UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





FORM
10-Q





x
            Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934





For the
quarterly period ended April 30, 2010





 ̈
              Transition
      Report pursuant to 13 or 15(d) of the Securities Exchange Act of
      1934





For the
transition period from _____________ to _____________





Commission
File Number      000-33391





LI-ION
MOTORS CORP.


(Exact
name of Small Business Issuer as specified in its charter)





Nevada
                
                88-0490890(State or other jurisdiction of
                
                (IRS Employer Identification No.)incorporation or organization)





4894
      Lone Mountain #168, Las Vegas NV
                      
                      89130(Address
      of principal executive offices)
                      
                      (Postal
      or Zip
Code)





Issuer's
telephone number, including area code:  702-425-7376









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





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





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files).    Yes  ̈    No  ̈





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company.  (Check
One):





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





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





APPLICABLE
ONLY TO CORPORATE ISSUERS




The
number of shares outstanding the issuer's common stock, $.001 par value, was
30,047,146 as of June 2, 2010.








LI-ION
MOTORS CORP.





INDEX





TABLE OF
CONTENTS





Page No.PART
      I. FINANCIAL INFORMATIONITEM
      I - Unaudited Consolidated Financial Statements
                            2Consolidated
      Balance Sheets as of April 30, 2010 and July 31, 2009
      (Unaudited)
                            3Consolidated
      Statements of Operations for the Nine and Three Months Ended April 30,
      2010 and 2009 (Unaudited)
                            4Consolidated
      Statement of Stockholders Deficiency (Unaudited)
                            5Consolidated
      Statements of Cash Flows for the Nine Months Ended April
      30, 2010 and 2009 (Unaudited)
                            6Notes
      to Unaudited Consolidated Financial Statements
                            7ITEM
      2 - Management's Discussion and Analysis of Financial Condition and
      Results of Operations.
                            19ITEM
      3 – Quantitative and Qualitative Disclosures About Market
    Risk
                            22ITEM
      4T– Controls and Procedures.
                            23PART
      II. OTHER INFORMATION
                            23ITEM
      1 - Legal Proceedings.
                            23ITEM
      6 – Exhibits.
                            23EXHIBIT
      31 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002EXHIBIT
      32 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002










PART I.
FINANCIAL INFORMATION





Item 1.
Financial Statements





Certain
information and footnote disclosures required under accounting
principles generally accepted in the United States of America have been
condensed or omitted from the following consolidated financial statements pursuant
to the rules and regulations of the Securities and Exchange Commission. It is
suggested that the following consolidated financial statements be read in conjunction
with the year-end consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended
July 31, 2009.





The
results of operations for the nine and three months ended April 30, 2010 and
2009 are not necessarily indicative of the results for the entire fiscal year or
for any other period.


2


LI-ION MOTORS CORP


(Formerly
EV Innovations Inc.)





Consolidated
Balance Sheets


(UNAUDITED)





April 30,
                                          
                                          
                                          July 31,2010
                                          
                                          
                                          2009ASSETSCurrent
      assets:Cash
                                          
                                          $
                                          19,268
                                          
                                          
                                          $
                                          5,182Accounts
      receivable, net of allowance for doubtful accounts of $0
                                          
                                          
                                          -
                                          
                                          
                                          
                                          13,522Inventories
                                          
                                          
                                          108,595
                                          
                                          
                                          
                                          227,826Employee
      advances
                                          
                                          
                                          15,286
                                          
                                          
                                          
                                          1,508Advances
      to related parties
                                          
                                          
                                          371,072
                                          
                                          
                                          
                                          -Other
      current assets
                                          
                                          
                                          56,266
                                          
                                          
                                          
                                          18,009Total
      current assets
                                          
                                          
                                          570,487
                                          
                                          
                                          
                                          266,047Property
      and equipment, net
                                          
                                          
                                          1,935,308
                                          
                                          
                                          
                                          1,989,981Other
      long term assets:Deferred
      patent costs
                                          
                                          
                                          24,258
                                          
                                          
                                          
                                          24,258Total
      other long term assets
                                          
                                          
                                          24,258
                                          
                                          
                                          
                                          24,258$
                                          2,530,053
                                          
                                          
                                          $
                                          2,280,286LIABILITIES
      AND DEFICIENCYCurrent
      liabilities:Current
      portion of long-term debt
                                          
                                          $
                                          891,380
                                          
                                          
                                          $
                                          39,702Accounts
      payable and accrued expenses
                                          
                                          
                                          1,300,588
                                          
                                          
                                          
                                          999,749Customer
      deposits
                                          
                                          
                                          250,000
                                          
                                          
                                          
                                          391,199Deferred
      revenue
                                          
                                          
                                          1,918
                                          
                                          
                                          
                                          3,808Advances
      from related parties
                                          
                                          
                                          -
                                          
                                          
                                          
                                          97,940Total
      current liabilities
                                          
                                          
                                          2,443,886
                                          
                                          
                                          
                                          1,532,398Long-term
      debt - less current portion above
                                          
                                          
                                          4,217,423
                                          
                                          
                                          
                                          3,774,668Commitments
      and contingencies
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Deficiency:Li-ion
      Motors Corp deficiency:Preferred
      stock, $.001 par value, 5,000,000 shares authorized, no shares
      issued
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Common
      stock, $.001 par value, 25,000,000 authorized; outstanding 15,039,249 at
      April 30, 2010 and 20,884,101 at July 31, 2009,
    respectively
                                          
                                          
                                          15,039
                                          
                                          
                                          
                                          20,884Additional
      paid-in-capital
                                          
                                          
                                          56,703,519
                                          
                                          
                                          
                                          55,731,174Deficit
      accumulated during the development stage
                                          
                                          
                                          (60,832,503
                                          )
                                          
                                          
                                          (58,765,425
                                          )Cumulative
      other comprehensive loss
                                          
                                          
                                          (17,311
                                          )
                                          
                                          
                                          (13,413
                                          )Total
      Li-ion Motors Corp deficiency
                                          
                                          
                                          (4,131,256
                                          )
                                          
                                          
                                          (3,026,780
                                          )Noncontrolling
      interest
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Total
      deficiency
                                          
                                          
                                          (4,131,256
                                          )
                                          
                                          
                                          (3,026,780
                                          )Total
      liabilities and deficiency
                                          
                                          $
                                          2,530,053
                                          
                                          
                                          $
                                          2,280,286





SEE
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS





3




LI-ION MOTORS CORP


(Formerly
EV Innovations Inc.)





Consolidated
Statements of Operations


(UNAUDITED)





NINE MONTHS ENDED
                      
                      
                      THREE MONTHS ENDEDApril 30,
                      
                      
                      April 30,2010
                      
                      
                      2009
                      
                      
                      2010
                      
                      
                      2009Sales
                      
                      $
                      484,505
                      
                      
                      $
                      243,141
                      
                      
                      $
                      358,596
                      
                      
                      $
                      22,085Costs
      and expenses:Cost
      of sales
                      
                      
                      334,743
                      
                      
                      
                      403,322
                      
                      
                      
                      169,246
                      
                      
                      
                      112,781General
      and administrative
                      
                      
                      1,022,295
                      
                      
                      
                      3,144,508
                      
                      
                      
                      275,731
                      
                      
                      
                      2,839,413Research
      and development
                      
                      
                      1,057,206
                      
                      
                      
                      820,667
                      
                      
                      
                      400,432
                      
                      
                      
                      657,7122,414,244
                      
                      
                      
                      4,368,497
                      
                      
                      
                      845,408
                      
                      
                      
                      3,609,906Loss from
      operations
                      
                      
                      (1,929,739
                      )
                      
                      
                      (4,125,356
                      )
                      
                      
                      (486,812
                      )
                      
                      
                      (3,587,821
                      )Other
      income (expense):Interest
      expense
                      
                      
                      (295,423
                      )
                      
                      
                      (634,747
                      )
                      
                      
                      (125,704
                      )
                      
                      
                      (213,649
                      )Interest
      income
                      
                      
                      -
                      
                      
                      
                      2,293
                      
                      
                      
                      -
                      
                      
                      
                      7,077Other
      income
                      
                      
                      52,875
                      
                      
                      
                      60,166
                      
                      
                      
                      17,625
                      
                      
                      
                      36,665Forgiveness
      of debt
                      
                      
                      105,209
                      
                      
                      
                      -
                      
                      
                      
                      52,416
                      
                      
                      
                      -Net
      loss before provision for income taxes
                      
                      
                      (2,067,078
                      )
                      
                      
                      (4,697,644
                      )
                      
                      
                      (542,475
                      )
                      
                      
                      (3,757,728
                      )Provision
      for (benefit from) income taxes
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      loss
                      
                      
                      (2,067,078
                      )
                      
                      
                      (4,697,644
                      )
                      
                      
                      (542,475
                      )
                      
                      
                      (3,757,728
                      )Less:
      Net loss attributable to noncontrolling interest
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      loss attributable to Li-ion Motors Corp
                      
                      $
                      (2,067,078
                      )
                      
                      $
                      (4,697,644
                      )
                      
                      $
                      (542,475
                      )
                      
                      $
                      (3,757,728
                      )Loss
      per share - basic and diluted:Loss
      per common share attributable to Li-ion Motors Corpcommon
      shareholders
                      
                      $
                      (0.18
                      )
                      
                      $
                      (0.86
                      )
                      
                      $
                      (0.04
                      )
                      
                      $
                      (0.43
                      )Weighted
      shares outstanding - basic and diluted
                      
                      
                      11,725,331
                      
                      
                      
                      5,455,370
                      
                      
                      
                      13,670,385
                      
                      
                      
                      8,681,578Amounts
      attributable to Li-ion Motors Corp common shareholders:Net
      loss
                      
                      $
                      (2,067,078
                      )
                      
                      $
                      (4,697,644
                      )
                      
                      $
                      (542,475
                      )
                      
                      $
                      (3,757,728
                      )





SEE
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


4




LI-ION
MOTORS CORP


(Formerly
EV Innovations Inc.)





Consolidated
Statement of Stockholders' Equity (Deficiency)


(UNAUDITED)





Cumulative
                          
                          
                          
                          
                          
                          CumulativeAdditional
                          
                          
                          
                          
                          
                          Other
                          
                          
                          
                          
                          
                          OtherCommon stock
                          
                          
                          
                          
                          
                          Paid-in
                          
                          
                          
                          
                          
                          Comprehensive
                          
                          
                          Noncontrolling
                          
                          
                          ComprehensiveShares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          Deficit
                          
                          
                          Income (loss)
                          
                          
                          Interest
                          
                          
                          Loss
                          
                          
                          TotalBalance
      August 1, 2008
                          
                          
                          23,347,257
                          
                          
                          $
                          23,347.00
                          
                          
                          $
                          47,790,509.00
                          
                          
                          $
                          (51,947,451.00
                          )
                          
                          $
                          5,630.00
                          
                          
                          $
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          (4,127,965.00
                          )Stock
      issuancesExercise
      of options (valued at $0.90 per share)
                          
                          
                          3,500
                          
                          
                          
                          4
                          
                          
                          
                          (4
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -1:3
      Reverse stock split adjustment
                          
                          
                          (15,566,844
                          )
                          
                          
                          (15,567
                          )
                          
                          
                          15,567
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Value
      of stock options issued (valued at $0.90 per share)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,630,000
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          2,630,000Common
      stock issued as collateral on loan
                          
                          
                          11,666,664
                          
                          
                          
                          11,667
                          
                          
                          
                          (11,667
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -Exercise
      of options (valued at $0.90 per share)
                          
                          
                          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
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          21,352Net
      (loss) for the period
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (6,817,974
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          (6,817,974
                          )
                          
                          
                          (6,817,974
                          )Foreign
      currency transactions
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (19,043
                          )
                          
                          
                          -
                          
                          
                          
                          (19,043
                          )
                          
                          
                          (19,043
                          )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
                          )Stock
      issuancesExercise
      of options (valued at $0.70 - $0.90 per share)
                          
                          
                          1,185,000
                          
                          
                          
                          1,185
                          
                          
                          
                          965,315
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          966,5001:2
      Reverse stock split adjustment
                          
                          
                          (10,779,851
                          )
                          
                          
                          (10,780
                          )
                          
                          
                          10,780
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Common
      stock issued as collateral on loan
                          
                          
                          3,749,999
                          
                          
                          
                          3,750
                          
                          
                          
                          (3,750
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -Net
      (loss) for the period
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -(2,067,078
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          (2,067,078
                          )
                          
                          
                          (2,067,078
                          )-Foreign
      currency transactions
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (3,898
                          )
                          
                          
                          
                          
                          
                          
                          (3,898
                          )
                          
                          
                          (3,898
                          )Comprehensive
      loss
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          $
                          (2,070,976
                          )Balance April 30,
      2010
                          
                          
                          15,039,249
                          
                          
                          
                          15,039
                          
                          
                          
                          56,703,519
                          
                          
                          
                          60,832,503
                          
                          
                          
                          (17,311
                          )
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          (4,131,256
                          )





SEE
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


5


LI-ION MOTORS CORP


(Formerly
EV Innovations Inc.)




Consolidated
Statements of Cash Flows


(UNAUDITED)





NINE
      MONTHS ENDEDApril
      30,2010
                                  
                                  
                                  2009Cash
      provided by (used in) Operating Activities:Net
      (loss)
                                  
                                  $
                                  (2,067,078
                                  )
                                  
                                  $
                                  (4,697,644
                                  )Items
      not affecting cash flows:Depreciation
      and amortization
                                  
                                  
                                  61,389
                                  
                                  
                                  
                                  69,534Changes
      in operating assets and liabilitesNon
      cash stock-based compensation
                                  
                                  
                                  966,500
                                  
                                  
                                  
                                  1,746,900(Increase)
      decrease in accounts receivable
                                  
                                  
                                  13,522
                                  
                                  
                                  
                                  (34,709
                                  )(Increase)
      decrease in inventories
                                  
                                  
                                  119,231
                                  
                                  
                                  
                                  (12,103
                                  )(Increase)
      in employee advances
                                  
                                  
                                  (13,778
                                  )
                                  
                                  
                                  (2,114
                                  )(Increase)
      Decrease in prepaid expenses and other assets
                                  
                                  
                                  (38,257
                                  )
                                  
                                  
                                  60,017Decrease
      in other assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  50,000Increase
      in accounts payable and accrued expenses
                                  
                                  
                                  325,417
                                  
                                  
                                  
                                  916,087Increase
      (decrease) in customer deposits
                                  
                                  
                                  (141,199
                                  )
                                  
                                  
                                  321,732Decrease
      in deferred revenue
                                  
                                  
                                  (1,890
                                  )
                                  
                                  
                                  -Cash
      used in operating activities
                                  
                                  
                                  (776,143
                                  )
                                  
                                  
                                  (1,582,300
                                  )Cash
      provided by (used in) Investing Activities:Purchase
      of property and equipment
                                  
                                  
                                  (6,716
                                  )
                                  
                                  
                                  (120,270
                                  )Increase
      in deferred patent costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,139
                                  )Cash
      used in investing activities
                                  
                                  
                                  (6,716
                                  )
                                  
                                  
                                  (121,409
                                  )Cash
      provided by (used in) Financing Activities:Proceeds
      from the issuance of debt
                                  
                                  
                                  1,321,963
                                  
                                  
                                  
                                  610,951Advances
      from related parties
                                  
                                  
                                  1,134,895
                                  
                                  
                                  
                                  1,722,304Payments
      to related parties
                                  
                                  
                                  (1,632,383
                                  )
                                  
                                  
                                  (683,006
                                  )Payments
      of debt
                                  
                                  
                                  (27,530
                                  )
                                  
                                  
                                  (23,270
                                  )Cash
      provided by financing activities
                                  
                                  
                                  796,945
                                  
                                  
                                  
                                  1,626,979Effect
      of exchange rate changes on cash and cash equivalents
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (18,169
                                  )Net
      increase (decrease) in cash
                                  
                                  
                                  14,086
                                  
                                  
                                  
                                  (94,899
                                  )Cash
      at beginning of period
                                  
                                  
                                  5,182
                                  
                                  
                                  
                                  101,095Cash
      at end of period
                                  
                                  $
                                  19,268
                                  
                                  
                                  $
                                  6,196Supplemental
      information:Cash
      paid during the year for:Interest
      paid
                                  
                                  $
                                  30,767
                                  
                                  
                                  $
                                  54,389Income
      taxes paid
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  -Non
      - cash financing activities:Related
      party advances paid by issuing shares
                                  
                                  $
                                  966,500
                                  
                                  
                                  $
                                  -Accrued
      expenses transferred to long term debt
                                  
                                  $
                                  32,201
                                  
                                  
                                  $
                                  28,850





SEE
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


6


LI-ION
MOTORS CORP.


Notes
to Unaudited Consolidated Financial Statements


April
30, 2010





Note
1. Financial statement presentation





The
financial statements have been prepared in accordance with Securities Exchange
Commission requirements for interim financial statements.  Therefore,
they do not include all information and footnotes required by accounting
principles generally accepted in the United States for complete financial
statements.  These financial statements should be read in conjunction
with the financial statements and notes thereto contained in the Company's
Annual Report on Form 10-K for the year ended July 31, 2009 as filed with the
Securities Exchange Commission.





The
results of operations for the interim periods shown in this report are not
necessarily indicative of results to be expected for the full
year.  In the opinion of management, the information contained herein
reflects all adjustments necessary to make the results of operations for the
interim period a fair statement of such operations.  All such
adjustments are of a normal recurring nature.





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 began in its
primary line of business. The Company is organized by line of business and
geographic area. The Company had two businesses, telecommunication services and
the development and sale of electric powered vehicles.





On April
16, 2008, the Company sold their controlling interest of approximately 69% of
the outstanding common stock in Zingo, Inc. (now 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 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.





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, investments have been made in the amount of $314,517 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 in a letter dated October 1, 2009, that it will not give notice of
default against SPI for their failure to comply with this covenant in the first
year of the term of the license agreement.





Basis
of presentation


The
Company’s financial statements for the nine months ended April 30, 2010
have been prepared on a going concern basis which contemplates the realization
of assets and settlement of liabilities and commitments in the normal course of
business. As of April 30, 2010, the Company had a working capital deficiency of
approximately $1.9 million and a deficiency of approximately $4.1 million.
 In addition, during the year ended July 31, 2009, the Company defaulted on
interest payments on a loan from Wyndom Capital Investments, Inc. (“Wyndom”) and
the shares used as the sole collateral to secure the loan were used to
extinguish the loan and all unpaid interest. Management recognized that the
Company’s continued existence is dependent upon its ability to obtain needed
working capital through additional equity and/or debt financing and revenue to
cover expenses as the Company continues to incur losses.





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.


7





The
Company presently does not have sufficient liquid assets to finance its
anticipated funding needs and obligations.  The Company’s continued
existence is dependent upon its ability to obtain needed working capital through
additional equity and/or debt financing and achieve a level of sales adequate to
support its cost structure. Management is actively seeking additional capital to
ensure the continuation of its current activities and complete its proposed
activities. However, there is no assurance that additional capital will be
obtained. These uncertainties raise substantial doubt about the ability of the
Company to continue as a going concern. The accompanying financial statements do
not include any adjustments that might result from the outcome of these
uncertainties should the Company be unable to continue as a going
concern.





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 one-for-two reverse split that was
effective February 1, 2010 and the authorized was decreased in the same ratio to
25,000,000 shares.





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.
                  
                  
                  100.00
                  %Hybrid
      Electric Vehicles India Pvt. Ltd.
                  
                  
                  100.00
                  %





Estimates


The
preparation of financial statements prepared in accordance with the accounting
standards generally accepted in the United States of America requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements. Actual results could differ from those
estimates.





Fair
value measurement





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 condensed
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:


8





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
April 30, 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 Company does not have any financial assets measured at fair
value on a recurring basis as Level 2 or Level 3 and there were no transfers in
or out of Level 1, Level 2 or Level 3 during the nine months ended April 30,
2010.





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 April 30, 2010.




Assets at fair value as of April
      30, 2010 usingQuoted prices in
                    active
      markets for
                    identical
      assets
                  
                  
                  Significant other
                    observable
      inputs
                  
                  
                  Significant
                    unobservable
                    inputsTotal
                  
                  
                  (Level 1)
                  
                  
                  (Level 2)
                  
                  
                  (Level 3)Cash
      and cash equivalents
                  
                  $
                  19,268
                  
                  
                  $
                  19,268
                  
                  
                  $
                  -
                  
                  
                  $
                  -





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 liabilities within the scope of the fair value disclosure requirements
as of April 30, 2010.





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.





Inventories


Inventories
are stated at the lower of cost or market. Cost is based on the specific
identification method.





Property
and equipment


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


9




LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





Lives
                                  
                                  MethodsBuilding
      improvements
                                  
                                  39
      years
                                  
                                  Straight
      lineFurniture
      and fixtures
                                  
                                  10
      years
                                  
                                  AcceleratedSoftware
                                  
                                  3-5
      years
                                  
                                  Straight
      lineComputers
                                  
                                  5
      years
                                  
                                  Straight
      line




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 April 30, 2010 there
were only pending patent applications.





Stock
based compensation


The
Company issues stock options to employees and other certain service providers
under stockholder approved stock option programs that provide the right to
purchase the Company’s stock pursuant to stock purchase programs. The Company
also issued common stock for services performed.  The fair value of
the stock options issued is estimated on the date of grant using the Black
Scholes Option Pricing Model.  The fair value of common stock issued
for services is estimated on the date of issuance based on the value of the
stock issued or the consideration received.  See Note 8 of Notes to
Consolidated Financial Statements for further disclosures and
discussions.





Revenue
recognition


The
Company recognizes revenue in accordance with the guidance contained in
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification
(“ASC”) 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.





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 nine months ended April 30,
2010 and 2009 and amounted to approximately $61,457 and $396,885,
respectively.





Research
and development


No set
amount has been set aside for research and development (“R&D”) but all
projects and purchases must be approved before being started or purchased. As of
April 30, 2010, there have been expenses incurred for research and development.
For the nine months ending  April 30, 2010, salaries, payroll taxes, and
benefits amounted to approximately $977,738  in R&D, parts and
supplies was approximately $55,329, shipping charges and battery management
systems were approximately $15,270 and $8,869, respectively.





Concentration
of risk


The
Company maintains cash deposit accounts and 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


The
Company accounts for income taxes using an asset and liability approach under
which deferred income taxes are recognized by applying enacted tax rates
applicable to future years to the differences between the financial statement
carrying amounts and the tax bases of reported assets and
liabilities.





The
principal item giving rise to deferred taxes is the net operating loss carry
forward.


10


LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





Effective
August 1, 2007, uncertain tax positions are accounted for in accordance with
FASB ASC 740, “Income Taxes” (“ASC 740”).





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 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.





Foreign
currency translation


The
functional currency for some foreign operations is the local currency. 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 Cumulative Other Comprehensive Income (Loss). The
translation losses for the nine months ended April 30, 2010 and 2009 were
approximately $3,898 and $1,511, 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 nine
months ended April 30, 2010 and 2009, the difference between net loss and
comprehensive loss is foreign currency translation.





Loss
per 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 and warrants convertible into 0 and 1,019,000 common shares at April 30,
2010 and 2009, respectively, have been excluded from the computations, as
their effect is anti-dilutive.





Recently
issued pronouncements


During
the first quarter of 2009, the Company implemented additional interim
disclosures about fair value of financial instruments, as required by FASB ASC
Paragraph 825-10-65-1.  Prior to implementation, disclosures about
fair values of financial instruments were only required to be disclosed
annually.  As the required modifications only related to
additional disclosures of fair values of financial instruments in interim
financial statements, the adoption did not affect the Company’s financial
position or results of operations.





Beginning
in the first quarter of 2009, the Company must disclose the date through which
subsequent events have been evaluated, in accordance with the requirements in
FASB ASC Paragraph 855-10-50-1.  With regards to the condensed
consolidated financial statements and notes to those financial statements
contained in this Form 10-Q, the Company has evaluated all subsequent events
through June 14, 2010 (the date the Company’s financial statement are
issued).




In
September 2009, the FASB implemented certain modifications to FASB ASC Topic
860, Transfers and Servicing, as a means to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets, the effects of a transfer on its financial position, financial
performance, and cash flows, and a transferor’s continuing involvement, if any,
in transferred financial assets. These modifications must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009. The Company does not expect the adoption of this
standard to have an impact on the Company’s results of operations, financial
condition or cash flows.




During
the first quarter of 2009, the Company adopted the FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles in
accordance with FASB ASC Topic 105, “Generally Accepted Accounting Principles”
(the “Codification”).  The Codification has become the source of
authoritative U.S. generally accepted accounting principles (GAAP) recognized by
the FASB to be applied by nongovernmental entities. Rules and interpretive
releases of the Securities and Exchange Commission (SEC) under authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. Effective with the Company’s adoption on July 1, 2009, the
Codification has superseded all prior non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification has become non-authoritative. As the adoption of
the Codification only affected how specific references to GAAP literature have
been disclosed in the notes to the Company’s condensed consolidated financial
statements, it did not result in any impact on the Company’s results of
operations, financial condition or cash flows.


11


LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





Updates to the FASB
Codification Applicable to the Company





The FASB
has published FASB Accounting Standards Update No. 2009-12, Fair Value Measurements and
Disclosures (Topic 820)—Investments in Certain Entities That Calculate Net Asset
Value per Share (or Its Equivalent). This Update amends Subtopic 820-10,
Fair Value Measurements and
Disclosures—Overall, to permit a reporting entity to measure the fair
value of certain investments on the basis of the net asset value per share of
the investment (or its equivalent). This Update also requires new disclosures,
by major category of investments, about the attributes of investments included
within the scope of this amendment to the Codification. The guidance in this
Update is effective for interim and annual periods ending after December 15,
2009. The Company does not expect the adoption of this standard to have an
impact on the Company’s results of operations, financial condition or cash
flows.





Note
2. Inventories


Inventories
consist of the following:


April
      30,
                      
                      
                      July
      31,2010
                      
                      
                      2009Raw
      materials
                      
                      $
                      108,595
                      
                      
                      $
                      119,153Work
      in progress
                      
                      
                      -
                      
                      
                      
                      108,673$
                      108,595
                      
                      
                      $
                      227,826





Raw
materials, work in progress and finished goods for the nine months ended April
30, 2010, and year ended July 31, 2009, is related to the Company’s planned
sales of electric powered vehicles.





Note
3. Property and equipment





Property
and equipment consist of:





April
      30,
                    
                    
                    July 31,2010
                    
                    
                    2009Building
      and improvements
                    
                    $
                    1,275,086
                    
                    
                    $
                    1,274,636Furniture
      and fixtures
                    
                    
                    30,582
                    
                    
                    
                    29,023Office
      equipment
                    
                    
                    146,016
                    
                    
                    
                    143,965Machinery
      and equipment
                    
                    
                    36,971
                    
                    
                    
                    36,971Vehicles
                    
                    
                    60,979
                    
                    
                    
                    60,979Software
      costs
                    
                    
                    35,766
                    
                    
                    
                    32,924Land
                    
                    
                    700,000
                    
                    
                    
                    700,0002,285,400
                    
                    
                    
                    2,278,498Less
      accumulated depreciation
                    
                    
                    (350,092
                    )
                    
                    
                    (288,517
                    )$
                    1,935,308
                    
                    
                    $
                    1,989,981





Depreciation
expense for the nine months ended April 30, 2010 and 2009 was $61,389 and
$66,239, respectively.





Note
4. Advances from related parties and related party transactions





The
Company received and repaid additional advances from SSRI (owned by a Company
stockholder) for the nine months ended April 30, 2010 and year ended July 31,
2009 in amounts of approximately $1,190,602 and $97,940, respectively, for April
30, 2010 and $377,614 and $97,940, respectively, for July 2009.


12


LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





The
Company received and repaid additional advances from Greg Navone (Former
Director of the Company) for the nine months ended April 30, 2010 and year ended
July 31, 2009 in amount of $0 and $0, respectively for April 30, 2010 and $0 and
$51,000, respectively, for July 2009. As of April 30, 2010 and July 31,
2009, the amount due to the Company was $0 and $0, respectively. Mr.
Navone resigned as a director of the Company on July 10,
2009.  The Company owes Mr. Navone director fees in the amount of
$5,915.





The
Company received and repaid non-interest bearing additional advances from
Superlattice Power, Inc. (prior subsidiary) for the nine months ended April 30,
2010 and year ended July 31, 2009 in amounts of $441,781 and $113,346,
respectively for April 30, 2010 and year ended July 2009. As of April 30, 2010
and July 31, 2009, the amount due to the Company was $315,500 and $0,
respectively.





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 except for the Greg Navone note.





Note
5. Long-term debt





Long-term
debt consists of:




April
      30,
                    
                    
                    July
      31,2010
                    
                    
                    200910.875%
      note payable to Bayview Loan Servicing, LLC, payable in monthly
      installments of approximately $11,388 including interest, collateralized
      by real property due in full on or before December 2022
(1)
                    
                    $
                    955,968
                    
                    
                    $
                    954,63110%
      note payable to Crystal Capital Ventures, payable in May 2011
      collateralized by 7,500,000 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)
                    
                    
                    9,000
                    
                    
                    
                    5,88012%
      note payable to Frontline Asset Management, payable in monthly
      installments of interest only, due in full on March 1, 2011
      (4)
                    
                    
                    866,060
                    
                    
                    
                    -10%
      note payable to Winsor Capital Inc. due in full on April 15, 2013
      (5)
                    
                    
                    277,775
                    
                    
                    
                    -5,108,803
                    
                    
                    
                    3,814,370Less
      current portion
                    
                    
                    (891,380
                    )
                    
                    
                    (39,702
                    )$
                    4,217,423
                    
                    
                    $
                    3,774,668


13


LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





Principal
maturities on continuing operations are as follows for the years ended July
31:





2010
                      
                      $
                      8,0802011
                      
                      
                      3,887,3802012
                      
                      
                      16,3202013
                      
                      
                      294,0952014
                      
                      
                      16,320Thereafter
                      
                      
                      886,608$
                      5,108,803





(1) In
November 2007, the Company refinanced a loan on a building. The Company paid the
remainder of the loan to Richard Howard, with $50,000 in cash and $1,000,000
from the new loan proceeds. The new loan with Bayview Loan Servicing, LLC is
$1,000,000. The loan has an interest rate at 10.875% per annum with a monthly
payment of $11,388, including interest. The loan is due on December 1, 2022.
Interest expense for the nine months ended April 30, 2010 and 2009 for
Bayview Loan Servicing, LLC is approximately $ 87,014 and $80,698.
respectively.





Effective
March 31, 2010 the Company entered into a stipulation agreement with Bayview
Loan Servicing, LLC that reduced the current monthly payment to
$7,149.67.  After maintaining this new payment for six (6) months, the
payments will remain at $7,149.67 for three years. In 2013 Bayview Loan
Servicing LLC may increase the interest rate at that time. Current balance as of
April 30, 2010 due to Bayview is $955,968.





(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 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 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 7,500,000
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.





As of
April 30, 2010, the Company has borrowed the full $3,000,000 under the loan
agreement from Crystal Capital. Interest expense to Crystal Capital was
approximately $236,063 for the nine months ended April 30, 2010 and $0 for the
nine months ended April 30, 2009, respectively. The Company is now current with
the interest payments on the loan.





(3) On
February 28, 2010 the Company financed a liability policy 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 11.24%. Interest expense for the nine
months ended April 30, 2010 and 2009 Allegiance Direct Bank is
approximately $408 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 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 provide for interest only payments, due on the last day
of every month until the maturity date of March 30, 2011,
when  all principal and accrued interest is due and payable. Interest
expense for the nine months ended April 30, 2010 and 2009 was $5,929 was $0
respectively.





(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
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 stocks issued. Stock is issued and delivered proportionately to
the delivery of funds. Interest expense for the nine months ended April 30, 2010
and 2009 was $4,399 was $0 respectively. .


14


LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





Note
6. Stockholders’ equity





In
January 2008, the Company’s shareholders approved a 1:7 reverse stock
split.  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 split.  Authorized shares were 50,000,000 and were increased to
250,000,000 on December 24, 2007. Crystal Capital Ventures Inc. holds 7,500,000
post reverse stock split shares as collateral for a loan up to $3,000,000 as
discussed in Note 5.





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.





The
remainder of the shares under the 2006 stock option plan were granted and
exercised on February 24, 2009, which closed that plan. The Company has
registered the 2009 stock option plan with the SEC for 3,000,000 shares, and of
those 2,500,000 shares have been granted at an exercise price of $0.90 per
share, and 500,000 shares were exercised at a price of $0.70 which closed
that plan.





Note
7. Segment information





FASB
Statement No. 131,Disclosures about Segments of an Enterprise and Related Information,
establishes standards for reporting information about operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by
management. The Company is organized by geographical area for the sale of
electric powered vehicles.





The
following is financial information relating to the Company’s business
segments:


Nine
      Months Ended
                
                
                Three
      Months EndedApril
      30,
                
                
                April
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009Revenues
      from external customers:United
      States
                
                $
                484,505
                
                
                $
                223,001
                
                
                $
                358,596
                
                
                $
                22,085Hong
      Kong
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -India
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      Revenues
                
                $
                484,505
                
                
                $
                223,001
                
                
                $
                358,596
                
                
                $
                22,085Loss
      from operations:United
      States
                
                $
                (1,929,739
                )
                
                $
                (4,125,356
                )
                
                $
                (486,812
                )
                
                $
                (358,784
                )Hong
      Kong
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -India
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Total
      loss
                
                $
                (1,929,739
                )
                
                $
                (4,125,356
                )
                
                $
                (486,812
                )
                
                $
                (358,784
                )


15





LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





Note
8. 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.





On
September 30, 2009, 400,000 stock options were exercised at an exercise price of
$.90 for a value of $360,000.On November 4, 2009, 285,000 stock options were
exercised at an exercise price of $.90 for a value of $256,500.


On April
5, 2010, 500,000 stock options were exercised at an exercise price of $.70 for a
value of $350,000.





Stock
Option Plan





As of
April 30, 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, 2009
and changes during the nine months ended April 30, 2010, is presented
below.





Weighted
                                                  
                                                  WeightedAverage
                                                  
                                                  Average
                                                  
                                                  
                                                  AggregateExercise
      Share
                                                  
                                                  Remaining
                                                  
                                                  
                                                  IntrinsicOptions
                                                  
                                                  Shares
                                                  
                                                  
                                                  Price
                                                  
                                                  Contractual
                                                  
                                                  
                                                  ValueOutstanding
      at July 31, 2009
                                                  
                                                  
                                                  1,685,000
                                                  
                                                  
                                                  $
                                                  2.90Options
      granted
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  $Options
      exercised
                                                  
                                                  
                                                  (1,185,000
                                                  )
                                                  
                                                  $
                                                  0.90Options
      cancelled/expired
                                                  
                                                  
                                                  -Options
      exercised
                                                  
                                                  
                                                  (500,000
                                                  )
                                                  
                                                  $
                                                  0.70Outstanding
      at April 30, 2010
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  
                                                  -Exercisable
      at April 30, 2010
                                                  
                                                  
                                                  0





Stock
compensation expense applicable to stock options for the nine months ended April
30, 2010 and 2009 was approximately $0 and $0, respectively. The aggregate
intrinsic value of options outstanding as of April 30, 2010 was
$0.





Note
9. 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 Company has no outstanding options, warrants
or other convertible instruments that could affect the calculated number of
shares.


16


LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





The
following table sets forth the reconciliation of the basic and diluted net loss
per common share computations for the nine and three months ended April 30,
2010 and 2009.





Nine
      Months Ended
                
                
                Three
      Months EndedApril
      30,
                
                
                April
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009Basic
      and diluted EPS:Net
      loss ascribed to common shareholders - basic and diluted
                
                $
                (2,067,078
                )
                
                $
                (4,697,644
                )
                
                $
                (542,475
                )
                
                $
                (3,757,728
                )Weighted
      shares outstanding - basic and diluted
                
                
                11,725,331
                
                
                
                5,455,370
                
                
                
                13,670,385
                
                
                
                8,681,578Basic
      and diluted net loss per common share
                
                $
                (0.18
                )
                
                $
                (0.86
                )
                
                $
                (0.04
                )
                
                $
                (0.43
                )





Net loss
per common share for the nine months ended April 30, 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
1:7, the 1:3 and the 1:2 reverse stock split as discussed in
Note 6.





The
amounts previously reported for the nine and three months ended April 30, 2009
were as follows:





Nine
      Months Ended
                  
                  
                  Three
      Months EndedApril 30, 2009
                  
                  
                  April 30, 2009Basic
      and diluted loss per common share
                  
                  $
                  (0.43
                  )
                  
                  $
                  (0.22
                  )





Note
10. Going concern





The
Company's financial statements are prepared based on the going concern
principle. That principle anticipates the realization of assets and payments of
liabilities through the ordinary course of business.  No adjustments
have been made to reduce the value of any assets or record additional
liabilities, if any, if the Company were to cease to exist. The Company has
incurred significant operating losses since inception. These operating losses
have been funded by the issuance of capital, loans and advances. There are no
guarantees that the Company will continue to be able to raise the funds
necessary. Additionally, the lack of capital may limit the Company's ability to
establish a viable business.





Note
11. Commitments and contingencies





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 $2,625. Effective April 16,
2010 the new rental rate is $2,756.25.  Although the lease was signed,
the space is only 80% completed as of April 30, 2010. Also, effective April 16,
2008, the Company sold specified equipment and supplies related to the license
agreement to SPI for the purchase price of $29,005. 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
rent income for the nine months ended April 30, 2010 and 2009 amounted to
approximately $30,375 and $29,250, respectively.





Surety
bond


LMC
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. LMC was
licensed as a motor vehicle dealer to engage in the business of selling motor
vehicles on March 9, 2009, until March 31, 2010, by the State of North Carolina
DMV. LMC renewed its license effective March 31, 2010 to March 31,
2011.


17


LI-ION
MOTORS CORP.


NOTES TO
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


April 30,
2010





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 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.





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 $68,222 in damages, plus attorney’s fees
estimated in the range of $10,000 to $30,000.





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.





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.





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).





Note
12. Subsequent events





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.





License Agreement –
Effective May 28, 2010 the Company entered into a license agreement with Lithium
Electric Vehicle Corp. (“LEVC”) providing for our license to LEVC of 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.


18





Item
      2.
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.





FORWARD
LOOKING STATEMENTS





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





RESULTS
OF OPERATIONS





NINE
MONTHS ENDED APRIL 30, 2010 AS COMPARED WITH THE THREE MONTHS ENDED APRIL 30,
2009





We had
sales of $484,505 and incurred a net loss of $2,067,078 for the nine months
ended April 30, 2010, which included general and administrative costs of
$1,022,095 and research and development expense of $1,057,206.





Our net
loss for the  nine-month  period  ended April 30,
2010 decreased from the
comparative period in fiscal 2009 (from $4,697,644 in 2009 to
$2,067,078      in 2010). This was primarily due
to an decrease in general and administrative expense from $3,144,508 in the
nine-month period ended April 30, 2009, to $1,022,095 for the comparable period
in 2010, a higher research and development expense of $1,057,206 in 2010
compared to $820,667 in 2009; and an increase in sales from $243,141 in the
nine-month period ended April 30, 2009, to $484,505 in 2010.  Cost of
sales in 2010 was $334,743, as compared to $403,322 in 2009. In 2010, we also
incurred interest expense of $295,423 related to loans payable, as compared with
$634,747 for the comparable period in 2009.





THREE
MONTHS ENDED APRIL 30, 2010 AS COMPARED WITH THREE MONTHS ENDED APRIL 30,
2009





We
incurred  a net loss of $542,475 for the three months ended April 30,
2010, which included general and administrative costs of $275,731 and research
and development expense of $400,432.





We had
sales of $358,596 for the three month period ended April 30, 2010, as compared
with sales of 22,085 in the prior period. Our net loss for the
three-month  period  ended  April 30, 2010,
decreased from the three-month period ended April 30, 2009 (from $3,757,728 for
the prior period to $542,475 in 2010). This was primarily due to lower general
and administrative costs of $275,731 in the three months ended April 30, 2010,
as compared with $2,839,413 in the prior period. We incurred interest expense of
$125,704 in 2010, as compared to $213,649 in the prior period.  We
incurred research and development costs of $400,432 in 2010, as compared to
$657,712 in the prior period.





Electric
Vehicle Operations





We
convert vehicles in our developmental facility in Mooresville, North Carolina.
Our team of highly qualified engineers oversee groups of electrical and
mechanical staff. This 40,000 square foot facility has room for both conversions
and storage with the potential for future growth, enabling us to work on many
projects and vehicles concurrently.





With the
license of our lithium battery technology described below, we are concentrating
on sales of our vehicles.





Effective
April 15, 2008, we entered into a License Agreement (the “License Agreement”)
with Superlattice Power, Inc. (“Superlattice”), 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 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 is Superlattice’s actual manufacturing
costs for such batteries for the fiscal quarter of Superlattice in which our
purchase takes place.


19








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 $2,500, the monthly rental to be escalated five (5%) percent
annually (currently $2,625). Effective April 16, 2008, we also sold to
Superlattice for the purchase price of $29,005, specified equipment and supplies
related to the Licensed Field.





Commercial
Initiatives





The
Company is discussing potential relationships with several groups relating to
manufacturing plants. On March 9, 2009 the State of North Carolina issued a
manufacturing license to the Company. We are manufacturing our own original
design vehicles with VIN’s. We are also continuing with vehicle conversions. The
LiV series electric vehicles have been tested and continue under review by a
number of government agencies. The LiV Wise is available for purchase and listed
in the catalogue of the United States General Services
Administration.





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 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 April
30, 2010, we had liabilities of $6,661,309, as compared with $5,307,066 at July
31, 2009; and a working capital deficiency of $1,873,399 and a stockholders
deficiency of $4,131,256. As of April 30, 2010, we had $19,268 cash on hand. 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 $1,935,308 at April 30, 2010, as
compared with $1,989,981 at July 31, 2009.





We used
net cash in operating activities of $(776,143) in the nine months ended April
30, 2010, as compared with $(1,582,300) in the comparable period in 2009, and
cash used in  investing activities was ($6,716) in 2010, as compared
with ($121,409) in 2009.





During
the nine months ended April 30, 2010, we received net proceeds of $1,294,433
from the issuance of promissory notes for debt, and we made net repayments of
advances from related parties of $(497,488). Total cash provided by financing
activities in the nine months ended April 30, 2010 was $796,945, as compared
with $1,626,979 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
April 30, 2010, the Company has borrowed the full $3,000,000 under the loan
agreement from Crystal Capital. Interest expense to Crystal Capital was
approximately $236,063 for the nine months ended April 30, 2010 and $0 for the
nine months ended April 30, 2009, respectively. The Company is now current with
the interest payments on the loan.


20


The
current balance as of April 30, 2010 due to Crystal Capital is
$3,000,000.





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 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 provide for interest only payments, due on the
last day of every month until the maturity date of March 30, 2011, when all
principal and accrued interest is due and payable. Interest expense for the
nine months ended April 30, 2010 and 2009 was $5,929 and $0
respectively.





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 nine months
ended April 30, 2010 and 2009 was $4,399 was $0 respectively.





Liquidity
Issues





The
Company has substantial obligations to the Internal Revenue Service, in the
total amount of $251,928.14, and one judgment and two arbitration awards against
us. The Company has a payment plan in place with the Internal Revenue Service
(IRS) for delinquent payroll taxes, and with the three judgment creditors. There
is no assurance that we will be able raise additional required capital to meet
obligations arising from the settlements of these litigation matters, as well as
the settlement payments with the IRS, and continue operations.




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 $5,000,000 of
additional working capital will be required over the next 12 months for market
introduction of these products through joint venture partners or otherwise. We
do not have sufficient cash on hand to meet these anticipated obligations, which
are in addition to payments we will owe to judgment creditors and the
IRS.





We do not
currently have any other 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
auditors are of the opinion that our continuation as a going concern is in
doubt. Our continuation as a going concern is dependent upon continued financial
support from our shareholders and other related parties.





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





Recently
Issued Pronouncements





During
the first quarter of 2009, the Company implemented additional interim
disclosures about fair value of financial instruments, as required by FASB ASC
Paragraph 825-10-65-1. Prior to implementation, disclosures about fair values of
financial instruments were only required to be disclosed annually. As the
required modifications only related to additional disclosures of fair values of
financial instruments in interim financial statements, the adoption did not
affect the Company’s financial position or results of
operations.


21




Beginning
in the first quarter of 2009, the Company must disclose the date through which
subsequent events have been evaluated, in accordance with the requirements in
FASB ASC Paragraph 855-10-50-1. With regards to the condensed consolidated
financial statements and notes to those financial statements contained in this
Form 10-Q, the Company has evaluated all subsequent events through June 14, 2010
(the date the Company’s financial statement are issued).




In
September 2009, the FASB implemented certain modifications to FASB ASC Topic
860, Transfers and Servicing, as a means to improve the relevance,
representational faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a transfer of
financial assets, the effects of a transfer on its financial position, financial
performance, and cash flows, and a transferor’s continuing involvement, if any,
in transferred financial assets. These modifications must be applied as of the
beginning of each reporting entity’s first annual reporting period that begins
after November 15, 2009. The Company does not expect the adoption of this
standard to have an impact on the Company’s results of operations, financial
condition or cash flows.




During
the first quarter of 2009, the Company adopted the FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles in
accordance with FASB ASC Topic 105, “Generally Accepted Accounting Principles”
(the “Codification”).  The Codification has become the source of
authoritative U.S. generally accepted accounting principles (GAAP) recognized by
the FASB to be applied by nongovernmental entities. Rules and interpretive
releases of the Securities and Exchange Commission (SEC) under authority of
federal securities laws are also sources of authoritative GAAP for SEC
registrants. Effective with the Company’s adoption on July 1, 2009, the
Codification has superseded all prior non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting literature not
included in the Codification has become non-authoritative. As the adoption of
the Codification only affected how specific references to GAAP literature have
been disclosed in the notes to the Company’s condensed consolidated financial
statements, it did not result in any impact on the Company’s results of
operations, financial condition or cash flows.





Updates to the FASB
Codification Applicable to the Company





The FASB
has published FASB Accounting Standards Update No. 2009-12, Fair Value Measurements and
Disclosures (Topic 820)—Investments in Certain Entities That Calculate Net Asset
Value per Share (or Its Equivalent). This Update amends Subtopic 820-10,
Fair Value Measurements and
Disclosures—Overall, to permit a reporting entity to measure the fair
value of certain investments on the basis of the net asset value per share of
the investment (or its equivalent). This Update also requires new disclosures,
by major category of investments, about the attributes of investments included
within the scope of this amendment to the Codification. The guidance in this
Update is effective for interim and annual periods ending after December 15,
2009. The Company does not expect the adoption of this standard to have an
impact on the Company’s results of operations, financial condition or cash
flows.





Item 3.
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.


22


Item
4(T). Controls and Procedures.





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





PART II-
OTHER INFORMATION





Item 1.
Legal Proceedings.





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





Hybrid
Technologies, Inc. v. Keith Boucher


An
arbitration award in the amount of $70,803 was awarded to Keith 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.





Barrett
Lyon v. EV Innovations, Inc.


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 $68,222 in damages, plus attorney’s fees
estimated in the range of $10,000 to $30,000.





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.





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).





Item 6.
Exhibits





10.33
              Promissory
      Note of the Company, dated February 26, 2010, issued to Frontline Asset
      Management Inc.




23




Ex
      31
                Certification
      of Chief Executive Officer and Principal Financial Officer Pursuant to
      Section 302 of the Sarbanes-Oxley Act of 2002, filed
    herewith.Ex
      32
                Certification
      of Chief Executive Officer and Principal Financial Officer Pursuant to 18
      U.S.C. Section 1350, as  Adopted Pursuant to Section
      906  of the Sarbanes-Oxley Act of 2002,filed
      herewith.





SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.





Li-ion
      Motors Corp./s/Stacey FlingStacey
      FlingChief
      Executive Officer and Director(Chief
      Executive Officer andPrincipal
      Financial Officer)Dated:
      June 18, 2010


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