UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One) 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended October 31, 20102011
or
or
o
¨
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 000-33391
 
(Name of Registrant as Specified in Its Charter)
 
Nevada
(State or Other Jurisdiction
of Incorporation or Organization)
 
88-0490890
(I.R.S. Employer
Identification No.)
4894 Lone Mountain #168, Las Vegas, Nevada
(Address of Principal Executive Offices)
 
89130
(Zip Code)
(702) 425-7376
(Issuer’s Telephone Number, Including Area Code)
 
Securities registered under Section 12(b) of the Exchange Act:
None
 
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par value $0.01 per share
 
 
Indicate by check mark whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.  x Yes   ¨o  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).  ¨o Yes   xo  No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company.  (Check One):

Large accelerated filer  ¨      Accelerated filer  ¨     Non-accelerated filer    ¨     Smaller reporting company  x
Large accelerated fileroAccelerated filero
Non-accelerated filero(Do not check if a smaller reporting company)Smaller reporting companyx
(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).
o¨ Yes x No
 
On December 8, 2010,2011, there were 30,047,30132,088,513 shares of common stock outstanding.

 
 

LI-ION MOTORS CORP.

INDEX

TABLETABLE OF CONTENTS

 
 Page No.
PART I. FINANCIAL INFORMATION 
  
ITEM I - – Unaudited Consolidated Financial Statements
  13
Consolidated
Balance Sheets as of October 31, 20102011 and July 31, 20102011 (Unaudited)
  24
Consolidated Statements of Operations for the Three Months Ended October 31, 2011 and 2010 and 2009 (Unaudited)
35
Consolidated Statement of Comprehensive Income (Loss) for the Three Months Ended October 31, 2011 and 2010 and 2009 (Unaudited)
  4
Consolidated Statement of Stockholders Deficiency (Unaudited)6
Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2011 and 2010 and 2009 (Unaudited)
57
Statement of Stockholders Deficiency (Unaudited)
8
Notes to Unaudited Consolidated Financial Statements
9
  
Notes to Unaudited Consolidated Financial Statements7
ITEM 2 - – Management's Discussion and Analysis of Financial Condition and Results of Operations.
  1517
  
ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk
  1821
  
ITEM 4T– 4T – Controls and Procedures.Procedures
  1921
  
PART II. OTHER INFORMATION 
  
ITEM 1 - – Legal Proceedings.Proceedings  1922
  
ITEM 6 – Exhibits.Exhibits
  20
EXHIBIT 31 - Certification pursuant to Section 302 of the Sarbanes- Oxley Act of 2002
EXHIBIT 32 - Certification pursuant to Section 906 of the Sarbanes- Oxley Act of 200223

 
 

 
PART I. FINANCIAL INFORMATION

ITEMITEM 1. Financial Statements

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended July 31, 2010.2011. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. The results of operationsoperation for the three months ended October 31, 20102011 and 20092010 are not necessarily indicative of the results for the entire fiscal year or for any other period.

 
13

Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Balance Sheets
(unaudited)

  October 31  July 31, 
  2010  2010 
Assets      
       
Current assets:      
       
Cash and cash equivalents $1,592,875  $2,113 
Note receivable, net of allowance for doubtful account of $912,272  -   - 
Inventories  35,000   35,000 
Employee advances  2,700   10,000 
Other current assets  104,824   51,000 
         
Total current assets  1,735,399   98,113 
         
Property and equipment, net  1,900,205   1,919,681 
         
Deferred patent costs  24,258   24,258 
         
Total assets $3,659,862  $2,042,052 
         
Liabilities and Stockholders' Deficiency        
         
Current liabilities:        
         
Bank overdrafts $-  $14,104 
Accounts payable and accrued expenses  1,402,484   1,296,734 
Current portion of long-term debt  18,417   22,444 
Customer deposits  100,000   100,000 
Deferred revenue  458,990   501,288 
         
Total current liabilities  1,979,891   1,934,570 
         
Long-term liabilities:        
         
Long-term debt, less current portion  6,033,296   5,943,056 
Long-term deferred revenue, less current portion  -   83,333 
         
Total liabilities  8,013,187   7,960,959 
         
Commitments and contingencies  -   - 
         
Stockholders' deficiency        
         
Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding  -   - 
Common stock, $.001 par value, 100,000,000 shares authorized, 30,047,301 issued and outstanding at October 31, 2010 and July 31, 2010  30,047   30,047 
         
Additional paid-in capital  56,758,511   56,758,511 
Accumulated deficit  (61,133,047)  (62,699,029)
Accumulated other comprehensive income  (8,836)  (8,436)
         
Stockholders' deficiency  (4,353,325)  (5,918,907)
         
Total liabilities and stockholders' deficiency $3,659,862  $2,042,052 

  October  July 31, 
  2011  2011 
Assets      
       
Current assets:      
       
Cash and cash equivalents $284  $5,118 
Notes receivable, net of allowance for doubtful accounts of $782,680 and $762,327 respectively  1,750,000   1,750,000 
Inventories  466,690   380,558 
Employee advances  -   - 
Other current assets  246,694   193,893 
         
Total current assets  2,463,668   2,329,569 
         
Property and equipment, net  1,960,666   1,983,739 
         
Deferred patent and trademark costs  36,583   35,858 
         
Total assets $4,460,917  $4,349,166 
         
Liabilities and Stockholders' Equity (Deficiency)        
         
Current liabilities:        
         
Bank overdrafts $2,540  $- 
Accounts payable and accrued expenses  1,271,058   1,156,136 
Current portion of long-term debt  855,000   399,407 
Customer deposits  102,188   102,287 
Deferred license agreement revenue  199,333   324,333 
         
Total current liabilities  2,430,119   1,982,163 
         
Long-term liabilities:        
         
Long-term debt, less current portion  934,333   939,608 
Deferred license agreement revenue, less current portion  1,327,083   1,370,833 
         
Total liabilities  4,691,535   4,292,604 
         
Commitments and contingencies  -   - 
         
Stockholders' equity (deficiency)        
         
Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding  -   - 
Common stock, $.001 par value, 300,000,000 shares authorized, 32,088,513 issued and        
outstanding at October 31, 2011 and July 31, 2011, respectively.  52,088   52,088 
Additional paid-in capital  62,613,779   62,613,779 
Accumulated deficit  (62,867,331)  (62,580,108)
Accumulated other comprehensive loss  (9,154)  (9,197)
         
   (210,618)  76,562 
Less: Treasury stock, 20,000,000 shares at cost  (20,000)  (20,000)
         
Stockholders' equity (deficiency) attributable to Li-ion Motors Corp.  (230,618)  56,562 
         
Non-controlling interests  -   - 
Stockholders' equity (deficiency)  (230,618)  56,562 
Total stockholders' equity (deficiency)  (230,618)  56,562 
         
Total liabilities and stockholders' equity (deficiency) $4,460,917  $4,349,166 
See accompanying notes to unaudited consolidated financial statements


Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Statements of Operations
(unaudited)

  For the Three Months Ended 
  October 31, 
  2010  2009 
Sales: $1,985  $124,910 
         
Costs and expenses:        
Cost of sales  350   165,497 
General and administrative  364,530   371,322 
Research and development  481,977   432,621 
         
Total costs and expenses  846,857   969,440 
         
Loss from continuing operations  (844,872)  (844,530)
         
Other (expenses) income:        
Interest expense  (157,838)  (62,564)
Other income  2,568,291   17,625 
         
Net income (loss) before provision for (benefit from) income taxes  1,565,581   (889,469)
         
Provision for (benefit from) income taxes  -   - 
         
Net earnings (loss)  1,565,581   (889,469)
         
Less: Net earnings (loss) attributable to noncontrolling interest  -   - 
         
Net earnings (loss) attributable to Li-ion Motors Corp $1,565,581  $(889,469)
         
Net earnings (loss) per share - basic and diluted:        
Net earnings (loss) per common share attributable to Li-ion Motors Corp. common shareholders $0.05  $(0.04)
         
Weighted average number of shares outstanding - basic and diluted  30,047,301   21,014,535 

  For the Three Months Ended 
  October 31, 
  2011  2010 
Revenue:      
Sales $3,568  $1,985 
License agreement revenue  168,750   125,000 
Total revenue  172,318   126,985 
         
Costs and expenses:        
Cost of sales  595   350 
General and administrative  224,218   364,530 
Research and development  255,866   481,977 
         
Total costs and expenses  480,679   846,857 
         
Loss from operations  (308,361)  (719,872)
         
Other (expenses) income:        
Interest expense  (41,533)  (157,838)
Other income  62,671   2,443,291 
         
Net earnings (loss) before provision for (benefit from) income taxes  (287,223)  1,565,581 
         
Provision for (benefit from) income taxes  -   - 
         
Net earnings (loss)  (287,223)  1,565,581 
         
Less: Net earnings (loss) attributable to non-controlling interest  -   - 
         
Net earnings (loss) attributable to Li-ion Motors Corp $(287,223) $1,565,581 
         
Earnings (loss) per share - basic and diluted:        
Earnings (loss) per common share attributable to Li-ion Motors Corp. common shareholders $(0.01) $0.05 
         
Weighted average number of shares outstanding - basic and diluted  32,088,513   30,047,301 
See accompanying notes to unaudited consolidated financial statementsstatements.


Li-ionLi-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Statement of Comprehensive Income (Loss)
(unaudited)

  For the Three Months Ended 
  October 31, 
  2011  2010 
Net earnings (loss) $(287,223) $1,565,581 
         
Other comprehensive income        
    Currency translation adjustment  43   (400)
         
Comprehensive income (loss)  (287,180)  1,565,181 
         
Comprehensive income (loss) attributable to noncontrolling interest  -   - 
         
Comprehensive income (loss) attributable to Li-ion Motors Corp $(287,180) $1,565,181 
  For the Three Months Ended 
  October 31, 
  2010  2009 
Net earnings (loss) $1,565,581  $(889,469)
         
Other comprehensive income        
Currency translation adjustment  (400)  (345)
         
Comprehensive income (loss)  1,565,181   (889,814)
         
Comprehensive income (loss) attributable to noncontrolling interest  -   - 
         
Comprehensive income (loss) attributable to Li-ion Motors Corp $1,565,181  $(889,814)

See accompanying notes to unaudited consolidated financial statements
 
 
Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Statements of Cash Flows
(unaudited)

  For the Three Months Ended 
  October 31, 
  2010  2009 
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net earnings (loss) $1,565,581  $(889,469)
Adjustments to reconcile net earnings (loss) to net cash utilized by operating activities        
Depreciation  19,476   21,469 
Provision for doubtful accounts  71,065   - 
Increase (decrease) in cash flows from changes in operating assets and liabilities        
Accounts receivable, net  -   13,522 
Inventories  -   111,246 
Employee advances  7,300   (1,967)
Prepaid expenses and other current assets  (53,824)  3,369 
Bank overdraft  (14,104)  - 
Accounts payable and accrued expenses  105,750   192,840 
Customer deposits  -   (76,977)
Deferred revenue  (125,631)  (630)
Net cash provided by (used in) operating activities  1,575,613   (626,597)
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
Additions to property and equipment  -   (4,851)
Net cash used in investing activities  -   (4,851)
         
CASH FLOWS FROM FINANCING ACTIVITIES :        
Advances on promissory note  (71,065)  - 
Proceeds from issuance of debt  560,835   113,941 
Payments on debt  (474,621)  (10,641)
Advances from related parties  -   740,266 
Payments to related parties  -   (206,081)
Net cash provided by (used in) financing activities  15,149   637,485 
         
Effect of exchange rate changes on cash and cash equivalents  -   (345)
         
CHANGE IN CASH AND CASH EQUIVALENTS        
Net increase in cash and cash equivalents  1,590,762   5,692 
Cash and cash equivalents at beginning of period  2,113   5,182 
         
Cash and cash equivalents at end of period $1,592,875  $10,874 
         
SUPPLEMENTAL CASH FLOW DISCLOSURES        
Cash paid during the period for:        
Interest $15,216  $26,615 
Income taxes $-  $- 
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES        
Shares issued for related party advances $-  $360,000 
Accrued expenses transferred to long-term debt $-  $32,201 

See accompanying notes to unaudited consolidated financial statements
5
 
Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Statement of Stockholders' Deficiency
For the Periods Ended As Noted
(unaudited)

     Common Shares        Accumulated Other       
  Number of  $0.01  Additional Paid in  Accumulated  Comprehensive  Comprehensive    
  Common Shares  Par Value  Capital  Deficit  Income (Loss)  Income (Loss)  Total 
                      
                      
Balance - August 1, 2009  20,884,101   20,884   55,731,174   (58,765,425)  (13,413)     (3,026,780)
Exercise of stock options  685,000   685   615,815   -   -      616,500 
1:2 Reverse stock split adjustment  (10,779,696)  (10,780)  10,780   -   -      - 
Common stock issued as collateral on loan  3,749,999   3,750   (3,750)  -   -      - 
Common stock issued as collateral on loan  10,000,000   10,000   (10,000)  -   -      - 
Exercise of stock options  500,000   500   349,500              350,000 
1:5 Forward split adjustment  5,007,897   5,008   (5,008)  -   -      - 
Issuance of non-employee stock options  -   -   70,000   -   -      70,000 
Foreign currency translation  -   -   -   -   4,977  $4,977   4,977 
Net Loss  -   -   -   (3,933,604)  -   (3,933,604)  (3,933,604)
Comprehensive loss                     $(3,928,627)  - 
                             
Balance - July 31, 2010  30,047,301  $30,047  $56,758,511  $(62,699,029) $(8,436)     $(5,918,907)
                             
Foreign currency translation  -   -   -   -   (400) $(400)  (400)
Net earnings  -   -   -   1,565,581   -   1,565,581   1,565,581 
Comprehensive loss                     $1,565,181   - 
                             
Balance - October 31, 2010  30,047,301  $30,047  $56,758,511  $(61,133,448) $(8,836)     $(4,353,325)
  For the Three Months Ended 
  October 31, 
  2011  2010 
CASH FLOWS FROM OPERATING ACTIVITIES:      
   Net earnings (loss) $(287,223) $1,565,581 
   Adjustments to reconcile net earnings (loss) to net cash utilized by operating activities        
     Depreciation
  23,073   19,476 
     Provision for doubtful accounts
  20,353   71,065 
     Licensing fees
  (43,750)  - 
   Increase (decrease) in cash flows from changes in operating assets and liabilities        
       Inventories
  (86,132)  - 
       Employee advances
  -   7,300 
       Prepaid expenses and other current assets
  (52,801)  (53,824)
       Deferred patent and trademark costs
  (725)  - 
       Bank overdraft
  2,540   (14,104)
       Accounts payable and accrued expenses
  114,921   105,750 
       Customer deposits
  (99)  - 
       Deferred revenue
  (125,000)  (125,631)
   Net cash provided by (used in) operating activities  (434,843)  1,575,613 
         
CASH FLOWS FROM INVESTING ACTIVITIES:        
     Additions to property and equipment
  -   - 
   Net cash used in investing activities  -   - 
         
CASH FLOWS FROM FINANCING ACTIVITIES:        
       Advances on notes receivable
  (35,976)  (71,065)
       Payments received on notes receivable
  15,623   - 
       Proceeds from issuance of debt
  475,027   560,835 
       Payments on debt
  (24,708)  (474,621)
       Advances from related parties  -   - 
       Payments to related parties  -   - 
   Net cash provided by (used in) financing activities  429,966   15,149 
         
   Effect of exchange rate changes on cash and cash equivalents  43   - 
         
CHANGE IN CASH AND CASH EQUIVALENTS        
   Net increase (decrease) in cash and cash equivalents  (4,834)  1,590,762 
   Cash and cash equivalents at beginning of period  5,118   2,113 
         
   Cash and cash equivalents at end of period $284  $1,592,875 
         
SUPPLEMENTAL CASH FLOW DISCLOSURES        
   Cash paid during the period for:        
     Interest
 $9,411  $15,216 
     Income taxes
 $-  $- 

See accompanying notes to unaudited consolidated financial statements

 
Li-ion Motors Corp.
Formerly EV Innovations, Inc.)Consolidated Statement of Stockholders' Equity (Deficiency)
For the Periods Ended As Noted
(unaudited)
  
Number of
Common Shares
  
Common Shares
$0.01
Par Value
  
Additional Paid in
Capital
  
Accumulated
Deficit
  
Accumulated Other
Comprehensive
Income (Loss)
  
Treasury Stock
at Cost
  Non-Controlling Interest  
Comprehensive
Income (Loss)
  Total 
                            
Balance - August 1, 2010  30,047,301  $30,047  $56,758,511  $(62,699,029) $(8,436) $-  $-     $(5,918,907)
                                    
Issuance of stock for conversion of promissory notes  2,041,212   2,041   5,855,268   -   -   -   -      5,857,309 
Common stock issued as collateral on loan  20,000,000   20,000   -   -   -   (20,000)  -      - 
Foreign currency translation  -   -   -   -   (761)  -   -  $(761)  (761)
Net earnings  -   -   -   118,921   -   -   -   118,921   118,921 
    Comprehensive income                             $118,160   - 
                                     
Balance - July 31, 2011  52,088,513   52,088   62,613,779   (62,580,108)  (9,197)  (20,000)  -       56,562 
                                     
Foreign currency translation  -   -   -   -   43   -   -  $43   43 
Net earnings  -   -   -   (287,223)  -   -   -   (287,223)  (287,223)
    Comprehensive income                             $(287,180)  - 
                                     
Balance - October 31, 2011  52,088,513  $52,088  $62,613,779  $(62,867,331) $(9,154) $(20,000) $-      $(230,618)
See accompanying notes to unaudited consolidated financial statements
Li-ion Motors Corp.
Notes to Unaudited Consolidated Financial Statements
October 31, 20102011

Note 1. Financial Statement Presentation

History and Nature of Business

Li-ion Motors Corp (formerly EV Innovations, Inc., the “Company”) was incorporated under the laws of the State of Nevada on April 12, 2000. The “Company’s” original business was the exploration and development of mineral interests. The Company abandoned this business in 2003.

The Company is currently pursuing the development and marketing of electric powered vehicles and products based on the advanced lithium battery technology it has developed. As of July 31, 2009 the Company no longer considered itself a development stage company as planned principal operations have begun in its primary line of business.

On April 16, 2008, the Company sold their controlling interest of approximately 69% of the outstanding common stock in Zingo, Inc. (presently SuperlatticeSky Power Inc.Solutions Corp., “SPI”“SPS”). Prior to April 16, 2008, SPISPS was a related party that provided telecommunication services to business and residential customers utilizing VOIP technology and currently is researching and developing rechargeable lithium ion batteries.

Effective April 15, 2008, the Company entered into a License Agreement (“License Agreement”) with SPISPS providing for their license to SPISPS of their patent applications and technologies for rechargeable lithium ion batteries for electric vehicles and other applications (“Licensed Products”). Under the License Agreement, the Company has the right to purchase their requirements of lithium ion batteries from SPI,SPS, and their requirements of lithium ion batteries shall be supplied by SPISPS in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of SPI.SPS. The Company’s cost for lithium ion batteries purchased from SPISPS shall be SPI’sSPS’s actual manufacturing costs for such batteries for the fiscal quarter of SPISPS in which the Company’s purchase takes place. On May 25, 2010, the license agreement was amended to reflect Superlattice’sSky Power’s territory would only be the United States and US possessions and territories and we can license to other companies in other parts of the world. The Company issued a license to a firm for the rights in Canada in 2010.

Under the terms of the license agreement, SPISPS has agreed to invest a minimum of $1,500,000 in each of the next two years in development of the technology for the Licensed Products. To date, SPISPS has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement.  The Company has advised SPISPS  that it will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement.

Effective May 28, 2010, the Company entered into a ten year license agreement with Lithium Electric Vehicle Corp. (“LEVC”) providing for the Company to license to LEVC certain of the Company’s patent applications and technologies for electric vehicles and other applications. The purpose of the licensee is to expand sales of the Company’s current line of products by the manufacture and sale of such products in Canada, which is LEVC’s exclusive territory under the license agreement.

The license agreement consists of an annual fee of $500,000 for ten years and an additional $1,750,000 based on a valuation report prepared by an independent third party.  LEVC is required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year.  The Company has received $732,666 from LEVC with a balance due of $267,334 as of October 31, 2011, which is now delinquent.  The Company has not reflected the amount due from LEVC but has recorded the amount received as deferred revenue and amortized the license fee income ratably over the period.  If LEVC does not pay the balance of the fee, the Company will record the receivable and establish a reserve for doubtful accounts.  The Company will continue to recognize license fee income ratably over the life of the agreement.

The Company is currently in discussions with LEVC regarding the delinquency.  LEVC is attempting to complete a public registration in Germany.  As part of the registration statement, LEVC is required to be current with the Company in connection with the annual license fees.  LEVC expects to make the delinquent payments to the Company prior to December 31, 2011.

The note of $1,750,000 has been reflected on the books of the Company and the fee is being amortized over the life of the ten-year agreement.
Basis of Presentation

 Going Concern

The Company’s business is subject to mostfinancial statements for the quarter ended October 31, 2011, have been prepared on a going concern basis which contemplates the realization of the risks inherentassets and settlement of liabilities and commitments in the establishmentnormal course of a new business enterprise.business.  The likelihood of success ofCompany did not have any revenue from vehicle sales during the first quarter 2012.  Management recognized that the Company’s continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses, as the Company must be considered in light of the expenses, difficulties, delays and unanticipated challenges encountered in connection with the formation of a new business, raising operating and development capital, and the marketing of a new product.  There is no assurance the Company will ultimately achieve a profitable level ofcontinues to incur losses from operations.

On October 27,Since its incorporation, the Company financed its operations through advances and loans from its controlling shareholders and in 2010, the Company received approximately $2.5 million as an award from Automotive X-Prize (see Note 14) and during the previous fiscal year, entered into a ten year license agreement with LEVC expanding the Company's products and technology in Canada.XPrize. The Company expects to finance operations through the funds receivedsale of equity or other investments as well as continued advances from Automotive X-Prize and LEVC andshareholders for the expectedforeseeable future, as the Company does not expect to receive significant revenue from operationsvehicle sales until the required certifications have been received.  There is no guarantee that the Company will be successful in arranging financing on acceptable terms.

The Company’s ability to raise additional capital is affected by trends and uncertainties beyond its control.  The Company does not currently have any arrangements for financing and it may not be sufficientable to cover operations overfind such financing if required.  Obtaining additional financing would be subject to a number of factors, including investor sentiment.  Market factors may make the next twelve months.
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In January 2009,timing, amount, terms or conditions of additional financing unavailable to it.  These uncertainties raise substantial doubt about the Company’s shareholders approved a one-for-three reverse stock split of its outstanding common shares which became effective on February 19, 2009. Also on February 19, 2009 the authorized sharesability of the Company were increasedto continue as a going concern.  The accompanying financial statements do not include adjustments that might result from 35,714,285 to 50,000,000 shares.the outcome of these uncertainties.

In January 2010, Common Stock

On June 24, 2011, the Board of Directors unanimously approved a merger with a 100% subsidiary resulting in the change ofan amendment to the Company’s nameArticles of Incorporation to Li-ion Motors, Corp. The Board of Directors also approved a two-for-one reverse split that was effective February 1, 2010 andincrease the authorized shares were decreased in the same ratio to 25,000,000 shares.  Pursuant to majority stockholder consent, the authorized was increased from 25,000,000 shares to 100,000,000 shares.

Except for the presentationnumber of common shares authorized and issued on the consolidated balance sheet and shares presented in the consolidated statement of stockholders' deficiency, all shares and per share information has been revised to give retroactive effect to the reverse stock splits.

On April 20, 2010, the Company approved a 20% restricted stock dividend for the holders of its common stock, consisting of one share of common stock for each fivefrom 100 million shares, heldpar value $.001 per share, to 300 million shares, par value $.001 per share.  The Company filed the amendment with the Secretary of recordState of Nevada on August 10, 2011, after mailing a Definitive Information Statement to the May 28, 2010 record date.Company’s stockholders and the amendment was effective August 10, 2011.

On July 1, 2009, the Financial Accounting Standards Board (“FASB”) established Accounting Standards Codification (“ASC”) as the primary source of authoritative generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities.  Although the establishment of the ASC did not change current GAAP, it did change the way we refer to GAAP throughout this document to reflect the updated referencing convention.

Note 2.  Summary of Significant Accounting Policies

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended July 31, 2010.2011.  There were no significant changes to these accounting policies during the three months ended October 31, 20102011 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

Reclassifications

Certain prior period amounts have been reclassified to conform with current period presentations.

Note 3. Notes Receivable

TheDuring the three months ended October 31, 2011, the Company advanced SuperlatticeSky Power Inc.Solutions Corp. (“SPI”SPS”) $35,976 of which $15,623  was repaid through a reimbursement for a leased employee.  During the three months ended October 31, 2010 the Company advanced SPS $71,065, of which none was repaid and the entire amount was reserved as an allowance for doubtful accounts .  As of October 31, 2011 and July 31, 2011, an allowance for doubtful accounts in the amount of $782,680 and $762,327, respectively, was recorded against the note receivable, reducing the amount to $0.

On November 26, 2010, LEVC issued the Company a Secured Promissory Note (“LEVC Note”) in the amount of $1,750,000 in accordance with the license agreement.  The LEVC Note bears interest at ten (10%) percent per annum on the outstanding amount of the loan and shall accrue for the first 12 months during which the outstanding amount, or any portion thereof is outstanding. Commencing for the first month following the first year and for all subsequent months during which any portion of the amount is outstanding, LEVC shall make monthly interest payments in arrears on the first day of the month following the month for which the interest payment is made on the outstanding amount of the LEVC Note, including any accrued unpaid interest thereon. The outstanding amount and any accrued but unpaid interest thereon, shall be repaid in full by LEVC within sixty (60) days of receiving written demand for repayment by the Company. LEVC shall have the right to repay the LEVC Note in whole or in part, at any time without notice, bonus or penalty.    The LEVC Note is secured by LEVC’s (1) inventory; (2) equipment, other than inventory; (3) receivables; and (4) all other property, including leasehold interests, chattel paper, documents of title, securities, instruments, money and intangibles.  In addition, the LEVC Note includes a conversion right in which the Company can convert the LEVC Note if LEVC should begin trading on the TSX Venture Exchange.  The conversion clause stipulates that the LEVC Note will be converted at a price the greater of  fifteen cents ($0.15) per share or ninety percent (90%) of the average ten (10) day trading price and if the conversion of the LEVC Note results in a fractional share, LEVC shall, in lieu of issuing such fractional share, pay to the Company an amount equal to the conversion value of the fractional share.

The Company has assessed whether the loan is impaired and collectability is assured.  LEVC is currently attempting to complete a registration in Germany.  The Company has the option, upon the completion of the registration, of converting the note into LEVC common stock.  LEVC believes the registration will be completed on or at December 31, 2011.  The Company will further assess the collectability of the loan at that time should the registration not be completed.  Management has determined no impairment existed at October 31, 2011.

The Company recognized interest income of $44,110, none of which has been received, in accordance to the terms of the LEVC Note for the three months ended October 31, 2010.  During the year ended July 31, 2010 the Company advanced SPI $1,282,988,2011, all of which $441,781 was repaid. Asis included in other current assets as of October 31, 2010 the balance due to the Company in the amount of $71, 065 has been reserved as bad debt and is included in general and administrative expenses, as an allowance2011.  See Note 6 for doubtful account, due to uncertain prospect of collection. As of July 31, 2010, the Company reserved $841,207, which was included in general and administrative for the year ended July 31, 2010.further information.

Note 4. Inventories

Inventories consist of the following:

  October 31,  July 31, 
  2011  2011 
Raw Materials $1,103  $1,103 
Work-In-Progress  430,587   344,455 
Finished Goods  35,000   35,000 
  $466,690  $380,558 
  October 31,  July 31, 
  2010  2010 
Finished Goods $35,000  $35,000 
  $35,000  $35,000 

FinishedRaw materials, work in progress and finished goods as offor the quarter ended October 31, 20102011, and year ended July 31, 2010,2011, are related to the Company’s planned sales of electric powered vehicles.

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Note 5. Property and Equipment

Property and equipment consist of:

  October 31,  July 31, 
  2011  2011 
Building and Improvements $1,292,276  $1,292,276 
Equipment and Furniture and Fixtures  328,663   328,663 
Vehicles  66,429   66,429 
Software Costs  28,913   28,913 
Land  700,000   700,000 
   2,416,281   2,416,281 
         
Less Accumulated Depreciation  (455,615)  (432,542)
Net Property and Equipment $1,960,666  $1,983,739 
 October 31,  July 31, 
  2010  2010 
Building and Improvements $1,287,001  $1,287,001 
Furniture and Fixtures  15,794   15,794 
Office Equipment  146,016   146,016 
Machinery and Equipment  36,971   36,971 
Vehicles  66,429   66,429 
Software Costs  28,913   28,913 
Land  700,000   700,000 
   2,281,124   2,281,124 
         
Less Accumulated Depreciation  (380,919)  (361,443)
Net Property and Equipment $1,900,205  $1,919,681 

Depreciation expense for the three months ended October 31, 2011 and 2010 was $23,073 and 2009 was $19,476, and $21,469, respectively and is included in general and administrative expenses on the Company’s consolidated statement of operations.
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Note 6. Other Current Assets

 October 31,  July 31,  October 31,  July 31, 
 2010  2009  2011  2011 
            
Retainers $1,967  $7,500 
Deferred Warranty Asset  19,162   25,594 
Retainers and Deposits $4,957  $4,957 
Deferred Product Asset  2,412   4,958 
Prepaid Expenses  83,695   17,907   76,791   65,553 
Interest Receivable  162,534   118,425 
                
Total $104,824  $51,001  $246,694  $193,893 

The deferred product asset is for product liability costs that the Company prepared and amortized over the two year life in the amount of $23,182 and $20,636 as of October 31, 2011 and July 31, 2011, respectively and is included in accrued expenses-other.
Note 7. Accounts Payable and Accrued Expenses

Accounts payable, accrued expenses and other current liabilities at October 31, 20102011 and July 31, 20102011 consisted of:

 October 31,  July 31,  October 31,  July 31, 
 2010  2010  2011  2011 
            
Accounts Payable $502,069  $599,518  $711,404  $608,623 
Accounts Payable - Related Parties  74,943   63,325   25,336   28,029 
Wages, Paid Leave and Payroll Related Taxes  433,967   407,884   326,390   259,122 
Accrued Interest  252,605   114,619   29,366   8,403 
Legal Settlements  168,951   171,750 
Other  138,900   111,388   9,611   80,209 
                
Total $1,402,484  $1,296,734  $1,271,058  $1,156,136 

Accounts payable due to related parties are reimbursable general and administrative expenses paid by the Company’s President and Consultant.
 
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Note 8. Long-Term Debt

Long-term debt consists of:

  October 31,  July 31, 
  2010  2010 
       
5% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,349 including interest, collateralized by real property due in full on or before March 2038 (1) $948,172  $953,437 
         
10% Note payable to Crystal Capital Ventures, payable in May 2012 collateralized by 9,000,000 shares of the Company's common stock (2)  3,000,000   3,000,000 
         
11.24% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1000, due in full on February 28, 2011 (3)  2,075   5,000 
         
12% Note payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2012 (4)  1,329,807   1,235,404 
         
10% Note payable to Winsor Capital Inc. due in full on April 15, 2013 collaterized by 12,000,000 shares of the Company's common stock (5)  771,659   771,659 
         
   6,051,713   5,965,500 
Less Current Portion  (18,417)  (22,444)
  $6,033,296  $5,943,056 
  October 31,  July 31, 
  2011  2011 
5% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,433 including interest, collateralized by real property due in full on or before March 2038 (1) $949,112  $951,921 
         
9.367% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1,000, due in full on February 28, 2012 (2)  3,098   6,112 
         
8.683% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1,800, due in full on October 26, 2012 (3)  17,393   - 
         
12% Note  payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2012 (4)  793,289   349,465 
         
48.956% Note payable to Amicus Funding Group, LLC, payable in monthly installments of approximately $467, collateralized by real property due in full on September 1, 2013 (5)  6,878   7,394 
         
26.85% Note payable to Treger Financial, payable in monthly installments of approximately $2,000, collateralized by real property due in full on June 1, 2012 (6)  19,563   24,123 
         
   1,789,333   1,339,015 
Less Current Portion  (855,000)  (399,407)
  $934,333  $939,608 

Principal maturities for long-term debt are as follows for the first quarters ended October 31:

2011 $18,417 
2012 4,347,000  $855,000 
2013 789,746   22,413 
2014 19,029   19,297 
2015 20,020   20,301 
2016  21,357 
Thereafter  857,501   850,965 
 $6,051,713  $1,789,333 
 
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(1) In November 2007, the Company refinanced a loan on its North Carolina building. The loan is with Bayview Loan Servicing, LLC. EffectiveLLC (“Bayview”). On March 31, 2010, the Company entered into a stipulation agreement with Bayview Loan Servicing, LLC thatwhich reduced the current monthly payment to $5,349, including interest. On May 27, 2011, the Company entered into a loan adjustment agreement with Bayview which increased the unpaid liability by $9,043 to $953,316 and decreased the monthly payments to $5,433, including interest. In 2013, Bayview Loan Servicing LLC may step up the interest rate at that time.  The loan is set to mature on March 31, 2038.  Effective April 1, 2012, the interest rate adjusts to Prime plus 4.875%.  Interest rate changes are limited to 2% increase or decrease in any annual adjustments.  During the three months ended October 31, 20102011 and 2009,2010, the Company repaid $5,265$2,809 and $7,700,$5,265, respectively. Interest expense for the three months ended October 31, 20102011 and 2009,2010, for Bayview Loan Servicing, LLC was $12,077 and $12,090, and $26,463, respectively.

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(2) On May 5, 2008, the Company entered into a loan agreement with Crystal Capital Ventures Inc. (“Crystal Capital”). The loan agreement provides for loans to the Company of up to $3,000,000, with a minimum initial loan of $500,000 taking place on May 19, 2008. The loans bear interest payable monthly in arrears at the rate of 10% per annum, and mature and are payable on May 4, 2012. The loan under the loan agreement is secured by shares of the Company’s common stock held by Crystal Capital. The Company is required to issue shares as collateral at the rate of two and one half shares of the Company’s common stock for each dollar principal amount of the loan advanced to the Company.  Following disbursement of the first $1,000,000 of funds pursuant to the loan agreement, on May 27, 2008, the Company issued 2,500,000 shares of common stock as collateral to Crystal Capital. After the 1:3 reverse stock split in February 2009 the Company issued Crystal an additional 5,000,000 shares to make their shares held as collateral total 7,500,000. Pursuant to the anti-dilution provisions in the Crystal Capital Ventures loan agreement with the 1:2 reverse stock split of February 1, 2010 the Company issued 3,749,999 shares to Crystal Capital Ventures so they again hold 7,500,000 post reverse stock split shares.  In connection with the Company's 20% stock dividend, the Company issued an additional 1,500,000 common shares to be held as collateral.

As of October 31, 2010, the Company has borrowed the full $3,000,000 under the loan agreement from Crystal Capital. Interest expense to Crystal Capital for the three months ended October 31, 2010 and 2009 was $75,616 and $76,619, respectively.

On December 2, 2010 the Company made an interest payment of $158,982 to Crystal Capital for interest accrued through December 1, 2010. The Company is now current with the loan.
(3) On February 28, 20102011, the Company financed a general liability insurance policy (workman’s compensation) with Allegiance Direct Bank for the period February 28, 20102011 to February 28, 20112012 for $13,351. The Company was required to make a down payment of $3,351.15$3,351 in February 20102011 and monthly payments including interest of 9.4%. During the three months ended October 31, 20102011 and 2009,2010, the Company repaid $3,013and $2,925, and $2,940, respectively. Interest expense for the three months ended October 31, 20102011 and 20092010, paid to Allegiance Direct Bank is $232$115 and $0,$232, respectively.

(3) On October 26, 2011, the Company financed a workman’s compensation liability insurance policy with Allegiance Direct Bank for the period October 26, 2011 to October 26, 2012 for $21,741. The Company was required to make a down payment of $4,348 in October 2011 and monthly payments including interest of 8.7% commencing November 2011.  The Company did not make any payments and no interest was incurred during the three months ended October 31, 2011.

(4) On February 26, 2010, the Company entered into a loan agreement with Frontline Asset Management Inc. (“Frontline”).Frontline. The loan provides for payments to the Company of $2,000,000 with interest at a fixed annual rate of 12%.  On May 1, 2010, an Addendum to the original Promissory Note, dated February 26, 2010, was entered into which amended the term of the note to  provide for interest only payments, due on the last day of every month until maturity date March 30, 2011 when all principal and accrued interest shall be due and payable.  On April 11, 2011, Frontline assigned $850,279 of its debt to Winsor Capital, Inc. (“Winsor”). On April 19, 2011, Frontline partially assigned $437,309 to Kisumu S.A. (“Kisumu”) and Kisumu immediately converted the assigned note for 1,041,212 shares of Common Stock at a fair value price of $0.42 per share.  On April 19, 2011 Frontline assigned $420,000 to Eurolink Corporation (“Eurolink”) and Eurolink immediately converted the assigned note for 1,000,000 shares of Common Stock at a fair value price of $0.42 per share.

During the three months ended October 31, 20102011 and 2009,2010, the Company received advances totaling $560,835$457,634 and $0,$560,835, respectively; and made payments of $13,811 and $466,431, respectively.  Interest expense for the three months ended October 31, 2011 and 2010, was $17,659 and $46,959, respectively.

(5) On March 11, 2011, the Company financed $7,992 for office equipment with Amicus Funding Group, LLC (“Amicus”) and monthly payments including interest of 48.956% are approximately $477.  During the three months ended October 31, 2011 and 2010, the Company repaid $515 and $0, respectively. Interest expense for the three months ended October 31, 2011 and 2010, was $46,959.$885 and $0, respectively.

(6) On February 1, 2011, the Company financed $29,750 for production equipment with Treger Financial (“Treger”) and monthly payments including interest of 26.85% are approximately $2,000.  During the three months of Novemberended October 31, 2011 and December 2010, the Company received advancesrepaid $4,560 and $0, respectively. Interest expense for the three months ended October 31, 2011 and 2010, was $1,206 and $0, respectively.

(7) The Company entered into a Loan Agreement, dated as of $10,000July 14, 2011, with Cameo Properties LLC (the “Lender”) and repaid $343,747.  On November 19, 2010,was amended on October 14, 2011 (the “Amended Loan Agreement”). Each Note issued under the Amended Loan Agreement is due three years from the date of its issuance. The Amended Loan Agreement provides for loans to the Company madeof up to $750,000 (the “Loan”), with a minimum initial loan of $250,000 within 60 days of the date of the Loan Agreement, and up to an interest paymentadditional $500,000 within the first year and a half from execution of $89,743 for interest accrued through November 1, 2010,the Amended Loan Agreement. This is not a revolving facility, and on December 2, 2010any principal repaid by the Company made anwill not be available for additional advances to the Company under the Amended Loan Agreement. The Company cannot, without the Lender’s consent prepay all or part of the Loan. The notes evidencing the installments of the loans bear interest paymentpayable monthly in arrears at the rate of $11,266 for interest that had accrued through December 1, 2010.10% per annum, and mature and are due and payable three years from the date of issuance.

(5) As of October 31, 2011, no funding transactions had taken place and there was a zero balance on the Note.
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Note 9. Stockholders’ Equity (Deficiency)

On April 15, 2010, the Company entered into a loan agreement for $2,000,000 with Winsor Capital Inc. The loan provides for payments of up to $2,000,000 to the Company with an initial installment of $250,000 and additional installments of up to $1,750,000 with a 10% interest rate.Winsor. The entire loan amount iswas secured by 12,000,00010,000,000 shares of the Company common stock.  EachOn April 19, 2011, Winsor converted the entire $2,000,000 outstanding loan installment matures three years from issuance of the installment. The loan has an anti-dilution clauseamount for the stocks issued. Stock is issued and delivered proportionately to the delivery of funds. Interest expense for the three months ended October 31, 2010 was $19,450.10,000,000 collateralized common stock.

On December 2, 2010April 19, 2011, Frontline partially assigned $437,309 to Kisumu S.A. (“Kisumu”) and Kisumu immediately converted the Company made an interest paymentassigned note for 1,041,212 shares of $36,355Common Stock at a fair value price of $0.42 per share.  On April 19, 2011, Frontline assigned $420,000 to Winsor CapitalEurolink Corporation (“Eurolink”) and Eurolink immediately converted the assigned note for interest accrued through December 1, 2010.

Note 9. Stockholders’ Equity1,000,000 shares of Common Stock at a fair value price of $0.42 per share.

On January 15, 2009,April 19, 2011, Starglow, (formerly Crystal Capital Ventures) converted the Company’s shareholders approvedentire $3,000,000 outstanding loan amount for the 7,500,000 collateralized shares.

On July 14, 2011, the Company entered into a 1:3Loan Agreement with Cameo Properties LLC. The loans under the Loan Agreement are secured by 20 million shares of our common stock held as treasury stock and will be issued to the Lender when the Company receives the initial advance on the note.  In the event of a reverse stock split foror combination of shares, the outstanding shares but it did not take effect until February 19, 2009. Common stock, authorized shares was 35,714,285 and was increased to 50,000,000 on February 19, 2009. On February 20, 2009, the Company issued Wyndom Capital Investments, Inc. an additional 6,666,665 shares as collateral for a loan that in June 2009 went into default and the share collateral for which was taken by the lender. Crystal Capital Ventures Inc. was issued 4,999,999 shares so they again held 7,500,000 post reverse stock split shares asnumber of February 20, 2009, as collateral for a loan of up to $3,000,000 as discussed in Note 8.

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On February 1, 2010 the Company effected a 1:2 reverse stock split. Pursuant to the anti-dilution provisions in the Crystal Capital Ventures loan agreement the Company issued 3,749,999 shares to Crystal Capital Ventures, so they again held 7,500,000 post reverse stock split shares. Concurrent with the 1:2 reverse stock split the authorized shares were also reduced from 50,000,000 to 25,000,000 shares. By shareholder approval on May 17, 2010 the authorized shares of common stock wereconstituting the Share Collateral will, immediately following such reverse stock split or combination of shares, be increased from 25,000,000 to 100,000,000.
Except for the presentationby a new issuance of common stock of the Company to that number of shares constituting the Share Collateral immediately prior to such reverse stock split or combination of shares. The certificates representing any share dividends that the Company pays during the term of the Loan with respect to the Shares being held in escrow shall be credited and delivered to the Lender and held by the Lender pursuant to the terms of the Loan Agreement.

Increase in Authorized Common Stock

 On June 24, 2011, the Board of Directors unanimously approved an amendment to the Articles of Incorporation to increase the authorized and issued on the consolidated balance sheet andnumber of shares presented in the consolidated statement of stockholders’ deficiency, allcommon stock from 100 million shares, andpar value $.001 per share, information has been revised to give retroactive effect300 million shares, par value $.001 per share. The Company filed the amendment with the Secretary of State of Nevada on August 10, 2011, after mailing a Definitive Information Statement to the reverse stock splits.Company’s stockholders and the amendment was effective August 10, 2011.

Note 10.  Net LossEarnings (Loss) Per Common Share
Loss per share is computed based on the weighted average number of shares outstanding during the year. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares and potential common shares during the specified periods.

The following table sets forth the reconciliation of the basic and diluted net lossearnings (loss) per common share computations for the three months ended October 31, 20102011 and 2009.
 Three Months Ended 
  October 31, 
  2010  2009 
Basic and Diluted EPS:      
Net Income/(Loss) Ascribed to Common Shareholders - Basic and Diluted $1,565,581  $(889,469)
Weighted Average Shares Outstanding - Basic and Diluted  30,047,301   21,014,535 
         
Basic and Diluted Net Loss Per Common Share $0.05  $(0.04)
Net loss per common share for the three months ended October 31, 2009 has been revised.  This revision was immaterial to the Company’s results of operations and financial position. See below for further discussion.2010.

  Three Months Ended 
  October 31, 
  2011  2010 
Basic and Diluted Earnings (Loss) Per Share      
Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted $(287,223) $1,565,581 
Weighted Average Shares Outstanding - Basic and Diluted  32,088,513   30,047,301 
         
Basic and Diluted Net Earnings (Loss) Per Common Share $(0.01) $0.05 
 Three Months Ended 
  October 31, 2009 
Basic and Diluted Loss Per Common Share $(0.33)
     
Weighted Average Number of Shares    
Outstanding -Basic and Diluted  20,558,046 

Note 11. Share Based Compensation

The Company records compensation expense in its consolidated statement of operations related to employee stock-based options and awards in accordance with FASB ASC 718, “Compensation”, and (“ASC 718”).

The Company recognizes the cost of all employee stock options on a straight-line attribution basis over their respective contractual terms, net of estimated forfeitures. The Company has selected the modified prospective method of transition.

Stock Dividend

On April 20, 2010 the Board of Directors approved a 20% restricted stock dividend for the holders of our common stock, consisting of one share of common stock for each five shares held of record on the May 28, 2010 record date.

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Increase in Authorized Common Stock

 On April 7, 2010,June 24, 2011, the Company’s boardBoard of directorsDirectors unanimously approved an amendment to ourthe Articles of Incorporation to increase the authorized number of shares of common stock from 25,000,000100 million shares, par value $.001 per share, to 100,000,000300 million shares, par value $.001 per share. The Company thereafter received the written consent from a shareholder of our company holding a majority (51.58%) of the outstanding shares of our common stock on April 8, 2010. The Company filed the amendment with the Secretary of State onof Nevada on May 4, 2010,August 10, 2011, after mailing a Definitive Information Statement to ourthe Company’s stockholders and the amendment was effective May 17, 2010.August 10, 2011.
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Stock Option Plan

As of October 31, 2010,2011, there are no shares of common stock remaining and available for issuance under the stock option plans.

Note 12. Income Taxes

The Company adopted the provisions of ASC 740, “Income Taxes” (“ASC 74”) on August 1, 2007. The implementation of ASC 740 did not impact the total amount of the Company’s liabilities for uncertain tax position.

The Company recorded no provisions for income taxes for the three months ended October 31, 20102011 and 2009.2010.
 
Note 13. Commitments and Contingencies

Lease Agreement

Our principal executive office is located in Las Vegas, Nevada. We lease approximately 1,900 square feet under a lease agreement that commenced in March 2008 and renews on an annual basis. The lease provides for an aggregate annual payment of $18,000. We believe our current facilities will generally be adequate for our needs for the foreseeable future.

Effective April 16, 2008, SPISPS agreed to lease approximately 5,000 square feet of space in the Company’s North Carolina facility at a rental rate of $2,500.00$2,500 per month and the monthly rental to be escalated five (5%) percent annually beginning April 16, 2009.  The leased space is suitable for, and utilized by SPISPS for, SPI’sSPS’s developmental and manufacturing operations for licensed products pursuant to the License Agreement. The leased space is leased on a month-to-month basis at a current monthly rental of $2,756.$2,984. Although the lease was signed, the space is only 80% completed as of October 31, 2010.2011. The Company also entered into a month to month lease agreement for $750 with SPISPS for renting offices in the Company’s Las Vegas corporate office.

Total rental income for the three months ended October 31, 2011 and 2010 and 2009 was $10,931and $10,519, and $10,125, respectively.

License Agreement

Effective May 28, 2010 the Company entered into a 10 year license agreement with Lithium Electric Vehicle Corp. (“LEVC”) providing for the Company to license to LEVC certain of the Company’s patent applications and technologies for electric vehicles and other applications. The purpose of the licensee is to expand sales of the Company’s current line of products by the manufacture and sale of such products in Canada, which is LEVC’s exclusive territory under the license agreement. LEVC agreed to pay the Company $2 million dollars over the initial two year term with the option to extend the agreement on an annual basis for an additional $500,000 per year.  The revenue earned from the license agreement is amortized over the two year period and for the three months ended October 31, 2010 the Company recognized income of $125,000 with $458,333 being deferred.

In connection with the license agreement, LEVC agrees to pay the Company a royalty on each and every licensed product sold or distributed by LEVC.  The royalty is due within ten days of each calendar quarter.

Surety Bond

The Company applied torenewed the manufacturing license with the North Carolina Department of Motor Vehicles for a manufacturing license.Vehicles. This application requiredlicense requires a surety bond of $50,000 for three years which the Company acquired from Kaercher Campbell & Associates.Associates and is effective through February 18, 2012. The Company is licensed as a motor vehicle dealer to engage in the business of selling motor vehicles by the State of North Carolina DMV.  The Company's license is effective through March 31, 2011.2012.

Legal Proceedings

The Company is currently involved in various claims and legal proceedings. Quarterly, the Company reviews the status of each significant matter and assesses its potential financial exposure and if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.

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An arbitration award in the amount of $70,803 was awarded to Keith Boucher, a former consultant for the Company against the Company for attorney’s fees and costs incurred in arbitration. A Judgment has been awarded to Keith Boucher.  The parties agreed upon a monthly payment and the judgment was satisfied in October 2010.

Barrett Lyon, an individual, has filed suit against the Company in the Superior Court of California, San Mateo County, for alleged breach of warranty for a vehicle he purchased from the Company seeking $150,000 in damages, which includes attorney’s fees.  The Company has disputed his claims; however, on September 15, 2010 the Company reached a settlement agreement with Mr. Lyon and paid Mr. Lyon $75,000 in full settlement.

F&C Promptly, Inc., a collection agency, filed in February 2009 a lawsuit against the Company in the District Court, Clark County, Nevada, for approximately $32,000 for collection of the account of the Law Offices of Richard McKnight assigned to F&C Promptly, Inc. for collection.  The Company has come to an agreement with F&C Promptly, Inc. and has agreed to $4,000 a month payment until paid in full.  In November 2010, the agreement was paid in full.

Caudle & Spears has obtained a default judgment against the Company in Meckenberg County, North Carolina, General Court, in the amount of $17,686. This law firm represented us in our litigation against Martin Koebler, a former employee, whom we successfully sued for return of Company property and other damages. The Company is in settlement negotiations with Caudle & Spears, since its judgment against Martin Koebler is still in the collection process. A payment agreement has been reached in the amount of $2,500 per month with no interest until paid.  The Company is not current with the its payment arrangements and has a balance of $4,263 still due.

Internal Revenue Service served the Company with a tax lien dated March 3, 2010 in the total amount of $251,928. Third quarter 2009 taxes are approximately $117,000, which are included in total due.  The Company has been served with an additional tax lien dated January 19, 2011, in the amount of  $2,925. The Company has a payment plan in place with the Internal Revenue Service (“IRS”).

Tallman Hudders & Sorrentino has obtained a judgment in Lehigh County, Pennsylvania, on behalf of their client Javad Hajihadian, an individual,individual.  Mr. Hajihadian had ordered and paid for, the first super car to be produced by Li-ion Motors in November 2008. The car was in the design stage when it was ordered; with the understanding it would be a minimum of one year before the car would be manufactured.  The client has changed his mind and hisordered.  Mr. Hajihadian’s attorney subsequently contacted  the Company to cancel his contract and have his payment refunded. The parties havehad reached ana settlement agreement and the payment iswas being refunded with interest. The settlement agreement was for $102,500 and stipulated monthly payments of $10,250 commencing in July 2010.  Payments were made through November 2010, totaling $51,250, leaving a balance of five payments or $51,250 still due; which is reflected on the Company’s balance sheet under current liabilities. The Company is currentbecame delinquent and Mr. Hajihadian proceeded with the paymentslitigation and expects this to be paidon February 4, 2011, a judgment was issued in full by March 2011.

Note 14. Automotive X Prize

The Progressive Insurance Automotive X-Prize, (“PIAXP”), competition was announced in April 2008 as a way to spur the development of clean, high-mileage vehicles, and is fundedhis favor for a total of $10 million, which will be divided among three separate categories. The X-Prize challenge drew an unexpectedly strong response; 115 teams entered 136 separate vehicles, winners were announced in Washington D.C. on September 15, 2010 and the Company was the winner in its entry class. On October 27, 2010, the Company received $2.5 million from XPrize and was recorded as other income in the Company’s consolidated statement of operations.

Note 15. Subsequent Events

Subsequent events have been evaluated through December 7, 2010.$51,750.
 
 
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations.

FORWARD LOOKING STATEMENTSITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

This quarterly report contains forward-looking  statements that involve risks and uncertainties.  We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking  statements. You should not place too much  reliance  on these  forward-looking  statements.  Our actual results are likely to differ  materially from those  anticipated in these forward-looking  statements  for many  reasons,  including the risks faced by us described in this section.

RESULTS OF OPERATIONS

Results of Operations for the Three Months Ended October 31, 20102011

Electric Vehicle Operations

Sales ofWe did not have any sales for our electric powered vehicles forduring the three months ended October 31, 2010 and 20092011. Our only sales during the three months ended October 31, 2011, were $0 and 124,910, respectively.for  vehicle parts which totaled $3,568.

We convert and manufacture vehicles in our developmental facility in Mooresville, North Carolina. Our teams of highly qualified engineers oversee electrical and mechanical staff. This 40,000 square foot facility has office space,  room for manufacturing, conversions, storage and a battery lab that is leased to Superlattice,Sky Power, with the potential for future growth, enabling us to work on many projects and vehicles concurrently.

With the licenses of our lithium battery and electric vehicle technology described below, we are concentrating on sales of our vehicles.  We initiated several nationwide newspaper advertising campaigns which  generated some orders for our vehicles, and we are also seeing as a result a significant increase in inquiries about our electric vehicle products.

Sky Power License Agreement

We entered into a License Agreement (“SuperlatticeSky Power License Agreement”) with SuperlatticeSky Power in April 2008, providing for our license to SuperlatticeSky Power of our patent applications and technologies for rechargeable lithium ion batteries for hybrid vehicles and other applications (“Licensed Products”).  Under the SuperlatticeSky Power License Agreement, we have the right to purchase our requirements of lithium ion batteries from Superlattice,Sky Power, and our requirements of lithium ion batteries shall be supplied by SuperlatticeSky Power in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of Superlattice.Sky Power. Our cost for lithium ion batteries purchased from SuperlatticeSky Power shall be Superlattice’sSky Power’s actual manufacturing costs for such batteries for the fiscal quarter of SuperlatticeSky Power in which our purchase takes place.  On May 25, 2010, the SuperlatticeSky Power License Agreement was amended to reflect Superlattice’sSky Power’s territory would be the United States, U.S. possessions and territories only, and the Company can license other companies in other parts of the world.

SuperlatticeSky Power agreed to invest a minimum of $1,500,000 in 2008 and 2009 in development of the technology for the Licensed Products. In the initial year under the License Agreement, Superlattice invested $264,043To date, Sky Power has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the Superlattice License Agreement. We havelicense agreement.  The Company has advised Superlattice,Sky Power that weit will not give notice of default against Superlatticethem for itstheir failure to comply with this covenant forover the term of the License Agreement.

On May 25, 2010 the SuperlatticeSky Power License Agreement was amended to limiting the license granted to SuperlatticeSky Power to only the United States, permitting Li-ion to grant other licenses to companies in other parts of the world.
 
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Lithium Electric Vehicle Corp.  License Agreement

Effective May 28, 2010, wethe Company entered into a License Agreement (the “LEVC License Agreement”)ten year license agreement with Lithium Electric Vehicle Corp. (“LEVC”) providing for ourthe Company to license to LEVC of certain of ourthe Company’s patent applications and technologies for electric vehicles and other applications. The purpose of the licenselicensee is to expand sales of ourthe Company’s current line of products by the manufacture and sale of such products in Canada, which is LEVC’s exclusive territory under the License Agreement.

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license agreement.

Under the LEVC License Agreement, LEVC has agreed, in consideration of the grant of theThe license to pay us $1,000,000, of which $666,667 has been paid, plus an amount equal to the independent valuation of the license under the LEVC License Agreement, less the $1,000,000 payment.  The payment of the excess of the valuation amount over the $1,000,000 payment would be made by way of a convertible debenture or other securities. Additionally, LEVC, as licensee, would payagreement provides for an annual fee of $500,000 commencingfor ten years and an additional $1,750,000 based on the second anniversary of the date of thea valuation report prepared by an independent third party.  LEVC License Agreement, and a royalty as determined in the independent valuation report. The initial termis required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year.  The Company has received $732,666 from LEVC with a balance due of $267,334 as of October 31, 2011, which is ten years.now delinquent.  The Company has not reflected the amount due from LEVC but has recorded the amount received as deferred revenue and amortized the license fee income ratably over the period.  License agreement revenue recognized for the three months ended October 31, 2011 and 2010, was $168,750 and $125,000, respectively. The Company will continue to recognize license fee income ratably over the life of the agreement.

Cost of Sales

Cost of sales as a percentage of net sales for the three months ended October 31, 20102011, was 18%approximately 17% as compared to approximately 133%18% during the same period in 2009. The2010.  Based on our historical review of costs, we expect that cost of sales for 2010 representsin the costfuture will remain in line on salea percentage basis with our historic level of partsapproximately 20%. As sales volumes and prices increase, costs should then reduce as there were no vehicle sales during the three months ended October 31, 2010.a percentage of sales.

General and Administrative Expenses

General and administrative (“SG&A”) expenses decreased to $364,530$224,218 for the three months ended October 31, 2010,2011, as compared to $371,322$364,530 during the same period in 2009.2010. The decrease was attributable to:  (1) legal and professional fees of $60,564; (2) advertising and promotion expense of $18,732; (3) travel related expenses of $15,742; (4) salaries and wages of $44,463; (2) professional fees$14,499; (5) office expenditures of $33,940; (3) financing activity expense of $14,614;$5,546; and (4)(6) other various expenses of $4,454.  The reduction in expenditures was offset with an increase in (a) bad debt expense of $71,065; (b) penalties of $13,344; and (c) travel related expenses of $6,270.$25,229.  Of all SG&A expenses the Company incurred during the first quarter 2011, the majority were charges that are expected to be recurring.

Research and Development Expenses

No set amount has been set aside for research and development (“R&D”), however, all projects and purchases require approval prior to  initiation. Salaries, payroll taxes, and benefits expensed to R&D for the first quarter endedthree months ending October 31, 2010,2011, amounted to $248,806 and $254,440 and $ 405,956 for quarter ended Octoberyear ending July 31, 2009.2010. Parts and supplies, expensed to R&D was $5,578 and $13,690 for the three months ended October 31, 2010 and 2009, respectively. Shippingshipping charges, and battery management systems expensed to R&D were $52$7,060 and $12,975,$5,630 for the three months endedending October 31, 20102011 and 2009October 31, 2010, respectively. During the first quarter 2011, the Company began  to build two prototypes of its electric powered vehicles which increased R&D by $221,907.  We expect that research and development expenses will continue to remain substantial and grow as we aggressively move to bring products to marketmarket.

Interest Expense

Interest expense increaseddecreased to $157,838$41,533 for the three months ended October 31, 20102011, as compared to $62,564$157,838 for 20092010. The decrease was due to additional issuancethe conversion of debt.debt to the Company’s common stock during the fiscal year 2011. Interest expense consists primarily of interest related to borrowings.

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Other Income

Effective April 16, 2008, SuperlatticeSky Power agreed to lease approximately 5,000 square feet of space (“Leased Space”) in our North Carolina facility, such Leased Space to be suitable for, and utilized by SuperlatticeSky Power for, Superlattice’sSky Power’s developmental and manufacturing operations for Licensed Products pursuant to the License Agreement.  The Leased Space is leased on a month-to-month basis at a monthly rental of $2,756$2,894 the monthly rental to be escalated five (5%) percent annually.

Other income for the three months ended October 31, 2011, consisted primarily of accounting fees and rental income from Sky Power for $18,431 and interest income from the LEVC Note of $44,110.

Other income for the three months ended October 31, 2010, consists of (1) accounting fees and rental income from Superlattice for $18,019; (2) revenue earned from the license agreement with LEVC of $125,000; and (3) receipt of net proceeds of  $2,425,272 from XPrize.

Other income for the three moths end October 31, 2009 consisted of accounting fees and rental income from Superlattice for $17,625.

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$18,019 and receipt of net proceeds of  $2,425,272 from XPrize.

Net Earnings (Loss)

Net earningsloss attributable to common stockholders for the three months ended October 31, 20102011 was $1,575,581$287,223, as compared to a net lossearnings of $889,469$1,575,581 for the previous fiscal quarter. Basic and diluted gainloss attributable to common stockholders per share of common stock for the three months ended October 31, 20102011 was $0.05$0.01 as compared to a lossgain of $0.04$0.05 for the previous fiscal quarter.

Liquidity and Capital Resources

Since our incorporation, we have financed our operations almost exclusively through the sale of our common  shares to  investors and borrowings.  We expect to finance operations  through  borrowings and the sale of equity in the foreseeable future as we receive minimal revenue from our current business operations. There is no guarantee that we will be successful in arranging financing on acceptable terms.

At October 31, 2010,2011, we had liabilities of $8,013,187,$4,691,535, as compared with $7,960,959 at$4,292,604at July 31, 2010;2011; and a working capital of $33,549 and stockholders' equity deficiency of $244,492 and a stockholders’ deficiency of $4,343,325.$230,618.

Our property, plant and equipment decreased to $1,900,205$1,960,666 at October 31, 2010,2011, as compared with $1,919,681$1,983,739 at July 31, 2010.2011.

Net cash provided byused in operating activities was $1,575,613$434,843 during the three months ended October 31, 2010,2011, as compared with $626,597 used$1,575,613 provided for in 2009, and cash provided by2010.  We did not have any investing activities during the three months ended October 31, 2010 in investing activities was $15,149, as compared with cashed used of $637,485 during the same period in 2009.2011 and 2010.

During the three months ended October 31, 2010,2011, from the issuance of a promissory note for a receivable, we advanced $71,065$35,976 to SuperlatticeSky Power Inc. and waswere repaid $0.$15,623. During the three months ended October 31, 2010,2011, we received net proceeds of 560,835$475,027 from the issuance of promissory notes for debt, and made repayments of  $474,621. Net$24,708.  Total cash provided by financing activities forin the three months ended October 31, 20102011 was $15,149,$429,666 as compared with $637,485 for the comparable period$15,149 in 2009.2010.

On May 5, 2008, the Company entered into a loan agreement with Crystal Capital Ventures Inc. (Crystal”and on October 1, 2010, the loan was assigned to Starglow Asset, Inc. (“Starglow”).  The loan agreement providesprovided for loans to the Company of up to $3,000,000, with a minimum initial loan of $500,000 taking place on May 19, 2008. The notes bearloan bore an interest payable monthly in arrears at the rate of 10% per annum, and mature and are due and payableinitially matured  on May 4, 2011.2012. The loansloan under the loan agreement arewas secured by shares of the Company’s common stock held by Crystal.Starglow. The Company iswas required to issue shares as collateral at the rate of two and one half shares of the Company’s common stock for each dollar principal amount of the loan advanced to the Company.  Following disbursement of the first $1,000,000 of funds pursuant to the loan agreement, on May 27, 2008, the Company issued 2,500,000 shares of common stock as collateral to Crystal.collateral. After the 1:3 reverse stock split in February 2009 the Company issued Crystal an additional 5,000,000 shares to make their shares held as collateral total 7,500,000. AfterPursuant to the anti-dilution provisions in the loan agreement with the 1:2 reverse stock split inof February 1, 2010, the Company issued Crystal an additional 3,749,999 shares to makeagain  increase their holdings to 7,500,000 post reverse stock split shares.  In connection with the Company's 20% stock dividend, the Company issued an additional 1,500,000 common shares to be held as collateral total 7,500,000.collateral.
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As of October 31, 2010,On April 19, 2011, Starglow converted the entire $3,000,000 outstanding loan amount for the 7,500,000 collateralized shares and the Company has borrowedissued a Stock Purchase Warrant (“Starglow Warrant”) which entitles Starglow, for a three-year period, to purchase at a purchase price of $.001 per share, on a one time basis and only following the full $3,000,000 undereffectiveness of the loan agreementfirst reverse split of the Company’s common stock following the issuance of the Starglow Warrant , such number of shares of common stock as is equal to the difference between 7,500,000 and the number of shares into which such 7,500,000 shares were changed in such first reverse split, the effect of the Starglow Warrant being to protect Starglow from Crystal Capital. Interest expenseany dilution to Crystal Capital was $75,616 for the three months ended October 31, 2010 and $76,619 for the three months ended October 31, 2009, respectively. The current balance as of October 31, 2010 due to Crystal Capital is $3,000,000.its 7,500,000 share holding resulting from such first reverse split.

On October 12, 2010, the Company entered into a amendment to the Crystal loan agreement, under which the lender agreed to extend the due date of the loan to May, 2012.

On February 26, 2010, the Company entered into a loan agreement with Frontline Asset Management Inc. (“Frontline”).Frontline. The loan provides for payments to the Company of $2,000,000 with interest at a fixed annual rate of 12%. On May 1, 2010, an Addendum to the original Promissory Note, dated February 26, 2010, was entered into which amended the term of the note to  stateprovide for interest only payments, due on the last day of every month until maturity date March 30, 2011 when all principal and accrued interest shall be due and payable.  DuringOn April 11, 2011, Frontline assigned $850,279 of its debt to Winsor Capital, Inc. (“Winsor”). On April 19, 2011 Frontline partially assigned $437,309 to Kisumu S.A. (“Kisumu”) and Kisumu immediately converted the three months ended October 31, 2010assigned note for 1,041,212 shares of Common Stock at a strike price of $0.42 per share.  On April 19, 2011 Frontline assigned $420,000 to Eurolink Corporation (“Eurolink”) and 2009,Eurolink immediately converted the Company received advances totaling  $560,835 and $0, respectively; and made paymentsassigned note for 1,000,000 shares of $466,431 and $0, respectively.  Interest expense for the three months ended October 31, 2010 was $46,959.

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Common Stock at a strike price of $0.42 per share.

On October 11, 2010, the Company entered into a amendment to the Frontline loan agreement, under which the lender agreed to extend the due date of the loan to March 1, 2012.

On April 15, 2010 the Company entered into a loan agreement for $2,000,000 with Winsor Capital Inc.Winsor. The loan providesprovided for loanspayments of up to $2,000,000 to the Company with an initial installment of $250,000 and additional installments of up to $1,750,000 with a 10% interest rate. The entire loan amount iswas secured by 10,000,00012,000,000 shares of the Company common stock. Each loan installment maturesmatured in three years from issuance of the installment. The loan hashad an anti-dilution clause for the stock issued as collateral. Stock is issued and delivered proportionately to the delivery of funds.  Interest expenseThe loan was fully funded during the third quarter ending April 30, 2011 with (1) cash advances of $250,000; (2) debt assignment from Frontline of $850,279; (3) accrued interest of $33,534; and (4) $97,528 in cash advance fees.

On April 19, 2011, Winsor converted the entire $2,000,000 outstanding loan amount for the three months ended October 31, 2010 was $19,450.10,000,000 collateralized shares and the Company issued a Stock Purchase Warrant (“Winsor Warrant”) which entitles Winsor, for a three-year period, to purchase at a purchase price of $.001 per share, on a one time basis and only following the effectiveness of the first reverse split of the Company’s common stock following the issuance of the Winsor Warrant , such number of shares of common stock as is equal to the difference between 10,000,000 and the number of shares into which such 10,000,000 shares were changed in such first reverse split, the effect being to protect Winsor from any dilution to its 10,000,000 share holding resulting from such first reverse split.

Liquidity Issues

On October 27, 2010, we received the $2,500,000 in funds for the X PrizeX-Prize award, from the competition sponsored by Progressive Insurance Casualty Company.  We will need additional capital to continue development and marketing of our electric vehicles, particularly given the number of companies competing in this sector and the fact that many of the larger car manufacturers are developing and marketing electric and hybrid vehicles.

The Company has substantial obligations to the Internal Revenue Service and other creditors. The Company hasis working toward a payment plan in place  with the Internal Revenue Service (IRS) for delinquent payroll taxes, and have a plan in place with the threeone of two judgment creditors.  There is no assurance that we will be able raise additional required capital to meet obligations arising from the settlements of these obligations and litigation matters, as well as the settlement payments with the IRS, and continue operations.
 
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Our current operating funds are less than necessary for commercialization of our planned products, and therefore we will need to obtain additional financing in order to complete our business plan.  We  anticipate that up to $2,000,000 of additional working capital will be  required  over the next 12  months  for  market introduction  of these products through joint venture partners or otherwise.  We do not have sufficient cash on hand to meet these anticipated obligations, which are in addition to payments we will owe to judgment creditors and the IRS.

We do not currently have any otheradditional arrangements for financing, and we may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor sentiment.  Market factors may make the  timing,  amount,  terms or  conditions  of  additional  financing unavailable to us.

CRITICAL ACCOUNTING ISSUES Critical Accounting Issues

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended July 31, 2010.2011.  There were no significant changes to these accounting policies during the three months ended October 31, 20102011 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market RiskRisk.

Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of three months or less. Our interest income is sensitive to changes in the general level of U.S. interest rates.  We do not have significant short-term investments, and due to the short-term nature of our investments, we believe that there is not a material risk exposure.  Our debt is at fixed interest rates.

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Credit Risk - Our accounts receivables are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. As a result we do not anticipate any material losses in this area.

Item 4(T)4 (T). Controls and Procedures.

As of the end of the fiscal quarter covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as defined in Rule 13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Principal Financial and Accounting Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting her to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Quarterly Report on Form 10-Q. There have been no changes in the Company’s internal controls or in other factors which could significantly affect internal controls subsequent to the date the Company carried out its evaluation.

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PART II-II. OTHER INFORMATION

Item ITEM 1. Legal Proceedings.

Other than as described below, we are not a party to any material legal proceedings  and to  our  knowledge,  no  such  proceedings  are  threatened  or contemplated.

Caudle & Spears v. EV Innovations, Inc.
Caudle & Spears has obtained a default judgment against the Company in Meckenberg County, North Carolina, General Court, in the amount of $17,686. This law firm represented us in our litigation against Martin Koebler, a former employee, whom we successfully sued for return of Company property and other damages. The Company is in settlement negotiations with Caudle & Spears, since its judgment against Martin Koebler is still in the collection process. A payment agreement has been reached in the amount of $2,500.00 per month with no interest until paid.  The Company is not current with these payments, and there is a balance of $4,263 that is stillcurrently due.

Internal Revenue Service
The Company has been served with a tax lien dated March 3, 2010 from
We have an outstanding balance due the Internal Revenue Service inIRS of $302,278 for the total amount of $251,928.14. ThirdCompany’s 940 and 941 payroll taxes for the first quarter 2009 taxes are approximately $117,000, which are included in total due. The Company hasthrough the second quarter 2011 and at July 31, 2011. Under a payment planagreement we are paying $2,500 per month, with payment increasing to $5,000 in place with the Internal Revenue Service (IRS).August 2012.  Our payments are currently up to date through September 30, 2011.
 
 Javad Hajihadian

Javad Hajihadian, an individual,individual.  Mr. Hajihadian had ordered and paid for, the first super car to be produced by Li-ion Motors in November 2008. The car was in the design stage when it was ordered; with the understanding it would be a minimum of one year before the car would be manufactured.  The client has changed his mind and hisordered,.  Mr. Hajihadian’s attorney subsequently contacted the Company to cancel his contract and have his payment refunded. The parties havehad reached ana settlement agreement and the payment iswas being refunded with interest. The settlement agreement was for $102,500 and stipulated monthly payments of $10,250 commencing in July 2010.  Payments were made through November 2010, totaling $51,250, leaving a balance of five payments or $51,250 still due; which is reflected on the Company’s balance sheet under current liabilities. The initial two payments were paid toCompany became delinquent and Mr. Hajihadian proceeded with litigation and on February 4, 2011, a judgment was issued in August 2010, and the Company is current in its payments.his favor for $51,750.
 
 
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ItemITEM 6. Exhibits

Ex 31
Certification  of  Chief Executive Officer and Principal  Financial Officer Pursuant to Section 302 of the Sarbanes-OxleySarbanes-
Oxley Act of 2002, filed herewith.

Ex
32
Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section  1350,  as
Adopted  Pursuant  to  Section  906 of the Sarbanes-Oxley Act of 2002,filed herewith.

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SIGNATURES

In  accordance  with  the requirementsSection 13 or 15(d) of the Exchange  Act,  the  registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
Li-ion Motors Corp.
 
   
Date: December 15, 2011
By:/s/Stacey Fling 
 Stacey Fling 
 (Chief Executive Officer and Principal Financial Officer 
 Principal Financial Officer)
In  accordance  with the  Securities  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.
Date: December 15, 2011
By:/s/ Stacey Fling 
 Dated: December 8, 2010Stacey Fling
President
(President, Chief Executive Officer
Principal Financial Officer and Director)
 

Date: December 15, 2011
By:/s/ Holly Roseberry
Holly Roseberry
Title 
(Director)
 
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