UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549







Amendment No. 1


to


FORM 10-K




(Mark One)x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended July 31, 2010oro
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. xNo




Indicate by checkmark if the registrant is not required to file reports to Section 13 or 15(d)Of the Act.  ̈Yes     xNo




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.  xYes      ̈No




Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o




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). oYes x No




The aggregate market value of voting and non-voting common equity held by non-affiliates as of January 31, 2010 was $9,047,301, based on the average bid and asked prices on the OTC Bulletin Board on that date.




On October 27, 2010, there were 30,047,301 shares of common stock outstanding.









Table of Contents




Item 1. Business


3Item 1A.  Risk Factors


7Item 1B. Unresolved Staff Comments


8Item 2. Properties


8Item 3. Legal Proceedings


8Item 4. [Removed and Reserved]


9Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities


9Item 6. Selected Financial Data


11Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations


11Item 7A. Quantitative and Qualitative Disclosures About Market Risk


15Item 8. Financial Statements and Supplementary Data


15Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure


36Item 9A (T). Controls and Procedures


36Item 9B. Other Information


37Item 10. Directors, Executive Officers and Corporate Governance


37Item 11. Executive Compensation


11Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters


39Item 13. Certain Relationships and Related Transactions, and Director Independence


40Item 14.  Principal Accountant Fees and Services


41Item 15. Exhibits and Financial Statement Schedules


42




2


EXPLANATORY NOTE
 
 Li-ion Motors Corp. (referred to in this report as “we” or the “Company”) is filing this Amendment No. 1 (this “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended July 31, 2010, filed November 2, 2010 (the “2010 Form 10-K”), as a result of the review by the Securities and Exchange Commission (the “Commission”) of the Company’s financial statements and other disclosures included in the 2010 Form 10-K.
 
 This Amendment amends “Item 9A. Controls and Procedures.” included in the 2010 Form 10-K to reflect certain changes made in response to the Commission’s review, as well as to provide additional disclosures requested by the Commission in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 10. Directors, Executive Officers, and Corporate Governance”. The other items of the 2010 Form 10-K are being reproduced as part of this Amendment solely for the convenience of the reader and the content set forth therein is as of the original filing date of the 2010 Form 10-K, November 2, 2010. Any forward-looking statements included in this Amendment for the fiscal year ended July 31, 2010, represent management's view as of the original filing date of the 2010 Form 10-K.




PART I





NOTE REGARDING FORWARD LOOKING STATEMENTS


CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS


OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995





This Annual Report contains historical information as well as forward-looking statements. Statements looking forward in time are included in this Annual Report pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to be materially different from any future performance suggested herein. We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-K, the following forward looking statements, among others, sometimes have affected, and in the future could affect, our actual results and could cause our actual consolidated results during 2010, and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf.




Item 1. Business




Company History




Li-ion Motors Corp. (“we, “us”, the “Company” or “Li-ion”) was incorporated under the laws of the State of Nevada in April 2000. Since our incorporation, we have evaluated various business opportunities; however, after evaluation of several different lines of business, we determined to focus our efforts on the development and marketing of electric powered vehicles and products.





We changed our name from Whistler Investments, Inc. to Hybrid Technologies, Inc. on March 9, 2005 to reflect our corporate focus on electric products, on January 22, 2009, we changed our name to EV Innovations, Inc. in order to clarify that our vehicles are fully electric, not hybrids. Effective February 1, 2010, we changed our name to Li-ion Motors Corp, to distinguish that our motors run on lithium ion batteries.





Recent Developments





In 2008 Progressive Casualty Insurance Company announced a $10,000,000 automotive X Prize for innovative, production–capable cars that have an equivalent of 100 miles per gallon (mpg) using eco-friendly means of propulsion. Li-ion entered and won in the side-by-side alternative fuel class.    Li-ion staff developed and designed the Wave II car for the competition, using our lithium-ion battery packs. The competition opened in January 2010, with the Detroit Auto Show, where 111 teams registered. Qualifying and shakedown stages were held in April, May and June at the Michigan Speedway. Technical inspections were performed to ensure vehicles were safe and conformed to specifications that were submitted at the time of entry.  Vehicles were required to achieve 100 miles per gallon equivalent (MPGe) with less than 200g/mile CO2 emissions to continue to the finals. Team Li-ion had 182.3 MPGe with 0.74 energy consumed and greenhouse emissions of 125. The event moved on to the on-road range, which requires the car to drive 100 miles without recharging. Li-ion’s Wave II finished first with a .17 edge over the second place vehicle. Dynamic safety dealt with acceleration, braking and accident avoidance.  Final validation was conducted at Argonne labs in Chicago to verify track results.   The announcement of the winners took place in Washington, D.C. on September 16, 2010. On October 27, 2010, we were paid the $2,500,000 X Prize for our class in the competition. We look forward to marketing our Wave and Inizio electric vehicles, and we believe that our technology was proven out at the X-Prize competition.




Liquidity and Capital Resources





As of July 31, 2010, we had cash on hand of $2,113 and our liabilities totaled $7,960,959. For the year ended July 31, 2010, we incurred a net loss from operations of $3,721,230. On July 31, 2010, we had a working capital deficit of $1,836,457 and a stockholders' deficit of $5,918,907.





On October 27, 2010, we received the $2,500,000 in funds for the X Prize award.  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.




We had 30,047,301 shares of common stock issued and outstanding as of October 28, 2010. Our common stock is traded on the OTC Bulletin Board.




3


General




We are an early stage technology company. We are developing and marketing electric powered vehicles and products.





Our Electric Battery Pack and Vehicle Technology




We commenced marketing conversions of four-wheel vehicles in 2007 and 2008. Then in 2009 we began to design and manufacture new and innovative autos of our own design.





In our Mooresville, North Carolina facility we converted and tested vehicles based on Chrysler PT Cruiser, Mini Cooper, Pontiac Vibe, Toyota Yaris and the Mercedes’ Smart car. We replaced the gasoline power systems with all electric lithium battery power systems and battery management systems.  We have developed a rapid charge system that reduces charge time by approximately 65%; it is currently being used and tested.




Our Mooresville facility consists of approximately 40,000 square feet of space. Currently we use approximately 20,000 square feet for conversion, production, manufacturing and design. We also have a battery lab that is leased to Superlattice Power, Inc. (“Superlattice”) of approximately 5,000 square feet. The remaining square footage is used for offices and storage.





The Battery Technology We Use





In electric vehicles the battery pack performs the same function as the gas tank in a conventional vehicle: it stores energy needed to operate the vehicle. We use battery packs created in-house from Kokam cells in our converted vehicles. We anticipate using cells created by Superlattice in the  future.




License Agreements





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




Superlattice 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 $264,043 in the development of technology, and therefore is not in compliance with its obligations under this covenant of the Superlattice License Agreement. We have advised Superlattice, that we will not give notice of default against Superlattice for its failure to comply with this covenant for the term of the License Agreement.





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





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




Under the LEVC License Agreement, LEVC has agreed, in consideration of the grant of the 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 pay an annual fee of $500,000, commencing on the second anniversary of the date of the LEVC License Agreement, and a royalty as determined in the independent valuation report. The initial term of the license is ten years.




4


Electric Motors





We use a variety of electric motors in our converted vehicles, therefore, we are not reliant on any single manufacturer of electric motors. There are a large number of domestic and foreign manufacturers of electric motors, and we anticipate the motors with the specifications we require will be available at reasonable commercial prices from a number of these sources.





We believe that an important characteristic of our technology is the lithium battery power source, which is more efficient and powerful than other battery power sources. Vehicles utilizing this technology have the ability to travel far greater distances, can recharge in less time and also benefit from weight reduction, as compared with vehicles using other battery powered systems. One of the major historic hurdles facing electric vehicle manufacturers is that most power sources do not allow the vehicle to travel more than 100 miles before needing to be recharged. We believe that we can produce electric powered vehicles with a travel range equal to or greater than 200 miles.





A significant difference between electric vehicles and gasoline-powered vehicles is the number of moving parts. The electric vehicle motor has one moving part, the shaft, which is very reliable and requires little or no maintenance, thus reducing repair costs. Whereas the gasoline-powered vehicle’s motor has numerous moving parts, requiring a wide range of maintenance. The controller and charger are electronic devices with no moving parts, and they require little or no maintenance. Electric vehicle batteries are sealed and maintenance free, However, the life of these batteries is limited, and batteries will require periodic replacement. New batteries are being developed that will not only extend the range of electric vehicles, but will also extend the life of the battery pack which may eliminate the need to replace the battery pack during the life of the vehicle.




Products Under Development




We have products under development in the following categories.




Vehicles





Li-ion has designed from the ground up and produced the Inizio a luxurious sports car that we expect will achieve speeds up to 200 miles per hour with acceleration from 0 to 60 in 5 seconds and a range of up to 250 miles before recharging.





The Company has also designed and produced the Wave as a family car. The Wave will be available in both two and four door models. The Wave has been aerodynamically designed to reach speed up to 80 miles per hour with acceleration from zero to sixty in twelve seconds. Both these innovative vehicles manufactured by Li-ion Motors have no emissions.




Commercial Initiatives





On March 9, 2009 the State of North Carolina issued a manufacturing license to the Company, and we now are manufacturing our own original design vehicles with Vehicle Identification Number’s (“VIN”), while we continue to convert other vehicles.




Since February 2004, the LiVTM series electric vehicle has been tested and is under review by a number of government agencies. The testing of the LiVTM series vehicles by NASA, Arcadis, a contractor to the U.S. Environmental Protection Administration, NYC Taxi Commission, and US Paratransit is completed. The LiVTM WISE is listed in the catalogue of the Unites States General Services Administration, and these vehicles are available for purchase by multiple government agencies. The target market for the LiVTM WISE is federal government offices, utility companies, defense organizations and fleet operators. Li-Ion worked with Zero Truck- USA for commercialization of lithium ion powered heavy duty truck. We now offer our own, “Wave” two and four door electric vehicles and the “Inizio” super cars to the US market. The “Wave” electric vehicle is targeted at the commuter environment, and the “Inizio” super sport car targets the high performance car market. We anticipate that the “Inizio”  and “Wave” will be the front line vehicles for us.




We have signed a Space Act agreement with NASA and several of our electric vehicles are being driven daily by NASA at the Kennedy Space Center in Florida.




5


Competition





The discussion below identifies some of our principal competitors in the electric vehicle area, and is by no means a comprehensive discussion of the companies competing or planning to compete in this area.





The Automotive X-prize drew many companies into the challenge of designing electric vehicles. Aptera, RaceAbout, Project TW4XP, Edision2, OptaMotive all entered that competition, and they anticipate producing electric vehicles.





ZAP Alias is a 100% plug-in electric car designed in a three-wheeled configuration, two wheels in front, one in the rear.  ZAP has sold a three-wheeled city-car and truck called the Xebra since 2006 and has one of the only electric vehicle distribution and service dealer networks in existence. Currently, ZAP has over 60 dealers throughout the USA as well as a number of international distribution points, including South America and The Middle East.




Tata Motorsis India's largest automobile company, India’s leader in commercial vehicles and among the top three in passenger vehicles. Tata Motors plans to develop cars that are more fuel efficient, cleaner, with minimum impact to the environment.





General Motors’ Chevrolet division is developing its model named “Volt”, an electric car, with a scheduled launch in the 2011 model year.





The Lightning GT is a battery powered sports car manufactured by the United Kingdom company British Lightning Car Company that is scheduled to begin deliveries in 2012. The expected price is about $200,000.





Tesla Motorswas founded in 2003. The TESLA Roadster is their first production car, capable of a range of 200 miles with a top speed of 135 mph. It began sales in early 2008.





The NissanLeaf has planned sales for December 2010.





Employees





As of the date of this report, we have 30 employees, including our President and CEO, Stacey Fling, with her assistants and accounting staff at the corporate office in Las Vegas, Nevada.




Research and Development Expenditures




We incurred research and development expenditures of $1,264,420 in our fiscal year ended July 31, 2010, and $1,296,281  in our fiscal year ended July 31, 2009.




Patents and Trademarks





We have filed three  utility patents, (non-provisional);  each application claims the benefit of the provisional filing date of July 1, 2009.





1. Thermal Management System for Lithium Batteries -  Application No: 12829369




It has been observed that lithium ion batteries work efficiently and provide the highest mileage at certain predetermined temperatures.  Below optimum temperature, efficiency drops off drastically.  For example if an electric vehicle can run 100 miles at its battery’s  optimum operational temperature, at zero or subzero temperatures the vehicle’s mileage would drop by approximately forty percent.  To avoid this,  a heating system has been introduced to keep the battery temperature at a certain point to achieve the target mileage while driving during the winter  seasons which reach zero or subzero temperatures. The lithium ion battery is also not allowed to charge at zero, subzero or, or below temperatures for safety issues.





2. Rechargeable Battery Cathode Material -Application No. 12829355





A novel cathode material for a rechargeable battery.




6


3. Charging Algorithm for Lithium Batteries - Application No. 12829362





There are two major charging procedures for charging lithium polymer batteries.  One method is to charge at a constant current.  When a target voltage is reached the current is kept constant until the current which normally decreases, rises to a certain value.  Another method of charging is step charging with a constant current.  In this method, the current is stopped at time intervals until the target voltage is reached.  It has been observed that lithium ion batteries are very sensitive to charge rates, temperatures, thermodynamics and kinetics of all components, electrodes and battery chemistry.  A novel method reveals a specific algorithm to efficiently charge lithium batteries by adjusting battery voltage and current output to match the individual chemistry of lithium batteries.





The Company has also filed two provisional patents related to our battery management system and reverse battery management.





Item 1A.  Risk Factors





You should be particularly aware of the inherent risks associated with our business plan. These risks include but are not limited to:





We are continuing to incur substantial losses from our  operations.





We have had minimal revenues from joint ventures and sales of our products. We have not signed any definitive joint venture agreements to commercialize any of our products. As of July 31, 2010, we had cash on hand of $2,113. At that same date our liabilities totaled $7,960,959. For the year ended July 31, 2010, we incurred a net loss from continuing operations of $3,721,230. On July 31, 2010, we had a working capital deficit of $1,836,457 and a stockholders' deficit of $5,918,907.




We expect that we will continue to incur operating losses in the future. Failure to achieve or maintain profitability may materially and adversely affect the future value of our common stock.




If we do not obtain additional financing, our business will fail.





Our current operating funds and revenues from converted vehicle sales are less than necessary for commercialization of our products. The X Prize award will be of substantial assistance to us in the near term; however, we will need to obtain additional financing to complete our business plan. We do not currently have arrangements for additional financing and we may not find such financing if required. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to us.





We are subject to all of the risks of a new business.





Our business operations are relatively recent; therefore, we face a potentially higher risk of business failure. Our sales revenues are still not significant as of the date of this report. Potential investors should be aware of the difficulties normally encountered by newer companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the many problems including: expenses, difficulties, complications, delays encountered in connection with the commercialization of our products, unanticipated problems relating to product development, arranging and negotiating with joint venture partners, additional costs and expenses that may exceed current estimates. We have limited history upon which to base any assumption as to the likelihood that our business will prove successful, and investors should be aware that there is a substantial risk that we may not generate any significant operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.





Because we have only recently commenced business operations, we expect to incur operating losses for the foreseeable future.




Our management has limited experience in products utilizing electric battery power and with negotiating commercial arrangements for such products.





Our management has limited experience in negotiating licenses and joint ventures to commercialize the types of products we are developing. As a result of this inexperience, there is a high risk we may be unable to complete our business plan and negotiate profitable licenses or joint ventures for our lithium ion battery powered products. Because of the intense competition for our planned products, there is substantial risk that we will not successfully commercialize these products.




7


Our products are highly regulated.





Our products are highly regulated. There are special safety standards in effect for vehicles with a top speed of up to 25 miles per hour. Marketing vehicles that compete with passenger cars, requires compliance with the full federal safety standards. Regulatory reviews and compliance have already consumed significant time and resources and will continue to do so as we work towards obtaining a dealership license. This may adversely affect the timing of bringing products to market, as well as the profitability of such products once regulatory approvals are obtained.




Our electric powered vehicle business is subject to substantial risks.





The electric battery powered product market is competitive and risky. We are competing against numerous competitors with greater financial resources than us, and due to the difficulties of entry into these markets, we may be unsuccessful and not be able to complete our business plan.




We intend to rely on lithium ion batteries which, if not properly managed, may pose a fire hazard.





Another manufacturer of electric motor vehicles has received five reports of the batteries overheating, three of which caught fire, though no injuries have been reported. Our battery management systems will need to lessen or eliminate the risk of fire from the use of lithium ion batteries as a power source. If we are not able to develop such systems our business will not develop as planned. If our battery management systems fail, we could be liable to those who are harmed as a result of such failure.




Item 1B. Unresolved Staff Comments.





None.




Item 2. Properties.





Our principal executive office is located in Las Vegas, Nevada . We lease approximately 1,900 square feet under a lease agreement which commenced in March 2008 and renews on an annual basis. The lease provides for an aggregate annual payment of $18,000. Our mailing address is 4894 Lone Mountain Rd., #168, Las Vegas, Nevada 89130, for which we pay $25 per month, on a month to month basis.





In May 2006, we purchased 40,000 square foot facility at 158 Rolling Hill in Mooresville, North Carolina. Effective March 31, 2010 the Company entered into a stipulation agreement with Bayview Loan Servicing, LLC that reduced the current monthly payment to $5,349, including interest.  In 2013, Bayview Loan Servicing LLC may step up the interest rate at that time.




We believe our current facilities will generally be adequate for our needs for the foreseeable future.





Item 3. 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.





Hybrid Technologies, Inc. v. Keith Boucher




An arbitration award in the amount of $70,803 was awarded to Boucher against the Company for attorney’s fees and costs incurred in arbitration. A Judgment has been awarded to Keith Boucher.  The parties have agreed upon a monthly payment and the Company is current with the payments.





F&C Promptly, Inc. v. EV Innovations, Inc.




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.  The Company is current with payments.


8


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 current with these payments.





Internal Revenue Service





The Company has been served with a tax lien dated March 3, 2010 from the Internal Revenue Service in the total amount of $251,928.14. Third quarter 2009 taxes are approximately $117,000, which are included in total due. The Company has a payment plan in place with the Internal Revenue Service (“IRS”).




Javad Hajihadian





Javad Hajihadian, an individual , 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 his attorney contact the company to cancel his contract and have his payment refund. The parties have reached an agreement and the payment is being refunded with interest. The settlement agreement was for $102,500 and stipulated monthly payments of $10,250 commencing in July 2010.  The initial two payments were paid to Mr. Hajihadian in August 2010, and the Company is current in its payments.





Item 4. [Removed and Reserved]




PART II




Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.





Our shares of common  stock  trade and have  traded on the NASD OTC  Bulletin  Board since March 4, 2002. Our common stock also trades on the OTCQB Tier of the Pink OTC Markets.  The following table sets forth for our last two fiscal years by quarter the high and low closing prices of our common shares traded on the OTC Bulletin Board:





Period

High


LowAugust 1, 2008  to October 31, 2008

$
3.35


$
0.72November 1, 2008 to February 18, 2009

$
0.89


$
0.30February 19, 2009 to April 30, 2009 (1)

$
2.00


$
1.02May 1, 2009 to July 31, 2009

$
2.10


$
1.30August 1, 2009 to October 31, 2009

$
1.85


$
1.33November 1, 2009 - January 31, 2010

$
1.60


$
0.40February 1, 2010 - April 30, 2010

$
2.25


$
0.66May 1, 2010 - July 31, 2010

$
2.19


$
0.88








(1)
A one-for-three reverse split was effective February 19, 2009.


(2)
A one-for-two reverse split was effective February 1, 2010.


(3)
A 20% stock dividend was paid effective May 28, 2010, on the common stock.





The above  quotations are taken from information  provided by Yahoo and reflect inter-dealer prices, without retail mark-up, mark-down or commission  and may not represent actual transactions.


9


Holders of Common Stock





As of October 15, 2010, we had 242 holders of record of our common stock.





Dividends





Our current  policy is to retain earnings in order to finance our operations.  Our board of directors will determine future declaration and payment of dividends,  if any, in light of the then-current conditions they deem relevant and in accordance with the Nevada Revised Statutes.





Securities Authorized for Issuance under Equity Compensation Plans





All stock options under all plans have been granted, exercised and issued. Currently the Company has no options warrants or rights available.


10


Sales of Unregistered Securities





The following table sets forth the sales of unregistered securities for the last three years.





Date

Title and Amount (1)

Purchaser

Principal

Underwriter

Total Offering Price/

Underwriting

DiscountsJanuary 18, 2008

8,571,427 shares of common stock issued as collateral security pursuant to Loan Agreement, dated October 29, 2007, between the Company and Wyndom Capital Investments Inc. Shares were issued pursuant to anti-dilution provisions in Loan Agreement.

Wyndom Capital Investments Inc.

NA

NA/NAMay 27, 2008

7,500,000 shares of common stock issued as collateral security pursuant to Loan Agreement, dated May 5, 2008, between the Company and Crystal Capital Investments Inc.

Crystal Capital Investments Inc.

NA

NA/NAJanuary 22, 2009

3,500 shares of common stock.

Consultant

NA

$3,675/NAFebruary 20, 2009

6,666,665 shares of common stock issued as collateral security pursuant to Loan Agreement, dated October 29, 2007, between the Company and Wyndom Capital Investments Inc. Shares were issued pursuant to anti-dilution provisions in Loan Agreement.

Wyndom Capital Investments Inc.

NA

NA/NAFebruary 20, 2009

4,999,999 shares of common stock issued as collateral security pursuant to Loan Agreement, dated May 5, 2008, between the Company and Crystal Capital Investments Inc. Shares issued pursuant to anti-dilution provisions in Loan Agreement.

Crystal Capital Investments, Inc.

NA

NA/NAFebruary 23, 2010

3,749,999 shares of common stock issued as collateral security pursuant to Loan Agreement, dated May 5, 2008, between the Company and Crystal Capital Investments Inc. Shares issued pursuant to anti-dilution provisions in Loan Agreement.

Crystal Capital Investments, Inc.

NA

NA/NAMay 18, 2010

3,749,999 shares of common stock issued as collateral security pursuant to Loan Agreement, dated April 15, 2010, between the Company and Winsor Capital Inc.

Winsor Capital, Inc.

NA

NA/NA





Item 6. Selected Financial Data.




Not applicable.




Item 7. Management's Discussion and Analysisof Financial Condition and Resultsof Operations.





Forward Looking Statements





This annual 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.


11


Results of Operations for the Year Ended July 31, 2010





Electric Vehicle Operations





Sales of our electric vehicles for the fiscal year ended July 31, 2010 were $531,381, an increase of $55,553 or 12% as compared with 2009.









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 Supperlattice, 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.





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





Superlattice 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 $264,043 in the development of technology, and therefore is not in compliance with its obligations under this covenant of the Superlattice License Agreement. We have advised Superlattice, that we will not give notice of default against Superlattice for its failure to comply with this covenant for the term of the License Agreement.





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




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





Under the LEVC License Agreement, LEVC has agreed, in consideration of the grant of the 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 pay an annual fee of $500,000, commencing on the second anniversary of the date of the LEVC License Agreement, and a royalty as determined in the independent valuation report. The initial term of the license is ten years.





Cost of Sales





Cost of sales as a percentage of net sales for the fiscal year ended July 31, 2010 was approximately 107% compared to approximately 141% in 2009. This decrease was primarily attributable to the decrease in labor expenditures. Based on our historical review of costs, we expect that cost of sales in the future will remain in line on a percentage basis with our historic level of approximately 105%. As sales volumes and prices increase, costs should then reduce as a percentage of sales.


12


General and Administrative Expenses





General and administrative (“SG&A”) expenses decreased to $2,428,622 for the fiscal year ended July 31, 2010, as compared to $4,794,393 during the same period in 2009. The decrease was attributable a $2,490,000 compensatory expense for stock options exercised.  In addition, the Company had a decrease in (1) advertising and marketing related expenses of $452,836;(2)  warranty expense for vehicles previously sold of $82,555; (3) financing activity expense of $72,521; (4) legal fees of $52,474; (5) salaries and wages of $36,979; and (6) other various expenses of $19,613.  The reduction in expenditures was offset with a $841,207 provision in connection with Superlattice promissory note with the Company. Of all SG&A expenses the Company incurred during fiscal 2010, 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 year ending  July 31, 2010, amounted to $1,107,532 and $1,054,749 for year ending July 31, 2009. Parts and supplies expensed to R&D was $129,728 and $202,167 for the years ending July 31, 2010 and July 31, 2009, respectively. Shipping charges and battery management systems were $27,161 and $39,365, for the years ending July 31, 2010 and July 31, 2009 respectively. We expect that research and development expenses will continue to remain substantial and grow as we aggressively move to bring products to market





Interest Expense





Interest expense decreased to $505,371 for the fiscal year ended July 31, 2010 as compared to $742,825 for 2009. Interest expense consists primarily of interest related to borrowings.





Other Income





Effective April 16, 2008, Superlattice 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 Superlattice for, Superlattice’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 the monthly rental to be escalated five (5%) percent annually.





Other income for the fiscal year end July 31, 2010 consists of (1) accounting fees and rental income from Superlattice for $70,894; (2)  the company received an assignment of judgment from Martin Koebler for $21,114; and (3) revenue earned from the license agreement with LEVC of $83,333.





Other income for the fiscal year end July 31, 2009 consisted of accounting fees and rental income from Superlattice for $69,375 and other miscellaneous revenue of $8,416.





Net Loss





Net loss attributable to common stockholders for the fiscal year ended July 31, 2010 decreased to $3,933,604 from $6,817,974  for the previous fiscal year. Basic and diluted loss attributable to common stockholders per share of common stock for the fiscal year ended was $0.22 as compared to $0.66 for the fiscal year ended July 31, 2009.





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 July 31, 2010, we had liabilities of $7,960,959,as compared with $5,307,066 at July 31, 2009, a working capital deficiency of $1,836,457 and a stockholders’ deficiency of $5,918,907. In fiscal 2009, we also defaulted under our loan agreement with Wyndom Capital Investments, Inc. which, as its sole recourse under the loan agreement, took possession of 10,000,000 shares of our common stock held as collateral.





Our property, plant and equipment decreased to $1,919,681 at July 31, 2010, as compared with $1,989,981 at July 31, 2009.





We used net cash in operating activities of $2,336,670  in the year ended July 31, 2010, as compared with $2,469,775 in 2009, and cash used in investing activities was $22,857 in 2010, as compared with $62,106  in 2009.


13


During the year ended July 31, 2010, from the issuance of a promissory note for a receivable, we advanced $1,282,988 to Superlattice Power, Inc. and was repaid $441,781. During the year ended July 31, 2010, we received net proceeds of $ 2,581,645 from the issuance of promissory notes for debt, and made repayments of  $430,516.  We received advances from a related party of $1,252,014 and repaid $210,455. Total cash provided by financing activities in the year ended July 31, 2010 was $3,833,659, as compared with $3,320,880  in 2009.





On May 5, 2008, the Company entered into a loan agreement with Crystal Capital Ventures Inc. (Crystal”). The loan agreement provides for loans to the Company of up to $3,000,000, with a minimum initial loan of $500,000 on May 19, 2008. The notes bear interest payable monthly in arrears at the rate of 10% per annum and mature and are due and payable May 4, 2011. The loans under the loan agreement are secured by shares of the Company’s common stock held by Crystal. 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. 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. After the 1:2 reverse stock split in February 2010 the Company issued Crystal an additional 3,749,999 shares to make their shares held as collateral total 7,500,000.





As of July 31, 2010, the Company has borrowed the full $3,000,000 under the loan agreement from Crystal Capital. Interest expense to Crystal Capital was approximately $341,676 for the year ended July 31, 2010 and $202,007 for the year ended July 31, 2009, respectively. The current balance as of July 31, 2010 due to Crystal Capital is $3,000,000.





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”). 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, which amended the term of the note to state interest only payments, due on the last day of every month until maturity date March 1, 2011 when all principal and accrued interest shall be due and payable.  Interest expense for the year ended July 31, 2010 was $42,341.





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. The loan provides for loans 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 is secured by 10,000,000 shares of the Company common stock. Each loan installment matures three years from issuance of the installment. The loan has an anti-dilution clause for the stock issued as collateral. Stock is issued and delivered proportionately to the delivery of funds. Interest expense for the year ended July 31, 2010 was $19,139.





Related Parties Advances





The Company received additional advances of $1,252,014 and repaid $1,349,955 in the form of cash, common stock and two Li-ion manufactured electric vehicles from Salim Rana Investments  (“SSRI”) , a former shareholder, for the year ended July 31, 2010.  During fiscal year ended July 31, 2009, the Company received $2,123,399 and repaid $2,025,458 in the form of cash and common stock.  As of July 31, 2010 and 2009, the amount due to SSRI was $0 and $97,941, respectively.





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.





We do not currently have any 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.





Our continuation as a going concern is dependent upon continued financial support from our shareholders and other related parties.


14


Critical Accounting Issues





The Company's discussion and analysis of its financial condition and results of  operations are based upon the Company's financial statements, which have been  prepared in accordance with accounting principles generally accepted in the  United States of America. The preparation of the financial statements requires  the Company to make estimates and judgments that affect the reported amount of  assets, liabilities, and expenses, and related disclosures of contingent assets  and liabilities. On an on-going basis, the Company evaluates its estimates,  including those related to intangible assets, income taxes and contingencies and  litigation. The Company bases its estimates on historical experience and on  various assumptions that are believed to be reasonable under the circumstances,  the results of which form the basis for making judgments about carrying values  of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.





Other Matters





None.





New Financial Accounting Standards





The Financial Accounting Standards Board (“FASB”) has codified a single source of U.S. Generally Accepted Accounting Principles (“GAAP”), the Accounting Standards CodificationTM. Unless needed to clarify a point to readers, we will refrain from citing specific section references when discussing application of accounting principles or addressing new or pending accounting rule changes. There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.




Item 7A. Quantitative and Qualitative Disclosures About Market Risk.




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.





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 8. Financial Statements and Supplementary Data.





LI-ION MOTORS, CORP.





CONSOLIDATED FINANCIAL STATEMENTS





July 31, 2010 and 2009


15





TABLE OF CONTENTS





Reports of Independent Registered Accounting Firms


17Consolidated Balance Sheets as of July 31, 2010 and  2009


19Consolidated Statements of Operations for Years Ended July 31, 2010 and July 31, 2009


20Consolidated Statements of Cash Flows for the Years Ended July 31, 2010 and July 31, 2009


21Consolidated Statement of Stockholders’ Deficiency for the Years Ended July 31, 2010 and July 31, 2009


22Notes to Consolidated Financial Statements, as of and for the Years Ending July 31, 2010 and 2009


23


16


Madsen & Associates, CPA's Inc.


684 East Vine Street


Murray, UT 84107





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors


Li-ion Motors Corp.


Las Vegas, NV





We have audited the accompanying consolidated balance sheet of Li-ion Motors Corp. (formerly EV Innovations, Inc.) (collectively, the “Company”) as of July 31, 2010, and the related consolidated statements of operations, stockholders' deficiency and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.  The financial statements of Li-ion Motors Corp. as of July 31, 2009, were audited by other auditors whose report, dated November 4, 2009, expressed an unqualified opinion on those statements.





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





In our opinion, the 2010 financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2010, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.





/s/ Madsen & Associates, CPAs Inc.





October 29, 2010


17


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors


EV Innovations, Inc.


Las Vegas, NV





We have audited the accompanying balance sheet of EV Innovations, Inc. (collectively, the “Company”) (a development stage enterprise) as of July 31, 2009, and the related statements of operations, stockholders’ deficiency, and cash flows for the year then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.





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





In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2009, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.





The accompanying consolidated financial statements have been prepared assuming the company will continue as a going concern.  As shown in the consolidated financial statements, the Company incurred a net loss of $6.8 million for the year ending July 31, 2009.  As of July 31, 2009, current liabilities exceeded current assets by $1.3 million and the Company has a deficit of $3.0 million.  During the year ended July 31, 2009, the Company defaulted on two loans and the shares used as collateral to secure one of the loans was used to extinguish the loan and all unpaid interest.  These factors, and others discussed in Notes 1 and 12, raise substantial doubt about the Company’s ability to continue as a going concern.





These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.





/s/Wiener, Goodman & Company, P.C.


Eatontown, New Jersey


November 4, 2009


18




Li-ion Motors Corp.


(Formerly EV Innovations, Inc.)


Consolidated Balance Sheets





July 31,2010


2009AssetsCurrent assets:Cash and cash equivalents

$
2,113


$
5,182Accounts receivable, net of allowance for doubtful accounts of $0


-



13,522Note receivable, net of allowance for doubtful account of $841,207


-



-Inventories


35,000



227,826Employee advances


10,000



1,508Other current assets


51,001



18,009Total current assets


98,113



266,047Property and equipment, net


1,919,681



1,989,981Deferred patent costs


24,258



24,258Total assets

$
2,042,052


$
2,280,286Liabilities and Stockholders' DeficiencyCurrent liabilities:Bank overdrafts

$
14,104


$
-Accounts payable and accrued expenses


1,296,734



999,749Current portion of long-term debt


22,444



39,702Customer deposits


100,000



391,199Deferred revenue


501,288



3,808Due to related parties


-



97,940Total current liabilities


1,934,570



1,532,398Long-term liabilities:Long-term debt, less current portion


5,943,056



3,774,668Long-term deferred revenue, less current portion


83,333



-Total liabilities


7,960,959



5,307,066Commitments and contingencies


-



-Stockholders' deficiencyPreferred 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 andoutstanding at July 31, 2010 and 20,884,101 at July 31, 2009 respectively


30,047



20,884Additional paid-in capital


56,758,511



55,731,174Accumulated deficit


(62,699,029
)


(58,765,425
)Accumulated other comprehensive income


(8,436
)


(13,413
)Stockholders' deficiency


(5,918,907
)


(3,026,780
)Total liabilities and stockholders' deficiency

$
2,042,052


$
2,280,286




See accompanying notes to consolidated financial statements


19





Li-ion Motors Corp.


(Formerly EV Innovations, Inc.)


Consolidated Statements of Operations




For the Years EndedJuly 31,2010


2009Sales

$
531,381


$
475,828Costs and expenses:Cost of sales


559,569



625,866General and administrative


2,428,622



4,794,393Research and development


1,264,420



1,296,281Total costs and expenses


4,252,611



6,716,540Loss from continuing operations


(3,721,230
)


(6,240,712
)Other (expenses)/income:Interest expense


(505,371
)


(742,825
)Other income


175,341



77,791Forgiveness of debt


117,656



87,772Loss before provision for (benefit from) income taxes


(3,933,604
)


(6,817,974
)Provision for (benefit from) income taxes


-



-Net loss


(3,933,604
)


(6,817,974
)Less: Net loss attributable to noncontrolling interest


-



-Net loss attributable to Li-ion Motors Corp

$
(3,933,604
)

$
(6,817,974
)Loss per share - basic and diluted:Loss per common share attributable to Li-ion Motors Corp. common shareholders

$
(0.22
)

$
(0.66
)Weighted average number of shares outstanding - basic and diluted


17,986,016



10,278,989Amounts attributable to Li-ion Motors Corp. common shareholders:Net loss

$
(3,933,604
)

$
(6,817,974
)





See accompanying notes to consolidated financial statements


20





Li-ion Motors Corp.


(Formerly EV Innovations, Inc.)


Consolidated Statements of Cash Flows





For the Years EndedJuly 31,2010


2009CASH FLOWS FROM OPERATING ACTIVITIES:Net loss

$
(3,933,604
)

$
(6,817,974
)Adjustments to reconcile net loss to net cash utilized by operating activitiesDepreciation


77,917



82,350Loss on disposal of property and equipment


15,242



-Provision for doubtful accounts


841,207



-Non-cash stock-based compensation


70,000



2,630,000Non-cash sale of electric vehicles


(173,000
)


-Increase (decrease) in cash flows from changes in operating assets and liabilitiesAccounts receivable, net


13,522



79Inventories


192,826



59,484Employee advances


(8,492
)


(1,508
)Prepaid expenses and other current assets


(32,991
)


51,110Bank overdraft


14,104



51,600Accounts payable and accrued expenses


296,985



1,229,237Customer deposits


(291,199
)


242,039Deferred revenue


580,813



3,808Net cash used in operating activities


(2,336,670
)


(2,469,775
)CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment


(22,857
)


(57,751
)Deferred patent costs


-



(4,355
)Net cash utilized in investing activities


(22,857
)


(62,106
)CASH FLOWS FROM FINANCING ACTIVITIES:Advances on promissory note


(1,282,988
)


-Payments received on promissory note


441,781



-Proceeds from issuance of debt


2,581,645



1,146,481Payments on debt


(430,516
)


2,174,399Advances from related parties


1,252,014



(76,260
)Payments to related parties


(210,455
)


(789,609
)Net cash provided by financing activities


2,351,480



2,455,011Effect of exchange rate changes on cash and cash equivalents


4,977



(19,043
)CHANGE IN CASH AND CASH EQUIVALENTSNet decrease in cash and cash equivalents


(3,069
)


(95,913
)Cash and cash equivalents at beginning of year


5,182



101,095Cash and cash equivalents at end of year

$
2,113


$
5,182SUPPLEMENTAL CASH FLOW DISCLOSURESCash paid during the period for:Interest

$
352,129


$
119,032Income taxes

$
-


$
-SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIESShares issued for related party advances

$
966,500


$
1,286,850Accrued expenses transferred to long-term debt

$
-


$
538,319





See accompanying notes to consolidated financial statements


21




Li-ion Motors Corp.


(Formerly EV Innovations, Inc.)


Statement of Stockholders' Deficiency


For the Years Ended As Noted





Number of

Common Shares


Common Shares

$0.001

Par Value


Additional Paid

in

Capital


Accumulated

Deficit


Accumulated Other

Comprehensive

Income (Loss)


Comprehensive

Income (Loss)


TotalBalance - August 1, 2008


23,347,257


$
23,347


$
47,790,509


$
(51,947,451
)

$
5,630





$
(4,127,965
)Exercise of stock options


3,500



4



(4
)


-



-






-1:3 Reverse stock split adjustment


(15,566,844
)


(15,567
)


15,567



-



-






-Issuance of non-employee stock options


-



-



2,630,000



-



-






2,630,000Common stock issued as collateral on loan


11,666,664



11,667



(11,667
)


-



-






-Exercise of stock options


1,433,524



1,433



1,285,417



-



-






1,286,850Conversion of loan to equity


-



-



4,000,000



-



-






4,000,000Conversion of accrued interest to equity


-



-



21,352



-



-






21,352Foreign currency translation


-



-



-



-



(19,043
)

$
(19,043
)


(19,043
)Net Loss














(6,817,974
)






(6,817,974
)


(6,817,974
)Comprehensive loss


-



-



-







-


$
(6,837,017
)


-Balance - July 31, 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



-



-







616,5001:2 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















350,0001:5 Forward split adjustment


5,007,897



5,008



(5,008
)


-



-







-Issuance of non-employee stock options


-



-



70,000



-



-







70,000Foreign currency translation


-



-



-



-



4,977


$
4,977



4,977Net 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
)




See accompanying notes to consolidated financial statements


22


Li-ion Motors Corp.


(Formerly EV Innovations, Inc.)


Notes to Consolidated Financial Statements


For the Years Ended and as of July 31, 2010 and 2009





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 Superlattice Power, Inc., “SPI”). Prior to April 16, 2008, SPI 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 SPI providing for their license to SPI 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, and their requirements of lithium ion batteries shall be supplied by SPI in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of SPI. The Company’s cost for lithium ion batteries purchased from SPI shall be SPI’s actual manufacturing costs for such batteries for the fiscal quarter of SPI in which the Company’s purchase takes place. On May 25, 2010 the license agreement was amended to reflect Superlattice’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, SPI 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, SPI 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 SPI  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.





Basis of Presentation





The Company’s business is subject to most of the risks inherent in the establishment of a new business enterprise. The likelihood of success of 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 of operations.





On October 27, 2010, the Company received $2.5 million as an award from Automotive X-Prize (see Note 15) and during the past fiscal year entered into a ten year license agreement with LEVC expanding the Company's products and technology in Canada.  The Company expects the funds received from Automotive X-Prize and LEVC and the expected revenue from operations to be sufficient to cover operations over the next twelve months.




23





In January 2009, 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 shares of the Company was increased from 35,714,285 to 50,000,000 shares.





In January 2010, the Board of Directors approved a merger with a 100% subsidiary resulting in the change of the Company’s name to Li-ion Motors, Corp. The Board of Directors also approved a two-for-one reverse split that was effective February 1, 2010  and the authorized shares were decreased in the same ratio to 25,000,000 shares.   By motion of the Board on May 17, 2010, the authorized was increased from 25,000,000 shares to 100,000,000 shares.





Except for the presentation of common shares authorized and issued on the consolidated balance sheet and shares presented in the consolidated statement of stockholders' deficiency, all shares and par 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 five shares held of record on the May 28, 2010 record date.





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





Basis of Consolidation





The consolidated financial statements included the accounts and records of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company does not have any special purpose entities. For those consolidated subsidiaries in which the company's ownership is less than 100 percent (100%), the outside stockholders' interests are shown as non-controlling interest.  The non-controlling interest of the company's earnings or loss is classified as net income (loss) attributable to non-controlling interest in the consolidated statement of operations.





The following is a listing of the Company's subsidiaries and its ownership interests:




Global Electric, Corp.


67.57
%R Electric Car, Co.


67.57
%Solium Power, Corp.


67.57
%Hybrid Technologies USA Distributing Inc.


100
%Hybrid Electric Vehicles India Pvt. Ltd.


100
%





Use of Estimates





The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates and judgments, including those related to revenue recognition, inventories, adequacy of allowances for doubtful accounts, valuation of long-lived assets and goodwill, income taxes, litigation and warranties. The Company bases its estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events. The policies discussed below are considered by management to be critical to an understanding of the Company’s financial statements. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from those estimates.


24





Fair Value Measurements





The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period.  The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date.  The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability.  The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers are defined as follows:





Level 1 -  Observable inputs such as quoted market prices in active markets





Level 2 -  Inputs other than quoted prices in active markets that are either directly or indirectly observable





Level 3- Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions





As of July 31, 2010, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents.  The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1.  The Company does not have any financial assets measured at fair value on a recurring basis as Level 3 and there were no transfers in or out of Level 1, Level 2 or Level 3 during the years ended July 31, 2010 and 2009.





The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of July 31, 2010 and 2009.





Assets at Fair Value as of July 31, 2010 and 2009 UsingQuoted Prices in

Activated Markets for

Identical Asssets


Significant Other

Observable Inputs


Significant Observable

InputsTotal


(Level 1)


(Level 2)


(Level 2)July 31, 2010Cash and Cash Equivalents

$
2,113


$
2,113


$
-


$
-July 31, 2009Cash and Cash Equivalents

$
5,182


$
5,182


$
-


$
-





The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above.  Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values.  The Company did not have any other financial instruments with the scope of the fair value disclosure requirements as of July 31, 2010.





Non-financial assets and liabilities, such as goodwill and long-lived assets, are accounted for at fair value on a nonrecurring basis.  These items are tested for impairment on the occurrence of a triggering event or in the case of goodwill, on at least an annual basis.  The Company's annual test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the testing date.





Cash and Cash Equivalents





Cash and cash equivalents consist of highly liquid investments, which are readily convertible into cash with original maturities of three months or less.





Accounts Receivable





The Company provides credit to customers in the normal course of business. An allowance for accounts receivable is estimated by management based in part on the aging of receivables and historical transactions. Periodically management reviews accounts receivable for accounts that appear to be uncollectible and writes off these uncollectible balances against the allowance accordingly.


25





Inventories





Inventories are stated at the lower of cost or market using the first-in, first-out (“FIFO”) method. The Company may write down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.





Property and Equipment





Property and equipment are recorded at cost less accumulated depreciation. Depreciation of property and equipment are accounted for by methods over the following estimated useful lives:





Lives

MethodsBuilding Improvements
39 Years

Straight LineFurniture and Fixtures
10 years

Declining BalanceSoftware
3-5 years

Straight LineComputers
5 years

Straight Line





Significant improvements are capitalized, while maintenance and repairs are charged to operations as incurred.





Long-Lived Assets





The Company accounts for long-lived assets in accordance with FASB ASC 360-10-35, “Impairment or Disposed of Long-lived Assets”, (“ASC 360-10-35”). The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts and circumstances that may suggest impairment. The Company believes the estimate of its valuation of long-lived assets is a “critical accounting estimate” because if circumstances arose that led to a decrease in the valuations it could have a material impact on the Company’s results of operations. The Company recognizes impairment when the sum of undiscounted future cash flows is less than the carrying amount of the asset. The write down of the asset is charged to the period in which the impairment occurs.  The Company does not believe that any changes have taken place.





Deferred Patent Costs





The Company capitalizes costs directly incurred in pursuing patent applications as deferred patent costs. When such applications result in an issued patent, the related costs are amortized over the remaining legal life of the patents, which is assumed to be 17 years, using the straight-line method. On a quarterly basis, the Company reviews the issued patents and pending patent applications and if the Company determines to abandon a patent application, or an issued patent no longer has economic value, the unamortized balance in deferred patent costs relating to that patent is immediately expensed. As of July 31, 2010 our patents were in the approval processing phase.





Revenue Recognition





The Company recognizes revenue in accordance with the guidance contained in Financial Accounting Standards Board Accounting Standards Codification 605, “Revenue Recognition”, (“ASC 605”) and other relevant accounting literature.  Revenue is recognized when the product has been delivered and title and risk of loss have passed to the customer, collection of the resulting receivable is deemed reasonably assured by management, persuasive evidence of an arrangement exists and the sale price is fixed and determinable.





Revenue received from the sale of license agreements is earned over the life of the agreement.  Revenue received but not earned is classified as deferred revenue on the Company's consolidated balance sheet.





The Company typically has a twenty-four month warranty policy for workmanship defects.  The Company establishes an accrual for warranty work and expenses the amount over a two year period.


26





Customer Deposits





The Company receives advances from customers for automobiles to be manufactured in the future.  The Company applies these advances against future billings.  As of July 31, 2010 and 2009, customer deposits amounted to $100,000 and $391,199, respectively.





Shipping and Handling





Shipping and handling costs related to services and product sales are expensed as incurred.





Advertising





Advertising costs are expensed as incurred and are included in general and administrative expenses. Total advertising expenditures for the year ended July 31, 2010 and 2009 and amounted to $73,975  and $526,811, respectively.





Research and Development





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 year ending  July 31, 2010, amounted to $1,107,532 and $1,054,749 for year ending July 31, 2009. Parts and supplies expensed to R&D was $129,728 and $202,167 for the year endings July 31, 2010 and July 31, 2009, respectively. Shipping charges and battery management systems were $27,160 and $39,365, for the year ending July 31, 2010 and July 31, 2009 respectively. We expect that research and development expenses will continue to remain substantial and grow as we aggressively move to bring products to market





Concentration of Risk





The Company maintains cash deposit accounts and may have certificates of deposits which at times may exceed federally insured limits. These accounts have not experienced any losses and the Company believes it is not exposed to any significant credit risk related to cash.





Income taxes





Deferred income tax assets or liabilities are computed based on the temporary differences between the financial statement and income tax bases of assets and liabilities using the statutory marginal income tax rate in effect for the years in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period. A valuation allowance against deferred tax assets is required if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized.





Foreign Currency Translation





The functional currency for some foreign operations is the local currency. The reporting currency is the US Dollar. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Other Comprehensive Income (Loss). The translation losses for the years ended July 31, 2010 and 2009 were $4,977 and $19,043, respectively.





Comprehensive Loss





The Company reports comprehensive loss in accordance with the requirements of FASB ASC 220-10-15, “Comprehensive Income”, and (“ASC 220-10-15”). For the years ended July 31, 2010 and 2009, the difference between net loss and comprehensive loss was foreign currency translation.





Loss Per Common Share





Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified period.  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 period. All potentially dilutive securities, which include options convertible into 0 and 1,585,000 common shares at July 31, 2010 and 2009, respectively, have been excluded from the computations, as their effect is anti-dilutive.


27





Recently Issued Pronouncements





FASB has codified a single source of U.S. Generally Accepted Accounting Principles, the Accounting Standards CodificationTM. Unless needed to clarify a point to readers, we will refrain from citing specific section references when discussing application of accounting principles or addressing new or pending accounting rule changes. There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.





Note 3. Notes Receivable





The Company advanced Superlattice Power, Inc. $1,282,988, of which $441,781 was repaid during the year ended July 31, 2010. As of July 31, 2010 and July 31, 2009, the amount due to the Company was $841,207 and $0, respectively. The balance due to the Company has provided a valuation allowance and included in selling, general and administrative expenses, as an allowance for doubtful account, due to uncertain prospect of collection.





Note 4. Inventories





Inventories consist of the following:





Years EndedJuly 31,2010


2009Raw Materials

$
-


$
119,153Work-In-Progress


-



108,673Finished Goods


35,000



-$
35,000


$
227,826





Raw materials, work in progress and finished goods for the year ended July 31, 2010, and year ended July 31, 2009, are related to the Company’s planned sales of electric powered vehicles.





Note 5. Property and Equipment





Property and equipment consist of:





Years EndedJuly 31,2010


2009Building and Improvements

$
1,287,001


$
1,274,636Furniture and Fixtures


15,794



29,023Office Equipment


146,016



143,965Machinery and Equipment


36,971



36,971Vehicles


66,429



60,979Software Costs


28,913



32,924Land


700,000



700,0002,281,124



2,278,498Less Accumulated Depreciation


(361,443
)


(288,517
)Net Property and Equipment

$
1,919,681


$
1,989,981




28




Depreciation expense for the year ended July 31, 2010 and 2009 was $77,917 and $82,350, respectively and is included in selling, general and administrative expenses on the Company’s consolidated statement of operations.





Note 6. Other Current Assets





Years EndedJuly 31,2010


2009Retainers

$
7,500


$
-Deferred Warranty Asset


25,594



-Prepaid Expenses


17,907



18,009Total

$
51,001


$
18,009





Note 7. Accounts Payable and Accrued Expenses





Accounts payable and accrued expenses and other current liabilities at July 31, 2010 and 2009 consisted of:





Years EndedJuly 31,2010


2009Accounts Payable

$
422,018


$
460,896Accounts Payable - Related Parties


63,325



-Wages, Paid Leave and Payroll Related Taxes


407,884



267,353Accrued Interest


114,619



121,344Legal Settlements


177,500



-Other


111,388



150,156Total

$
1,296,734


$
999,749





Note 8. Advances To/From Related Parties and Related Party Transactions





The Company received additional advances of $1,252,014 and repaid $1,349,955 in the form of cash, common stock and two Li-ion manufactured electric vehicles from Salim Rana Investments  (“SSRI”) , a former shareholder, for the year ended July 31, 2010.  During fiscal year ended July 31, 2009, the Company received $2,123,399 and repaid $2,025,458 in the form of cash and common stock.  As of July 31, 2010 and 2009, the amount due to SSRI was $0 and $97,941, respectively.





The Company did not receive or repay any advances to Greg Navone, a former Director of the Company, during the year ended July 31, 2010.  During the year ended July 31, 2009 the Company received and repaid $51,000.  Mr. Navone resigned as a director of the Company on July 10, 2009. The Company owes director fees to Mr. Navone in the amount of $4,665 which is included in the accounts payable on the Company’s consolidated balance sheet as of July 31, 2010.





Due from related parties and advances from related parties are reported as current assets or liabilities. These advances are not subject to written agreements and have no specific repayment terms but are deemed due on demand and are not interest bearing notes.





29





Note 9. Long-Term Debt





Long-term debt consists of:





Years EndedJuly 31,2010


20095% 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)

$
953,437


$
954,63110% 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



2,853,85911.24% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1000, due in full on February 28, 2011 (3)


5,000



5,88012% Note  payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2012 (4)


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



-5,965,500



3,814,370Less Current Portion


(22,444
)


(39,702
)$
5,943,056


$
3,774,668





Principal maturities for long-term debt are as follows for the years ended July 31:





2011

$
22,4442012


4,252,3792013


789,5182014


18,7892015


19,768Thereafter


862,602$
5,965,500





(1) In November 2007, the Company refinanced a loan on its North Carolina building. The loan is with Bayview Loan Servicing, LLC. Effective March 31, 2010 the Company entered into a stipulation agreement with Bayview Loan Servicing, LLC that reduced the current monthly payment to $5,349, 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. Interest expense for the year ended July 31, 2010 and 2009 for Bayview Loan Servicing, LLC was $95,286 and $107,083. respectively.


30





(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 July 31, 2010, the Company has borrowed the full $3,000,000 under the loan agreement from Crystal Capital. Interest expense to Crystal Capital was $341,676 for the year ended July 31, 2010 and $202,007 for the year ended July 31, 2009, respectively. The Company is now current with the loan.





(3) On February 28, 2010 the Company financed a liability policy ( workman’s compensation) with Allegiance Direct Bank for the period February 28, 2010 to February 28, 2011 for $13,351. The Company was required to make a down payment of $3,351.15 in February 2010 and monthly payments including interest of 9.4%. Interest expense for the years ended July 31, 2010 and 2009 paid to Allegiance Direct Bank is $565 and $0, respectively.





(4) On February 26, 2010 the Company entered into a loan agreement with Frontline Asset Management Inc. The loan provides for payments to the Company of $2,000,000, of which $1,235,404 has been advanced as of July 31, 2010, with interest at a fixed annual rate of 12%. On May 1, 2010 an Addendum to the original Promissory Note, dated February 26, 2010, amended the term of the note to state interest only payments, due on the last day of every month until maturity date March 1, 2012 when all principal and accrued interest shall be due and payable. Interest expense for the year ended July 31, 2010 was $42,341.





(5) 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. The entire loan amount is secured by 12,000,000 shares of the Company common stock. Each loan installment matures three years from issuance of the installment. The loan has an anti-dilution clause for the stocks issued. Stock is issued and delivered proportionately to the delivery of funds. Interest expense for the year ended July 31, 2010 was $19,139.





Note 10. Stockholders’ Equity





On January 15, 2009, the Company’s shareholders approved a 1:3 reverse stock split for 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 hold 7,500,000 post reverse stock split shares as of February 20, 2009, as collateral for a loan of up to $3,000,000 as discussed in Note 5.





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 issued 3,749,999 shares to Crystal Capital Ventures so they again hold 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 motion of the Board, May 17, 2010 the authorized were increased from 25,000,000 common shares to 100,000,000 common shares.





Except for the presentation of common shares authorized and issued on the consolidated balance sheet and shares presented in the consolidated statement of stockholders’ equity (deficit), all shares and par share information has been revised to give retroactive effect to the reverse stock splits.


31





Note 11. Net 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 loss per common share computations for the years ended July 31, 2010 and 2009.








Years EndedJuly 31,2010


2009Basic and Diluted EPS:Net Loss Ascribed to Common Shareholders - Basic and Diluted

$
(3,933,604
)

$
(6,817,974
)Weighted Average Shares Outstanding - Basic and Diluted


17,986,016



10,278,989Basic and Diluted Net Loss Per Common Share

$
(0.22
)

$
(0.66
)





Net loss per common share for the year ended July 31, 2009 has been revised.  This revision was immaterial to the Company’s consolidated results of operations and financial position. See below for further discussion. All share and per share amounts have been restated to reflect the 1:3 and the 1:2 reverse stock split as discussed in Note 10.





The amounts previously reported for the year ended July 31, 2009  were as follows:





Year EndedJuly 31, 2009Basic and Diluted Loss Per Common Share

$
(0.33
)Weighted Average Number of SharesOutstanding -Basic and Diluted


20,558,046





Note 12. 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.





Increase in Authorized Common Stock





On April 7, 2010, the Company’s board of directors approved an amendment to our Articles of Incorporation to increase the authorized number of shares of common stock from 25,000,000 shares, par value $.001 per share, to 100,000,000 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 on Nevada on May 4, 2010, after mailing a Definitive Information Statement to our stockholders and the amendment was effective May 17, 2010.


32





Stock Option Plan





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





A summary of the option activity under the Company’s stock option plan as of July 31, 2010 and 2009.





Option

Options


Weighted Average

Exercise Share

Price


Weighted Average

Remaining

Contractual


Aggregate

Intrinsic

ValueOutstanding at August 1, 2008


55,845


$
1.80



-


$
-Options Granted


1,000,000


$
1.80






$
-Options Exercised


(713,345
)

$
1.80



-


$
-Outstanding at July 31, 2009


342,500


$
1.80



-


$
-Options Granted


500,000


$
0.70



-


$
-Options Exercised


(842,500
)

$
1.15



-


$
-Options Cancelled/Expired


-


$
-



-


$
-Outstanding at July 31, 2010


-


$
-



-


$
-Exercisable at July 31, 2010


-


$
-



-


$
-





Employee stock compensation expense applicable to stock options for the years ended July 31, 2010 and 2009 was $0 and $0, respectively. The aggregate intrinsic value of options outstanding as of July 31, 2010 was $0.





The Company established the 2009 Restricted Stock Plan (“the 2009 Plan”) in February, 2009 and filed an S-8 Registration Statement with the Securities and Exchange Commission that was declared effective. The 2009 Plan allows the Company's Board of Directors to issue up to 3,000,000 common shares pursuant to the 2009 Plan as compensation for services by employees and non-employees to the Company. The Company's Board of Directors has the discretion to set the price, vesting schedules and other terms and conditions for options granted under the 2009 Plan.




During the years ended July 31, 2010 and 2009, the Company granted 500,000 and 1,000,000 options, respectively with an option price of $0.70 and $1.80 per share, respectively, to various consultants. During the years ended July 31, 2010 and 2009, 500,000 and 4,315,000 options, respectively, were vested at the fair market value of which was determined under the Black-Scholes formula to be approximately $70,000 and $2,630,000 and is included in general and administrative expenses. During the years ended July 31, 2010 and 2009,1,185,000 and 713,345 options were exercised, respectively valued at $1.15 and $1.80 per share.


33





A summary of the Company’s Restricted Stock Plans follows:




Authorized Options and UnGranted:

Number of SharesBalance August 1, 2008 (2006 Plan)


57,417Options Authorized (2006 Plan)


-Options Granted (2006 Plan)


(57,417
)Options Cancelled/Expired (2006 Plan)


-Options Authorized (2009 Plan)


1,500,000Options Granted (2009 Plan)


(1,000,000
)Options Cancelled/Expired (2009 Plan)


-Balance July 31, 2009 (2009 Plan)


500,000Options Granted (2009 Plan)


(500,000
)Options Cancelled/Expired (2009 Plan)


-Balance July 31, 2010 (2009 Plan)


-





During the years ended July 31, 2010 and 2009, total related advances converted in return for the exercise of options under the plan amounted to approximately $976,000 and $1,287,000, respectively.




Note 13. 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 years ended July 31, 2010 and 2009.




A reconciliation of taxes on income computed at federal statuary rate to the amount provided is as follows:




Years EndedJuly 31,2010


2009Tax Provisions Computed at Federal Statuary Rate of 35%Continuing Operations

$
(1,376,761
)

$
(2,378,818
)Increase (Decrease) in Taxes Resulting From:Unused Operating Losses


1,376,761



2,378,818$
-


$
-




34





Components of deferred income tax assets are as follows:




Years EndedJuly 31,2010

Tax Effect


2009

Tax EffectDeferred Tax Assets - Current:United States Net Operating Loss

$
21,937,579


$
20,560,818Valuation Allowances


(21,937,579
)


(20,560,818
)$
-


$
-





The net operating loss carry forward as of July 31, 2010 is approximately $62.7 million and will expire in years through 2024.





Note 14. 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, SPI 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 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 SPI for, SPI’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. Although the lease was signed, the space is only 80% completed as of July 31, 2010. The Company also entered into a month to month lease agreement for $750 with SPI for renting offices in the Company’s Las Vegas corporate office.





Total rental income for the years ended July 31, 2010 and 2009 was $40,894 and $39,000, 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 year ending July 31, 2010, the Company recognized income of $83,333 with $583,333 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 to North Carolina Department of Motor Vehicles for a manufacturing license. This application required a surety bond of $50,000 for three years which the Company acquired from Kaercher Campbell & Associates. 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.


35





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.





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 have agreed upon a monthly payment and  anticipates it will be paid in full by June 2011.





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 has reached 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. The Company expects this to be paid in full by November 2010.





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 has been making payments and expects this to be paid in full by November 2010.





Javad Hajihadian, an individual , 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 his attorney contact the company to cancel his contract and have his payment refund. The parties have reached an agreement and the payment is being refunded with interest. The settlement agreement was for $102,500 and stipulated monthly payments of $10,250 commencing in July 2010.  The initial two payments were paid to Mr. Hajihadian in August 2010.  The Company has made the subsequent required payments.





Note 15. 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 funded 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 will record the amount as other income in the Company’s subsequent consolidated statement of operations.





Note 16. Subsequent Events





Subsequent events have been evaluated through November 1, 2010.





Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.




None.




Item 9A (T). Controls and Procedures.




Evaluation of Disclosure Controls and Procedures




We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive and financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship of possible controls and procedures.


36





As of July 31, 2010, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were ineffective as a result of a significant deficiencies and material weaknesses as discussed in the following paragraph.





The reportable conditions identified relate to failure to properly track compliance with two loan agreements to which we were party in the years ended July 31, 2010 and 2009. We have implemented certain procedures to ensure that financial transactions relating to payments on outstanding debt are properly recorded, documented and reviewed as to compliance with the particular loan agreement, for purposes of disclosure in our financial statements.





Management's Annual Report on Internal Control over Financial Reporting





Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.





Management assessed the effectiveness of internal control over financial reporting as of July 31, 2010. We carried out this assessment using the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.





This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.





Management's report was not subject to attestation by our registered public accounting firm, pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report. Management concluded in this assessment that, as of July 31, 2010, given the above reportable conditions, our internal control over financial reporting was not effective.





There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of our 2010 fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.




Limitations on the Effectiveness of Controls




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. Because of 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, within a company have been detected. The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives.




Item 9B. Other Information.





None.


PART III




Item 10. Directors, Executive Officers, and Corporate Governance.





Our executive officers and directors and their respective ages as of October 30, 2010 are as follows:


37





Name

Age

PositionStacey Fling

51

Chief Executive Officer, President and DirectorHolly. Roseberry

58

Director





Our Board of Directors consists of two directors. The following information with respect to the principal occupation or employment of each officer and director, the principal business of the corporation or other organization in which such occupation or employment is carried on, and such person's business experience during the past five years, has been furnished to the Company by the respective officers and director:





Stacey Flinghas been the President of A & S Holdings, Inc., since 2003, a real estate investment and development company located in Las Vegas, NV.  Prior to 2003, Ms. Fling managed the administrative offices of an environmental remediation and monitoring company with offices in San Diego, California, as well as in Las Vegas, Nevada. Ms. Fling was initally involved in the founding of the Company and has been involved in the management of a number of businesses. We believe that she contributes valuable management and negotiation skills to the management and operations of our Company.





Holly Roseberry was  appointed  as our secretary, treasurer and chief financial  officer February  2002. On November 15, 2002, she resigned from these positions and was appointed as our President, Chief Executive Officer and as a Director.  On May 1, 2009, she resigned from all offices held with the Company while agreeing to continue as a Director. From 2001 to 2003,  she managed   the Azra Shopping Center. She obtained a Bachelor of Arts degree from Sacred Heart University in Bridgeport, Connecticut in 1973. Ms. Roseberry was employed from 1993 to 1996 as human resources


manager,  and from 1997 to 1999 as  business  office  manager,  for a Las Vegas  Wards Department Store.  Ms. Roseberry has held the positions of President, Chief Executive Officer and a Director of our former majority-owned subsidiary, Zingo, Inc. August 30, 2005 to June 4, 2008. Ms Roseberry now consults with the Company providing her experience.





Term of Office





Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.





Committees





We do not have any committees of the Board of Directors. We intend to have an audit committee; the sole member of our audit committee, Brian Newman, resigned on May 1, 2009.





Corporate Code of Conduct





We have adopted a  corporate code of conduct, which  provides for internal procedures concerning the reporting and disclosure of corporate matters that are material to our business and to our stockholders. The corporate code of conduct  includes a code of ethics for our  officers  and  employees as to workplace  conduct,  dealings with customers, compliance  with laws,  improper payments, conflicts  of  interest,   insider  trading,   company  confidential information, and behavior with honesty and integrity.





Significant Employees





We have no significant employees other than the officers described above.




Section 16(A) Beneficial Ownership Reporting Compliance





Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who beneficially  own more  than ten  percent  of the Company's  equity  securities,  to file  reports  of  ownership  and  changes in ownership with the Securities and Exchange Commission.  Officers,  directors and greater than ten percent  shareholders are required by SEC regulation to furnish the  Company  with copies of all  Section  16(a)  forms they file.  Based on its review of the copies of such forms  received  by it, the Company  believes  that during the fiscal  year ended  July  31,  2010 all such  filing  requirements applicable to its officers and  directors  were  complied  with.




38





Item 11. Executive Compensation.





The following table sets forth certain information as to the Company's  highest


paid  executive  officers  and  directors  for the  Company's  fiscal years ended July  31,  2009, 2008 and 2007.  No other compensation was paid to any such  officer or director other than the cash compensation set forth below.





Summary Compensation Table





Name and Principal Position

Year *

Salary ($)


Bonus ($)


Stock

Awards ($)


Option

Awards ($)


Non-Equity

Incentive Plan

Compensation ($)


Change in Pension Value

and Nonqualified

Deferred Commensation

Earnings ($)


All Other

Compensation

($)


Total ($)(a)

(b)

(c)


(d)


(e)


(f)


(g)


(h)


(i)


(j)Stacey Fling, President

2009

$
16,923


$
-


$
-


$
-


$
-


$
-


$
-


$
16,9232010


74,100



-



-



-



-



-



-



74,100Holly Roseberry, Director

2008


64,720



-



-



-



-



-



-



64,7202009


52,040



-



-



-



-



-



1,154



53,1942010


-



-



-



-



-



-



-



-







* Years ended July 31, 2010, 2009 and 2008.





**  Holly  Roseberry held the office of President from November 15, 2002 to May 1, 2009.





Option/SAR Grants in Last Fiscal Year





There were no grant of options to purchase our common stock to our officers or directors in fiscal 2010, and there were no exercises of such options during or options held at the end of such fiscal year by officers or directors.




Directors’ Compensation





The following table shows compensation paid to our directors in the fiscal year ended July 31, 2010.




Director Compensation





Name

Fees Earned

or Paid in

Cash ($)


Stock

Awards ($)


Option

Awards ($)


Non-Equity

Incentive Plan

Compensation ($)


Change in

Pension Value

and Nonqualified

Deferred

Compensation

Earnings ($)


All Other

Compensation ($)


Total ($)(a)

(b)


(c)


(d)


(e)


(f)


(g)


(h)Stacey Fling

$
12,000






















$
12,000Holly Roseberry

$
30,090






















$
30,090








*  Stacey Fling has acted as a director since May 1, 2009; Mehboob Charania resigned as a director on November 28, 2008; Brian Newman resigned as a director on May 1, 2009; Gregory Navone resigned as a director on July 10, 2009; and Holly Roseberry commenced service as a Director on November 15, 2002.




Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.





The following table sets forth certain information concerning the number of shares of our common stock owned  beneficially as of  October 28, 2010, by: (i) each person  (including  any group) known to us to own more than five percent (5%) of any  class of our  voting  securities,  (ii)  each of our  directors,  and (iii)officers and directors as a group. Unless otherwise indicated,  the shareholders listed  possess  sole  voting and  investment  power with  respect to the shares shown.


39





Title of Class

Owner

Number of

Shares of

Common Stock


Percentage of

OutstandingCommon StockStacey Fling, President and Chief Executive Officer


107



*4933 W. Cragi RoadLas Vegas, NV 89130Holly Roseberry, Director


107



*1260 North Sloan LaneLas Vegas, NV 89110All Officers and Directors


214



*Directors as a Group (2 persons)Crystal Capital Venture


9,000,000



29.95
%1274 Sundial AvenueCoral GroveP.O. BOX 2135Belize City, BelizeRocamar Invest, Ltd.


1,504,287



5
%2502 - 1331 W. Georgia StreetVancouver, BC Canada V6E 4P1Winsor Capital. Inc.


12,000,000



39.93
%35 New Road, #2112Belize City, Belize





*        Less than 1%




(1)
As of October 15, 2010, there were 30,047,301 shares of our  common  stock issued and outstanding.





Change in Control





We are not aware of any arrangement that might result in a change in control in the future.




Item 13. Certain Relationships and Related Transactions, and Director Independence.





The Company received additional advances of $1,252,014 and repaid $1,349,955 in the form of cash, common stock, and two Li-ion manufactured electric vehicles from Salim Rana Investments  (“SSRI”) , a former shareholder, for the year ended July 31, 2010.  During fiscal year ended July 31, 2009, the Company received $2,123,399 and repaid $2,063,458.  As of July 31, 2010 and 2009, the amount due to SSRI was $0 and $97,940, respectively.





The Company did not receive or repay advances from Greg Navone (former Director of the Company) during the year ended July 31, 2010. During the year ended July 31, 2009, the Company received and repaid $51,000. Mr. Navone resigned as a director of the Company on July 10, 2009.  The Company owes director fees to Mr. Navone in the amount of $5,915.


40





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





Under the terms of the license agreement, SPI has agreed to invest a minimum of $1,500,000 in each of the first two years in development of the technology for the Licensed Products. To date, SPI 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 SPI  that we will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement.




Effective April 16, 2008, SPI 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 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 SPI for, SPI’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. Although the lease was signed, the space is only 80% completed as of July 31, 2010. The Company also entered into a month to month lease agreement for $750 with SPI for renting offices in the Company’s Las Vegas corporate office.







Item 14.  Principal Accountant Fees and Services.


Fiscal 2010


Fiscal 2009Audit - Related Fees (1)

$
37,000


$
30,000Tax Fees (2)


-



-All Other Fees


-



-Audit committee pre-approval  processes, percentages of

servicesapproved  by  audit committee, percentage of hours spent on audit engagement by persons other than principal accountant's full time employees.


N/A



N/A








(1)           Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s consolidated annual financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Madsen & Associates in connection with statutory and regulatory filings or engagements.




(2)           Tax Fees consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance, international tax, research, and unclaimed property services.




41





Item 15. Exhibits and Financial Statement Schedules.





Exhibit

No.

Description3.1

Articles of Incorporation of the Company.(Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed with the Commission on May 29, 2001.)3.1a

Certificate of Amendment to Articles of Incorporation filed October 27, 2004. (Incorporated by reference to Exhibit3.1a to the Company’s Current Report on Form 8-K, filed with the Commission on November 2, 2004.)3.1b

Form of Restatement of Articles of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1a to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on December 15, 2004.)3.1c

Certificate of Amendment to Articles of Incorporation, filed effective March 9, 2005. (Incorporated by reference to Exhibit 3.1c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on May 23, 2005.)3.1d

Certificate of Change, filed effective January 17, 2008. (Incorporated by reference to Exhibit 3.1d to the Company’s Current Report on Form 8-K, filed with the Commission on January 16, 2008.)3.1e

Certificate of Amendment to Articles of Incorporation, filed effective December 24, 2007, filed herewith.3.1

Articles of Incorporation of the Company.(Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed with the Commission on May 29, 2001.)3.1a

Certificate of Amendment to Articles of Incorporation filed October 27, 2004. (Incorporated by reference to Exhibit3.1a to the Company’s Current Report on Form 8-K, filed with the Commission on November 2, 2004.)3.1b

Form of Restatement of Articles of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1a to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on December 15, 2004.)3.1c

Certificate of Amendment to Articles of Incorporation, filed effective March 9, 2005. (Incorporated by reference to Exhibit 3.1c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on May 23, 2005.)3.1d

Certificate of Change, filed effective January 17, 2008. (Incorporated by reference to Exhibit 3.1d to the Company’s Current Report on Form 8-K, filed with the Commission on January 16, 2008.)3.1e

Certificate of Amendment to Articles of Incorporation, filed effective December 24, 2007. (Incorporated by reference to Exhibit 3.1e to the Company’s Annual Report on Form 10-K, filed with the Commission on November 12, 2008.)


42




3.1f

Certificate of Amendment to Articles of Incorporation, filed effective February 19, 2009.(Incorporated by reference to Exhibit 3.1f to the Company’s Current Report on Form 8-K, filed with the Commission on February 27, 2009.)3.1g

Certificate of Merger with subsidiary, dated December 28, 2009, amending Articles of Incorporation of Company to change the name of the Company to Li-ion Motors Corp. (Incorporated by reference to Exhibit 3.1g to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.)3.1h

Certificate of Change, filed effective February 1, 2010. (Incorporated by reference to Exhibit 3.1h to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.)3.1i

Certificate of Amendment to Articles of Incorporation, filed effective May 17, 2010. (Incorporated by reference to Exhibit 3.1i to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.)3.2

By-Laws of the Company. (Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed with the Commission on May 29, 2001.)4.1

Specimen Common Stock Certificate. (Incorporated herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.)4.2

Whistler Investments, Inc. 2003 Restricted Stock Plan. (Incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 filed with the Commission on July 18, 2003.)10.3

Office Services Agreement, dated May 1, 2000, between the Company and Dewey Jones. (Incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form SB-2 filed with the Commission on May 29, 2001.)10.4

Asset Purchase Agreement dated April 10, 2002 between Salim S. Rana Investments Corp. and Whistler Investments, Inc. (Incorporated by reference to Exhibit No. 10.1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on May 6, 2002.)10.5

Agreement dated January 1, 2003 between Whistler Investments, Inc. and Kim Larsen respecting the disposition of Azra Shopping Center. (Incorporated by reference to Exhibit 10.1 to the Company's Amendment No. 1 to its Annual Report on Form 10-KSB filed May 8, 2003)10.6

Amendment to Licensing Agreement, dated October 21, 2003, between Nu Age Electric Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed with the Commission on November 21, 2003.)


43




10.7

Agreement dated October 21,2003, by and between RV Systems, Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed with the Commission on November 21, 2003.)10.8

Investment Agreement, dated as of January 19, 2004, by and between Whistler Investments, Inc. and Dutchess Private Equities Fund, L.P. (Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K, filed with the Commission on January 23, 2004.)10.9

Registration Rights Agreement dated as of January 19, 2004, by and between Whistler Investments, Inc. and Dutchess Private Equities Fund, L.P. (Incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K, filed with the Commission on January 23, 2004.)10.10

Stock Redemption and Reissuance Agreement, dated as of February 10, 2004, Between Whistler Investments, Inc. and Salim S. Rana Investments, Inc. (Incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)10.11

Letter from City of Austin, Texas, dated February 27, 2004. (Incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)10.12

Memorandum of Understanding, dated March 15, 2004, between Shanghai Geely Metop International and the Global Electric 21 subsidiary of Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)10.13

Loan Agreement, made as of the 20th day of February, 2004, among Sterling Capital Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)10.14

Letter Agreement, dated February 3, 2004, between Whistler Investments, Inc. and RV Systems, Inc. (Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)10.15

Purchase and Sale Agreement, made effective as of the 3rd day of December, 2004, between WhistlerTel, Inc. and Trade Winds Telecom, LLC. (Incorporated by reference to Exhibit 10.15 to the Company's Current Report on Form 8-K, filed with the Commission on December 8, 2004.)10.16

Bill of Sale and Assignment, dated as of December 3, 2004, between Trade Winds Telecom LLC and Whistlertel,Inc. (Incorporated by reference to Exhibit 10.16 to the Company's Current Report on Form 8-K, filed with the Commission on December 8, 2004.)10.17

Agreement and Plan of Reorganization, dated as of August 18, 2005, among the Company, Whistlertel, Inc. and Javakingcoffee, Inc. (Incorporated by reference to Exhibit 10.17 to the Company's Current Report on Form 8-K, filed with the Commission on August 24, 2005.)10.18

Notice, dated July 2, 2005, from EV Innovations, Inc. To RV Systems, Inc. (Incorporated by reference to Exhibit10.18 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 26, 2005.)


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10.19

Non-reimbursable Space Act Agreement between National Aeronautics and Space Administration, John F. Kennedy Space Center and EV Innovations, Inc. (Incorporated by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on March 17, 2006.10.20

Agreement dated March 30, 2006 between Paratransit, Inc. and the Company. (Incorporated herein by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.)10.21

Request for Pilot Approval, submitted May 31, 2006, to New York City Taxi and Limousine Commission by the Company. (Incorporated herein by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.)10.22

Consulting Agreement, dated March 26, 2007, between Hybrid Technologies, Inc. and Griffen Trading Company.(Incorporated by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on June 19, 2007.)10.23

Loan Agreement, dated as of October 29, 2007, between Wyndom Capital Investments, Inc. and the Company.(Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 13, 2007.)10.24

Form of Note issuable pursuant to the Loan Agreement, dated October 29, 2007, between Wyndom Capital Investments, Inc. and the Company, filed herewith. (Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 13, 2007.)10.25

Stock Purchase Agreement, dated as of April 15, 2008, between the Company and Blue Diamond Investments, Inc.(Incorporated by reference to Exhibit 10.25 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2008.)10.26

License Agreement, dated April 15, 2008, between the Company and Zingo, Inc. (now Superlattice Power, Inc.).(Incorporated by reference to Exhibit 10.25 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2008.)10.27

Loan Agreement, dated as of May 5, 2008, between Crystal Capital Ventures Inc. and the Company. (Incorporated by reference to Exhibit 10.27 to the Company’s Current Report on Form 8-K, filed with the Commission on June 6, 2008.)10.28

Form of Note issuable pursuant to the Loan Agreement, dated May 5, 2008, between Crystal Capital Ventures Inc. and the Company. (Incorporated by reference to Exhibit 10.28 to the Company’s Current Report on Form 8-K, filed with the Commission on June 6, 2008.)10.29

Letter to the Superlattice Power, Inc., dated October 1, 2009, waiving default under April 14, 2008 License Agreement, filed herewith.10.30

Loan Agreement, dated as of April 15, 2010, between Winsor Capital Inc. and the Company. (Incorporated by reference to Exhibit 10.30 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2010.)10.31

Form of Note issuable pursuant to the Loan Agreement, dated April 15, 2010, between Winsor Capital Inc. and the Company. (Incorporated by reference to Exhibit 10.31 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2010.)


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10.32

License Agreement, made effective May 28, 2010, between the Company and Lithium Electric Vehicle Corp. (Incorporated by reference to Exhibit 10.32 to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.)10.33

Promissory Note payable to Frontline Asset Management, Inc.(Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K, filed with the Commission on November 2, 2010.)10.34

Amendment to Promissory Note, dated October 11, 2010, between the Company and Frontline Asset Management, Inc. (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K, filed with the Commission on November 2, 2010.)10.35

Amendment, dated as of October 11, 2010, to License Agreement, dated as of May 28, 2010, by and between the Company and Lithium Electric Vehicle Corp. (Incorporated by reference to Exhibit 10.35 to the Company’s Annual Report on Form 10-K, filed with the Commission on November 2, 2010.)10.36

Amendment, dated as of October 12, 2010, to Loan Agreement, dated as of May 5, 2008, between the Company and Crystal Capital Investments. (Incorporated by reference to Exhibit 10.36 to the Company’s Annual Report on Form 10-K, filed with the Commission on November 2, 2010.)10.37

Amendment, dated May 25, 2010, to License Agreement, dated April 14, 2008, between the Company and Superlattice Power, Inc. (Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K, filed with the Commission on November 2, 2010.)




SIGNATURES





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





EV INNOVATIONS, INC.Date: August 11, 2011
By:
/s/ Stacey FlingStacey FlingChief Executive Officer and Principal Financial Officer


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