UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549










FORM 10-Q







(Mark One)x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the Quarter Ended October 31, 2011oro
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from      to




Commission file number 000-33391









(Name of Registrant as Specified in Its Charter)




Nevada

(State or Other Jurisdiction

of Incorporation or Organization)

88-0490890

(I.R.S. Employer

Identification No.)4894 Lone Mountain #168, Las Vegas, Nevada

(Address of Principal Executive Offices)

89130

(Zip Code)(702) 425-7376

(Issuer’s Telephone Number, Including Area Code)




Securities registered under Section 12(b) of the Exchange Act:




None




Securities registered under Section 12(g) of the Exchange Act:




Common Stock, Par value $0.01 per share









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





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

Accelerated filer
oNon-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
x
 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   o Yes x No




On December 8, 2011, there were 32,088,513 shares of common stock outstanding.




Table of Contents





TABLE OF CONTENTS




Page No.PART I. FINANCIAL INFORMATIONITEM I – Unaudited Financial Statements
3Balance Sheets as of October 31, 2011 and July 31, 2011 (Unaudited)
4Consolidated Statements of Operations for the Three Months Ended October 31, 2011 and 2010 (Unaudited)
5Consolidated Statement of Comprehensive Income (Loss) for the Three Months Ended October 31, 2011 and 2010 (Unaudited)
6Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2011 and 2010 (Unaudited)
7Statement of Stockholders Deficiency (Unaudited)
8Notes to Unaudited Consolidated Financial Statements
9ITEM 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations.
17ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk
21ITEM 4T – Controls and Procedures
21PART II. OTHER INFORMATIONITEM 1 – Legal Proceedings
22ITEM 6 – Exhibits
23


Table of Contents




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, 2011. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. The results of operation for the three months ended October 31, 2011 and 2010 are not necessarily indicative of the results for the entire fiscal year or for any other period.




3
 Table of Contents




Li-ionMotors Corp. Consolidated Balance Sheets (unaudited)





October


July 31,2011


2011AssetsCurrent assets:Cash and cash equivalents

$
284


$
5,118Notes receivable, net of allowance for doubtful accounts of $782,680 and $762,327 respectively


1,750,000



1,750,000Inventories


466,690



380,558Employee advances


-



-Other current assets


246,694



193,893Total current assets


2,463,668



2,329,569Property and equipment, net


1,960,666



1,983,739Deferred patent and trademark costs


36,583



35,858Total assets

$
4,460,917


$
4,349,166Liabilities and Stockholders' Equity (Deficiency)Current liabilities:Bank overdrafts

$
2,540


$
-Accounts payable and accrued expenses


1,271,058



1,156,136Current portion of long-term debt


855,000



399,407Customer deposits


102,188



102,287Deferred license agreement revenue


199,333



324,333Total current liabilities


2,430,119



1,982,163Long-term liabilities:Long-term debt, less current portion


934,333



939,608Deferred license agreement revenue, less current portion


1,327,083



1,370,833Total liabilities


4,691,535



4,292,604Commitments and contingencies


-



-Stockholders' equity (deficiency)Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding


-



-Common stock, $.001 par value, 300,000,000 shares authorized, 32,088,513 issued andoutstanding at October 31, 2011 and July 31, 2011, respectively.


52,088



52,088Additional paid-in capital


62,613,779



62,613,779Accumulated deficit


(62,867,331
)


(62,580,108
)Accumulated other comprehensive loss


(9,154
)


(9,197
)(210,618
)


76,562Less: Treasury stock, 20,000,000 shares at cost


(20,000
)


(20,000
)Stockholders' equity (deficiency) attributable to Li-ion Motors Corp.


(230,618
)


56,562Non-controlling interests


-



-Stockholders' equity (deficiency)


(230,618
)


56,562Total stockholders' equity (deficiency)


(230,618
)


56,562Total liabilities and stockholders' equity (deficiency)

$
4,460,917


$
4,349,166


See accompanying notes to unaudited consolidated financial statements





4
 Table of Contents





Li-ionMotors Corp. Consolidated Statements of Operations (unaudited)




For the Three Months EndedOctober 31,2011


2010Revenue:Sales

$
3,568


$
1,985License agreement revenue


168,750



125,000Total revenue


172,318



126,985Costs and expenses:Cost of sales


595



350General and administrative


224,218



364,530Research and development


255,866



481,977Total costs and expenses


480,679



846,857Loss from operations


(308,361
)


(719,872
)Other (expenses) income:Interest expense


(41,533
)


(157,838
)Other income


62,671



2,443,291Net earnings (loss) before provision for (benefit from) income taxes


(287,223
)


1,565,581Provision for (benefit from) income taxes


-



-Net earnings (loss)


(287,223
)


1,565,581Less: Net earnings (loss) attributable to non-controlling interest


-



-Net earnings (loss) attributable to Li-ion Motors Corp

$
(287,223
)

$
1,565,581Earnings (loss) per share - basic and diluted:Earnings (loss) per common share attributable to Li-ion Motors Corp. common shareholders

$
(0.01
)

$
0.05Weighted average number of shares outstanding - basic and diluted


32,088,513



30,047,301


See accompanying notes to unaudited consolidated financial statements.





5
 Table of Contents


Li-ion Motors Corp.
 Consolidated Statement of Comprehensive Income (Loss)
 (unaudited)
 For the Three Months EndedOctober 31,2011


2010Net earnings (loss)

$
(287,223
)

$
1,565,581Other comprehensive incomeCurrency translation adjustment


43



(400
)Comprehensive income (loss)


(287,180
)


1,565,181Comprehensive income (loss) attributable to noncontrolling interest


-



-Comprehensive income (loss) attributable to Li-ion Motors Corp

$
(287,180
)

$
1,565,181


See accompanying notes to unaudited consolidated financial statements
 
 6
 Table of Contents
 
 Li-ionMotors Corp.
 Consolidated Statements of Cash Flows
 (unaudited)
 
 For the Three Months EndedOctober 31,2011


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net earnings (loss)

$
(287,223
)

$
1,565,581Adjustments to reconcile net earnings (loss) to net cash utilized by operating activitiesDepreciation


23,073



19,476Provision for doubtful accounts


20,353



71,065Licensing fees


(43,750
)


-Increase (decrease) in cash flows from changes in operating assets and liabilitiesInventories


(86,132
)


-Employee advances


-



7,300Prepaid expenses and other current assets


(52,801
)


(53,824
)Deferred patent and trademark costs


(725
)


-Bank overdraft


2,540



(14,104
)Accounts payable and accrued expenses


114,921



105,750Customer deposits


(99
)


-Deferred revenue


(125,000
)


(125,631
)Net cash provided by (used in) operating activities


(434,843
)


1,575,613CASH FLOWS FROM INVESTING ACTIVITIES:Additions to property and equipment


-



-Net cash used in investing activities


-



-CASH FLOWS FROM FINANCING ACTIVITIES:Advances on notes receivable


(35,976
)


(71,065
)Payments received on notes receivable


15,623



-Proceeds from issuance of debt


475,027



560,835Payments on debt


(24,708
)


(474,621
)Advances from related parties


-



-Payments to related parties


-



-Net cash provided by (used in) financing activities


429,966



15,149Effect of exchange rate changes on cash and cash equivalents


43



-CHANGE IN CASH AND CASH EQUIVALENTSNet increase (decrease) in cash and cash equivalents


(4,834
)


1,590,762Cash and cash equivalents at beginning of period


5,118



2,113Cash and cash equivalents at end of period

$
284


$
1,592,875SUPPLEMENTAL CASH FLOW DISCLOSURESCash paid during the period for:Interest

$
9,411


$
15,216Income taxes

$
-


$
-
 
 See accompanying notes to unaudited consolidated financial statements
 
 7
 Table of Contents





Li-ionMotors Corp.
 Consolidated Statement of Stockholders' Equity (Deficiency)
 For the Periods Ended As Noted
 (unaudited)


Number of

Common Shares


Common Shares

$0.01

Par Value


Additional Paid in

Capital


Accumulated

Deficit


Accumulated Other

Comprehensive

Income (Loss)


Treasury Stock

at Cost


Non-Controlling Interest


Comprehensive

Income (Loss)


TotalBalance - August 1, 2010


30,047,301


$
30,047


$
56,758,511


$
(62,699,029
)

$
(8,436
)

$
-


$
-





$
(5,918,907
)Issuance of stock for conversion of promissory notes


2,041,212



2,041



5,855,268



-



-



-



-






5,857,309Common stock issued as collateral on loan


20,000,000



20,000



-



-



-



(20,000
)


-






-Foreign currency translation


-



-



-



-



(761
)


-



-


$
(761
)


(761
)Net earnings


-



-



-



118,921



-



-



-



118,921



118,921Comprehensive income





























$
118,160



-Balance - July 31, 2011


52,088,513



52,088



62,613,779



(62,580,108
)


(9,197
)


(20,000
)


-







56,562Foreign currency translation


-



-



-



-



43



-



-


$
43



43Net earnings


-



-



-



(287,223
)


-



-



-



(287,223
)


(287,223
)Comprehensive income





























$
(287,180
)


-Balance - October 31, 2011


52,088,513


$
52,088


$
62,613,779


$
(62,867,331
)

$
(9,154
)

$
(20,000
)

$
-






$
(230,618
)




See accompanying notes to unaudited consolidated financial statements





8
 Table of Contents





Li-ion Motors Corp.


Notes to Unaudited Consolidated Financial Statements


October 31, 2011





Note 1. Financial Statement Presentation





History and Nature of Business





Li-ion Motors Corp (formerly EV Innovations, Inc., the “Company”) was incorporated under the laws of the State of Nevada on April 12, 2000. The Company is currently pursuing the development and marketing of electric powered vehicles and products based on the advanced lithium battery technology it has developed.





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





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





Under the terms of the license agreement, SPS 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, SPS has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement.  The Company has advised SPS  that it will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement.





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





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





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





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




9
 Table of Contents





Basis of Presentation





Going Concern





The Company’s financial statements for the quarter ended October 31, 2011, 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.  The Company did not have any revenue from vehicle sales during the first quarter 2012.  Management recognized that the Company’s continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses, as the Company continues to incur losses from operations.





Since its incorporation, the Company financed its operations through advances and loans from its controlling shareholders and in 2010, the Company received approximately $2.5 million as an award from Automotive XPrize. The Company expects to finance operations through the sale of equity or other investments as well as continued advances from shareholders for the foreseeable future, as the Company does not expect to receive significant revenue from vehicle sales until the required certifications have been received.  There is no guarantee that the Company will be successful in arranging financing on acceptable terms.





The Company’s ability to raise additional capital is affected by trends and uncertainties beyond its control.  The Company does not currently have any arrangements for financing and it may not be 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 it.  These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern.  The accompanying financial statements do not include adjustments that might result from the outcome of these uncertainties.





Common Stock





On June 24, 2011, the Board of Directors unanimously approved an amendment to the Company’s Articles of Incorporation to increase the authorized number of shares of common stock from 100 million shares, par value $.001 per share, to 300 million shares, par value $.001 per share.  The Company filed the amendment with the Secretary of State of Nevada on August 10, 2011, after mailing a Definitive Information Statement to the Company’s stockholders and the amendment was effective August 10, 2011.





Note 2.  Summary of Significant Accounting Policies





The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended July 31, 2011.  There were no significant changes to these accounting policies during the three months ended October 31, 2011 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.





Reclassifications





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





Note 3. Notes Receivable





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





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




10
 Table of Contents





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





The Company recognized interest income of $44,110, none of which has been received, in accordance to the terms of the LEVC Note for the three months ended October 31, 2011, all of which is included in other current assets as of October 31, 2011.  See Note 6 for further information.





Note 4. Inventories





Inventories consist of the following:





October 31,


July 31,2011


2011Raw Materials

$
1,103


$
1,103Work-In-Progress


430,587



344,455Finished Goods


35,000



35,000$
466,690


$
380,558


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





Note 5. Property and Equipment





Property and equipment consist of:





October 31,


July 31,2011


2011Building and Improvements

$
1,292,276


$
1,292,276Equipment and Furniture and Fixtures


328,663



328,663Vehicles


66,429



66,429Software Costs


28,913



28,913Land


700,000



700,0002,416,281



2,416,281Less Accumulated Depreciation


(455,615
)


(432,542
)Net Property and Equipment

$
1,960,666


$
1,983,739


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




11
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Note 6. Other Current Assets





October 31,


July 31,2011


2011Retainers and Deposits

$
4,957


$
4,957Deferred Product Asset


2,412



4,958Prepaid Expenses


76,791



65,553Interest Receivable


162,534



118,425Total

$
246,694


$
193,893


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




Note 7. Accounts Payable and Accrued Expenses





Accounts payable, accrued expenses and other current liabilities at October 31, 2011 and July 31, 2011 consisted of:





October 31,


July 31,2011


2011Accounts Payable

$
711,404


$
608,623Accounts Payable - Related Parties


25,336



28,029Wages, Paid Leave and Payroll Related Taxes


326,390



259,122Accrued Interest


29,366



8,403Legal Settlements


168,951



171,750Other


9,611



80,209Total

$
1,271,058


$
1,156,136


Accounts payable due to related parties are reimbursable general and administrative expenses paid by the Company’s President and Consultant.




12
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Note 8. Long-Term Debt





Long-term debt consists of:





October 31,


July 31,2011


20115% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,433 including interest, collateralized by real property due in full on or before March 2038 (1)

$
949,112


$
951,9219.367% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1,000, due in full on February 28, 2012 (2)


3,098



6,1128.683% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1,800, due in full on October 26, 2012 (3)


17,393



-12% Note  payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2012 (4)


793,289



349,46548.956% Note payable to Amicus Funding Group, LLC, payable in monthly installments of approximately $467, collateralized by real property due in full on September 1, 2013 (5)


6,878



7,39426.85% Note payable to Treger Financial, payable in monthly installments of approximately $2,000, collateralized by real property due in full on June 1, 2012 (6)


19,563



24,1231,789,333



1,339,015Less Current Portion


(855,000
)


(399,407
)$
934,333


$
939,608





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





2012

$
855,0002013


22,4132014


19,2972015


20,3012016


21,357Thereafter


850,965$
1,789,333
  13
 Table of Contents


(1) In November 2007, the Company refinanced a loan on its North Carolina building. The loan is with Bayview Loan Servicing, LLC (“Bayview”). On March 31, 2010, the Company entered into a stipulation agreement with Bayview which reduced the monthly payment to $5,349, including interest. On May 27, 2011, the Company entered into a loan adjustment agreement with Bayview which increased the unpaid liability by $9,043 to $953,316 and decreased the monthly payments to $5,433, including interest. In 2013, Bayview may step up the interest rate at that time.  The loan is set to mature on March 31, 2038.  Effective April 1, 2012, the interest rate adjusts to Prime plus 4.875%.  Interest rate changes are limited to 2% increase or decrease in any annual adjustments.  During the three months ended October 31, 2011 and 2010, the Company repaid $2,809 and $5,265, respectively. Interest expense for the three months ended October 31, 2011 and 2010, for Bayview Loan Servicing, LLC was $12,077 and $12,090, respectively.





(2) On February 28, 2011, the Company financed a general liability insurance policy with Allegiance Direct Bank for the period February 28, 2011 to February 28, 2012 for $13,351. The Company was required to make a down payment of $3,351 in February 2011 and monthly payments including interest of 9.4%. During the three months ended October 31, 2011 and 2010, the Company repaid $3,013and $2,925, respectively. Interest expense for the three months ended October 31, 2011 and 2010, paid to Allegiance Direct Bank is $115 and $232, respectively.





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





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





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





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





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





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





As of October 31, 2011, no funding transactions had taken place and there was a zero balance on the Note.




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Note 9. Stockholders’ Equity (Deficiency)





On April 15, 2010, the Company entered into a loan agreement for $2,000,000 with Winsor. The entire loan amount was secured by 10,000,000 shares of the Company common stock.  On April 19, 2011, Winsor converted the entire $2,000,000 outstanding loan amount for the 10,000,000 collateralized common stock.





On April 19, 2011, Frontline partially assigned $437,309 to Kisumu S.A. (“Kisumu”) and Kisumu immediately converted the assigned note for 1,041,212 shares of Common Stock at a fair value price of $0.42 per share.  On April 19, 2011, Frontline assigned $420,000 to Eurolink Corporation (“Eurolink”) and Eurolink immediately converted the assigned note for 1,000,000 shares of Common Stock at a fair value price of $0.42 per share.





On April 19, 2011, Starglow, (formerly Crystal Capital Ventures) converted the entire $3,000,000 outstanding loan amount for the 7,500,000 collateralized shares.





On July 14, 2011, the Company entered into a Loan Agreement with Cameo Properties LLC. The loans under the Loan Agreement are secured by 20 million shares of our common stock held as treasury stock and will be issued to the Lender when the Company receives the initial advance on the note.  In the event of a reverse stock split or combination of shares, the number of shares of common stock constituting the Share Collateral will, immediately following such reverse stock split or combination of shares, be increased by a new issuance of common stock of the Company to that number of shares constituting the Share Collateral immediately prior to such reverse stock split or combination of shares. The certificates representing any share dividends that the Company pays during the term of the Loan with respect to the Shares being held in escrow shall be credited and delivered to the Lender and held by the Lender pursuant to the terms of the Loan Agreement.





Increase in Authorized Common Stock





On June 24, 2011, the Board of Directors unanimously approved an amendment to the Articles of Incorporation to increase the authorized number of shares of common stock from 100 million shares, par value $.001 per share, to 300 million shares, par value $.001 per share. The Company filed the amendment with the Secretary of State of Nevada on August 10, 2011, after mailing a Definitive Information Statement to the Company’s stockholders and the amendment was effective August 10, 2011.





Note 10.  Net Earnings (Loss) Per Common Share





The following table sets forth the reconciliation of the basic and diluted net earnings (loss) per common share computations for the three months ended October 31, 2011 and 2010.





Three Months EndedOctober 31,2011


2010Basic and Diluted Earnings (Loss) Per ShareNet Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted

$
(287,223
)

$
1,565,581Weighted Average Shares Outstanding - Basic and Diluted


32,088,513



30,047,301Basic and Diluted Net Earnings (Loss) Per Common Share

$
(0.01
)

$
0.05





Note 11. Share Based Compensation





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





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





Increase in Authorized Common Stock





On June 24, 2011, the Board of Directors unanimously approved an amendment to the Articles of Incorporation to increase the authorized number of shares of common stock from 100 million shares, par value $.001 per share, to 300 million shares, par value $.001 per share. The Company filed the amendment with the Secretary of State of Nevada on August 10, 2011, after mailing a Definitive Information Statement to the Company’s stockholders and the amendment was effective August 10, 2011.




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Stock Option Plan





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





Note 12. Income Taxes





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





The Company recorded no provisions for income taxes for the three months ended October 31, 2011 and 2010.





Note 13. Commitments and Contingencies





Lease Agreement





Effective April 16, 2008, SPS agreed to lease approximately 5,000 square feet of space in the Company’s North Carolina facility at a rental rate of $2,500 per month and the monthly rental to be escalated five (5%) percent annually beginning April 16, 2009.  The leased space is suitable for, and utilized by SPS for, SPS’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 $2,984. Although the lease was signed, the space is only 80% completed as of October 31, 2011. The Company also entered into a month to month lease agreement for $750 with SPS for renting offices in the Company’s Las Vegas corporate office.





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





Surety Bond





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





Legal Proceedings


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





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





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





Tallman Hudders & Sorrentino has obtained a judgment in Lehigh County, Pennsylvania, on behalf of their client Javad Hajihadian, an individual.  Mr. Hajihadian had ordered and paid for, the first super car to be produced by Li-ion Motors in November 2008. The car was in the design stage when it was ordered.  Mr. Hajihadian’s attorney subsequently contacted  the Company to cancel his contract and have his payment refunded. The parties had reached a settlement agreement and the payment was being refunded with interest. The settlement agreement was for $102,500 and stipulated monthly payments of $10,250 commencing in July 2010.  Payments were made through November 2010, totaling $51,250, leaving a balance of five payments or $51,250 still due; which is reflected on the Company’s balance sheet under current liabilities. The Company became delinquent and Mr. Hajihadian proceeded with litigation and on February 4, 2011, a judgment was issued in his favor for $51,750.




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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 for the Three Months Ended October 31, 2011





Electric Vehicle Operations





We did not have any sales for our electric vehicles during the three months ended October 31, 2011. Our only sales during the three months ended October 31, 2011, were for  vehicle parts which totaled $3,568.





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





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





Sky Power License Agreement





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




Sky Power agreed to invest a minimum of $1,500,000 in 2008 and 2009 in development of the technology for the Licensed Products. In the initial year under the License Agreement, To date, Sky Power has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement.  The Company has advised Sky Power that it will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement.




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




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Lithium Electric Vehicle Corp.  License Agreement





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





The license agreement provides for an annual fee of $500,000 for ten years and an additional $1,750,000 based on a valuation report prepared by an independent third party.  LEVC is required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year.  The Company has received $732,666 from LEVC with a balance due of $267,334 as of October 31, 2011, which is now delinquent.  The Company has not reflected the amount due from LEVC but has recorded the amount received as deferred revenue and amortized the license fee income ratably over the period.  License agreement revenue recognized for the three months ended October 31, 2011 and 2010, was $168,750 and $125,000, respectively. The Company will continue to recognize license fee income ratably over the life of the agreement.





Cost of Sales





Cost of sales as a percentage of net sales for the three months ended October 31, 2011, was approximately 17% as compared to approximately 18% during the same period in 2010.  Based on our historical review of costs, we expect that cost of sales in the future will remain in line on a percentage basis with our historic level of approximately 20%. As sales volumes and prices increase, costs should then reduce as a percentage of sales.





General and Administrative Expenses





General and administrative (“SG&A”) expenses decreased to $224,218 for the three months ended October 31, 2011, as compared to $364,530 during the same period in 2010. The decrease was attributable to:  (1) legal and professional fees of $60,564; (2) advertising and promotion expense of $18,732; (3) travel related expenses of $15,742; (4) salaries and wages of $14,499; (5) office expenditures of $5,546; and (6) other various expenses of $25,229.  Of all SG&A expenses the Company incurred during the first quarter 2011, the majority were charges that are expected to be recurring.





Research and Development Expenses





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





Interest Expense





Interest expense decreased to $41,533 for the three months ended October 31, 2011, as compared to $157,838 for 2010. The decrease was due to the conversion of debt to the Company’s common stock during the fiscal year 2011. Interest expense consists primarily of interest related to borrowings.




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Other Income





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





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





Other income for the three months ended October 31, 2010, consisted of accounting fees and rental income from Superlattice for $18,019 and receipt of net proceeds of  $2,425,272 from XPrize.





Net Earnings (Loss)





Net loss attributable to common stockholders for the three months ended October 31, 2011 was $287,223, as compared to net earnings of $1,575,581 for the previous fiscal quarter. Basic and diluted loss attributable to common stockholders per share of common stock for the three months ended October 31, 2011 was $0.01 as compared to a gain of $0.05 for the previous fiscal quarter.





Liquidity and Capital Resources





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





At October 31, 2011, we had liabilities of $4,691,535, as compared with $4,292,604at July 31, 2011; and working capital of $33,549 and stockholders' equity deficiency of $230,618.





Our property, plant and equipment decreased to $1,960,666 at October 31, 2011, as compared with $1,983,739 at July 31, 2011.





Net cash used in operating activities was $434,843 during the three months ended October 31, 2011, as compared with $1,575,613 provided for in 2010.  We did not have any investing activities during the three months ended October 31, 2011 and 2010.





During the three months ended October 31, 2011, from the issuance of a promissory note for a receivable, we advanced $35,976 to Sky Power and were repaid $15,623. During the three months ended October 31, 2011, we received net proceeds of $475,027 from the issuance of promissory notes for debt, and made repayments of  $24,708.  Total cash provided by financing activities in the three months ended October 31, 2011 was $429,666 as compared with $15,149 in 2010.





On May 5, 2008, the Company entered into a loan agreement with Crystal Capital Ventures Inc. and on October 1, 2010, the loan was assigned to Starglow Asset, Inc. (“Starglow”).  The loan agreement provided 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 loan bore an interest payable monthly in arrears at the rate of 10% per annum, and initially matured  on May 4, 2012. The loan under the loan agreement was secured by shares of the Company’s common stock held by Starglow. The Company was 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. After the 1:3 reverse stock split in February 2009 the Company issued 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 loan agreement with the 1:2 reverse stock split of February 1, 2010, the Company issued 3,749,999 shares to again  increase their holdings to 7,500,000 post reverse stock split shares.  In connection with the Company's 20% stock dividend, the Company issued an additional 1,500,000 common shares to be held as collateral.




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On April 19, 2011, Starglow converted the entire $3,000,000 outstanding loan amount for the 7,500,000 collateralized shares and the Company issued a Stock Purchase Warrant (“Starglow Warrant”) which entitles Starglow, for a three-year period, to purchase at a purchase price of $.001 per share, on a one time basis and only following the effectiveness of the first reverse split of the Company’s common stock following the issuance of the Starglow Warrant , such number of shares of common stock as is equal to the difference between 7,500,000 and the number of shares into which such 7,500,000 shares were changed in such first reverse split, the effect of the Starglow Warrant being to protect Starglow from any dilution to its 7,500,000 share holding resulting from such first reverse split.





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





On April 15, 2010 the Company entered into a loan agreement for $2,000,000 with Winsor. The loan provided 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 was secured by 12,000,000 shares of the Company common stock. Each loan installment matured in three years from issuance of the installment. The loan had an anti-dilution clause for the stock issued as collateral. Stock is issued and delivered proportionately to the delivery of funds.  The loan was fully funded during the third quarter ending April 30, 2011 with (1) cash advances of $250,000; (2) debt assignment from Frontline of $850,279; (3) accrued interest of $33,534; and (4) $97,528 in cash advance fees.





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





Liquidity Issues





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





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




20
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Our current operating funds are less than necessary for commercialization of our planned products, and therefore we will need to obtain additional financing in order to complete our business plan.  We  anticipate that up to $2,000,000 of additional working capital will be  required  over the next 12  months  for  market introduction  of these products through joint venture partners or otherwise.  We do not have sufficient cash on hand to meet these anticipated obligations, which are in addition to payments we will owe to judgment creditors and the IRS.





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





Critical Accounting Issues





The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended July 31, 2011.  There were no significant changes to these accounting policies during the three months ended October 31, 2011 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.





Item 3. Quantitative and Qualitative Disclosures About Market Risk.





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





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





Item 4 (T). Controls and Procedures.





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







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PART II. OTHER INFORMATION
 
 ITEM1. Legal Proceedings.
 
 Other than as described below, we are not a party to any material legal proceedings  and to  our  knowledge,  no  such  proceedings  are  threatened  or contemplated.





Caudle & Spears v. EV Innovations, Inc.





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





Internal Revenue Service





We have an outstanding balance due the IRS of $302,278 for the Company’s 940 and 941 payroll taxes for the first quarter 2009 through the second quarter 2011 and at July 31, 2011. Under a payment agreement we are paying $2,500 per month, with payment increasing to $5,000 in August 2012.  Our payments are currently up to date through September 30, 2011.




Javad Hajihadian





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





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ITEM 6. Exhibits




31

Certification  of  Chief Executive Officer and Principal  Financial Officer Pursuant to Section 302 of the Sarbanes-

Oxley Act of 2002, filed herewith.32

Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section  1350,  as

Adopted  Pursuant  to  Section  906 of the Sarbanes-Oxley Act of 2002, filed herewith.





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SIGNATURES





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




Li-ion Motors Corp.Date: December 15, 2011
By:
/s/ Stacey FlingStacey FlingChief Executive Officer and Principal Financial Officer




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




Date: December 15, 2011
By:
/s/ Stacey FlingStacey FlingPresident(President, Chief Executive OfficerPrincipal Financial Officer and Director)


Date: December 15, 2011
By:
/s/ Holly RoseberryHolly RoseberryTitle(Director)




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