                                                                               June
                                                                                                                               30,
                                                                                                                               2012,
                                                                                                                               R&M
                                                                                                                               Global
                                                                                                                               Advisors
                                                                                                                               was
                                                                                                                               owed
                                                                                                                               $81,300.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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.



56







Director Independence



We are not currently subject to listing
requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority of the
board of directors be “independent” and, as a result, we are not at this time required to have our Board of Directors
comprised of a majority of “Independent Directors.”  However, our Board of Directors has determined that each
of Messrs. De Aguirre, Campos, Cussen, Fraser, Kim, McKenzie and Wahl is an “Independent Director” within the meaning
of the rules of the Nasdaq Stock Market. Furthermore, our Board has determined that each member of the Audit Committee is “independent”
within the meaning of Rule 10A-3(b)(1) under the Exchange Act.



| | ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES
| | -------- | --------------------------------------



Audit Fees



The aggregate fees billed to us by our
principal independent public accountant for services rendered during the fiscal years ended June 30, 2011 and 2010, are set
forth in the table below:



|                       |  | Fiscal year   |         |  | Fiscal year   |  
|---------------------- |  | ------------- | ------- |  | ------------- | -
|                       |  | ended         |         |  | ended         |  
|Fee Category           |  | June 30, 2012 |         |  | June 30, 2011 |  
|Audit fees (1)         |  | $             | 128,395 |  |               | $
|Audit-related fees (2) |  |               | 76,878  |  |               |  
|Tax fees (3)           |  |               | 15,840  |  |               |  
|All other fees (4)     |  |               | -       |  |               |  
|Total fees             |  | $             | 221,113 |  |               | $



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



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



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



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



57







Audit Committee’s Pre-Approval Practice



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



Our Board selected GBH CPAs, PC as our
independent registered public accounting firm for purposes of auditing our financial statements for the year ended June 30, 2012.  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.



PART IV



| | ITEM 15. | EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| | -------- | ---------------------------------------



Financial Statement Schedules



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



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



Exhibits



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



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



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

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

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



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



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



58











|Exhibit
        Number |  | Description                                                                                                                                                                
|---------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |  |                                                                                                                                                                            
|3.1                    |  | Articles of Incorporation of Registrant as filed with the Nevada Secretary of State on June
    24, 2005 (1)                                                               
|                       |  |                                                                                                                                                                            
|3.2                    |  | Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada
    Secretary of State on July 11, 2008 (2)                                   
|                       |  |                                                                                                                                                                            
|3.3                    |  | Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada
    Secretary of State on October 19, 2009 (4)                                
|                       |  |                                                                                                                                                                            
|3.4                    |  | Certificate of Amendment to Articles of Incorporation of Registrant as filed with the Nevada
    Secretary of State on March 15, 2011 (17)                                 
|                       |  |                                                                                                                                                                            
|3.5                    |  | Bylaws of the Registrant, as Amended (20)                                                                                                                                  
|                       |  |                                                                                                                                                                            
|4.1                    |  | Form of Investor A Warrant of the Registrant, issued in connection with a private placement
    of which several closings were held in November and December of 2009 (5)   
|                       |  |                                                                                                                                                                            
|4.2                    |  | Form of Investor B Warrant of the Registrant, issued in connection with a private placement
    of which several closings were held in November and December of 2009  (5)  
|                       |  |                                                                                                                                                                            
|4.3                    |  | Form of Warrant of the Registrant, issued in connection with a private placement of which
    several closings were held in June, July and September of 2010 (10)          
|                       |  |                                                                                                                                                                            
|4.4                    |  | Form of Warrant included in the D Units sold in the Second 2010 Unit Offering (13)                                                                                         
|                       |  |                                                                                                                                                                            
|4.5                    |  | Form of Warrant included in the E Units sold in the Third 2010 Unit Offering (15)                                                                                          
|                       |  |                                                                                                                                                                            
|4.6                    |  | Form of Warrant included in the units issued in private placement in April and May, 2011 (16)                                                                              
|                       |  |                                                                                                                                                                            
|4.7                    |  | Form of Warrant issued pursuant to Securities Purchase Agreement dated as of August 24, 2011,
    between the Registrant and POSCAN (18)                                   
|                       |  |                                                                                                                                                                            
|4.8                    |  | Form of Warrant issued pursuant to the Additional Agreement to Securities Purchase Agreement,
    dated as of August 17, 2012, between the Registrant and POSCAN (26)      
|                       |  |                                                                                                                                                                            
|4.9                    |  | Form of Bonus Warrant issued pursuant to the Additional Agreement to Securities Purchase Agreement,
    dated as of August 17, 2012, between the Registrant and POSCAN (26)



|10.1  †  |  | Registrant’s 2009 Stock Incentive Plan adopted October 19, 2009 (5)                                                                                                                      
|-------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |  |                                                                                                                                                                                          
|10.2  †  |  | Form of Stock Option Agreement under the Registrant’s 2009 Equity Incentive Plan (5)                                                                                                     
|         |  |                                                                                                                                                                                          
|10.3     |  | Form of Subscription Agreement between the Registrant and each subscriber in a private placement
    offering of units (5)                                                               
|         |  |                                                                                                                                                                                          
|10.12    |  | Registration Rights Agreement, dated as of February 16, 2010, among the Registrant, Next Lithium
    Corp. and Next Lithium (Nevada) Corp. (7)                                           
|         |  |                                                                                                                                                                                          
|10.14  † |  | Engagement Letter, dated January 7, 2010, between the Registrant and Marin Management Services,
    LLC (8)                                                                              
|         |  |                                                                                                                                                                                          
|10.18    |  | Form of Subscription Agreement between the Registrant and each subscriber in the private placement
    of which several closings were held in June, July and September of 2010 (10)      
|         |  |                                                                                                                                                                                          
|10.19    |  | Form of Registration Rights Agreement between the Registrant and the subscribers in the private
    placement of which several closings were held in June, July and September of 2010 (9)



59







|10.20 |  | Addendum to Master Option Agreement between Lacus Minerals S.A. and the Registrant,
    dated as of July 30, 2010 (12)
|----- |  | ----------------------------------------------------------------------------------------------------------------------



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



60







|10.39    |   | Framework Contract of Mining Project Development and Buying and Selling of Shares
    of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga dated as of May 20, 2011 (16)            
|-------- | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |   |                                                                                                                                                                                                           
|10.40    |   | Securities Purchase Agreement dated as of August 24, 2011, between the Registrant and POSCAN
    (11)                                                                                                     
|         |   |                                                                                                                                                                                                           
|10.41    |   | Investor Rights Agreement dated as of August 24, 2011, between the Registrant and POSCAN (11)                                                                                                             
|         |   |                                                                                                                                                                                                           
|10.42    |   | Employment Services Agreement between the registrant and Luis Saenz, effective as of August
    24, 2011 (18)                                                                                             
|         |   |                                                                                                                                                                                                           
|10.43    |   | Amendment and Waiver Agreement with the holders of the Registrant’s zero-coupon bridge
    notes, dated as of August 25, 2011 (18)                                                                        
|         |   |                                                                                                                                                                                                           
|10.44  † |   | Consulting Services Agreement between the Registrant and R&M Global Advisors, dated November
    23, 2011, with respect to Eric Marin’s services as Interim Chief Financial Officer of the Registrant (19)
|         |   |                                                                                                                                                                                                           
|10.45    |   | Agreement Between R3 Fusion and Li3 Energy, dated as of January 12, 2012 (21)                                                                                                                             
|         |   |                                                                                                                                                                                                           
|10.47    | * | Form of 15% Bridge Notes issued by the Registrant                                                                                                                                                         
|         |   |                                                                                                                                                                                                           
|10.48  † |   | First Amendment to Registrant’s 2009 Stock Incentive Plan, dated May 2, 2012 (22)                                                                                                                         
|         |   |                                                                                                                                                                                                           
|10.49  † |   | Second Amendment to Registrant’s 2009 Stock Incentive Plan, dated June 17, 2012 (23)                                                                                                                      
|         |   |                                                                                                                                                                                                           
|10.50  † |   | Amendment No. 1 to Contractor Services Agreement between the Registratnt and R&M Global
    Advisors, Inc., dated as of June 30, 2012 (24)                                                                
|         |   |                                                                                                                                                                                                           
|10.51    |   | Additional Agreement to the Securities Purchase Agreement between the Registrant and POSCAN,
    dated as of August 17, 2012 (25)                                                                         
|         |   |                                                                                                                                                                                                           
|10.52  † |   | Employment Services Agreement between the Registrant and Luis Santillana, dated as of December
    1, 2011                                                                                                
|         |   |                                                                                                                                                                                                           
|10.53  † |   | Amendment  to Employment Services Agreement between the Registrant and Luis Santillana,
    dated as of March 1, 2012                                                                                     
|10.54    |   | Second Amendment and Waiver Agreement
        with the holders of the Registrant’s zero-coupon bridge notes, dated as of September 28, 2012 (28)                                                          
|14.1     |   | Code of Ethics (3)                                                                                                                                                                                        
|         |   |                                                                                                                                                                                                           
|21.1     |   | List of Subsidiaries (27)                                                                                                                                                                                 
|         |   |                                                                                                                                                                                                           
|31.1*¶   |   | Certification of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a),
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                        
|         |   |                                                                                                                                                                                                           
|31.2*¶   |   | Certification of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a),
    adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                        





|32.1*¶ |  | Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350,
    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|       |  |                                                                                                                                                    
|32.2*¶ |  | Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant
    to Section 906 of the Sarbanes-Oxley Act of 2002



61







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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



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



62







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



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



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



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



| | (21) | Filed with the Securities and Exchange Commission on January 20, 2012 as an exhibit to the
    Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.                                
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                           
| | (22) | Filed with the Securities and Exchange Commission on May 18, 2012 as an exhibit to the Registrant’s
    current report on Form 8-K, which exhibit is incorporated herein by reference.                                    
| |      |                                                                                                                                                                                                                           
| | (23) | Filed with the Securities and Exchange Commission on June 21, 2012 as an exhibit to the Registrant’s
    current report on Form 8-K, which exhibit is incorporated herein by reference.                                   
| |      |                                                                                                                                                                                                                           
| | (24) | Filed with the Securities and Exchange Commission on July 5, 2012 as an exhibit to the Registrant’s
    current report on Form 8-K, which exhibit is incorporated herein by reference.                                    
| |      |                                                                                                                                                                                                                           
| | (25) | Filed with the Securities and Exchange Commission on August 24, 2012 as an exhibit to the
    Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.                                 
| |      |                                                                                                                                                                                                                           
| | (27) | Filed with the Securities and
        Exchange Commission on January 6, 2012 as an exhibit to Amendment No. 2 to the Registrant’s annual report on Form
        10-K/A, which exhibit is incorporated herein by reference.
| | (28) | Filed with the Securities and Exchange Commission on October 10, 2012 as an exhibit to the
    Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.                                
| |      |                                                                                                                                                                                                                           
| | (29) | Filed with the Securities and Exchange Commission on September 21, 2012 as an exhibit to the
    Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.                              



*       Filed
herewith.



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



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



|† | Management contract or compensatory plan or arrangement
|- | -------------------------------------------------------



SIGNATURES



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



|                         | Li3 ENERGY, INC.
|------------------------ | ----------------
|                         |                 
|Dated:  October 15, 2012 | By:             
|                         |                 
|                         |                 
|                         |                 
|                         |                 
|                         | By:             
|                         |                 
|                         |                 
|                         |                 











63







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



|SIGNATURE                 |  | TITLE                              |  | DATE            
|------------------------- |  | ---------------------------------- |  | ----------------
|                          |  |                                    |  |                 
|/s/ Luis Saenz            |  | Chief Executive Officer (principal |  | October 15, 2012
|Luis Saenz                |  | executive officer), and Director   |  |                 
|                          |  |                                    |  |                 
|/s/ Eduardo G. de Aguirre |  | Director                           |  | October 15, 2012
|Eduardo G. de Aguirre     |  |                                    |  |                 
|                          |  |                                    |  |                 
|/s/ Patricio A. Campos    |  | Director                           |  | October 15, 2012
|Patricio A. Campos        |  |                                    |  |                 
|                          |  |                                    |  |                 
|/s/ Patrick A. Cussen     |  | Director                           |  | October 15, 2012
|Patrick A. Cussen         |  |                                    |  |                 
|                          |  |                                    |  |                 
|/s/ Alan S. Fraser        |  | Director                           |  | October 15, 2012
|Alan S. Fraser            |  |                                    |  |                 
|                          |  |                                    |  |                 
|/s/Hyundae Kim            |  | Director                           |  | October 15, 2012
|Hyundae Kim               |  |                                    |  |                 
|                          |  |                                    |  |                 
|/s/ Harvey McKenzie       |  | Director                           |  | October 15, 2012
|Harvey McKenzie           |  |                                    |  |                 
|                          |  |                                    |  |                 
|/s/ David G. Wahl         |  | Director                           |  | October 15, 2012
|David G. Wahl             |  |                                    |  |                 



64







LI3 ENERGY, INC.

(An Exploration Stage Company)

INDEX TO FINANCIAL STATEMENTS



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



F-1







Report of Independent Registered Public
Accounting Firm



To the Board of Directors

Li3 Energy, Inc.

(An Exploration Stage Company)

Providencia, Santiago, Chile



We have audited the accompanying consolidated
balance sheets of Li3 Energy, Inc. (an Exploration Stage Company) as of June 30, 2012 and 2011, and the related consolidated
statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended and for the
period from June 24, 2005 (inception) to June 30, 2012. These consolidated financial statements are the responsibility of Li3
Energy, Inc.’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits.



We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform 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
audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Li3 Energy, Inc., as of June
30, 2012 and 2011, and the results of their operations and their cash flows for the years then ended and for the period from June
24, 2005 (inception of the exploration stage) to June 30, 2012 in conformity with accounting principles generally accepted in
the United States of America.



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



|/s/ GBH CPAs, PC | 
|---------------- | 
|                 | 
|                 | 
|                 | 

GBH CPAs, PC

www.gbhcpas.com

Houston, Texas



October 15, 2012



F-2







Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Balance Sheets



|                                                                                                                                                                                 |  | June 30, 2012 |             |   | June 30, 2011 |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ----------- | - | ------------- | -
|Assets                                                                                                                                                                           |  |               |             |   |               |  
|Current assets:                                                                                                                                                                  |  |               |             |   |               |  
|Cash                                                                                                                                                                             |  | $             | 27,689      |   |               | $
|Deferred financing costs                                                                                                                                                         |  |               | -           |   |               |  
|Prepaid expenses and advances                                                                                                                                                    |  |               | 8,841       |   |               |  
|Total current assets                                                                                                                                                             |  |               | 36,530      |   |               |  
|Mineral rights                                                                                                                                                                   |  |               | 63,741,000  |   |               |  
|Property and equipment, net                                                                                                                                                      |  |               | 175,220     |   |               |  
|Other assets                                                                                                                                                                     |  |               | 10,650      |   |               |  
|Total non-current assets                                                                                                                                                         |  |               | 63,926,870  |   |               |  
|Total assets                                                                                                                                                                     |  | $             | 63,963,400  |   |               | $
|                                                                                                                                                                                 |  |               |             |   |               |  
|Liabilities & Stockholders' Equity                                                                                                                                               |  |               |             |   |               |  
|Current liabilities:                                                                                                                                                             |  |               |             |   |               |  
|Accounts payable                                                                                                                                                                 |  | $             | 2,331,722   |   |               | $
|Accounts payable - related parties                                                                                                                                               |  |               | 104,326     |   |               |  
|Accrued expenses                                                                                                                                                                 |  |               | 994,827     |   |               |  
|Accrued registration rights penalties                                                                                                                                            |  |               | 518,243     |   |               |  
|Zero-coupon convertible debt, net of unamortized discount of $-0- and $1,304,674,
    respectively                                                                               |  |               | 1,783,181   |   |               |  
|Notes payable                                                                                                                                                                    |  |               | 1,245,000   |   |               |  
|Total current liabilities                                                                                                                                                        |  |               | 6,977,299   |   |               |  
|Derivative liabilities - warrant instruments                                                                                                                                     |  |               | 7,653,928   |   |               |  
|Total liabilities                                                                                                                                                                |  |               | 14,631,227  |   |               |  
|Commitments and contingencies                                                                                                                                                    |  |               |             |   |               |  
|Stockholders' equity:                                                                                                                                                            |  |               |             |   |               |  
|Preferred stock, $0.001 par value, 10,000,000 shares  authorized; no shares issued and outstanding                                                                               |  |               | -           |   |               |  
|Common stock, $0.001 par value, 990,000,000 shares authorized; 323,782,553 and 279,913,920 shares issued and outstanding
    as of June 30, 2012 and June 30, 2011, respectively |  |               | 323,783     |   |               |  
|Additional paid-in capital                                                                                                                                                       |  |               | 63,578,079  |   |               |  
|Other comprehensive income                                                                                                                                                       |  |               | 83,563      |   |               |  
|Deficit accumulated during exploration stage                                                                                                                                     |  |               | (37,773,845 | ) |               |  
|Total stockholders' equity of Li3 Energy, Inc.                                                                                                                                   |  |               | 26,211,580  |   |               |  
|Non-controlling interests                                                                                                                                                        |  |               | 23,120,593  |   |               |  
|Total stockholders' equity                                                                                                                                                       |  |               | 49,332,173  |   |               |  
|Total liabilities and stockholders' equity                                                                                                                                       |  | $             | 63,963,400  |   |               | $



See accompanying notes to the consolidated
financial statements.



F-3







Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statements of Operations

|                                                                              |  |                      |             |   |             |   |             | June 24, 2005 | 
|----------------------------------------------------------------------------- |  | -------------------- | ----------- | - | ----------- | - | ----------- | ------------- | 
|                                                                              |  |                      |             |   | (Inception) |  
|                                                                              |  | Years ended June 30, |             |   | through     |  
|                                                                              |  | 2012                 |             |   | 2011        |   |             | June 30, 2012 | 
|Revenues                                                                      |  | $                    | -           |   |             | $ | -           |               | 
|                                                                              |  |                      |             |   |             |   |             |               | 
|Cost of goods sold                                                            |  |                      | -           |   |             |   | -           |               | 
|                                                                              |  |                      |             |   |             |   |             |               | 
|Gross profit                                                                  |  |                      | -           |   |             |   | -           |               | 
|                                                                              |  |                      |             |   |             |   |             |               | 
|Operating expenses:                                                           |  |                      |             |   |             |   |             |               | 
|Exploration expenses                                                          |  |                      | 6,193,533   |   |             |   | 560,075     |               | 
|Mineral rights impairment expense                                             |  |                      | 300,000     |   |             |   | 4,120,000   |               | 
|Loss on settlements, net                                                      |  |                      | -           |   |             |   | 1,497,500   |               | 
|Inventory impairment                                                          |  |                      | -           |   |             |   | -           |               | 
|General and administrative expenses                                           |  |                      | 6,996,043   |   |             |   | 5,448,667   |               | 
|Total operating expenses                                                      |  |                      | 13,489,576  |   |             |   | 11,626,242  |               | 
|                                                                              |  |                      |             |   |             |   |             |               | 
|Other (income) expense:                                                       |  |                      |             |   |             |   |             |               | 
|Loss on debt extinguishment                                                   |  |                      | 841,752     |   |             |   | -           |               | 
|Change in fair value of derivative liabilities - warrant instruments          |  |                      | (10,780,342 | ) |             |   | 6,116,147   |               | 
|Warrant modification expense                                                  |  |                      | -           |   |             |   | 1,068,320   |               | 
|Gain on foreign currency transactions                                         |  |                      | (14,142     | ) |             |   | (1,383      | )             | 
|Interest expense                                                              |  |                      | 1,150,634   |   |             |   | 410,056     |               | 
|Total other (income) expense                                                  |  |                      | (8,802,098  | ) |             |   | 7,593,140   |               | 
|                                                                              |  |                      |             |   |             |   |             |               | 
|Net loss                                                                      |  |                      | (4,687,478  | ) |             |   | (19,219,382 | )             | 
|Net loss attributable to the noncontrolling interest                          |  |                      | (2,375,407  | ) |             |   | -           |               | 
|Net loss attributable to Li3 Energy, Inc.                                     |  | $                    | (2,312,071  | ) |             | $ | (19,219,382 | )             | 
|                                                                              |  |                      |             |   |             |   |             |               | 
|Net loss per common share - basic and diluted                                 |  | $                    | (0.01       | ) |             | $ | (0.16       | )             | 
|                                                                              |  |                      |             |   |             |   |             |               | 
|Weighted average number of  common shares outstanding - basic and
    diluted |  |                      | 313,997,372 |   |             |   | 123,690,841 |               | 
|                                                                              |  |                      |             |   |             |   |             |               | 
|Comprehensive income (loss)                                                   |  |                      |             |   |             |   |             |               | 
|Net loss                                                                      |  | $                    | (4,687,478  | ) |             | $ | (19,219,382 | )             | 
|Other comprehensive income - foreign currency translation
    adjustments     |  |                      | 83,563      |   |             |   | -           |               | 
|Total comprehensive loss                                                      |  |                      | (4,603,915  | ) |             |   | (19,219,382 | )             | 
|Comprehensive loss attributable to noncontrolling interests                   |  |                      | (2,375,407  | ) |             |   | -           |               | 
|Comprehensive loss attributable to Li3 Energy, Inc.                           |  | $                    | (2,228,508  | ) |             |   | -           |               | 
|                                                                              |  |                      |             |   |             |   |             |               | 



See accompanying notes to the consolidated
financial statements.



F-4









Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statement of Changes in
Stockholders’ Equity

From June 24, 2005 (Inception) through
June 30, 2012



|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  | Deficit     |        |  |          |   |             |               | 
|------------------------------------------------------------------------------------------------------------- |  | ------------ | ----------- | - | --------- | - | ------- | ------------- |  | - | ----------- | - |  | ----------- | ------ |  | -------- | - | ----------- | ------------- | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  | Accumulated |        |  |          |   |             | Total         | 
|                                                                                                              |  |              |             |   |           |   |         | Additional    |  |   | Other       |   |  | During the  |        |  | Non-     |   |             | Stockholders' | 
|                                                                                                              |  | Common Stock |             |   | Paid-in   |   |         | Comprehensive |  |   | Exploration |   |  | Controlling |        |  | Equity   |  
|                                                                                                              |  | Shares       |             |   | Par Value |   |         | Capital       |  |   | Loss        |   |  | Stage       |        |  | Interest |   |             | (Deficit)     | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance at June 24, 2005 (inception)                                                                          |  |              | -           |   |           | $ | -       |               |  | $ | -           |   |  | $           | -      |  |          | $ | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for cash, June 2005                                                                              |  |              | 71,052,672  |   |           |   | 71,052  |               |  |   | (63,552     | ) |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Net loss                                                                                                      |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance, June 30, 2005                                                                                        |  |              | 71,052,672  |   |           |   | 71,052  |               |  |   | (63,552     | ) |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for cash, March 2006                                                                             |  |              | 47,368,454  |   |           |   | 47,368  |               |  |   | 2,632       |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Net loss                                                                                                      |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | (14,068     | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance, June 30, 2006                                                                                        |  |              | 118,421,126 |   |           |   | 118,420 |               |  |   | (60,920     | ) |  |             | -      |  |          |   | (14,068     | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Net loss                                                                                                      |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | (16,081     | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance, June 30, 2007                                                                                        |  |              | 118,421,126 |   |           |   | 118,420 |               |  |   | (60,920     | ) |  |             | -      |  |          |   | (30,149     | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for cash, February 2008                                                                          |  |              | 2,631,595   |   |           |   | 2,632   |               |  |   | 47,368      |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Net loss                                                                                                      |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | (95,656     | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance, June 30, 2008                                                                                        |  |              | 121,052,721 |   |           |   | 121,052 |               |  |   | (13,552     | ) |  |             | -      |  |          |   | (125,805    | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Net loss                                                                                                      |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | (67,905     | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance, June 30, 2009                                                                                        |  |              | 121,052,721 |   |           |   | 121,052 |               |  |   | (13,552     | ) |  |             | -      |  |          |   | (193,710    | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Cancellation of shares in connection with merger                                                              |  |              | (71,052,626 | ) |           |   | (71,052 | )             |  |   | 71,052      |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for cash:                                                                                        |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock and warrants in offered 2009 Unit Offering and First 2010
    Offering, less offering costs of $410,680 |  |              | 18,000,000  |   |           |   | 18,000  |               |  |   | 2,265,139   |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock based compensation:                                                                                     |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued to chief executive officer for services                                                          |  |              | 1,500,000   |   |           |   | 1,500   |               |  |   | 3,300       |   |  |             | -      |  |          |   | -           |               | 
|Stock issued to a consultant for services                                                                     |  |              | 1,125,000   |   |           |   | 1,125   |               |  |   | 805,125     |   |  |             | -      |  |          |   | -           |               | 
|Stock options issued to consultant for services                                                               |  |              | -           |   |           |   | -       |               |  |   | 114,783     |   |  |             | -      |  |          |   | -           |               | 
|Amortization of stock-based compensation expense                                                              |  |              | -           |   |           |   | -       |               |  |   | 84,614      |   |  |             | -      |  |          |   | -           |               | 
|Fair value of stock contributed by CEO to employees and director
    for services                             |  |              | -           |   |           |   | -       |               |  |   | 129,500     |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for property acquisitions:                                                                       |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for March 2010 acquisition of mineral rights                                                     |  |              | 4,000,000   |   |           |   | 4,000   |               |  |   | 3,636,000   |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Net loss                                                                                                      |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | (16,048,682 | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance, June 30, 2010                                                                                        |  |              | 74,625,095  |   |           |   | 74,625  |               |  |   | 7,095,961   |   |  |             | -      |  |          |   | (16,242,392 | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for cash:                                                                                        |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock and warrants offered  in First 2010 Unit Offering, less
    offering costs of $51,991                   |  |              | 2,160,000   |   |           |   | 2,160   |               |  |   | 248,901     |   |  |             | -      |  |          |   | -           |               | 
|Stock and warrants offered  in Second 2010 Unit Offering, no
    offering costs                               |  |              | 4,000,000   |   |           |   | 4,000   |               |  |   | 44,639      |   |  |             | -      |  |          |   | -           |               | 
|Stock and warrants offered  in Third 2010 Unit Offering, less
    offering costs of $223,088                  |  |              | 11,666,663  |   |           |   | 11,667  |               |  |   | 757,473     |   |  |             | -      |  |          |   | -           |               | 
|Stock and warrants offered  in 2011 Offering, less offering
    costs totaling $737,271                       |  |              | 23,920,071  |   |           |   | 23,920  |               |  |   | 3,554,723   |   |  |             | -      |  |          |   | -           |               | 
|Stock issued for cash upon exercise of Double Options                                                         |  |              | 3,800,000   |   |           |   | 3,800   |               |  |   | 186,200     |   |  |             | -      |  |          |   | -           |               | 
|Exercise of $0.05 per share D Warrants for cash                                                               |  |              | 2,000,000   |   |           |   | 2,000   |               |  |   | 98,000      |   |  |             | -      |  |          |   | -           |               | 
|Cashless exercise of $0.05 per share D warrants                                                               |  |              | 515,254     |   |           |   | 515     |               |  |   | -           |   |  |             | -      |  |          |   | -           |               | 
|Exercise of $0.15 per share E Warrants for cash                                                               |  |              | 7,623,336   |   |           |   | 7,624   |               |  |   | 1,135,926   |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock-based compensation:                                                                                     |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued to MIZ, a related party, pursuant to vesting of restricted
    stock units                       |  |              | 500,000     |   |           |   | 500     |               |  |   | (500        | ) |  |             | -      |  |          |   | -           |               | 
|Stock issued to MIZ, a related party for salary and bonus under
    Employment Service Agreement              |  |              | 736,842     |   |           |   | 737     |               |  |   | 281,763     |   |  |             | -      |  |          |   | -           |               | 
|Stock issued for services                                                                                     |  |              | 2,728,310   |   |           |   | 2,728   |               |  |   | 1,027,871   |   |  |             | -      |  |          |   | -           |               | 
|Amortization of stock-based compensation                                                                      |  |              | -           |   |           |   | -       |               |  |   | 777,963     |   |  |             | -      |  |          |   | -           |               | 
|Stock issued for Investment Agreement with investor                                                           |  |              | 1,638,349   |   |           |   | 1,638   |               |  |   | 382,830     |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued to settle liabilities:                                                                           |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for Lacus settlement                                                                             |  |              | 500,000     |   |           |   | 500     |               |  |   | 192,000     |   |  |             | -      |  |          |   | -           |               | 
|Stock issued for settlement with Puna Lithium                                                                 |  |              | 6,000,000   |   |           |   | 6,000   |               |  |   | 1,914,000   |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Equity impact of derivative liability warrants and debt:                                                      |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Fair value of D warrants reclassified from derivative liability
    to equity upon exercise                   |  |              | -           |   |           |   | -       |               |  |   | 2,582,116   |   |  |             | -      |  |          |   | -           |               | 
|Fair value of E warrants reclassified from derivative liability
    to equity upon exercise                   |  |              | -           |   |           |   | -       |               |  |   | 2,022,430   |   |  |             | -      |  |          |   | -           |               | 
|Beneficial conversion of convertible debt issued May 2011                                                     |  |              | -           |   |           |   | -       |               |  |   | 368,000     |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for property acquisitions:                                                                       |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for August 2010 acquisition of mineral rights                                                    |  |              | 10,000,000  |   |           |   | 10,000  |               |  |   | 3,890,000   |   |  |             | -      |  |          |   | -           |               | 
|Stock issued for acquisition of May 2011 mineral rights                                                       |  |              | 127,500,000 |   |           |   | 127,500 |               |  |   | 31,747,500  |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Consolidation of Maricunga non-controlling interest                                                           |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Net loss                                                                                                      |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | (19,219,382 | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance, June 30, 2011                                                                                        |  |              | 279,913,920 |   |           |   | 279,914 |               |  |   | 58,307,796  |   |  |             | -      |  |          |   | (35,461,774 | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock issued for cash:                                                                                        |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock and warrants offered  to POSCO, less offering costs of
    $685,944                                     |  |              | 38,095,300  |   |           |   | 38,095  |               |  |   | 3,495,996   |   |  |             | -      |  |          |   | -           |               | 
|Exercise of $0.05 per share D Warrants for cash                                                               |  |              | 4,200,000   |   |           |   | 4,200   |               |  |   | 205,800     |   |  |             | -      |  |          |   | -           |               | 
|Equity impact of derivative liability warrants and debt:                                                      |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Fair value of D warrants reclassified from derivative liability
    to equity upon exercise                   |  |              | -           |   |           |   | -       |               |  |   | 590,462     |   |  |             | -      |  |          |   | -           |               | 
|Beneficial conversion of convertible debt waiver agreement                                                    |  |              | -           |   |           |   | -       |               |  |   | 330,019     |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Stock based compensation:                                                                                     |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Amortization of stock-based compensation                                                                      |  |              | -           |   |           |   | -       |               |  |   | 514,380     |   |  |             | -      |  |          |   | -           |               | 
|Stock issued to MIZ, a related party, pursuant to vesting of restricted
    stock units                       |  |              | 300,000     |   |           |   | 300     |               |  |   | (300        | ) |  |             | -      |  |          |   | -           |               | 
|Common stock issued for services                                                                              |  |              | 1,273,333   |   |           |   | 1,274   |               |  |   | 133,926     |   |  |             | -      |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Foreign currency translation adjustments                                                                      |  |              | -           |   |           |   | -       |               |  |   | -           |   |  |             | 83,563 |  |          |   | -           |               | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Net loss                                                                                                      |  |              |             |   |           |   | -       |               |  |   | -           |   |  |             | -      |  |          |   | (2,312,071  | )             | 
|                                                                                                              |  |              |             |   |           |   |         |               |  |   |             |   |  |             |        |  |          |   |             |               | 
|Balance, June 30, 2012                                                                                        |  |              | 323,782,553 |   |           | $ | 323,783 |               |  | $ | 63,578,079  |   |  | $           | 83,563 |  |          | $ | (37,773,845 | )             | 



See accompanying notes to the consolidated
financial statements.



F-5







Li3 ENERGY, INC.

(An Exploration Stage Company)

Consolidated Statements of Cash Flows



|                                                                                       |  |          |             |   |          |   |             | June 24, 2005 | 
|-------------------------------------------------------------------------------------- |  | -------- | ----------- | - | -------- | - | ----------- | ------------- | 
|                                                                                       |  | Year     |             |   | Year     |   |             | (Inception)   | 
|                                                                                       |  | Ended    |             |   | Ended    |   |             | through       | 
|                                                                                       |  | June 30, |             |   | June 30, |   |             | June 30,      | 
|                                                                                       |  | 2012     |             |   | 2011     |   |             | 2012          | 
|Cash flows from operating activities                                                   |  |          |             |   |          |   |             |               | 
|Net loss                                                                               |  | $        | (4,687,478  | ) |          | $ | (19,219,382 | )             | 
|Adjustments to reconcile net loss to net cash        used
    in operating activities: |  |          |             |   |          |   |             |               | 
|Depreciation                                                                           |  |          | 51,560      |   |          |   | 3,946       |               | 
|Mineral rights impairment expense                                                      |  |          | 300,000     |   |          |   | 4,120,000   |               | 
|Loss on settlements, net                                                               |  |          | -           |   |          |   | 1,497,500   |               | 
|Inventory impairment                                                                   |  |          | -           |   |          |   | -           |               | 
|Stock-based compensation                                                               |  |          | 649,580     |   |          |   | 2,668,520   |               | 
|Loss on debt extinguishment                                                            |  |          | 841,752     |   |          |   | -           |               | 
|Change in fair value of derivative liabilities - warrant instruments                   |  |          | (10,780,342 | ) |          |   | 6,116,147   |               | 
|Warrant modification expense                                                           |  |          | -           |   |          |   | 1,068,320   |               | 
|Zero coupon interest accretion and amortization of debt                                |  |          |             |   |          |   |             |               | 
|discount on convertible notes                                                          |  |          | 995,059     |   |          |   | 372,764     |               | 
|Amortization of deferred financing costs                                               |  |          | 36,875      |   |          |   | 29,500      |               | 
|Loss on foreign currency transactions                                                  |  |          | 14,142      |   |          |   |             |               | 
|Changes in operating assets and liabilities:                                           |  |          |             |   |          |   |             |               | 
|Increase in inventory                                                                  |  |          | -           |   |          |   | -           |               | 
|Decrease (increase) in prepaid expenses and advances                                   |  |          | 33,295      |   |          |   | 14,667      |               | 
|Increase in other assets                                                               |  |          | (10,650     | ) |          |   | -           |               | 
|Increase (decrease) in accounts payable                                                |  |          | 2,055,939   |   |          |   | (397,108    | )             | 
|Increase (decrease) in accounts payable - related parties                              |  |          | (6,246      | ) |          |   | 100,315     |               | 
|Increase in accrued expenses                                                           |  |          | 562,707     |   |          |   | 29,988      |               | 
|Increase in accrued registration rights penalties                                      |  |          | 518,243     |   |          |   | -           |               | 
|Net cash used in operating activities                                                  |  |          | (9,425,564  | ) |          |   | (3,594,823  | )             | 
|                                                                                       |  |          |             |   |          |   |             |               | 
|Cash flows from investing activities                                                   |  |          |             |   |          |   |             |               | 
|Acquisition of mineral rights                                                          |  |          | -           |   |          |   | (6,550,000  | )             | 
|Acquisition of equipment                                                               |  |          | (226,780    | ) |          |   | -           |               | 
|Payments for leasehold improvements                                                    |  |          | -           |   |          |   | -           |               | 
|Net cash used in investing activities                                                  |  |          | (226,780    | ) |          |   | (6,550,000  | )             | 
|                                                                                       |  |          |             |   |          |   |             |               | 
|Cash flows from financing activities                                                   |  |          |             |   |          |   |             |               | 
|Proceeds from zero coupon convertible debt offering                                    |  |          | -           |   |          |   | 1,500,000   |               | 
|Payment of deferred financing costs                                                    |  |          | -           |   |          |   | (75,000     | )             | 
|Payment of waiver fee for convertible debt                                             |  |          | (30,000     | ) |          |   | -           |               | 
|Proceeds from notes payable                                                            |  |          | 1,150,000   |   |          |   | -           |               | 
|Proceeds from issuance of common stock, net                                            |  |          | 7,314,069   |   |          |   | 7,935,828   |               | 
|Proceeds from exercise of warrants                                                     |  |          | 210,000     |   |          |   | 1,433,575   |               | 
|Net cash provided by financing activities                                              |  |          | 8,644,069   |   |          |   | 10,794,403  |               | 
|                                                                                       |  |          |             |   |          |   |             |               | 
|Effect of exchange rate changes on cash                                                |  |          | 83,563      |   |          |   | -           |               | 
|                                                                                       |  |          |             |   |          |   |             |               | 
|Net increase (decrease) in cash                                                        |  |          | (924,712    | ) |          |   | 649,580     |               | 
|                                                                                       |  |          |             |   |          |   |             |               | 
|Cash at beginning of the year                                                          |  |          | 952,401     |   |          |   | 302,821     |               | 
|                                                                                       |  |          |             |   |          |   |             |               | 
|Cash at end of the year                                                                |  | $        | 27,689      |   |          | $ | 952,401     |               | 
|                                                                                       |  |          |             |   |          |   |             |               | 
|Supplemental disclosure of cash flow information:                                      |  |          |             |   |          |   |             |               | 
|Cash paid during the period for:                                                       |  |          |             |   |          |   |             |               | 
|Income taxes                                                                           |  | $        | -           |   |          | $ | -           |               | 
|Interest                                                                               |  | $        | 5,792       |   |          | $ | -           |               | 
|Non-cash financing transactions:                                                       |  |          |             |   |          |   |             |               | 
|Fair value of derivative warrant instruments issued in                                 |  |          |             |   |          |   |             |               | 
|private offerings                                                                      |  | $        | 3,779,978   |   |          | $ | 3,228,345   |               | 
|Reclassification of warrant liabilities to additional paid-in capital                  |  |          |             |   |          |   |             |               | 
|for warrant exercises                                                                  |  | $        | 590,462     |   |          | $ | 4,604,000   |               | 
|Debt discount due to beneficial conversion feature                                     |  | $        | 330,019     |   |          | $ | -           |               | 
|Issuance of common stock for acquisition of mineral
    rights                         |  | $        | -           |   |          | $ | 35,775,000  |               | 
|Warrants issued for services                                                           |  | $        | -           |   |          | $ | 157,010     |               | 
|Warrants issued for offering costs                                                     |  | $        | -           |   |          | $ | 57,750      |               | 
|Debt discount due to warrant derivative liabilities issued with                        |  |          |             |   |          |   |             |               | 
|convertible debt                                                                       |  | $        | -           |   |          | $ | 1,132,000   |               | 
|Consolidation of non-controlling interest of the                                       |  |          |             |   |          |   |             |               | 
|Maricunga Companies                                                                    |  | $        | -           |   |          | $ | 25,496,000  |               | 
|Common stock cancelled                                                                 |  | $        | -           |   |          | $ | -           |               | 



See accompanying notes to the consolidated
financial statements.



F-6







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 redirected its business
focus and strategy toward identifying and pursuing business opportunities in lithium and industrial minerals mining in North and
South America, but has more recently focused solely on South America.



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.



The Company’s six subsidiaries include:
Li3 Energy Peru SRL (“Li3 Peru”), a wholly owned subsidiary in Peru, formed to explore mining opportunities in Peru
and in South America; Minera Li Energy SPA (“Minera Li”), a wholly owned subsidiary in Chile; Alfredo Holdings, Ltd.
(“Alfredo”), an exempted limited company incorporated under the laws of the Cayman Islands; Li3 Energy Caymans, Inc.,
an exempted limited company incorporated under the laws of the Cayman Islands; Pacific Road Mining Chile, SA, a Chilean corporation
(“PRMC”), which is a subsidiary of Alfredo; and Noto Energy S.A. (“Noto”), an Argentinean corporation.
Also, in May 2011, Minera Li acquired 60% ownership of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga,
a group of six private companies (the “Maricunga Companies”).



During March 2011, the Company amended
its Articles of Incorporation to provide for the issuance of 1,000,000,000 shares of capital stock (increased from 300,000,000
shares of capital stock), of which 990,000,000 are shares of common stock, par value $0.001 per share, and 10,000,000 are undesignated
preferred stock, par value $0.001 per share.



NOTE 2.   SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES



a.  Principles of Consolidation



The consolidated financial statements
include the accounts of the Company, its wholly owned subsidiaries, Li3 Energy, Li3 Peru, Alfredo, PRMC, Noto, and Minera Li which
holds the six majority-owned subsidiaries consisting of the Maricunga Companies. All intercompany amounts have been eliminated
in consolidation.



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 - Development Stage Entities. Its activities to date have been limited to capital formation,
organization, and development of its business, including acquisitions of mineral rights.



c. Cash and Cash Equivalents



The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be cash equivalents. The Company had $0 cash equivalents
at June 30, 2012 and 2011. 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 cost of mineral rights will
be expensed at that time. Costs of abandoned projects are charged to mining costs, including related property and equipment costs.
To determine if capitalized costs are in excess of their recoverable amount, periodic evaluation of the carrying value of capitalized
costs and any related property and equipment costs are performed based upon expected future cash flows and/or estimated salvage
value.During the years ended June 30, 2012 and 2011, the Company recorded mineral rights impairment charges of $300,000
and $4,120,000, respectively.



e. Impairment of long-lived assets



Long-lived assets, including mineral rights,
are reviewed for impairment when circumstances indicate the carrying value of an asset may not be recoverable. The long-lived
assets are tested by comparing the carrying value and fair value of the assets. Fair values are determined based on quoted market
values, discounted cash flows or internal and external appraisals, as applicable. If impairment exists, an adjustment is made
to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair



F-7







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



f.  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.



g.   Income Taxes



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



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



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



The Company recognizes interest and/or
penalties related to income tax matters in income tax expense. The Company did not have any uncertain income tax positions or
accrued interest or penalties included in our consolidated balance sheets at June 30, 2012, or 2011, and did not recognize any
interest and/or penalties in its consolidated statements of operations during the years ended June 30, 2012 or 2011.



h.   Share-based Payments



Pursuant to the provisions of FASB ASC 718, Compensation
– Stock Compensation,which establishes accounting for equity instruments exchanged for employee service, we
utilize the Black-Scholes option pricing model to estimate the fair value of employee stock option awards at the date of
grant, which requires the input of highly subjective assumptions, including expected volatility and expected life. Changes in
these inputs and assumptions can materially affect the measure of estimated fair value of our share-based compensation. These
assumptions are subjective and generally require significant analysis and judgment to develop. When estimating fair value,
some of the assumptions will be based on, or determined from, external data and other assumptions may be derived from our
historical experience with stock-based payment arrangements. The appropriate weight to place on historical experience is a
matter of judgment, based on relevant facts and circumstances.



The Company estimates volatility by considering the historical
stock volatility. The Company has opted to use the simplified method for estimating expected term, which is generally equal to
the midpoint between the vesting period and the contractual term.



i.   Earnings (Loss)
per Share



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



For the years ended June 30, 2012 and 2011, the following convertible
debt, stock options and warrants to purchase shares of common stock were excluded from the computation of diluted net loss per
share, as the inclusion of such shares would be anti-dilutive:



|                 |  | Years Ended   |            
|---------------- |  | ------------- | -----------
|                 |  | June 30, 2012 |            
|Stock options    |  |               | 533,333    
|Stock warrants   |  |               | 89,284,712 
|Convertible debt |  |               | 14,859,842 
|                 |  |               | 104,677,887



j. Foreign Currency



The capital accounts are translated at
historical exchange rates prevailing at the time of the transactions while income and expenses items are translated at the average
exchange rate during the period.  Translation adjustments are included in other comprehensive income (loss) within stockholders’
equity. Foreign currency transaction gains and losses are included in the statement of operations as other income (expense).



F-8







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011





k. Use of Estimates
and Assumptions



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



l. Non-Controlling Interests



The Company is required to report its
non-controlling interests as a separate component of shareholders’ equity. The Company is also required to present the consolidated
net income and the portion of the consolidated net income allocable to the non-controlling interests and to the shareholders of
the Company separately in its consolidated statements of operations. Losses applicable to the non-controlling interests are allocated
to the non-controlling interests even when those losses are in excess of the non-controlling interests’ investment basis.
During the years ended June 30, 2012 and 2011, the Company recorded a net loss allocable to non-controlling interests of $2,375,407
and $-0-, respectively.



m.  Recent Accounting Pronouncements



In May 2011, the FASB issued ASU 2011-04,
“Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”, which amends
ASC 820, Fair Value Measurement. ASU 2011-04 does not extend the use of fair value accounting, but provides guidance on
how it should be applied where its use is already required or permitted by other standards within U.S. GAAP or International Financial
Reporting Standards (IFRSs). ASU 2011-04 changes the wording used to describe many requirements in U.S. GAAP for measuring fair
value and for disclosing information about fair value measurements. Additionally, ASU 2011-04 clarifies the FASB’s intent
about the application of existing fair value measurements. ASU 2011-04 is effective for interim and annual periods beginning after
December 15, 2011 and is applied prospectively. The Company does not anticipate that the adoption of ASU 2011-04 will have a material
impact on its consolidated financial statements.



There were various accounting standards and interpretations
issued recently, none of which are expected to a have a material impact on our consolidated financial position, operations or
cash flows.



n. Subsequent Events



The Company evaluated material events
occurring between the end of our fiscal year, June 30, 2012, and through the date when the consolidated financial statements
were issued for disclosure consideration.



NOTE 3.   GOING CONCERN



At June 30, 2012, the Company had no source
of current revenue, a cash balance on hand of $27,689, negative working capital of $6,940,769 and the Company recognized negative
cash flows from operations of $15,567,909 during the period from June 24, 2005 (inception) through June 30, 2012. On August 17,
2012, the Company received $10,000,000 in funding from POSCAN. The Company believes its current positive working capital position
is sufficient to maintain its basic operations, which do not include future exploration and acquisition activities, for at least
the next 12 months, however, at budgeted levels of activity the Company would be required to raise substantial additional funds.



In the course of its development activities,
the Company has sustained and continues to sustain losses.  The Company cannot predict if and when the Company may generate
profits.  In the event we identify commercial reserves of lithium or other minerals, we will require substantial additional
capital to develop those reserves and certain governmental permits to exploit such resources.  The Company expects to
finance its future operations primarily through future 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.



F-9







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



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



Further, the development and exploitation
of the properties in which we have mineral interests require permits at various stages of development. Mineral resources in our
principal project, Maricunga, are designated as a national resource and cannot be mined and sold unless the government of Chile
issues a permit which may not occur or could require payments in excess of the Company’s available funds or could be subject
to competitive bidding.



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



NOTE 4.  MINERAL RIGHTS



Mineral rights consist of the following
at June 30, 2012 and 2011:



|          |  | June 30, 2012 |            |  | June 30, 2011 |  
|--------- |  | ------------- | ---------- |  | ------------- | -
|Maricunga |  | $             | 63,741,000 |  |               | $
|Noto      |  |               | -          |  |               |  
|          |  | $             | 63,741,000 |  |               | $



Maricunga



On November 30 and December 1, 2010, the
Companysigned non-binding exclusive letters of intent with the shareholders (the “Maricunga Sellers”)
of Sociedades Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga, a group of six private companies (the “Maricunga
Companies”), to acquire a percentage of the Maricunga Companies, which collectively own the Maricunga Project (“Maricunga”).
During December 2010, the Company paid $250,000 to the Maricunga Sellers in connection with signing the non-binding letters of
intent which provided the Company with additional time to perform its due diligence and prepare definitive purchase agreements.
The Maricunga property is undeveloped and covers an area of approximately 3,553 acres (1,438 hectares), comprising six concessions,
each held by a separate legal entity, and is located in the northeast section of the Salar de Maricunga in Region III of Atacama
in northern Chile.Each concession grants the owner the right to explore for mineral deposits at the Maricunga property.



On May 20, 2011, the Company and the Maricunga
Sellers signed the Framework Contract of Mining Project Development and Buying and Selling of Shares of Sociedades Legales Mineras
Litio 1 a 6 de la Sierra Hoyada de Maricunga (the “Acquisition Agreement”), whereby the Company, through its Chilean
subsidiary, Minera Li, acquired from the Maricunga Sellers a 60% interest in each of the Maricunga Companies. The purchase price,
including amounts paid to agents, was $6,370,000 in cash and 127,500,000 restricted shares of common stock of the Company (the
“Maricunga Purchase Price Shares”) which had a fair value of $31,875,000 based on the market price on the date of
issuance. The $6,370,000 in cash includes a $250,000 deposit paid in December 2010 and $120,000 due to agents. Pursuant to the
Acquisition Agreement, closing occurred on June 2, 2011, the date by which the Maricunga Sellers and agents received their shares
of common stock (which were registered in Chile) and the remaining $6,000,000 of cash. The agents received $120,000 at closing.



The assets of the Maricunga Companies
consist solely of undeveloped mineral rights and were recorded as an asset purchase. The Company consolidated Sociedades
Legales Mineras Litio 1 a 6 de la Sierra Hoyada de Maricunga and recorded the assets at 100% based on purchase price of $6,370,000
in cash and 127,500,000 restricted shares of common stock which had a fair value of $31,875,000. The Company recorded a non-controlling
interest for the 40% of the Maricunga Companies that were not acquired, or $25,496,000.



F-10







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



The Company has agreed to register under
the Securities Act one-half of the 127,500,000 Maricunga Purchase Price Shares on a “best efforts” basis by January
31, 2012 and the remainder by October 31, 2012. In the event that the SEC limits the number of shares that may be sold pursuant
to the registration statement, we may remove from the registration statement such number of shares as specified by the SEC, and
may file subsequent registration statements covering the resale of additional shares of such common stock. Accordingly, we are
not obligated to pay any penalties in the event we are unable to register the shares, or obtain or maintain an effective registration
statement related to such shares.



The Company has incurred exploration expenses
for the development of the Maricunga property of $5,938,517 and $0 for the year ended June 30, 2012 and 2011, respectively. Future
development expenditures are forecasted to be at least $200 million.



Pursuant to a shareholders’ meeting
held by the Maricunga Companies on October 6, 2011 in Chile (“Shareholder Meeting”), the majority shareholders of
the Maricunga Companies approved a quota to cover expenses relating to the preservation and exploration of the mining concessions
owned by the Maricunga Companies. Pursuant the Shareholder Meeting, Minera Li and the 40% non-controlling interest owners of the
Maricunga Companies were required to make payments totaling $6,975,136 to bank accounts held by the Company within ninety days
of the Shareholder Meeting, or January 4, 2012. Of the total $6,975,136 payments, Minera Li was to provide $4,185,083 and the
40% non-controlling interest shareholders (“minority shareholders”) were to provide $2,790,053. The minority shareholders
have not made their required payments to the Company. As a result, all the expenses incurred by the Maricunga Companies during
the year ended June 30, 2012, of $5,938,517, were funded by the Company. The Company recorded 40% of the expenses incurred by
the Maricunga Companies to the non-controlling interest, or $2,375,407 for the year ended June 30, 2012.



The Chilean Mining Code requires shareholders of legal mining
companies (such as the Maricunga Companies) to contribute their pro rata portion of exploration and exploitation expenses that
are established at a shareholders meeting (“Required Contributions”). The Chilean Mining Code permits any legal mining
company to initiate an executive trial, the final resolution of which would state that shares held by shareholders who fail to
make any Required Contribution must be sold at a public auction. The Chilean Mining Code establishes that the minimum bid in such
auction shall be the amount of the Required Contribution that the defaulting shareholders failed to contribute (the “Default
Amount”). The proceeds of such auction shall go first to the relevant legal mining company in the amount of the Default
Amount, and any proceeds in excess thereof shall be paid to the defaulting shareholders. If the minimum bid is not achieved in
the auction, then the defaulting shareholders’ shares in the legal mining company will be cancelled and each non-defaulting
shareholder’s funding obligations will increase proportionally.



As the majority shareholder of each of
the six Maricunga Companies, we have filed lawsuits distributed to four civil courts of Copiapo, third Region of Atacama, Chile
against the minority shareholders. Certain minority shareholders have filed counterclaims against the Company to declare, among
other things, the invalidation of the Shareholder Meeting on October 6, 2011 at which, required contributions were established
that such minority shareholders failed to make. We are currently preparing our response. Our future plans are not dependent on
the outcome of this matter with respect to the development of the Maricunga project



The Company has determined that neither
the minority shareholders’ default nor the proposed auction is (or will be) a triggering event that would require the Company
to test the long-lived assets for recoverability.



On September 24, 2012, the Ministry of
Mining opened the bids and informed the Company that the Consortium’s bid was not the winning bid. However, on October
1, 2012, the Ministry of Mining informed the Company that the Chilean Government decided to invalidate the CEOL process and
the results announced on September 24, 2012, due to an administrative error.



Currently the Company does not have the
permit to exploit lithium from the Maricunga properties. Accordingly, the Company evaluated the recoverability of the investment
in the Maricunga properties using the discounted cash flow approach both assuming the Company is able to obtain a permit to exploit
its lithium resources and also assuming it is not able to exploit its lithium resources. The Company can exploit alternative minerals,
like potassium, on its Maricunga properties that do not require special permits and are exploitable via regular mining concessions
according to the Chilean Mining Code. Based on that assumption, the Company used the discounted cash flow approach and determined
that the fair value of Maricunga properties exceeds its carrying value and, accordingly, no impairment loss was required.



The Company will evaluate any future impairment
based on consideration of economic and operational feasibility and a continuing assessment of its rights to exploit minerals under
Chilean laws and regulations.



F-11







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



Noto



Pursuant to an Assignment Agreement dated
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, 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, 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 ended June 30, 2010, and $100,000 was paid on July 30, 2010 when the transaction
closed. Noto’s only asset is the mineral interest in the Noto Properties. Accordingly, the Company recorded the acquisition
as an asset purchase. The Company determined that the mineral rights related to the Noto Properties are not recoverable and the
Company recorded impairment expense of $300,000 during the year ended June 30, 2012.



Alfredo



On August 3, 2010, the Company entered
into a Stock Purchase Agreement (“Alfredo SPA”) with Pacific Road Capital A Pty. Limited, as trustee for several entities
holding all of the shares of Alfredo Holdings, Ltd. (“Alfredo”), to acquire all of the outstanding shares of Alfredo.
Alfredo beneficially holds an option to acquire 100% of six mining concessions with respect to approximately 6,669 acres of mining
tenements near Pozo Almonte, Chile.



Pursuant to the Alfredo SPA, the Company
issued an aggregate of 10,000,000 shares of common stock (the “Purchase Price Shares”) valued at $3,900,000 ($0.39
per share) to the Alfredo sellers and their designees. Pursuant to the Option to Purchase Agreement, the Company was required
to make additional periodic payments aggregating $360,000 during 2010, of which the Company paid $80,000, in order to maintain
its rights. In order to exercise the option and purchase the Alfredo property, the Company would have been required to pay the
option exercise price of $4,860,000 by March 30, 2011 and contingent payments set forth in the Alfredo SPA. The Company did not
make required payments in 2010 or the option exercise price payment of $4,860,000 on March 30, 2011. Under the terms of the option
agreement, the option terminated and the Company recorded impairment expense for the amounts previously paid for the Alfredo property
of $4,070,000 during the year ended June 30, 2011.



The Company allowed the option to expire
because the Company determined that the project was not economically viable. Pursuant to an amendment to our agreement with the
Alfredo sellers, if and when certain milestones are achieved with respect to any future Li3 Energy Chilean iodine nitrate project,
we must make additional payments to the Alfredo sellers in an aggregate amount of up to $5,500,000.



Peru



On February 23, 2010, the Company acquired,
through a new wholly-owned subsidiary, 100% of the assets of the Loriscota, Suches and Vizcachas 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. During the year ended June
30, 2011, the Company determined that these mineral rights are not recoverable and the Company recorded impairment expense for
the Peru property of $50,000 during the year ended June 30, 2011.



Puna Lithium 2010 Impairment



On March 12, 2010, the Company entered into an assignment agreement
whereby the Company would purchase all of the Puna Lithium Corporation’s (“Puna”) interests in and rights of
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, to acquire
up to an 85% interest in: (a) approximately 70,000 acres situated on prospective brine salars in Argentina.



In August 2010, the Company determined
that this project was not economic viable. 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.



F-12







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



On November 24, 2010, the Company entered
into a termination, settlement and release agreement with Lacus in exchange for a $150,000 cash payment and 500,000 shares of
common stock to settle potential Lacus claims. The 500,000 shares are recorded in the amount of $192,500, which was based on a
fair value of $0.385 per share of common stock on the measurement date.  As the Company had recorded $765,000 of accrued
liabilities as of June 30, 2010 related to Lacus, the Company recorded a gain on settlement of $422,500 during the year ended
June 30, 2011 as a result of the settlement.   The Company paid the $150,000 cash payment to Lacus during January
2011, and issued the 500,000 shares in February 2011 in final satisfaction of all obligations.



During the year ended June 30, 2011, the
Company reached a settlement agreement with Puna, pursuant to which the Company issued Puna 6,000,000 shares of common stock in
full satisfaction of any and all obligations the Company may have to Puna. The Company recorded settlement expense of $1,920,000
determined based upon the fair value of the common stock on the issuance date.



NOTE 5.  PROPERTY AND EQUIPMENT



Property and equipment consists of the
following:



|                                           |  | June 30, 2012 |         |   | June 30, 2011 |  
|------------------------------------------ |  | ------------- | ------- | - | ------------- | -
|Leasehold improvement and office equipment |  | $             | 72,015  |   |               | $
|Field equipment                            |  |               | 173,960 |   |               |  
|Less: Accumulated depreciation             |  |               | (70,755 | ) |               |  
|                                           |  | $             | 175,220 |   |               | $



Depreciation expense for the years ended June 30, 2012 and
2011 was $51,560 and $3,946, respectively.



NOTE 6.   RELATED PARTY TRANSACTIONS



POSCAN



On August 24, 2011 and August 17, 2012,
POSCO Canada Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO (a Korean company), purchased a combined 100,595,238
shares of the Company’s common stock. See Notes 10 and 14.



MIZ Comercializadora, S de R.L.



The Company is party to a services agreement
between MIZ Comercializadora, S de R.L. (“MIZ”) and the Company in which Tom Currin (a beneficial owner of MIZ) serves
as Chief Operating Officer of the Company.



Pursuant to the Chief Operating Officer’s
Employment Services Agreement, the Company 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 the Company 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 as defined in the Employment Services
Agreement, or by Mr. Currin for any reason other than good reason, then all unvested Restricted Stock will immediately expire.



The grant date of the 2,500,000 restricted
shares was August 11, 2010. The stock price on the grant date was $0.38 per share. Total compensation expense which may be recognized
in connection with these restricted shares is $950,000 if all of the shares vest. A milestone was achieved in January 2011, resulting
in the vesting of 500,000 shares of common stock and the Company recorded $190,000 of stock-based compensation expense during
the year ended June 30, 2011. In March 2012, the Company’s Board determined to accelerate the restricted stock as if the
milestone regarding execution of a binding off-take agreement had been achieved, resulting in the vesting of 300,000 shares of
common stock. As of June 30, 2012, all of these vested shares were issued. The remaining 1,700,000 restricted shares contain various
vesting requirements that the Company estimates will be achieved between December 2012 and December 2013. During the years ended
June 30, 2012 and 2011, the Company recorded $250,921 and $303,101, respectively, of compensation expense for these shares based
on the estimated vesting dates.



In February 2011, the Company signed an
Amendment to the Employment Services Agreement with MIZ, under which MIZ agreed to accept 500,000 shares of common stock in lieu
of salaries payable. These shares were issued in February 2011. The Company recorded stock compensation expense of $192,500, which
represents the fair value of the common stock on the performance grant date, or $0.385 per share. In addition, in February 2011,
the Company issued 236,842 shares to MIZ which were previously granted in accordance with the Employment Services Agreement and
an expense of $90,000 was recorded, which represents the fair value the common stock on the grant date, or $0.38 per share. MIZ
was also paid $75,000 in cash for the year ended June 30, 2011. For the year ended June 30, 2012, MIZ’s compensation was
$212,500, of which $20,830 was unpaid.



The Company also incurred $114,420 and
$186,090 of stock-based compensation during the years ended June 30, 2012 and 2011, respectively, related to stock options granted
to MIZ. See Note 10.



F-13







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



R&M Global Advisors



The Company is party to a services agreement
(the “R&M Agreement”) between R&M Global Advisors, LLC. (“R&M Global Advisors”) and the Company.
Eric Marin (a partial owner of R&M Global Advisors) served as interim Chief Financial Officer of the Company. R&M Global
Advisors was paid $145,187 and $10,000 in cash for compensation during the years ended June 30, 2012 and 2011, respectively. As
of June 30, 2012, R&M Global Advisors was owed $81,300.



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



Related party payable



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 functions in the same capacities (the “Related Party Company”) for which the Company was obligated
for reimbursement of administrative salaries, rent, utilities and maintenance expenses. On July 31, 2010, the Company assumed
an assignment of the lease and its related expenses. As a result, for the years ended June 30, 2012 and 2011, this is no longer
a related party. As of June 30, 2012 and 2011, the payable due to the Related Party Company is $11,400 and $10,986, respectively.



Legal Services



During the year ended June 30, 2011, one
of the Company’s directors was a Partner in a law firm that the Company engaged to perform certain legal services.  On
October 25, 2010, the Partner resigned as a Director of the Company and as a result, these legal services are no longer considered
related party in nature. The Company paid for such legal services at the standard rates that the firm charges its unrelated clients. During
the year ended June 30, 2011, the total legal fees the Company incurred to such firm were approximately $69,000.



NOTE 7.  NOTES PAYABLE



On March 23, 2012, the Company entered
into a $300,000 unsecured promissory note with a third party. The promissory note bears interest at 15% per annum and a penalty
rate of 2% per annum, and was originally due on April 30, 2012, at which time its maturity date was extended to May 31, 2012.
The total interest and penalties accrued on this note at June 30, 2012 is $8,375. The maturity date of this Note was extended
to November 2, 2012.



On April 2, 2012, the Company entered
into a $100,000 unsecured promissory note with a third party. The promissory note bears interest at 15% per annum and a penalty
rate of 2% per annum, and was originally due on April 30, 2012, at which time its maturity date was extended to May 31, 2012.
The total interest and penalties accrued on this note at June 30, 2012 is $3,148. This note was repaid in September 2012.



On April 20, 2012, the Company entered
into a $250,000 unsecured promissory note payable with a third party. The promissory note bears interest at 15% per annum and
a penalty rate of 2% per annum, and was due on May 21, 2012. The total interest and penalties accrued on this note at June 30,
2012 was $7,842. A portion of this note amounting to $120,000 was paid in September 2012, and the maturity date of the remaining
balance of $130,000 was extended to November 2, 2012.



On June 8, 2012, the Company entered into
a $500,000 unsecured promissory note payable with a third party. The promissory note bears interest at 25% per annum, and was
due on June 22, 2012. The total interest accrued on this note at June 30, 2012 is $2,778. On August 20, 2012, this loan was repaid.



On June 5, 2008, the Company issued a
$50,000 unsecured promissory 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, 2012 and 2011 was $16,298 and $12,298, respectively.  This note is in default as of June
30, 2012 and remains payable to Milestone. To date, no demand or communication has been made from Milestone.



F-14







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



On April 30, 2009, the Company issued
an unsecured Convertible Promissory Note (the “Convertible Note”) to Milestone, bearing an interest rate of 8.25%
per annum, in the amount of $45,000, due November 8, 2010.  The Convertible Note provides that the 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, 2012 and 2011 was $11,678 and $7,965, respectively.
The Convertible Note is in default as of June 30, 2012 and remains payable to Milestone. To date, no demand or communication has
been made from Milestone.



NOTE 8. CREDIT AGREEMENT



On May 2, 2011, the Company entered into
and simultaneously closed a Credit Agreement for a $1.5 million bridge loan with three private institutional investors. Under
the Credit Agreement, the Company issued to each lender a zero-coupon original issue discount note due February 2, 2012.  The
notes are convertible into shares of the Company’s common stock at the lender’s option at a price of $0.40 per share.  The
aggregate face amount of the notes at the February 2, 2012 maturity was $1,677,438. The Company may prepay the notes at its option
(together with accrued original issue discount), and must prepay them (together with accrued original issue discount) first out
of the net proceeds of any future capital raising transactions by the Company.



The Company also agreed to issue to the
lenders warrants to purchase an aggregate of 1,500,000 shares of common stock, exercisable for five years at an initial exercise
price of $0.50 per share (the “Lender Warrants”). The Lender Warrants contain provisions that protect holders from
future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these
provisions could result in modification of the warrants exercise price based on a variable that is not an input to the fair value
of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 – 40. The fair values of the Lender Warrants
were recognized as derivative warrant instruments at issuance and are measured at fair value at each reporting period. The Company
determined the fair value of the warrants was $1,132,000 at the issuance date. This amount was recorded as a debt discount and
is amortized to interest expense over the term of the debentures.



The convertible debentures were analyzed
for a beneficial conversion feature at which time it was concluded that a beneficial conversion feature existed.  The
beneficial conversion feature was measured using the commitment-date stock price and was determined to be $368,000.  This
amount was recorded as a debt discount and is amortized to interest expense over the term of the debentures.



The Company agreed to pay finder’s
fees consisting of cash in the amount of 5% of the aggregate issue price of the notes, or $75,000 in total,and
warrants to purchase an aggregate of 75,000 shares of common stock, exercisable for five years at an initial exercise price of
$0.40 per share (the “Arranger Warrants”). The Arranger Warrants contain provisions that protect holders from future
issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions
could result in modification of the warrants exercise price based on a variable that is not an input to the fair value of a “fixed-for-fixed”
option as defined under FASB ASC Topic No. 815 – 40. The fair value of the Arranger Warrants were recognized as derivative
warrant instruments at issuance and are measured at fair value at each reporting period. The Company determined the fair value
of the Arranger Warrants at the issuance date was $57,750, which was recorded as deferred financing costs. The deferred financing
costs of $132,750 were amortized over the life of the debt on a straight-line basis which approximated the effective interest
method. During the years ended June 30, 2012 and 2011, the Company recorded $103,250 and $29,500, respectively, of interest expense
on deferred financing costs.



On August 25, 2011, the Company entered into an Amendment and
Waiver Agreement with the holders of the zero-coupon bridge notes (the “Waiver Agreement”).  Pursuant to
the Waiver Agreement, effective upon the closing of POSCAN’s initial $8 million investment under the SPA (see Note 11),
the zero-coupon bridge notes maturity date was extended to June 30, 2012, and the Company was not required to make any prepayment
out of the proceeds of the SPA.  As the POSCAN closing occurred on September 14, 2011, the Waiver Agreement was deemed
effective on that date.  The Waiver Agreement does not alter the principal amount of the zero-coupon bridge notes; however,
it provides that such notes will accrue interest at a rate of 15% per annum from February 2, 2012, until June 30, 2012.  The
Waiver Agreement also reduced the conversion price of the $1.5 million zero-coupon bridge notes from $0.40 to $0.12 per share.  In
connection with the Waiver Agreement, the Company agreed to pay an arranger a cash fee of $30,000.



F-15







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011





In connection with the Waiver Agreement,
the convertible debentures were analyzed for a beneficial conversion feature after the debt modification at which time it was
concluded that a beneficial conversion feature existed. The beneficial conversion feature was measured using the commitment-date
stock price and was determined to be $330,019. This amount was recorded as a debt discount and will be amortized to interest expense
over the term of the debentures. See detail summary below for carrying value of debt as of June 30, 2012.







|Post-Modification Debt:                         |  |   |           |  
|----------------------------------------------- |  | - | --------- | -
|Estimated fair value of debt after modification |  | $ | 1,584,192 |  
|Less: Beneficial conversion feature discount    |  |   | (330,019  | )
|Carrying value at September 14, 2011            |  |   | 1,254,173 |  
|Accrued interest                                |  |   | 198,989   |  
|Amortization of debt discount                   |  |   | 330,019   |  
|Carrying value at June 30, 2012                 |  | $ | 1,783,181 |  







Loss on Debt Extinguishment



The Company concluded that the Waiver
Agreement resulted in a substantial modification of terms of the debt because the fair value of the embedded conversion feature
increased by more than 10% as a result of the decrease in the conversion price from $0.40 per share to $0.12 per share. Accordingly,
the Company recognized the amendment as an extinguishment of debt and recorded a loss on debt extinguishment.   The
Company determined that the fair value of the Credit Agreement approximated the initial $1.5 million face value of the notes plus
accrued interest of $84,192 due to the short-term nature of the notes.  As a result, the Company recorded a loss on
debt extinguishment of $841,752 during the year ended June 30, 2012, as summarized below.





|Loss on Extinguishment:                         |  |   |           |  
|----------------------------------------------- |  | - | --------- | -
|Estimated fair value of debt after modification |  | $ | 1,584,192 |  
|Waiver fee                                      |  |   | 30,000    |  
|Fair value of assets given                      |  |   | 1,614,192 |  
|Less: Carrying Value of pre-modification debt   |  |   | (838,815  | )
|Unamortized deferred financing costs            |  |   | 66,375    |  
|Loss on debt extinguishment                     |  | $ | 841,752   |  







Second Amendment and Waiver Agreement



On September 28, 2012, the Company entered
into a Second Amendment and Waiver Agreement with the holders of the zero-coupon convertible notes (the “Second Waiver Agreement”).  Pursuant
to the Second Waiver Agreement, the zero-coupon convertible notes maturity date was extended to September 28, 2013. The Waiver
Agreement also reduced the conversion price of the $1.5 million zero-coupon bridge notes from $0.12 to $0.095 per share.  In
connection with the Waiver Agreement, the Company agreed to pay an arranger a cash fee of $37,600.



The Company applied ASC 470-50-40/55 (formerly
APB 26) “Debtor’s Accounting for a Modification or Exchange of Debt Instrument” and concluded that the revised
terms constituted a debt extinguishment rather than debt modification because the change in the fair value of the embedded conversion
features immediately before and after the modification exceeded 10% of the original loan balance. Accordingly, the Company will
record a total of $153,319 in September 2012 as gain on debt extinguishment.



NOTE 9. DERIVATIVE LIABILITIES



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



F-16













Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



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



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



Activity for derivative warrant instruments
during the year ended June 30, 2012, was as follows:



|                                   |  |            |            |  | Initial valuation |   |           |               |  |   |             |   |  |            |         
|---------------------------------- |  | ---------- | ---------- |  | ----------------- | - | --------- | ------------- |  | - | ----------- | - |  | ---------- | --------
|                                   |  |            |            |  | of derivative     |   |           | Increase      |  |   |             |   |  |            |         
|                                   |  |            |            |  | liabilities upon  |   |           | (decrease) in |  |   |             |   |  |            |         
|                                   |  | Balance at |            |  | issuance of new   |   |           | fair value of |  |   |             |   |  | Balance at |         
|                                   |  | June 30,   |            |  | warrants during   |   |           | derivative    |  |   | Exercise of |   |  | June 30,   |         
|                                   |  | 2011       |            |  | the period        |   |           | Liability     |  |   | warrants    |   |  | 2012       |         
|2009 Unit Offering warrants        |  | $          | 3,854,119  |  |                   | $ | -         |               |  | $ | (2,981,907  | ) |  | $          | -       
|First 2010 Unit Offering warrants  |  |            | 2,911,244  |  |                   |   | -         |               |  |   | (1,270,600  | ) |  |            | -       
|Second 2010 Unit Offering warrants |  |            | 1,800,265  |  |                   |   | -         |               |  |   | (972,377    | ) |  |            | (590,462
|Third 2010 Unit Offering warrants  |  |            | 1,156,744  |  |                   |   | -         |               |  |   | (644,403    | ) |  |            | -       
|Incentive warrants                 |  |            | 1,072,441  |  |                   |   | -         |               |  |   | (492,681    | ) |  |            | -       
|2011 Unit Offering warrants        |  |            | 3,736,897  |  |                   |   | -         |               |  |   | (2,241,859  | ) |  |            | -       
|Lender warrants                    |  |            | 523,234    |  |                   |   | -         |               |  |   | (248,848    | ) |  |            | -       
|Warrants for advisory services     |  |            |            |  |                   |   |           |               |  |   |             |   |  |            |         
|and Arranger warrants              |  |            | 189,810    |  |                   |   | -         |               |  |   | (106,600    | ) |  |            | -       
|POSCAN warrants                    |  |            | -          |  |                   |   | 3,779,978 |               |  |   | (1,821,067  | ) |  |            | -       
|                                   |  | $          | 15,244,754 |  |                   | $ | 3,779,978 |               |  | $ | (10,780,342 | ) |  | $          | (590,462



During the year ended June 30, 2012, 4,200,000
warrants were exercised for aggregate proceeds of $210,000. The Company reduced the derivative liability by $590,462 based on the
fair value of the warrants on the date of exercise and increased additional paid-in capital by the same amount.



F-17







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



Activity for derivative warrant instruments during the year
ended June 30, 2011 was as follows:





|                                                      |  |            |           |  | Initial valuation |   |           |               |  |   |             |   |  |            |           
|----------------------------------------------------- |  | ---------- | --------- |  | ----------------- | - | --------- | ------------- |  | - | ----------- | - |  | ---------- | ----------
|                                                      |  |            |           |  | of derivative     |   |           | Increase      |  |   |             |   |  |            |           
|                                                      |  |            |           |  | liabilities upon  |   |           | (decrease) in |  |   |             |   |  |            |           
|                                                      |  | Balance at |           |  | issuance of new   |   |           | fair value of |  |   |             |   |  | Balance at |           
|                                                      |  | June 30,   |           |  | warrants during   |   |           | derivative    |  |   | Exercise of |   |  | June 30,   |           
|                                                      |  | 2010       |           |  | the period        |   |           | Liability     |  |   | warrants    |   |  | 2011       |           
|2009 Unit Offering warrants                           |  | $          | 6,313,769 |  |                   | $ | -         |               |  | $ | (2,459,650  | ) |  | $          | -         
|First 2010 Unit Offering warrants                     |  |            | 1,715,959 |  |                   |   | 236,937   |               |  |   | 958,348     |   |  |            | -         
|Second 2010 Unit Offering warrants                    |  |            | -         |  |                   |   | 151,360   |               |  |   | 4,231,216   |   |  |            | (2,582,311
|Third 2010 Unit Offering warrants                     |  |            | -         |  |                   |   | 757,772   |               |  |   | 2,421,207   |   |  |            | (2,022,235
|Incentive warrants                                    |  |            | -         |  |                   |   | 1,068,320 |               |  |   | 4,121       |   |  |            | -         
|2011 Unit Offering warrants                           |  |            | -         |  |                   |   | 2,142,276 |               |  |   | 1,594,621   |   |  |            | -         
|Lender warrants                                       |  |            | -         |  |                   |   | 1,132,000 |               |  |   | (608,766    | ) |  |            | -         
|Warrants for advisory services  and Arranger warrants |  |            | -         |  |                   |   | 214,760   |               |  |   | (24,950     | ) |  |            | -         
|                                                      |  | $          | 8,029,728 |  |                   | $ | 5,703,425 |               |  | $ | 6,116,147   |   |  | $          | (4,604,546





During the year ended June 30, 2011, the
Company issued 800,000 warrants to a third party company for advisory services (“Warrants for advisory services”).
The Warrants for advisory services contain anti-dilution provisions that provide for a reduction in the exercise price of such
warrants in the event that future common stock (or securities convertible into or exercisable for common stock) is issued (or becomes
contractually issuable) at a price per share (a “Lower Price”) that is less than the exercise price of such warrant
at the relevant time. The fair values of the Warrants for advisory services were recognized as derivative warrant instruments at
issuance and are measured at fair value at each reporting period. The Company determined the fair value of the warrants was $157,010
at the issuance date. This amount was recorded as general and administrative expenses for the year ending June 30, 2011.



During the year ended June 30, 2011, 14,023,336
warrants and Double Options, which are treated as warrants, were exercised for aggregate proceeds of $1,433,575. The Company reduced
the derivative liability by $4,604,546 based on the fair value of the warrants on the date of exercise and increased additional
paid-in capital by the same amount.



F-18







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



The following is a summary of the assumptions
used in the modified lattice valuation model as of the initial valuations of the derivative warrant instruments issued during the
years ended June 30, 2012 and June 30, 2011, respectively, and as of June 30, 2012, and June 30, 2011, respectively:



|                                                              |  | Initial      |            |   | Initial      |   |            |          |  |   |            |  
|------------------------------------------------------------- |  | ------------ | ---------- | - | ------------ | - | ---------- | -------- |  | - | ---------- | -
|                                                              |  | Valuations - |            |   | Valuations - |   |            |          |  |   |            |  
|                                                              |  | June 30,     |            |   | June 30,     |   |            | June 30, |  |   | June 30,   |  
|                                                              |  | 2012         |            |   | 2011         |   |            | 2012     |  |   | 2011       |  
|Common stock issuable upon exercise of warrants               |  |              | 38,095,300 |   |              |   | 46,750,323 |          |  |   | 89,284,712 |  
|Market value of common stock on measurement date (1)          |  | $            | 0.145      |   |              | $ | 0.12-$0.43 |          |  | $ | 0.09       |  
|Adjusted exercise price                                       |  | $            | 0.40       |   |              | $ | 0.05-$0.50 |          |  | $ | 0.05-$0.48 |  
|Risk free interest rate (2)                                   |  |              | 0.42       | % |              |   | 0.67%-2.20 | %        |  |   | 0.33%-0.49 | %
|Warrant lives in years                                        |  |              | 3.0        |   |              |   | 2.8-5.0    |          |  |   | 1.8-3.8    |  
|Expected volatility (3)                                       |  |              | 205        | % |              |   | 151%-197   | %        |  |   | 132%-241   | %
|Expected dividend yields (4)                                  |  |              | None       |   |              |   | None       |          |  |   | None       |  
|Assumed stock offerings per year over next five years (5)     |  |              | 1-2        |   |              |   | 1-2        |          |  |   | 1-2        |  
|Probability of stock offering in any year over five years (6) |  |              | 100        | % |              |   | 100        | %        |  |   | 100        | %
|Range of percentage of existing shares offered (7)            |  |              | 10%-31     | % |              |   | 10%-31     | %        |  |   | 10%-31     | %
|Offering price range (8)                                      |  | $            | 0.21-$0.45 |   |              | $ | 0.25-$1.50 |          |  | $ | 0.15-$0.50 |  



| | (1) | The market value of common stock is the stock price at the close of trading on the date of issuance
or at period-end, as applicable.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------



| | (2) | The risk-free interest rate was determined by management using the 3 or 5 - year Treasury Bill
as of the respective Offering or measurement date.
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------



| | (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 at least one stock offering in each of the next five
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 percentages of existing shares offered in each stock offering
will be between 10% and 31% of the shares outstanding.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| | (8) | Represents the estimated offering price range in future offerings as determined by management.
| | --- | ----------------------------------------------------------------------------------------------



Subsequent to June 30, 2012, the exercise
price of certain warrants and the number of shares issuable upon exercise of certain warrants were further adjusted. See Note 14.



F-19







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



NOTE 10. STOCKHOLDERS’ EQUITY



Sales of Common Stock



Common stock issued for cash during
the years ended June 30, 2005 through June 30, 2010



The table below summarizes sales of common
stock from June 24, 2005 (inception) through June 30, 2010, and includes the portion of proceeds received which was allocated to
warrants issued in conjunction with these sales of common stock.



|Fiscal 
Year |  | Shares |            |  | Gross
 proceeds |   |            | Offering 
costs |  |   | Net 
proceeds |  |  | Relative fair
 value allocated 
to warrants |           |  | Amount 
allocated to
 common 
stock and 
paid-in
capital |   |           | Per share 
price range | 
|------------ |  | ------ | ---------- |  | --------------- | - | ---------- | --------------- |  | - | ------------- |  |  | ------------------------------------------- | --------- |  | -------------------------------------------------------- | - | --------- | ---------------------- | 
|2005 (1)     |  |        | 71,052,672 |  |                 | $ | 7,500      |                 |  | $ | -             |  |  | $                                           | 7,500     |  |                                                          | $ | -         |                        | 
|2006         |  |        | 47,368,454 |  |                 |   | 50,000     |                 |  |   | -             |  |  |                                             | 50,000    |  |                                                          |   | -         |                        | 
|2007         |  |        | -          |  |                 |   | -          |                 |  |   | -             |  |  |                                             | -         |  |                                                          |   | -         |                        | 
|2008         |  |        | 2,631,595  |  |                 |   | 50,000     |                 |  |   | -             |  |  |                                             | 50,000    |  |                                                          |   | -         |                        | 
|2009         |  |        | -          |  |                 |   | -          |                 |  |   | -             |  |  |                                             | -         |  |                                                          |   | -         |                        | 
|2010         |  |        | 18,000,000 |  |                 |   | 4,500,000  |                 |  |   | 410,680       |  |  |                                             | 4,089,320 |  |                                                          |   | 1,806,181 |                        | 
|2011         |  |        | 55,685,324 |  |                 |   | 10,381,739 |                 |  |   | 1,012,361     |  |  |                                             | 9,369,378 |  |                                                          |   | 3,288,346 |                        | 
|2012         |  |        | 42,295,300 |  |                 |   | 8,210,013  |                 |  |   | 685,944       |  |  |                                             | 7,524,069 |  |                                                          |   | 3,779,978 |                        | 



|(1) | On October 19, 2009, 71,052,626 shares
    of     the Company’s common stock owned by the founding shareholder, were surrendered and cancelled in exchange for
    the Company’s interest in a wholly-owned subsidiary.  The net assets of the Company’s wholly-owned
    subsidiary prior to the exchange were $0 as of October 19, 2009. Therefore, the share cancellation was valued at
    $0.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



2011 Activity:



First 2010 Unit Offering



In June 2010, the Board of Directors authorized
the Company to offer up to a maximum of 20,000,000 units (the “First 2010 Unit Offering”) at a purchase price of $0.25
per unit (a “C Unit”). Each C Unit consisted of (i) one share of the Company’s common stock, and (ii) a warrant
(a “C Warrant”) representing the right to purchase one share of common stock, exercisable for a period of two years
at an exercise price of $0.50 per share.



Sales of C Units during the year ended June 30, 2011 pursuant
to the First 2010 Unit Offering were as follows:



|               |  | Shares |           |  | Gross  proceeds |   |         | Offering  costs |  |   | Net  proceeds |  |  | Relative  fair value allocated to
C Warrants |         |  | Amount  allocated to common  stock
    and paid-in  capital |  
|-------------- |  | ------ | --------- |  | --------------- | - | ------- | --------------- |  | - | ------------- |  |  | -------------------------------------------- | ------- |  | ----------------------------------------------------------- | -
|July 2010      |  |        | 2,000,000 |  |                 | $ | 500,000 |                 |  | $ | 47,245        |  |  | $                                            | 452,755 |  |                                                             | $
|September 2010 |  |        | 160,000   |  |                 |   | 40,000  |                 |  |   | 4,757         |  |  |                                              | 35,243  |  |                                                             |  
|               |  |        | 2,160,000 |  |                 | $ | 540,000 |                 |  | $ | 52,002        |  |  | $                                            | 487,998 |  |                                                             | $



In connection with the Second C Closing,
the Company also became obligated to issue to a placement agent C Agent 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, which is included in offering
costs above.



F-20







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



Second 2010 Unit Offering



In November 2010, the Company held a private
placement offering (the “Second 2010 Unit Offering”) of 4,000,000 units of its securities to investors for gross proceeds
of $200,000, at an offering price of $0.05 per unit (a “D Unit”). The Second 2010 Unit Offering provides each investor
with the right (the “Double Option”), subject to certain conditions, to purchase, at any time prior to one year from
subscription, a number of additional D Units up to the number of D Units purchased at the closing of the Second 2010 Unit Offering
(“Double Units”). Each “D Unit” consists of one share of the Company’s common stock and a warrant
(a “D Warrant”) to purchase one share of common stock at an exercise price of $0.05 per share. The D Warrants will
be exercisable from issuance until five years after the final closing of the Second 2010 Unit Offering.



The Company determined that, in substance,
the Second 2010 Unit Offering involved the issuance of three separate derivative instruments, one being the D Warrants included
in the D Units, and the other two being components of the Double Options, which consist of the right to purchase (the “Double
Option Common Component“) the shares of common stock included in the Double Units for $0.05 until November 7, 2011, and the
additional D Warrants (the “Double D Warrants”) that would be included in any Double Units issued upon exercise of
the Double Option.



Sales of D Units during the year ended
June 30, 2011 pursuant to the Second 2010 Unit Offering were as follows:



|              |  | Shares |           |  | Gross
 proceeds |   |         | Offering
 costs |  |   | Net 
proceeds |  |  | Relative
 fair value
 allocated to 
D Warrants |         |  | Amount
 allocated to
 common stock  
  and paid-in
 capital |  
|------------- |  | ------ | --------- |  | --------------- | - | ------- | --------------- |  | - | ------------- |  |  | ---------------------------------------------- | ------- |  | ----------------------------------------------------------- | -
|November 2010 |  |        | 4,000,000 |  |                 | $ | 200,000 |                 |  | $ | -             |  |  | $                                              | 200,000 |  |                                                             | $
|              |  |        | 4,000,000 |  |                 | $ | 200,000 |                 |  | $ | -             |  |  | $                                              | 200,000 |  |                                                             | $



The subscription agreements provide the
investors with certain “piggyback” registration rights covering the shares of Common Stock included in the D Units
(including any Double Units) and the shares of Common Stock issuable upon exercise of the D Warrants (including D Warrants included
in any Double Units).



Third 2010 Unit Offering



In December 2010, the Company held a private
placement offering (the “Third 2010 Unit Offering”) of up to 13,333,334 units of its securities at a purchase price
of $0.15 per unit (an “E Unit”). Each “E Unit” consisted of (i) one share of the Company’s common
stock, and (ii) a warrant (“E Warrant”) representing the right to purchase one share of common stock, exercisable for
a period of five years at an exercise price of $0.15 per share.



Sales of E Units during the year ended June 30, 2011 pursuant
to the Third 2010 Unit Offering were as follows:



|              |  | Shares |            |  | Gross
 proceeds |   |           | Offering
 costs |  |   | Net 
proceeds |  |  | Relative 
fair value 
allocated to 
E Warrants |           |  | Amount 
Allocated to
 common stock 
and paid-in 
capital |  
|------------- |  | ------ | ---------- |  | --------------- | - | --------- | --------------- |  | - | ------------- |  |  | ---------------------------------------------- | --------- |  | -------------------------------------------------------- | -
|December 2010 |  |        | 9,483,330  |  |                 | $ | 1,422,500 |                 |  | $ | 165,585       |  |  | $                                              | 1,256,915 |  |                                                          | $
|January 2011  |  |        | 1,783,333  |  |                 |   | 267,500   |                 |  |   | 41,033        |  |  |                                                | 226,467   |  |                                                          |  
|February 2011 |  |        | 400,000    |  |                 |   | 60,000    |                 |  |   | 16,470        |  |  |                                                | 43,530    |  |                                                          |  
|              |  |        | 11,666,663 |  |                 | $ | 1,750,000 |                 |  | $ | 223,088       |  |  | $                                              | 1,526,912 |  |                                                          | $



2011 Offering



On March 22, 2011, the Company held a private
placement offering (the “2011 Offering”) of up to $10,000,000 worth of units of securities at an offering price of
$0.27 per unit (“G Unit”).  Each G Unit consisted of (i) one share of our common stock, par value $0.001
per share, and (ii) a warrant to purchase one-half of a share of common stock, at an exercise price of $0.40 per whole share (“G
Warrant”, or “2011 Unit Offering Warrant”). The G Warrants are exercisable for a period of three years.



F-21







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



Sales of the G Units during the year ended
June 30, 2011 pursuant to the 2011 Offering were as follows:



|           |  | Shares |            |  | Gross proceeds |   |           | Offering costs |  |   | Net proceeds |  |  | Relative fair value allocated to G Warrants |           |  | Amount Allocated to common stock and paid-in capital |  
|---------- |  | ------ | ---------- |  | -------------- | - | --------- | -------------- |  | - | ------------ |  |  | ------------------------------------------- | --------- |  | ---------------------------------------------------- | -
|April 2011 |  |        | 23,920,071 |  |                | $ | 6,458,189 |                |  | $ | 737,271      |  |  | $                                           | 5,720,918 |  |                                                      | $
|           |  |        | 23,920,071 |  |                | $ | 6,458,189 |                |  | $ | 737,271      |  |  | $                                           | 5,720,918 |  |                                                      | $



The Company also issued to placement agents
and finders warrants to purchase an aggregate of 1,913,606 shares of common stock at an exercise price of $0.27 per share and exercisable
for a period of three years.



Pursuant to a registration rights agreement
for the 2011 Offering, we agreed to file a registration statement with the Securities and Exchange Commission within 75 days after
the closing date (June 21, 2011) to register the shares of common stock and the shares of common stock underlying the G warrants
under the Securities Act of 1933, as amended, and to use our best efforts to cause such registration statement to become effective
within 150 days after the filing date, all at our own expense.  Pursuant to the registration rights agreement, in the
event the Company does not meet these deadlines, we have agreed to pay the investors monetary penalties of 2% of their investment
per month until such failures are cured (up to an aggregate maximum penalty of 10%).  The Company did not file the registration
statement with the Securities and Exchange Commission until July 1, 2011.  The Company recorded an accrual for monetary
penalties of $38,750 in accrued liabilities during the year ended June 30, 2011.



Warrants exercises



Issuances of common stock for cash upon
exercise of warrants were as follows:



|                                  |  | Shares |            |  | Gross proceeds |   |           | Offering costs |  |   | Net proceeds |  |  | Amount Allocated to common stock and paid-in capital |          
|--------------------------------- |  | ------ | ---------- |  | -------------- | - | --------- | -------------- |  | - | ------------ |  |  | ---------------------------------------------------- | ---------
|D Warrants – February 2011        |  |        | 3,800,000  |  |                | $ | 190,000   |                |  | $ | -            |  |  | $                                                    | 190,000  
|D Warrants – May 2011             |  |        | 2,000,000  |  |                |   | 100,000   |                |  |   | -            |  |  |                                                      | 100,000  
|D Warrants (cashless) – June 2011 |  |        | 515,254    |  |                |   | -         |                |  |   | -            |  |  |                                                      | -        
|E Warrants                        |  |        | 7,623,336  |  |                |   | 1,143,550 |                |  |   | -            |  |  |                                                      | 1,143,550
|                                  |  |        | 13,938,590 |  |                | $ | 1,433,550 |                |  | $ | -            |  |  | $                                                    | 1,433,550



During February 2011, 3,800,000 Double
Options were exercised for gross proceeds of $190,000 to purchase 3,800,000 Double Units. Also, during the year ended June 30,
2011, 2,000,000 D Warrants were exercised for gross proceeds of $100,000, and 600,000 warrants were exercised in a cashless exercise
resulting in the issuance of 515,254 shares of common stock.



On March 2, 2011, as an incentive to each
holder of the E warrants (each “E Warrantholder”), of which there were 12,389,996 warrants outstanding prior to this
incentive, the Company offered each of the E Warrantholders an additional 1⁄2 warrant (“F Warrant”, or “Incentive
Warrant”) with a $0.50 exercise price exercisable until February 22, 2016 for each E warrant exercised prior to March 23,
2011, and then subsequently extended to May 31, 2011. A total of 7,623,336 E warrants were exercised during the year ended June
30, 2011, in connection with this warrant inducement, resulting in gross proceeds of $1,143,550. As a result, the Company issued
3,811,671 F Warrants.  The Company recorded the value of the Incentive Warrants as a $1,068,320 warrant modification
expense in the consolidated income statement during the year ended June 30, 2011.



F-22







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



2012 Activity:



POSCAN



On August 24, 2011, the Company entered
into a Securities Purchase Agreement (the “SPA”) and an Investor Rights Agreement (the “IRA”) with POSCO
Canada Ltd. (“POSCAN”), a wholly owned subsidiary of POSCO (a Korean company), (together, the “POSCAN Agreements”),
pursuant to which on September 14, 2011, POSCAN purchased 38,095,300 units for $0.21.  Each unit consisted of one share of
our common stock and a three-year warrant (“POSCAN Warrants”) to purchase one share of our common stock at an exercise
price of $0.40 per share. The Company incurred finders’ fees equal to 7% of the gross proceeds received from the SPA. 
At June 30, 2012, the Company has paid $493,000 of the fees and has $67,000 of finders’ fees payable recorded in
accounts payable in the consolidated balance sheet.



Sales of the “Units” during
the year ended June 30, 2012 pursuant to the SPA were as follows:



| |             |  | Shares |  |            | Gross
 proceeds |  |   | Offering 
costs |  |  | Net
 proceeds |         |  | Relative 
fair value 
allocated to 
POSCAN 
Warrants |   |           | Amount 
Allocated to
 common stock 
and paid-in
 capital | 
| | ----------- |  | ------ |  | ---------- | --------------- |  | - | --------------- |  |  | ------------- | ------- |  | ---------------------------------------------------- | - | --------- | -------------------------------------------------------- | 
| | August 2011 |  |        |  | 38,095,300 |                 |  | $ | 8,000,013       |  |  | $             | 685,944 |  |                                                      | $ | 7,314,069 |                                                          | 
| |             |  |        |  | 38,095,300 |                 |  | $ | 8,000,013       |  |  | $             | 685,944 |  |                                                      | $ | 7,314,069 |                                                          | 



POSCAN committed to purchase an additional
47,619,000 Units at the same $0.21 price per Unit (for an aggregate additional purchase price of approximately $10 million) upon
satisfaction of certain conditions, including:  (i) completion of an updated Measured and Indicated Resource Report prepared
in compliance with Canadian National Instrument (“NI”) 43-101 standards that concludes that our Maricunga property
meets certain technical requirements and that proceeding to the feasibility study phase for the Maricunga project is warranted;
(ii) completion of a work program agreed to by us and POSCAN; and (iii) having the necessary permits and approvals in place for
building and operating a brine test facility on the Maricunga property.  The SPA provides that the Company is to use
the proceeds from such investments exclusively for activities related to the development of the Maricunga project pursuant to budgets
mutually agreeable to us and POSCAN.



The SPA includes provisions for POSCAN
to purchase brine from the Maricunga property and test it at POSCAN’s test facility in Korea.  In addition, the
SPA provides that the Company and POSCAN will discuss and evaluate the development, financing and construction of a brine testing
facility on the Maricunga property, and that if such facility is built, the Company would (i) supply the test facility with brine
and other materials and utilities and (ii) assist POSCAN in obtaining any rights, licenses and permits required to build and operate
such facility.



The securities purchased by POSCAN are
restricted and may not be sold (subject to customary exceptions) until the earlier of nine months from their issuance or November
20, 2012.  Pursuant to the IRA, the Company has granted POSCAN the right to demand registration of the common stock included
in the Units, and issuable upon exercise of the warrants included in the Units, commencing 12 months after the date of issuance
of the Units and ending five years after the date of the IRA.  The Company’s obligation to register any such shares
shall terminate once they may be sold without registration in any 30 day period pursuant to Rule 144 under the Securities Act.  Upon
a registration demand made by POSCAN pursuant to the IRA, the Company must file a registration statement covering the shares within
75 calendar days of such demand, and use our best efforts to have it declared effective within 120 calendar days of filing.  If
the Company does not meet these deadlines, the Company must pay liquidated damages of 2% of the purchase price of the securities
per month until such failures are cured (up to an aggregate maximum of 10%).  POSCAN will also have “piggy-back”
registration rights with respect to such shares. To date, POSCAN has not required the Company to register the shares.



F-23







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



The IRA provides that the Company will
appoint a director nominated by POSCAN to our Board of Directors, and will continue to nominate a POSCAN-designee at each annual
meeting for as long as POSCAN owns not less than 10% of the issued and outstanding shares of our common stock.  So long
as POSCAN holds any shares of our common stock (subject to customary exceptions), the Company shall not issue any new securities
to any person unless the Company has also offered to POSCAN the right to purchase its pro rata share of such securities on the
same terms and conditions as are offered, as to maintain its then percentage interest in our outstanding capital.  The
IRA also provides that, until the earlier of (i) POSCAN owning less than 10% of our issued and outstanding common stock and (ii)
our aggregate market capitalization exceeding $250 million, the Company may not undertake certain actions without the approval
of POSCAN (which approval may be evidenced by the affirmative vote or consent of POSCAN’s director nominee), including:  a
liquidation, merger or reorganization; a sale of all or substantially all of the Company’s assets; incurring indebtedness
in excess of $1,000,000 (subject to certain exceptions); create or take any action that results in our the Company’s holding
the capital stock of any subsidiary that is not wholly owned (with certain exceptions); transfer or license our proprietary technology
to a third party; substantially change the scope of the Company’s business; or amend or waive any non-competition or non-solicitation
provision applicable to the Company’s Chief Executive Officer or Chief Operating Officer.



POSCO (with its subsidiaries) is a diversified
company, with operations in energy, chemicals and materials and is one of the largest steel manufacturers in the world.   There
can be no assurance that any final agreement will be reached with POSCAN with respect to a pilot plant, a commercial plant, any
further investment by POSCAN, any purchase by POSCAN of our production, or otherwise.



Warrants exercises



During the year ended June 30, 2012, 4,200,000
D Warrants were exercised for gross proceeds of $210,000.



Common Stock issued for acquisition
of mineral rights



On August 3, 2010, the Company issued 10,000,000
shares of its common stock valued at $3,900,000 as part of its acquisition of mineral rights in connection with the Alfredo acquisition
(See Note 4). Management determined the fair value of the stock issued to be $0.39 per share based on the last sale price of the
common stock on the OTC Bulletin Board on that date.



On June 2, 2011, the Company issued of
127,500,000 shares of its common stock valued at $31,875,000 as part of its acquisition of mineral rights in connection with the
Maricunga acquisition (See Note 4). Management determined the fair value of the stock issued to be $0.25 per share based on the
last sale price of the common stock on the OTC Bulletin Board on that date.



Common Stock issued for services



Common stock issued for services during
the years ended June 30, 2005 through June 30, 2010



The table below summarizes sales of common
stock from June 24, 2005 (inception) through June 30, 2012, and includes the portion of proceeds received which was allocated to
warrants issued in conjunction with these sales of common stock.



|Fiscal 
Year |  | Shares |           |  | Fair value of
 shares issued |   |           | Amount allocated to common 
stock par
value |  |   | Amount  allocated to paid-in  capital |  |  | Per share price
 range |          
|------------ |  | ------ | --------- |  | ---------------------------- | - | --------- | ------------------------------------------- |  | - | ------------------------------------- |  |  | ---------------------- | ---------
|2005         |  |        | -         |  |                              | $ | -         |                                             |  | $ | -                                     |  |  | $                      | -        
|2006         |  |        | -         |  |                              |   | -         |                                             |  |   | -                                     |  |  |                        | -        
|2007         |  |        | -         |  |                              |   | -         |                                             |  |   | -                                     |  |  |                        | -        
|2008         |  |        | -         |  |                              |   | -         |                                             |  |   | -                                     |  |  |                        | -        
|2009         |  |        | -         |  |                              |   | -         |                                             |  |   | -                                     |  |  |                        | -        
|2010         |  |        | 2,625,000 |  |                              |   | 811,050   |                                             |  |   | 2,625                                 |  |  |                        | 808,425  
|2011         |  |        | 5,603,501 |  |                              |   | 1,697,567 |                                             |  |   | 5,603                                 |  |  |                        | 1,691,964
|2012         |  |        | 1,573,333 |  |                              |   | 135,200   |                                             |  |   | 1,574                                 |  |  |                        | 133,626  



2011 Activity:



On November 24, 2010, the Company entered
into an agreement (the “Compensation Modification Agreement”) with LW Securities, Ltd. (the “Finder”) in
connection with private placement offerings which closed at various times between June 9, 2010, and September 13, 2010. The Compensation
Modification Agreement provides, among other things, that in lieu of $105,000 of cash fees, the Company would issue the Finder
1,000,000 shares of common stock. In February 2011, the Company issued the Finder 1,000,000 shares in accordance with the Compensation
Modification Agreement. The Company valued the shares issued pursuant to the Compensation Modification Agreement at $385,000, which
is equal to 1,000,000 shares of common stock issued at the measurement date at a closing price of $0.385 per share. The Company
recorded the difference of $280,000 as general and administrative expenses.



F-24







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



On December 30, 2010, the Company reached
an agreement with its legal counsel (the “Firm”), pursuant to which the Company issued in February 2011, 608,310 shares
of common stock to the Firm for outstanding legal fees and expenses. The value of the shares was determined based on the $0.385
closing price of the common stock on the measurement date, and totaled $234,199. The Company recorded the amount to general and
administrative expenses.



On December 30, 2010, the Company reached
an agreement (the “Settlement Agreement”) with an individual the Company had been considering hiring as an executive
officer (the “Candidate”) to settle certain potential claims relating to the Company’s proposed employment of
the Candidate. Pursuant to the Settlement Agreement, the Company issued in February 2011, 1,000,000 shares of common stock to the
Candidate. The Company valued the 1,000,000 shares of common stock at $385,000 based on the $0.385 closing price of the common
stock on the measurement date. The Company recorded general and administrative expenses of $385,000 in connection with this agreement.



On June 27, 2011, the Company issued 120,000
shares of common stock for services to a vendor. The value of the issuable shares was determined based on the $0.22 closing price
of the common stock on the measurement date, and totaled $26,400. The Company recorded the amount to general and administrative
expenses.



Investment Agreement



The Company entered into an Investment
Agreement (the “Investment Agreement”) with Centurion Private Equity, LLC (the “Investor”), dated December
2, 2010, pursuant to which, subject to certain conditions, the Company may sell newly issued shares of common stock (the “Put
Shares”) to the Investor from time to time during the commitment period (each such sale, a “Put”) subject to
certain dollar and share volume limitations for each Put. Provided that the relevant conditions are met, the Company may make Puts
under the Investment Agreement from time to time until 24 months from the date the Registration Statement (as defined below) is
declared effective or until all Puts under the Investment Agreement have reached an aggregate gross sales price of $10 million,
if sooner.



In connection with the Investment Agreement,
the Company issued 87,096 shares of common stock to the Investor on August 27, 2010 and recorded general and administrative
expense of $26,129 based on the $0.30 per share market price of common stock on that date. As consideration for entering into the
Investment Agreement, the Company also issued 1,551,253 shares to the Investor on December 2, 2010 and recorded general and administrative
expense of $358,339 based on the $0.231 per share market price of the common stock on that date.



On September 14, 2011, the Company delivered
a Notice of Termination to the Investor, terminating the Company’s right to make any Puts under the Investment Agreement.



2012 Activity:



On March 6, 2012, the Board of Directors
approved an agreement with a third party consultant to issue 500,000 shares of common stock for services, of which 250,000 were
issued in March 2012 and 250,000 shares were issued in May 2012. The value of the shares was determined based on the $0.13 per
share closing price of the common stock on the measurement date, and totaled $65,000, all of which was expensed during the year
ended June 30, 2012.



On March 6, 2012, the Board of Directors
approved the issuance of 540,000 shares of common stock to various third party consultants for services, all of which were issued
during March 2012. The value of the shares was determined based on the $0.13 per share closing price of the common stock on the
measurement date, and totaled $70,200, which was expensed during the year ended June 30, 2012.



Common Stock issued in connection
with Settlement Agreements



During the year ended June 30, 2011, the
Company reached a settlement agreement with Puna, pursuant to which the Company issued Puna 6,000,000 shares of common stock in
full satisfaction of any and all obligations the Company may have to Puna. The Company recorded settlement expense of $1,920,000
($0.32 per share) determined based upon the fair value of the common stock on the issuance date.



F-25







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



On November 24, 2010, the Company entered
into a termination, settlement and release agreement with Lacus in exchange for a $150,000 cash payment and 500,000 shares of common
stock to settle potential Lacus claims related to the Puna Lithium transaction. The 500,000 shares are recorded in the amount of
$192,500, which was based on a fair value of $0.385 per share of common stock on the measurement date.  As the Company
had recorded $765,000 of accrued liabilities as of June 30, 2010 related to Lacus, the Company recorded a gain on settlement of
$422,500 during the year ended June 30, 2011 as a result of the settlement.



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.



On May 2, 2012, the Company’s Board
of Directors amended the 2009 Plan to increase the maximum number of shares of common stock of the Company available for issuance
pursuant to awards granted under the 2009 Plan (the “Plan Limit”) from 5,000,000 shares to 30,000,000 shares (the "Plan
Expansion Amendment"). After further review, and pursuant to the recommendation of its Compensation Committee, on June 17,
2012, the Board amended the 2009 Plan to decrease the Plan Limit from 30,000,000 shares to 5,000,000 shares, effectively rescinding
the Plan Expansion Amendment.



In May 2012, the Company committed to grant
Restricted Stock Units with respect to an aggregate of 900,000 shares to members of its Board of Directors. Such restricted stock
units of these restricted stock units shall vest over a period over three years starting from later of July 1, 2011 and the initial
date of the applicable director’s substantial involvement with the Board’s activities,. However, the Company does not
currently have enough shares authorized for issuance under our 2009 Plan to satisfy all of these obligations. The Company
recorded compensation expense of $19,327 during the year ended June 30, 2012.



On May 2, 2012, the Board of Directors
amended the 2009 Plan to increase the maximum number of shares of common stock of the Company available for issuance pursuant to
awards granted under the 2009 Plan from 5,000,000 shares to 30,000,000 shares. However, on June 17, 2012, the Board amended the
2009 Plan to decrease the Plan Limit from 30,000,000 shares to 5,000,000 shares, effectively rescinding the May 2, 2012 amendment.



Restricted Stock Units



On June 27, 2011, the Company granted its
Chief Executive Officer an award of 700,000 restricted stock units under the 2009 Plan which vests in 1/3 increments each January
15th of 2012, 2013 and 2014. The value of the issuable shares was determined based on the $0.22 per share closing price of the
common stock on the measurement date, and totaled $154,000. The Company will record stock compensation expense over the 3 year
service period. During the year ended June 30, 2012, the Company recorded $103,830 of stock compensation in connection with this
agreement. 233,333 shares of common stock have been issued during the year ended June 30, 2012.



During December 2011, the Company entered
into a one-year employment agreement with a new Vice President of Finance (the “VP of Finance”) which originally was
to begin on January 1, 2012 (amended to March 1, 2012). Pursuant to the agreement, the VP of Finance was granted 250,000 restricted
stock units under its 2009 Plan which will vest over 3 years. The value of the issuable shares was determined based on the $0.13
closing price of the common stock on the measurement date, and totaled $34,500. The Company will record stock compensation expense
for these restricted stock units over the 3 year service period which begins on March 1, 2012, of which the Company recorded expense
of $11,500 during the year ended June 30, 2012.



Stock Option Awards



On December 9, 2009, the Company granted
non-statutory options to purchase (i) 500,000 shares of its common stock to a newly appointed director and (i) 50,000 shares of
its common stock to each of two newly appointed directors.  These were granted with an exercise price equal to $0.25 per share,
which was the price at which the Company was selling 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 options vest in three equal installments on each of the first, second and third anniversaries of the date of
grant and expire after ten years.



F-26







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



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 of $37,091 was immediately expensed and the options had no intrinsic value on the date of issuance.



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. The fair value of $114,783 was immediately expensed.



On August 26, 2010, the Company granted
1,000,000 options to purchase shares of its common stock to MIZ in connection with the Company’s hiring of an affiliate of
MIZ as its Chief Operating Officer.  These options were granted with an exercise price of $0.38 per share, which was
also the stock price on the grant date.  As a result, the intrinsic value and estimated fair value for these options
on the grant date was $0 and $343,310, respectively. These options vest in three equal installments on each of the first, second
and third anniversaries of the date of grant and expire after ten years.



A summary of stock option activity is presented in the table
below:



|                             |  |           |           |   |                  |   |      | Weighted-average |  |  |           | 
|---------------------------- |  | --------- | --------- | - | ---------------- | - | ---- | ---------------- |  |  | --------- | 
|                             |  |           |           |   | Weighted-average |   |      | Remaining        |  |  | Aggregate | 
|                             |  | Number of |           |   | Exercise         |   |      | Contractual      |  |  | Intrinsic | 
|                             |  | Shares    |           |   | Price            |   |      | Term (years)     |  |  | Value     | 
|Outstanding at June 30, 2010 |  |           | 800,000   |   |                  | $ | 0.31 |                  |  |  | 7.73      | 
|Granted                      |  |           | 1,000,000 |   |                  |   | 0.38 |                  |  |  | 10.00     | 
|Exercised                    |  |           | -         |   |                  |   | -    |                  |  |  | -         | 
|Expired/Forfeited            |  |           | -         |   |                  |   | -    |                  |  |  | -         | 
|Outstanding at June 30, 2011 |  |           | 1,800,000 |   |                  |   | 0.35 |                  |  |  | 8.06      | 
|Granted                      |  |           | 250,000   |   |                  |   | 0.40 |                  |  |  | 5.00      | 
|Exercised                    |  |           | -         |   |                  |   | -    |                  |  |  | -         | 
|Expired/Forfeited            |  |           | (600,000  | ) |                  |   | 0.31 |                  |  |  | 6.82      | 
|Outstanding at June 30, 2012 |  |           | 1,450,000 |   |                  | $ | 0.38 |                  |  |  | 6.79      | 
|Exercisable at June 30, 2012 |  |           | 533,333   |   |                  | $ | 0.36 |                  |  |  | 6.13      | 



During the year ended June 30, 2012, the
250,000 options that were granted had a weighted average grant-date fair value of $0.13 per share.  During the year ended
June 30, 2011, the 1,000,000 options that were granted had a weighted average grant-date fair value of $0.34 per share.  During
the years ended June 30, 2012, and 2011, the Company recognized stock-based compensation expense of $121,210 and $283,759, respectively
related to stock options, of which $121,210 and $186,090, respectively, was attributable to a related party.  As of June
30, 2012, there was approximately $77,670 of total unrecognized compensation cost related to non-vested stock options which is
expected to be recognized over a weighted-average period of approximately 1.54 years.



F-27







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



The fair value of the options granted during
the years ended June 30, 2012 and 2011 were estimated at the date of grant using the Black-Scholes option-pricing model with the
following assumptions:



|                                            |  | June 30, 2012 |      |   | June 30, 2011 |  
|------------------------------------------- |  | ------------- | ---- | - | ------------- | -
|Market value of common stock on grant date  |  | $             | 0.14 |   |               | $
|Risk free interest rate (1)                 |  |               | 0.83 | % |               |  
|Dividend yield                              |  |               | None |   |               |  
|Volatility factor                           |  |               | 230  | % |               |  
|Weighted average expected life in years (2) |  |               | 3.3  |   |               |  
|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.
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (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 outstanding is as follows:



|                                                     |  |           |             |   | Weighted-average |  
|---------------------------------------------------- |  | --------- | ----------- | - | ---------------- | -
|                                                     |  | Number of |             |   | Exercise         |  
|                                                     |  | Warrants  |             |   | Price            |  
|Outstanding at June 30, 2010                         |  |           | 18,493,150  |   |                  | $
|Issued                                               |  |           | 46,750,323  |   |                  |  
|Warrants issued pursuant to anti-dilution provisions |  |           | 2,980,428   |   |                  |  
|Exercised                                            |  |           | (14,023,336 | ) |                  |  
|Outstanding at June 30, 2011                         |  |           | 54,200,565  |   |                  |  
|Issued                                               |  |           | 38,095,300  |   |                  |  
|Warrants issued pursuant to anti-dilution provisions |  |           | 1,188,847   |   |                  |  
|Exercised                                            |  |           | (4,200,000  | ) |                  |  
|Outstanding at June 30, 2012                         |  |           | 89,284,712  |   |                  |  



F-28







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



Warrants outstanding as of June 30, 2012
are as follows:



|                                      |  |          |      |  | Outstanding |  |            |           |  |  | Exercisable     | 
|------------------------------------- |  | -------- | ---- |  | ----------- |  | ---------- | --------- |  |  | --------------- | 
|                                      |  | Exercise |      |  | number      |  |            | Remaining |  |  | number          | 
|Issuance Date                         |  | price    |      |  | of shares   |  |            | life      |  |  | of shares       | 
|November 10, 2009 – December 23, 2009 |  | $        | 0.31 |  |             |  | 7,162,305  |           |  |  | 2.4 - 2.5 years | 
|November 10, 2009 – December 23, 2009 |  | $        | 0.48 |  |             |  | 7,211,339  |           |  |  | 2.4 - 2.5 years | 
|June 9, 2010 – September 13, 2010     |  | $        | 0.32 |  |             |  | 9,575,516  |           |  |  | 2.9 - 3.2 years | 
|June 9, 2010 – July 13, 2010          |  | $        | 0.20 |  |             |  | 527,891    |           |  |  | 2.9 - 3.0 years | 
|November 8-15, 2010                   |  | $        | 0.05 |  |             |  | 1,400,000  |           |  |  | 3.4 years       | 
|December 9, 2010 – March 24, 2011     |  | $        | 0.15 |  |             |  | 4,806,878  |           |  |  | 3.4 - 3.6 years | 
|March 24, 2011                        |  | $        | 0.45 |  |             |  | 4,256,827  |           |  |  | 3.7 years       | 
|April 7, 2011                         |  | $        | 0.37 |  |             |  | 11,960,050 |           |  |  | 1.9 years       | 
|April 7, 2011                         |  | $        | 0.26 |  |             |  | 1,913,606  |           |  |  | 1.9 years       | 
|May 2, 2011                           |  | $        | 0.43 |  |             |  | 1,500,000  |           |  |  | 3.8 years       | 
|May 2, 2011                           |  | $        | 0.36 |  |             |  | 75,000     |           |  |  | 3.8 years       | 
|June 27, 2011                         |  | $        | 0.37 |  |             |  | 800,000    |           |  |  | 1.8 years       | 
|September 14, 2011                    |  | $        | 0.40 |  |             |  | 38,095,300 |           |  |  | 2.2 years       | 
|                                      |  |          |      |  |             |  | 89,284,712 |           |  |  |                 | 



The intrinsic value of warrants outstanding
at June 30, 2012 was $70,000.



NOTE 11.   FAIR VALUE MEASUREMENTS



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



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



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



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



As required by FASB ASC Topic No. 820 –
10, financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement.
The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may
affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The
estimated fair value of the derivative warrant instruments was calculated using a modified lattice valuation model (See Note 9).



F-29







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



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, 2012:



|                                              |  | Quoted Prices |   |             |   |   |              |  |   |             | 
|--------------------------------------------- |  | ------------- | - | ----------- | - | - | ------------ |  | - | ----------- | 
|                                              |  | In Active     |   | Significant |   |   |              |  |   | Total       | 
|                                              |  | Markets for   |   | Other       |   |   | Significant  |  |   | Carrying    | 
|                                              |  | Identical     |   | Observable  |   |   | Unobservable |  |   | Value as of | 
|                                              |  | Assets        |   | Inputs      |   |   | Inputs       |  |   | June 30,    | 
|Description                                   |  | (Level 1)     |   | (Level 2)   |   |   | (Level 3)    |  |   | 2012        | 
|Derivative liabilities - warrant  instruments |  | $             | - |             | $ | - |              |  | $ | 7,653,928   | 



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, 2011:



|                                              |  | Quoted Prices |   |  |             |   |   |              |  |   |             | 
|--------------------------------------------- |  | ------------- | - |  | ----------- | - | - | ------------ |  | - | ----------- | 
|                                              |  | In Active     |   |  | Significant |   |   |              |  |   | Total       | 
|                                              |  | Markets for   |   |  | Other       |   |   | Significant  |  |   | Carrying    | 
|                                              |  | Identical     |   |  | Observable  |   |   | Unobservable |  |   | Value as of | 
|                                              |  | Assets        |   |  | Inputs      |   |   | Inputs       |  |   | June 30,    | 
|Description                                   |  | (Level 1)     |   |  | (Level 2)   |   |   | (Level 3)    |  |   | 2011        | 
|Derivative liabilities - warrant  instruments |  | $             | - |  |             | $ | - |              |  | $ | 15,244,754  | 



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



|                                                                                                       |  | Significant Unobservable Inputs (Level 3) |            
|------------------------------------------------------------------------------------------------------ |  | ----------------------------------------- | -----------
|                                                                                                       |  | Years Ended June 30,                      |            
|                                                                                                       |  | 2012                                      |            
|Beginning balance                                                                                      |  | $                                         | (15,244,754
|Change in fair value                                                                                   |  |                                           | 10,780,342 
|Additions                                                                                              |  |                                           | (3,779,978 
|Warrant modification                                                                                   |  |                                           | -          
|Exercise of warrants                                                                                   |  |                                           | 590,462    
|Ending balance                                                                                         |  | $                                         | (7,653,928 
|                                                                                                       |  |                                           |            
|Change in unrealized gains (losses) included in earnings for the year ended June 30, 2012
    and 2011 |  | $                                         | 10,780,342 



During the years ended June 30, 2012 and
2011, the Company recorded a realized loss of $590,462 and $4,069,165, respectively, on the settlement of a portion of the warrant
derivative liability due to the exercise of certain warrants, which is included in the change in the fair value of warrant derivative
liability in the consolidated income statements.



F-30







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



NOTE 12. 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 are
as follows as of the years ended June 30, 2012:



|        |  | 2012 |             |   | 2011 |  
|------- |  | ---- | ----------- | - | ---- | -
|U.S.    |  | $    | (5,224,954  | ) |      | $
|Foreign |  |      | (7,601,114  | ) |      |  
|Total   |  | $    | (12,826,068 | ) |      | $



The components of the Company’s deferred tax assets at
June 30, 2012 and 2011 are as follows:



|                                        |  | 2012 |             |   | 2011 |  
|--------------------------------------- |  | ---- | ----------- | - | ---- | -
|Deferred tax assets:                    |  |      |             |   |      |  
|Net operating loss carry-forwards       |  | $    | 6,654,049   |   |      | $
|Stock-based compensation                |  |      | 1,391,211   |   |      |  
|Impairment of mineral rights            |  |      | 3,098,687   |   |      |  
|Accrued expenses                        |  |      | 255,085     |   |      |  
|Loss contingency                        |  |      | 167,108     |   |      |  
|Valuation allowance                     |  |      | (11,441,020 | ) |      |  
|Total deferred tax assets               |  |      | 125,120     |   |      |  
|Deferred tax liability:                 |  |      |             |   |      |  
|Beneficial conversion feature and other |  |      | (125,120    | ) |      |  
|Net deferred tax assets                 |  | $    | -           |   |      | $



The following table provides reconciliation
between income taxes computed at the federal statutory rate and our provision for income taxes at June 30, 2012:



|                                                                   |  | 2012 |            |   | 2011 |  
|------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | -
|Federal income taxes at 34%                                        |  | $    | (466,035   | ) |      | $
|Change in fair value of derivative liability - warrant instruments |  |      | (3,665,316 | ) |      |  
|Warrant modification expense                                       |  |      | -          |   |      |  
|Amortization of beneficial conversion feature                      |  |      | 175,042    |   |      |  
|Meals and entertainment                                            |  |      | 14,617     |   |      |  
|Restricted stock units                                             |  |      | 124,525    |   |      |  
|Change in valuation allowance                                      |  |      | 3,814,448  |   |      |  
|Other                                                              |  |      | 2,719      |   |      |  
|Provision for income taxes                                         |  | $    | -          |   |      | $



Unless previously utilized, $9,899,863
of federal tax loss carry-forwards will begin to expire in 2029 and $8,280,964 foreign loss can be carried forward indefinitely.  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, 2012 and 2011.



F-31







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



NOTE 13.  COMMITMENTS AND
CONTINGENCIES



Mining Permits



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 the Company 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 the Company’s properties at economically viable
costs.



In Chile, lithium is not exploitable via
traditional mining concessions. The Chilean Mining Code (“CMC”) establishes the reserve of lithium to the State of
Chile and expressly provides that the exploration or exploitation of “non-concessible” substances (including lithium)
can be performed only directly by the State of Chile, or its companies, or by means of administrative concessions or special operation
contracts, fulfilling the requirements and conditions set forth by the President of the Republic of Chile for each case. Currently
neither the Company nor its subsidiaries have sufficient authority (or permits) to explore and exploit lithium in Chile.



The Chilean Government’s Ministry
of Mining established its first ever auction for the award of a lithium production quotas and licenses (Special Lithium Operations
Contracts, or CEOLs) which would permit the exploitation of an aggregate of 100,000 tons of lithium metal (approximately 530,000
tons of lithium carbonate equivalent) over a 20 year period, subject to a seven percent royalty.  In September 2012, the Company
formed a consortium consisting of the Company, POSCO, Daewoo International Corp, and Mitsui & Co. (the “Consortium”)
for the purpose of participating in such CEOL auction.  As required under the rules established by the Ministry of Mining,
on September 14th, 2012, the Consortium submitted its bid for the CEOLs.



On September 24, 2012, the Ministry of
Mining opened the bids and informed the Company that the Consortium’s bid was not the winning bid.



On October 1, 2012, the Ministry of
Mining informed the Company that the Chilean Government decided to invalidate the CEOL process and the results announced on September
24, 2012 due to an administrative error.



The Company is currently in the process
of pursuing the Chilean Government to reconsider its decision to invalidate the CEOL process. The Company requested that the Chilean
Government should award the CEOL to the second highest bidder, the Consortium ́s offer. The Company put together a “Request
for Reconsideration” (RFR).   This is deemed to be a friendly recourse which anybody can request an authority to
change their decision.



If such action is turned down, a fast track Court Action called
“Protection Recourse” might take place. Under that circumstance, Courts would determine on rule whether or not the
Government is abusing by its action.   If they rule in the Company ́s favor, the Government would be forced to complete
the process and grant the CEOL to the Consortium.



Pending the outcome of the permitting process,
the Company is exploring other strategies that could enable the Company to obtain rights to exploit lithium in Chile, whether from
our Maricunga project or otherwise. Additionally, the Company is evaluating the Maricunga project as a potential producer of potassium
nitrate.  However, there can be no assurances that the Company will be able to do so in the near future or at all.



There has been a recent trend in Argentina,
at the National and Provincial levels, of seeking to limit and/or to restrict certain mining activities within the territory of
certain Provinces. The Province of Jujuy, which is adjacent to the Province of Salta, where the Noto Properties are located, issued
in March 2011 a Decree declaring lithium reserves as strategic natural resources for the Province, subjecting lithium exploration
and exploitation projects to the evaluation of an Experts Committee, and the subsequent approval of different government bodies
and the favorable recommendation of the Experts Committee. There can be no assurance that similar regulations will not be issued
in the Province of Salta.



F-32







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



In October 2010, the National Law No. 26,639,
"Regime of Minimum Principles for the Preservation of Glaciers and Periglacial Environment" (the "Glaciers Law"),
was promulgated. The Glaciers Law is aimed at the protection and preservation of glaciers and the periglacial environment. The
Glaciers Law regulates, limits, and in certain cases, bans certain activities developed on glacial and periglacial areas. Depending
on how the Glaciers Law is interpreted - and, specifically, the definition of the term “periglacial” - this regulation
could have a negative effect on the potential activities to be conducted on the Noto Properties.



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



Non-Binding Agreement - New World Resource
Corp.



On January 19, 2012, the Company entered
into a non-binding agreement whereby the Company would acquire certain options (the “New World Options”) held by New
World Resource Corp., with respect to a the Pastos Grandes lithium brine project in the Sud Lipez province within the Department
of Potosi, Bolivia (the “Pastos Project”), as well as certain other assets.



The agreement contemplated a purchase price
for the New World Options and other assets consisting of equity representing 22.5% of the Company after completion of such transaction.



The Company advanced $150,000 to fund a
required payment under the New World Options that was due in February 2012. The Company then elected to not pursue this transaction
and expensed this $150,000 payment during the year ended June 30, 2012.



Non-Binding Agreement - Claritas, Lithium and Bongo Mining
Properties



On November 30, 2011, the Company entered
into a non-binding agreement with three companies consisting of SLM Claritas, SLM Bongo and SLM Lithium (collectively, the “SLM
Sellers”) with mining concessions with respect to an aggregate of 3,721 acres (1,506 hectares) in Chile (the “Chilean
Prospect”) located near the Company’s Maricunga property. Pursuant to the non-binding agreement, the Company made a
one-time nonrefundable payment (the “SLM Deposit”) of $250,000 on January 5, 2012. The SLM Deposit provided the Company
with 60 days to perform due diligence procedures to determine whether or not to proceed with negotiating definitive agreements
with the SLM Sellers regarding the Chilean Prospect. The Company elected to not proceed on negotiations related to the definitive
agreements and has written off the SLM Deposit during the year ended June 30, 2012.



2011 Offering - Registration Rights
Penalties



On March 22, 2011, the Board of Directors
approved a private placement offering (the “2011 Offering”) to investors of up to $10,000,000 worth of units of securities
at an offering price of $0.27 per unit (“G Unit”). Each G Unit consisted of (i) one share of our common stock, par
value $0.001 per share, and (ii) a warrant to purchase one-half of a share of common stock, at an exercise price of $0.40 per whole
share (“G Warrant”, or “2011 Unit Offering warrant”). The G Warrants are exercisable for a period of three
years. On April 7, April 13, May 3, May 6, and May 19, 2011, the Company held closings of the 2011 Offering with respect to an
aggregate of 23,920,071 units of its securities, for aggregate gross proceeds of approximately $6,458,189 ($5,720,918 net after
offering expenses and placement agent fees). The Company also issued to placement agents and finders warrants to purchase an aggregate
of 1,913,606 shares of common stock at an exercise price of $0.27 per share and exercisable for a period of three years.



Pursuant to a registration rights agreement
for the 2011 Offering, the Company agreed to file a registration statement with the Securities and Exchange Commission within 75
days after the closing date to register the shares of common stock and the shares of common stock underlying the G warrants under
the Securities Act of 1933, as amended, and to use its best efforts to cause such registration statement to become effective within
150 days after the filing date, all at the Company’s own expense. Pursuant to the registration rights agreement, in the event
the Company does not meet these deadlines, the Company has agreed to pay the investors monetary penalties of 2% of their investment
per month until such failures are cured (up to an aggregate maximum penalty of 10%, or $645,819). The Company was required to file
the registration statement by June 21, 2011, however the registration statement was not filed until July 1, 2011, and the Company
recorded a monetary penalties accrual of $38,750, which has not yet been paid as of June 31, 2012. The Company was required
to cause the registration statement to become effective by November 28, 2011, however the registration statement was not effective
until March 19, 2012, and the Company increased the monetary penalties accrual to $530,243 (which includes accrued interest of
$41,438 and is calculated at 18% per annum for registration rights penalties considered past due), and the penalty has not yet
been paid as of June 30, 2012. Although the Company intends to seek a waiver for these monetary penalties, there is no assurance
the Company will be successful in obtaining a waiver.



F-33







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



R3 Fusion



R3 Fusion, Inc. (“R3”) is a
technology company that has developed, patented, demonstrated and is currently commercializing its Short Path Condensate Recovery
(SPaCeR) technology, which utilizes waste process heat and engineering designed to achieve a highly cost effective means of environmentally
friendly fluid processing.



The Company believes the SPaCeRTM
technology may speed the rate of mineral recovery from brine. However there can be no assurance that it will do so on a commercially
favorable basis or at all. Not only do we believe R3’s SPaCeR technology can aid in the recovery
of lithium, but we believe it will allow brine mining operations to use smaller facilities, reducing their footprint by as much
as 1,000-fold.



On January 13, 2012, Li3 Energy entered
into an agreement with R3 (the “R3 Agreement”) to apply R3’s SPaCeR in processing brine from the Company’s
properties. Pursuant to the R3 Agreement, R3 will provide the Company with a demonstration plant consisting of two units having
a design flow capacity of at least 1.6 liters per second each, and on-site training. Upon installation of the facilities Li3 Energy
will pay R3 equipment use fees of $37,500 per month for the first twelve months following successful installation and commissioning
of the system, and, if Li3 Energy elects to keep the equipment on site thereafter, $12,500 per month for up to an additional 36
months.



The R3 Agreement also provides that Li3
Energy will be given the exclusive license, subject to final negotiations, to exploit R3’s SPaCeR technology throughout the
world for the processing of lithium-containing brine for so long as Li3 Energy is using such systems in the processing of brine
at our facilities in South America.



Nevada



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.   During the year
ended June 30, 2011, the Company became obligated to pay approximately $57,000 of claim maintenance fees on the Nevada Claims and
approximately $32,600 of Nevada state taxes, which is recorded in accrued expenses as of June 30, 2011.  At June 30,
2012 and 2011, the Company has recorded $189,600 in accrued liabilities related to this agreement.



Employment Agreement



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



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



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



Gain contingency



As at June
30, 2012, the Company did not capitalize any Chilean value-added taxes (“VAT”) amounting to $770,153arising from various purchases of goods and services in Chile. The Company expensed these amounts
during the year ended June 30, 2012 due to the uncertainty of recoverability and is included in exploration expenses on the consolidated
statement of operations. Under Chilean regulation, this VAT is recoverable from future VAT payable.



F-34







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



Operating leases



Rental expense for office operating leases
was $87,769 and $43,662 during the years ended June 30, 2012 and 2011, respectively. Future minimum rental commitments under long-term
non-cancellable facilities operating leases in place as of June 30, 2012 are as follows:



|Years ending June 30         |  | Amount |        
|---------------------------- |  | ------ | -------
|2013                         |  | $      | 93,308 
|2014                         |  |        | 100,041
|2015                         |  |        | 42,304 
|2016                         |  |        | -      
|2017                         |  |        | -      
|Thereafter                   |  |        | -      
|Total minimum lease payments |  | $      | 235,653



NOTE 14. SUBSEQUENT EVENTS



POSCO



On August 17, 2012, the Company closed
on POSCAN’s second tranche of investment under the SPA (the “Second Closing”), selling 62,499,938 units to POSCAN
for $9,999,990, with each unit consisting of one share of common stock and a three-year warrant to purchase one share of common
stock for $0.21 per share.



On the same date, the Company entered into
an Additional Agreement to Stock Purchase Agreement (the “Additional Agreement”) with POSCAN which, among other things,
modifies certain provisions of the SPA. The Additional Agreement reduced POSCAN’s purchase price per unit for the Second
Closing from $0.21 per share to $0.16 per share, and reduced the exercise price of all of the warrants sold under the SPA from
$0.40 per share to $0.21 per share. The Company revalued the modified warrants before and after the modification date and the increase
in fair value is estimated to be $219,322 which will be recorded as a modification expense.



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



The Additional Agreement provides restrictions
on our use of the proceeds from the Second Closing, and includes the Company’s agreement to use its best efforts to obtain
a Chilean lithium production concession and to take certain steps towards commercialization of its flagship Maricunga property.



Stock Settlement Agreements



In September 2012, the Company entered
into several stock settlement agreements with certain parties to whom the Company was obligated as of June 30, 2012 (“Receivable
Holders”). The Company has entered into settlement agreements with respect to an aggregate of $390,326 of obligations, and
has issued an aggregate of 5,825,761 shares of the Company’s common stock pursuant thereto. Each settlement agreement that
the Company has entered into to date has provided for the Company to issue one share of the Company’s common stock for every
$0.067 of obligations released by the Receivable Holder.



The majority of the settlement agreements
above were for obligations to directors and officers of the Company as of June 30, 2012.



F-35







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



Second Waiver Agreement



In September 2012, the Company obtained the Second Waiver Agreement
from the holders of the zero-coupon convertible notes. See Note 8.



Mining Permit



In September 2012, the Company received update on its permit
request for the exploitation right of Lithium from the Government of Chile. See Note 13.



F-36







Li3 ENERGY, INC.

(An Exploration Stage Company)

Notes to Consolidated Financial Statements

For the years ended June 30, 2012 and
2011



EXHIBIT INDEX

|Exhibit
        Number |  | Description                                                                                                                                                   
|---------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.47                  |  |                                                                                                                                                               
|                       |  |                                                                                                                                                               
|10.52                  |  |                                                                                                                                                               
|                       |  |                                                                                                                                                               
|10.53                  |  |                                                                                                                                                               
|                       |  |                                                                                                                                                               
|31.1                   |  | Certification of Principal Executive Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|                       |  |                                                                                                                                                               
|31.2                   |  | Certification of Principal Financial Officer, pursuant to SEC Rules 13a-14(a) and 15d-14(a), adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|                       |  |                                                                                                                                                               
|32.1                   |  | Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002               
|                       |  |                                                                                                                                                               
|32.2                   |  | Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002               
|                       |  |