10-Q 1 v452964_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2016

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

For the transition period from __________ to __________

Commission File Number: 000-54303

LI3 ENERGY, INC.

(Exact name of registrant as specified in its charter)

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

Matias Cousiño 82, Of 806

Santiago de Chile, 8320269, Chile

(Address of principal executive offices) (Zip Code)

+ (56) 2 2206 5252

(Registrant’s telephone number, including area code)

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

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

Yes x No ¨

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

Yes x No ¨

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

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

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

Yes ¨ No x

As of November 21, 2016, there were 500,121,178 shares of the registrant’s common stock outstanding.

LI3 ENERGY, INC.

TABLE OF CONTENTS

		Page

Part I - Financial Information

Item 1	Financial Statements	4

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3	Quantitative and Qualitative Disclosures About Market Risk	18

Item 4	Controls and Procedures	18

Part II - Other Information

Item 1	Legal Proceedings	19

Item 1A	Risk Factors	19

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	19

Item 3	Defaults Upon Senior Securities	19

Item 4	Mine Safety Disclosures	19

Item 5	Other Information	19

Item 6	Exhibits	20

Signatures		20

Statement Regarding Forward-Looking Information

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

All statements other than statements of historical facts included in this Report including, without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Report, regarding our financial condition, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “estimates,” “projects,” “target,” “goal,” “plans,” “objective,” “should” or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements including, but not limited to, our ability to identify appropriate corporate acquisition and/or joint venture opportunities in the lithium mining sector, our ability to establish technical and managerial infrastructure, our ability to raise the required capital to take advantage of and successfully participate in such opportunities, and future economic conditions, political stability and lithium prices. Descriptions of certain risks and uncertainties that could cause our actual results to differ materially from those described by the forward-looking statements in this Quarterly Report on Form 10-Q appear in the section captioned “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2016, filed with the Securities and Exchange Commission (the “SEC”) on October 7, 2016.

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

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

LI3 ENERGY, INC.

Consolidated Balance Sheets

	September 30, 2016 (unaudited)			June 30, 2016
Assets
Current assets:
Cash	$	212,874		$	382,054
Prepaid expenses and advances		10,486			9,169
Total current assets		223,360			391,223
Equity investment in Minera Li		6,714,217			6,779,337
Total non-current assets		6,714,217			6,779,337
Total assets	$	6,937,577		$	7,170,560

Liabilities & Stockholders´ Equity
Current liabilities:
Accounts payable	$	335,582		$	360,979
Accrued expenses		408,321			306,861
Common stock payable		236,678			236,678
Notes payable		200,000			200,000
Convertible notes payable, net of discount of $249,469 and $349,081 respectively		275,531			175,919
Total current liabilities		1,456,112			1,280,437
Long-term notes payable to MSB		454,901			454,901
Total non-current liabilities		454,901			454,901
Total liabilities		1,911,013			1,735,338

Commitments and contingencies

Common stock subject to rescission, 65,000 shares issued and outstanding		3,041			3,041

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; 495,153,347 shares issued and outstanding		495,153			495,153
Additional paid-in capital		72,511,626			72,511,626
Accumulated deficit		(67,983,256	)		(67,574,598	)
Total stockholders' equity		5,023,523			5,432,181
Total liabilities and stockholders´ equity	$	6,937,577		$	7,170,560

See accompanying notes to unaudited consolidated financial statements.

LI3 ENERGY, INC.

Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

	Three Months Ended			Three Months Ended
	September 30, 2016			September 30, 2015
Operating expense:
Loss from Minera Li equity investment	$	(65,120	)	$	(213,384	)
General and administrative expenses		(218,723	)		(176,543	)
Total operating expense		(283,843	)		(389,927	)

Other income (expense):
Change in fair value of derivative liability instruments		-			(49,380	)
Gain (loss) on foreign currency transactions		(2,221	)		6,414
Interest expense, net		(122,594	)		(25,361	)
Total other expense		(124,815	)		(68,327	)

Net loss	$	(408,658	)	$	(458,254	)

Net loss per common share – basic and diluted	$	(0.00	)	$	(0.00	)

Weighted average number of common shares outstanding – basic and diluted		495,153,347			479,937,326

See accompanying notes to unaudited consolidated financial statements.

LI3 ENERGY, INC.

Consolidated Statements of Changes in Stockholders’ Equity

From July 1, 2015 through September 30, 2016

(Unaudited)

					Additional					Total
	Common Stock				Paid-in		Accumulated			Stockholders’
	Shares		Par Value		Capital		Deficit			Equity

Balance, June 30, 2015		477,119,526	$	477,120	$	71,808,625	$	(66,033,878	)	$	6,251,867

Stock-based compensation:
Amortization of stock-based compensation		-		-		176		-			176

Stock issued to settle liabilities:
Stock issued to directors and employees		12,213,936		12,213		213,975		-			226,188
Stock issued to third parties		5,819,885		5,820		93,650		-			99,470

Beneficial conversion feature related to convertible notes payable		-		-		395,200		-			395,200

Net loss		-		-		-		(1,540,720	)		(1,540,720	)

Balance, June 30, 2016		495,153,347	$	495,153	$	72,511,626	$	(67,574,598	)	$	5,432,181

Net loss		-		-		-		(408,658	)		(408,658	)

Balance, September 30, 2016		495,153,347	$	495,153	$	72,511,626	$	(67,983,256	)	$	5,023,523

See accompanying notes to unaudited consolidated financial statements.

LI3 ENERGY, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended			Three Months Ended
	September 30, 2016			September 30, 2015
Cash flows from operating activities
Net loss	$	(408,658	)	$	(458,254	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of convertible debt discount		99,612			-
Loss from Minera Li equity investment		65,120			213,384
Stock-based compensation		-			176
Change in fair value of derivative liabilities		-			49,380
Loss (gain) on foreign currency transactions		2,221			(6,414	)
Changes in operating assets and liabilities:
Decrease (increase) in prepaid expenses and advances		(1,317	)		5,294
Accretion of interest income on MSB receivable		-			(945	)
Increase (decrease) in accounts payable		(27,618	)		82,805
Increase in accrued expenses		101,460			94,879
Net cash used in operating activities		(169,180	)		(19,695	)

Cash flows from financing activities
Proceeds from notes payable - Directors		-			15,000
Net cash provided by financing activities		-			15,000

Net decrease in cash		(169,180	)		(4,695	)

Cash at beginning of the period		382,054			6,217

Cash at end of the period	$	212,874		$	1,522

Supplemental disclosure of cash flow information:
Cash paid for:
Income taxes	$	-		$	-
Interest	$	-		$	-
Non-cash financing transactions:
Settlement of accrued liabilities through issuance of stock	$	-		$	68,500

See accompanying notes to unaudited consolidated financial statements.

LI3 ENERGY, INC.

Notes to Consolidated Financial Statements

For the three months ended September 30, 2016

(Unaudited)

NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

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

Part of our strategic plan is to ensure that Minera Li (of which the Company owns a non-controlling interest) explores and develops the existing Maricunga Project in Chile while simultaneously identifying other synergistic opportunities with new projects with production potential that could also be advanced in an accelerated manner, with the goal of becoming a company with valuable lithium, potassium, nitrates and other industrial minerals properties.

The Company’s three wholly owned subsidiaries include: Li3 Energy Peru SRL (“Li3 Peru”), a subsidiary formed in Peru to explore mining opportunities in Peru and in South America; Alfredo Holdings, Ltd. (“Alfredo”), an exempted limited company incorporated under the laws of the Cayman Islands; and Li3 Energy Copiapó, SA (“Li3 Copiapó”), a Chilean corporation, which is a subsidiary of Alfredo.

Since October 22, 2014, the Company holds 40% of the shares in Noto Energy SA (“Noto”, an Argentinean corporation and a previously 100% owned subsidiary).

On January 27, 2014, the Company entered into a transaction with a third party, Minera Salar Blanco SpA (“MSB”, previously BBL SpA), subsequent to which MSB became the majority holder of Minera Li, holding 51% of the ownership interest. The Company retains a 49% ownership of Minera Li. Minera Li holds 60% ownership of Sociedades Legales Mineras Litio1 a 6 de la Sierra Hoyada de Maricunga (“SLM Litio 1-6”), a group of six private companies (the “Maricunga Companies”), and the Cocina Mining Concessions (together with SLM Litio 1-6, the “Maricunga Project”).

We have generated no revenues to date and do not anticipate generating any revenues in the near term. Our activities have been limited to capital formation, organization, acquisition of interests in mining properties and limited exploration on the Maricunga Project, of which we currently hold a minority interest. The Company´s 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, or we may fail to secure additional funding to support our operations.

The accompanying unaudited interim consolidated financial statements of Li3 Energy have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report on Form 10-K (“Form 10-K”) filed with the SEC. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended June 30, 2016, as reported in the Form 10-K, have been omitted.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Li3 Peru, Alfredo and Li3 Copiapó. As a result of the Company disposing of its controlling interest in Minera Li on January 27, 2014, the Company deconsolidated Minera Li from its consolidated financial statements and now accounts for its remaining 49% investment in Minera Li under the equity method. On October 22, 2014, the Company sold 60% of its shares in Noto Energy SA and now accounts for its remaining 40% investment under the equity method. All intercompany amounts have been eliminated in consolidation. All intercompany amounts have been eliminated in consolidation.

b. Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at September 30, 2016 and June 30, 2016. The Company has not experienced any losses on its deposits of cash and cash equivalents.

c. Investment in Minera Li

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

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

d. Income Taxes

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

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

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

The Company recognizes interest related to income tax matters in income tax expense and penalties related to income tax matters in general and administrative expenses. The Company did not have any uncertain income tax positions or accrued interest included in our consolidated balance sheets at September 30, 2016 or June 30, 2016, and did not recognize any interest in its consolidated statements of operations during the three months ended September 30, 2016 or 2015.

e. 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 fair value of the Company’s derivative liabilities are estimated using a modified lattice valuation model.

f. Beneficial Conversion Feature

If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value at issuance, this feature is characterized as a beneficial conversion feature (“BCF”). A BCF is recorded by the Company as a debt discount. In those circumstances, the convertible debt is recorded net of the discount related to the BCF, and the Company amortizes the discount to interest expense, over the life of the debt.

g. Earnings (Loss) per Share

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

For the three months ended September 30, 2016 and 2015, the following convertible debt, stock options and warrants to purchase shares of common stock were excluded from the computation of diluted net income or loss per share, as the inclusion of such shares would be anti-dilutive:

	Three months ended
	September 30, 2016		September 30, 2015
Stock options		583,333		916,666
Restricted stock units		600,000		-
Stock warrants		2,380,950		20,658,822
		3,564,283		21,575,488

h. Foreign Currency

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

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

i. 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 its mineral assets; the fair value of derivative liabilities; stock-based payments; and contingencies.

j. Recent Accounting Pronouncements

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

k. Subsequent Events

The Company evaluated material events occurring between September 30, 2016 and through the date when the consolidated financial statements were available to be issued for disclosure consideration.

NOTE 3. GOING CONCERN

As of September 30, 2016, the Company had no source of current revenue, a cash balance on hand of $212,874 and negative working capital of $1,232,752.

The Company’s current negative working capital position is not sufficient to maintain its basic operations for at least the next 12 months.

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

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

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

NOTE 4. INVESTMENT IN MINERA LI

The Company´s equity investment at September 30, 2016 and June 30, 2016 relates to its 49% investment in Minera Li. The activity of the investment for the three months ended September 30, 2016 and 2015 is as follows:

	September 30, 2016			September 30, 2015
Opening balance - July 1, 2016 and 2015	$	6,779,337		$	7,336,375
Less: Equity in loss of Minera Li		(65,120	)		(213,384	)
Closing balance – September 30, 2016 and 2015	$	6,714,217		$	7,122,991

Summarized Financial Information of Minera Li

Set out below is the summarized financial information of Minera Li, which is accounted for using the equity method. The information reflects the amounts presented in the financial statements of Minera Li adjusted for differences in accounting policies between the Company and Minera Li. Our share of income and losses from our equity method investment in Minera Li is included in loss from Minera Li equity investment in the consolidated statements of operations.

Summarized Balance Sheets

	September 30, 2016		June 30, 2016
Current assets	$	12,106	$	47,973
Non-current assets		17,383,642		17,383,067
Total assets	$	17,395,748	$	17,431,040

Current liabilities	$	1,967,663	$	1,870,056
Equity		15,428,085		15,560,984
Total liabilities and equity	$	17,395,748	$	17,431,040

Summarized Statements of Operations

	Three months ended			Three months ended
	September 30, 2016			September 30, 2015
Revenue	$	-		$	-
Operating expenses:
Exploration expenses		(42,857	)		(357,238	)
General & administrative expenses		(90,042	)		(78,240	)
Total operating expenses		(132,899	)		(435,478	)
Net loss	$	(132,899	)	$	(435,478	)

NOTE 5. RELATED PARTY TRANSACTIONS

MSB

As of June 30, 2016, MSB owned 51% of Minera Li with the Company retaining a 49% ownership interest. MSB is a private Chilean corporation with an objective to advance a business in the production of lithium. MSB is controlled by a Chilean entrepreneur.

As of June 30, 2015, the Company had received a total of $1,220,000 of loans from MSB (of which $980,000 was received during the year ending June 30, 2015), bearing interest of 8.5% per annum and due within 18 months from the date of receipt. On January 19, 2016, the Company entered into an additional agreement with MSB whereby the Company and MSB agreed to offset the $1,000,000 Additional Payment MSB previously agreed to provide to the Company against $1,000,000 of the Company’s notes payable to MSB and $134,901 of accrued interest owed to MSB was rolled into the Company’s existing note payable. In addition, MSB loaned an additional $100,000 to the Company and MSB waived the 13 shares in Minera Li which were pledged by the Company to MSB as security for its notes payable. The resulting $454,901 loan payable and accrued interest is due on January 18, 2018, bears interest at 8.5% per annum, and is secured by 5 of the Company’s shares in Minera Li.

The total interest accrued on the loans from MSB as of September 30, 2016 and June 30, 2016 was $27,014 and $17,268, respectively. For the three months ended September 30, 2016 and 2015, $9,746 and $25,361, respectively, of interest expense was recognized in our consolidated statements of operations.

On July 20, 2016, MSB entered into an agreement with Lithium Power International Limited (“LPI”), an Australian company, regarding a joint venture to explore and develop the Maricunga Project in accordance with a term sheet dated July 14, 2016. On August 30, 2016, the Company entered into an agreement with MSB, pursuant to which, the Company and MSB, as the current shareholders of Minera Li, unanimously agreed to approve the transactions contemplated by the term sheet (the “Transaction”).

As part of the Transaction, Mineral Li and MSB will contribute their Maricunga lithium brine assets to a new joint venture (the “Maricunga JV”) and LPI will contribute $27.5 million in cash to the Maricunga JV to cover exploration and development costs for the next 2.5 years until the completion of a definitive feasibility study in late 2018. Following the completion of the Transaction, the Company will own a direct 17.67% equity interest of the Maricunga JV, with LPI and MSB owning 50.0% and 32.33%, respectively. The Company will be entitled to appoint one director of the Maricunga JV (so long as it holds at least 10% of the equity interests of the joint venture), with LPI and MSB holding three and two director seats, respectively.

On September 1, 2016, LPI announced that it had satisfactorily completed the legal and technical due diligence regarding the Maricunga JV.

NOTE 6. NOTES PAYABLE

On January 29, 2016, the Company executed a non-binding letter of intent (“LOI”) with Wealth Minerals Ltd ("Wealth") for a transaction between the companies and on signing the LOI, the Company received a payment of $50,000 from Wealth which was recorded as notes payable in the consolidated balance sheet. On March 22, 2016, the parties extended the LOI for an additional 60 days and on April 29, 2016, the Company received a further payment of $150,000 from Wealth, also recorded as notes payable in the consolidated balance sheet. As of September 30, 2016, and June 30, 2016, the Company has recorded notes payable to Wealth of $200,000.

If the transaction is completed, the payments from Wealth will remain a non-interest bearing shareholder loan. If the transaction is terminated by Li3, the Company is required to repay the amounts within 30 days. If the transaction is terminated by Wealth, the payments will be converted into common shares of Li3 at a price equal to the greater of $0.02 per share or the 10-day volume weighted average price of the common shares of Li3 as quoted on the OTCBB.

On November 15, 2016, the Company entered into an agreement with Wealth pursuant to which the LOI with Wealth was terminated and the Company’s obligation to repay the notes payable to Wealth of $200,000 was also terminated.

NOTE 7. CONVERTIBLE NOTES PAYABLE

During May 2016, the Company issued unsecured convertible promissory notes to various individuals for aggregate proceeds of $525,000, bearing an interest rate of 10% per annum, due 12 months from the date of issuance and convertible at a price of $0.0125 per share. The Company assessed the embedded conversion feature and determined that the intrinsic value of the beneficial conversion feature at inception exceeded the face value of this note and accordingly recorded at beneficial conversion feature of $395,200. Such beneficial conversion feature was accounted for as a debt discount, which is amortized to interest expense over the life of the note. During the three months ended September 30, 2016, the Company recorded amortization of debt discount and interest expense of $99,612 and $13,233, respectively, on these convertible notes. Total unamortized debt discount and interest accrued on the loans as of September 30, 2016 was $249,469 and $19,445, respectively. Total unamortized debt discount and interest accrued on the loans as of June 30, 2016 was $349,081 and $6,212, respectively.

NOTE 8. DERIVATIVE LIABILITIES

Warrants

The Company determined that certain warrants that the Company issued contained provisions that protected holders from future issuances of the Company’s common stock at prices below such warrants’ respective exercise prices and these provisions could have resulted in modification of the warrants exercise price based on a variable that was not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40. As of September 30, 2016 and June 30, 2016, all derivative warrant instruments had expired.

Activity for derivative warrant instruments during the three months ended September 30, 2015 was as follows:

			Decrease in
	Balance at		fair value of		Balance at
	June 30,		derivative		September 30,
	2015		liabilities		2015
Second 2010 Unit Offering warrants	$	-	$	15,147	$	15,147
Third 2010 Unit Offering warrants		-		27,464		27,464
Lender warrants		3,799		6,420		10,219
Warrants for advisory services and arranger warrants		241		349		590
	$	4,040	$	49,380	$	53,420

There were no warrants exercised during the three months ended September 30, 2015.

The following is a summary of the assumptions used in the modified lattice valuation model as of September 30, 2015:

	Valuation as of September 30,
	2015
Common stock issuable upon exercise of warrants		20,658,822
Market value of common stock on measurement date (1)	$	0.028
Adjusted exercise price	$	0.04-$0.24
Risk free interest rate (2)		0.08%-0.33	%
Warrant lives in years		0.1-0.6
Expected volatility (3)		197	%
Expected dividend yields (4)		None
Assumed stock offerings per year over next two years (5)		1
Probability of stock offering in any year over next two years (6)		100	%
Range of percentage of existing shares offered (7)		14	%
Offering price range (8)	$	0.03 - $0.04

(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 0.5 or 1 - year Treasury Bill as of the respective offering or measurement date.

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

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

(5)	Management estimates the Company will have at least one stock offering in the next two years.

(6)	Management estimates that the probability of a stock offering is 100% during the next two years.

(7)	Management estimates that the range of percentages of existing shares offered in each stock offering will be 14% of the shares outstanding.

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

NOTE 9. STOCKHOLDERS’ EQUITY

Stock Option Awards

There were no stock options issued during the three months ended September 30, 2016. A summary of stock option activity is presented in the table below:

						Weighted-
				Weighted-		average
				average		Remaining		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Shares			Price		Term (years)		Value
Outstanding at June 30, 2016		916,666		$	0.23		0.6	$	-
Granted		-			-		-		-
Exercised		-			-		-		-
Expired/Forfeited		(333,333	)		-		-		-
Outstanding at September 30, 2016		583,333		$	0.26		0.7	$	-
Exercisable at September 30, 2016		583,333		$	0.26		0.7	$	-

NOTE 10. FAIR VALUE MEASUREMENTS

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)
	Three Months Ended September 30,
	2016		2015
Beginning balance	$	-	$	4,040
Change in fair value		-		49,380
Ending balance	$	-	$	53,420
Change in unrealized losses included in earnings	$	-	$	49,380

NOTE 11. COMMITMENTS AND CONTINGENCIES

As previously discussed, on January 29, 2016, the Company executed a non-binding LOI with Wealth for a transaction between the companies under the following terms:

•

Wealth will undertake an equity financing of CAD$3 million.

•

Post-financing, Wealth and Li3 shareholders will each hold 50% of the new company.

•

The use of proceeds of the financing will be to advance Li3's Maricunga lithium project in Chile and pursue other corporate initiatives.

•

The new company will have seven Board seats, with Wealth holding four and Li3 holding the remaining three seats. The management of Wealth will largely remain intact and Li3's current management team will support the new company as necessary.

•

Wealth will have a 60-day exclusivity period to complete its due diligence and financing.

NOTE 12. SUBSEQUENT EVENTS

Subsequent to September 30, 2016, the Company issued 4,967,831 shares of common stock to officers and directors for services.

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

This discussion contains forward-looking statements. Please see “Statement Regarding Forward-Looking Information” above and “Risk Factors” included in the Annual Report on Form 10-K for the fiscal year ended June 30, 2016, filed with the SEC, for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.

You should read this discussion and analysis together with our consolidated financial statements and the notes thereto for the three months ended September 30, 2016.

Overview

We are a South America based exploration company in the lithium and potassium mining sector. We aim to acquire and develop a unique portfolio of lithium and potassium brine projects in the Americas.

All of our mineral rights in SLM Litio 1-6 and the Cocina Mining Concessions are held by Minera Li, of which the Company retains a 49% ownership interest. The controlling interest in Minera Li (51%) is held by a private Chilean company, Minera Salar Blanco SpA (“MSB”, previously BBL SpA).

As of September 30, 2016, Minera Li owned (a) a 60% interest in SLM Litio 1-6, which consists of mining concessions covering an area of approximately 1,438 hectares in the Salar de Maricunga in northern Chile; and (b) the Cocina Mining Concessions, covering 450 hectares located adjacent to SLM Litio 1-6.

The Company is currently evaluating additional exploration and production opportunities.

Going Concern

As of September 30, 2016, the Company had no source of current revenue, a cash balance on hand of $212,874 and negative working capital of $1,232,752.

The Company’s current negative working capital position is not sufficient to maintain its basic operations for at least the next 12 months.

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

Operational Update

On September 1, 2016, LPI announced that it had satisfactorily completed the legal and technical due diligence regarding the Maricunga JV.

During the three months ended September 30, 2016, work was undertaken on a preliminary work program for the Maricunga Project to expand the work performed on SLM Litio 1-6 to include additional studies of the Cocina Mining Concessions and the extent of the whole salar. Phase 1 of the exploration plan commenced in September 2016 and includes the drilling of 16 diamond drill holes and 2 pumping wells within the Cocina Mining Concessions, the development of a pilot plant engineering report and the completion of a NI 43-101 technical report, aimed at further expanding the existing lithium resource. Phase 1 is scheduled to be completed by March 2017.

Strategic Plan

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

Along with our strategic partners MSB and LPI, we are fully committed to advancing the Maricunga Project to the stage of full permitting, including environmental, social, and construction permits, and all other studies required on the project.

Results of Operations

Three Months Ended September 30, 2016 Compared with Three Months Ended September 30, 2015

Revenues

We had no revenues during the three months ended September 30, 2016 and 2015.

Loss from Minera Li equity investment

During the three months ended September 30, 2016, we incurred a loss from equity method investments of $65,120 compared to a loss of $213,384 for the three months ended September 30, 2015. This reflects our share of the losses incurred by Minera Li for each period.

General and administrative expenses

Our general and administrative expenses for the three months ended September 30, 2016 and 2015 consisted of the following:

	Three Months Ended		Three Months Ended			Increase
	September 30, 2016		September 30, 2015			(Decrease)
Rent	$	252	$	(1,891	)	$	2,143
Office expenses		-		899			(899	)
Communications		1,831		2,668			(837	)
Travel expenses		5,079		3,052			2,027
Legal fees		88,406		33,144			55,262
Accounting & finance fees		12,057		17,355			(5,298	)
Audit fees		8,000		8,500			(500	)
Other professional fees		45,915		34,874			11,041
Marketing & investor relations		5,160		350			4,810
Directors fees		21,310		33,978			(12,668	)
Bank fees		1,217		798			419
Salaries & wages		29,496		47,876			(18,380	)
Stock-based compensation		-		176			(176	)
Other		-		(5,236	)		5,236
	$	218,723	$	176,543		$	42,180

We incurred general and administrative expenses of $218,723 for the three months ended September 30, 2016 compared to general and administrative expenses of $176,543 for the three months ended September 30, 2015, a $42,180 increase. The increase in general and administrative expenses is mainly a result of:

•	An increase in legal fees of $55,262 mainly due to legal advice regarding transactions with MSB and LPI during the three months ended September 30, 2016;

•	An increase in other professional fees of $11,041 mainly due to services provided in relation to an economic opinion on the Minera Li properties;

•	A decrease in directors’ fees of $12,668 following the resignation of 3 directors; and

•	A decrease in salaries and wages of $18,380, mainly due to closure of office in Peru ($8,521) and staff reduction in Chile ($7,610), in order to preserve cash.

Other expense

Other expense for the three months ended September 30, 2016 and 2015 was $124,815 and $68,327, respectively. The increase in other expense is a result of an increases in interest expenses and lossed on foreign currency transactions, partially offset by a reduction in loss on change in fair value of derivative liability – warrant instruments.

During the three months ended September 30, 2015, we recorded a loss of $49,380 due to the change in fair value of derivative liability - warrant instruments. All of our remaining warrant instruments expired unexercised during the year ended June 30, 2016, and therefore, there was no activity for derivative liabilities during the three months ended September 30, 2016.

We recorded a loss on foreign currency transactions of $2,221 during the three months ended September 30, 2016, compared to a gain on foreign currency transactions of $6,414 during the three months ended September 30, 2016. The loss on and gain on foreign currency transactions during both periods were related to our operations in Chile.

Net interest expense amounted to $122,594 and $25,361 during the three months ended September 30, 2016 and 2015, respectively. The increase is mainly due to amortization of the beneficial conversion feature on convertible debt of $99,612 recorded during the three months ended September 30, 2016.

Liquidity and Capital Resources

We are primarily engaged in exploration and acquisition of new properties and do not generate income from operations currently. As of September 30, 2016, our only source of liquidity had been debt and equity financing.

The Company’s current negative working capital position is not sufficient to maintain its basic operations for at least the next 12 months.

Although the Company continues to seek investment in certain other mining properties, any such properties that we may acquire will require exploration and development that could take years to complete before such properties begin 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.

Common Stock Subject to Rescission

On March 19, 2012, the Securities and Exchange Commission declared effective a registration statement that we had filed to cover the resale of shares previously issued and sold (or to be issued upon the exercise of warrants). On March 1, 2013, we filed a post-effective amendment for that registration statement that included our audited financial statements as of and for the year ended June 30, 2012 as had been filed on our Annual Report on Form 10-K for the year ended June 30, 2012 (the “2012 Annual Report”). We believe that the filing of the post-effective amendment fulfilled our obligation to update the registration with current financial information pursuant to Section 10(a)(3) of the Act. However, there were approximately three months when our registration statement contained financial information that was not current. During that period, 65,000 shares were sold pursuant to that prospectus in open market transactions which may have violated Section 5 of the Securities Act of 1933, as amended, and, as a result, the purchasers of those shares may have rescission rights or claims for damages. Accordingly, we have reduced shareholders’ equity at September 30, 2016 by $3,041, the total amount that we would have to refund if all the purchasers of those shares exercised their rescission right.

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Evaluation of disclosure of controls and procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2016. 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.

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

Changes in internal controls over financial reporting

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.

Legal Proceedings

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

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.

Item 1A.

Risk Factors

There have been no material changes from the risk factors disclosed in Part I, Item 1A, “Risk Factors” of the Form 10-K we filed with the SEC on October 7, 2016.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults upon Senior Securities

None.

Item 4.

Mine Safety Disclosures

Mine Safety and Health Administration Regulations

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

Our Chilean exploration properties are not subject to regulation by the Federal Mine Safety and Health Administration (“MSHA”) under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”). Pursuant to Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), issuers that are operators, or that have a subsidiary that is an operator, of a coal or other mine in the United States are required to disclose in their periodic reports filed with the SEC information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. During the fiscal quarter ended September 30, 2016, despite the fact Li3 Energy, Inc. is outside the Mine Act jurisdiction, the Company had no such specified health and safety violations, orders or citations, related assessments or legal actions, mining-related fatalities, or similar events in relation to our operations requiring disclosure pursuant to Section 1503(a) of the Dodd-Frank Act and Item 104 of Regulation S-K.

Item 5.

Other Information

None.

Item 6.

Exhibits

Exhibit Number		Exhibit Title

10.1		Agreement by and between Minera Salar Blanco S.p.A. and Li3 Energy, Inc., dated August 30, 2016. (1)

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

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

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

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

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Schema

101.CAL		XBRL Taxonomy Calculation Linkbase

101.DEF		XBRL Taxonomy Definition Linkbase

101.LAB		XBRL Taxonomy Label Linkbase

101.PRE		XBRL Taxonomy Presentation Linkbase

(1)	Filed with the Securities and Exchange Commission on September 12, 2016 as an exhibit to the Registrant’s current report on Form 8-K, which exhibit is incorporated herein by reference.

SIGNATURES

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

Date: November 21, 2016	LI3 ENERGY, INC.

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

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