XOTC:LIMO Quarterly Report 10-Q Filing - 4/30/2012

Effective Date 4/30/2012



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 

 
FORM 10-Q
 

 
(Mark One)
 
 
x 
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarter Ended April 30, 2012
 
or
 
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                     to                                     
 
Commission file number 000-33391
 
(Name of Registrant as Specified in Its Charter)
 
Nevada
(State or Other Jurisdiction
of Incorporation or Organization)
 
88-0490890
(I.R.S. Employer
Identification No.)
 
4894 Lone Mountain #168, Las Vegas, Nevada
(Address of Principal Executive Offices)
 
 
89130
(Zip Code)
 
(702) 940-9940
(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.   xYes   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).   x 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 o
 
Non-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 May 19, 2012, there were 26,423,470 shares of common stock outstanding.
 
 
TABLE OF CONTENTS
 
 
Page No.
PART I. FINANCIAL INFORMATION
 
   
  3
   
4
   
5
   
6
   
7
   
8
   
9
   
19
   
24
   
24
   
PART II. OTHER INFORMATION
 
   
25
 

 
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 nine months ended April 30, 2012 and 2011, are not necessarily indicative of the results for the entire fiscal year or for any other period.

 
Li-ion Motors Corp.
Consolidated Balance Sheets
(unaudited)
 
   
April 30,
   
July 31,
 
   
2012
   
2011
 
Assets
           
             
Current assets:
           
             
Cash and cash equivalents
  $ 127     $ 5,118  
Accounts receivable, net of allowance for doubtful accounts of $517,128 and $0, respectively
    -       -  
Notes receivable, net of allowance for doubtful accounts of $2,448,208, and $762,327, respectively
    -       1,750,000  
Inventories
    244,947       380,558  
Other current assets
    53,657       193,893  
                 
Total current assets
    298,731       2,329,569  
                 
Property and equipment, net
    1,804,119       1,983,739  
                 
Deferred patent and trademark costs
    37,263       35,858  
                 
Total assets
  $ 2,140,113     $ 4,349,166  
                 
Liabilities and Stockholders' Equity (Deficiency)
               
                 
Current liabilities:
               
                 
Accounts payable and accrued expenses
  $ 1,673,278     $ 1,156,136  
Current portion of long-term debt
    572,829       399,407  
Customer deposits
    102,188       102,287  
Deferred license agreement revenue
    216,661       324,333  
                 
Total current liabilities
    2,564,956       1,982,163  
                 
Long-term liabilities:
               
                 
Long-term debt, less current portion
    923,280       939,608  
Deferred license agreement revenue, less current portion
    1,239,589       1,370,833  
                 
Total liabilities
    4,727,825       4,292,604  
                 
Commitments and contingencies
    -       -  
                 
Stockholders' equity (deficiency)
               
                 
Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding
    -       -  
Common stock, $.001 par value, 60,000,000 shares authorized, 26,423,470 and 26,423,470 issued
and 26,423,470 and 6,423,470 outstanding at April 30, 2012 and July 31, 2011, respectively.
   
                26,423
     
                26,423
 
Additional paid-in capital
    62,619,444       62,639,444  
Accumulated deficit
    (65,224,775 )     (62,580,108 )
Accumulated other comprehensive loss
    (8,804 )     (9,197 )
                 
      (2,587,712 )     76,562  
Less: Treasury stock, 20,000,000 shares at cost at July 31, 2011
    -       (20,000 )
                 
Stockholders' equity (deficiency) attributable to Li-ion Motors Corp.
    (2,587,712 )     56,562  
                 
Non-controlling interests
    -       -  
Stockholders' equity (deficiency)
    (2,587,712 )     56,562  
Total stockholders' equity (deficiency)
    (2,587,712 )     56,562  
                 
Total liabilities and stockholders' equity (deficiency)
  $ 2,140,113     $ 4,349,166  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Li-ion Motors Corp.
Consolidated Statements of Operations
(unaudited)
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
April 30,
    April 30,  
   
2012
   
2011
   
2012
   
2011
 
Revenue:
                       
Sales
  $ (217,000 )   $ 2,041     $ 259,696     $ 6,513  
License agreement revenue
    168,750       285,416       506,250       535,417  
Total revenue
    (48,250 )     287,457       765,946       541,930  
                                 
Costs and expenses:
                               
Cost of sales
    (36,871 )     587       221,176       17,240  
General and administrative
    82,334       420,563       2,702,993       1,302,933  
Loss on disposal of property and equipment
    128,702       -       133,390       -  
Research and development
    73,986       (81,712 )     485,637       947,493  
                                 
Total costs and expenses
    248,151       339,438       3,543,196       2,267,666  
                                 
Loss from operations
    (296,401 )     (51,981 )     (2,777,250 )     (1,725,735 )
                                 
Other (expenses) income:
                               
Interest expense
    (34,220 )     (105,504 )     (108,062 )     (408,226 )
Other income
    89,602       103,528       240,645       2,656,506  
                                 
Net earnings (loss) before provision for (benefit from) income taxes
    (241,019 )     (53,957 )     (2,644,667 )     522,544  
                                 
Provision for (benefit from) income taxes
    -       -       -       -  
                                 
Net earnings (loss)
    (241,019 )     (53,957 )     (2,644,667 )     522,544  
                                 
Less: Net earnings (loss) attributable to non-controlling interest
    -       -       -       -  
                                 
Net earnings (loss) attributable to Li-ion Motors Corp
  $ (241,019 )   $ (53,957 )   $ (2,644,667 )   $ 522,544  
                                 
Earnings (loss) per share - basic and diluted:
                               
Earnings (loss) per common share attributable to Li-ion Motors Corp. common shareholders
  $ (0.01 )   $ (0.01 )   $ (0.10 )   $ 0.09  
                                 
Weighted average number of shares outstanding - basic and diluted
    26,423,470       6,065,817       26,423,470       6,028,250  
 
See accompanying notes to unaudited consolidated financial statements

 
 

 

 
 
 
 
 
 
 
Li-ion Motors Corp.
Consolidated Statement of Comprehensive Income (Loss)
(unaudited)
 
   
For the Three Months Ended
   
For the Nine Months Ended
 
   
April 30,
   
April 30,
 
   
2012
   
2011
   
2012
   
2011
 
Net earnings (loss)
  $ (241,019 )   $ (53,957 )   $ (2,644,667 )   $ 522,544  
                                 
Other comprehensive income
                               
Currency translation adjustment
    (118 )     180       393       44  
                                 
Comprehensive income (loss)
    (241,137 )     (53,777 )     (2,644,274 )     522,588  
                                 
Comprehensive income (loss) attributable to noncontrolling interest
    -       -       -       -  
                                 
Comprehensive income (loss) attributable to Li-ion Motors Corp
  $ (241,137 )   $ (53,777 )   $ (2,644,274 )   $ 522,588  
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Li-ion Motors Corp.
Consolidated Statements of Cash Flows
(unaudited)

   
For the Nine Months Ended
 
   
April 30,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net earnings (loss)
  $ (2,644,667 )   $ 522,544  
Adjustments to reconcile net earnings (loss)  to net cash utilized by operating activities
               
Depreciation
    41,816       50,857  
Loss on disposal of property and equipment
    133,390       -  
Provision for doubtful accounts
    2,071,639       8,110  
Interest income
    -       (74,315 )
Licensing fees
    (398,577 )     (160,417 )
Non-cash sale of inventories
    (255,000 )     -  
Increase (decrease) in cash flows from changes in operating assets and liabilities
               
Inventories
    135,611       (355,765 )
Employee advances
    -       9,537  
Prepaid expenses and other current assets
    140,236       (40,004 )
Deferred patent and trademark costs
    (1,405 )     (14,867 )
Bank overdraft
    -       (14,104 )
Accounts payable and accrued expenses
    517,141       (310,433 )
Customer deposits
    (99 )     2,188  
Deferred revenue
    (232,673 )     (376,287 )
Net cash used in operating activities
    (492,588 )     (752,956 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Additions to property and equipment
    -       (140,704 )
Net cash used in investing activities
    -       (140,704 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Advances on notes receivable
    (71,364 )     (176,959 )
Payments received on notes receivable
    22,991       168,849  
Proceeds from issuance of debt
    575,555       2,002,423  
Payments on debt
    (39,978 )     (1,102,298 )
Net cash provided by financing activities
    487,204       892,015  
                 
Effect of exchange rate changes on cash and cash equivalents
    393       (133 )
                 
CHANGE IN CASH AND CASH EQUIVALENTS
               
Net increase (decrease) in cash and cash equivalents
    (4,991 )     (1,778 )
Cash and cash equivalents at beginning of period
    5,118       2,113  
                 
Cash and cash equivalents at end of period
  $ 127     $ 335  
                 
SUPPLEMENTAL CASH FLOW DISCLOSURES
               
Cash paid during the period for:
               
Interest
  $ 18,008     $ 321,407  
Income taxes
  $ -     $ -  
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
               
Property and equipment and inventories exchanged for payment on debt
  $ 259,415     $ -  
Assignment of debt from Frontline Asset Management to Cameo Properties, LLC
  $ 250,000     $ -  
Assignment of note receivable with Sky Power Solutions Corp. to Frontline Asset Management debt
  $ 112,500     $ -  
Shares issued for debt
  $ -     $ 5,857,309  

See accompanying notes to unaudited consolidated financial statements
 
 
Li-ion Motors 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)
   
Total
 
                                                       
Balance - August 1, 2010
    6,015,227     $ 6,015     $ 56,782,543     $ (62,699,029 )   $ (8,436 )   $ -     $ -           $ (5,918,907 )
                                                                       
Issuance of stock for conversion of promissory notes
    408,243       408       5,856,901       -       -       -       -             5,857,309  
Common stock issued as collateral on loan
    20,000,000       20,000       -       -       -       (20,000 )     -             -  
Foreign currency translation
    -       -       -       -       (761 )     -       -     $ (761 )     (761 )
Net earnings
    -       -       -       118,921       -       -       -       118,921       118,921  
Comprehensive income
                                                          $ 118,160       -  
                                                                         
Balance - July 31, 2011
    26,423,470       26,423       62,639,444       (62,580,108 )     (9,197 )     (20,000 )     -               56,562  
                                                                         
Common stock issued as collateral on loan released to lender
    -       -       (20,000 )     -       -       20,000       -               -  
Foreign currency translation
    -       -       -       -       393       -       -     $ 393       393  
Net earnings
    -       -       -       (2,644,667 )     -       -       -       -       (2,644,667 )
Comprehensive income
                                                          $ 393       -  
                                                                         
Balance - April 30, 2012
    26,423,470     $ 26,423     $ 62,619,444     $ (65,224,775 )   $ (8,804 )   $ -     $ -             $ (2,587,712 )
 
See accompanying notes to unaudited consolidated financial statements.
 
 
Li-ion Motors Corp.
Notes to Unaudited Consolidated Financial Statements
April 30, 2012

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 looking for funding  in order to pursue 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 U.S. 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. SPS is currently working on developing a stand-alone solar generation system, and not pursuing the battery development system.

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 April 30, 2012, which is now delinquent.  The Company has reflected the delinquent amount due from LEVC in its accounts receivable and has established a reserve for doubtful accounts for the entire amount. The Company has recorded the amount received and the receivable as deferred revenue and has amortized the 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.

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. Due to the uncertainty of LEVC’s ability to complete the public registration in Germany and with LEVC having no assets to secure the note, the Company has recorded a reserve for doubtful accounts for the entire note amount of $1,750,000.
 
 
Effective January 3, 2012, the Company entered into a management agreement with Advanced Technology Services, Inc. (“ATS”).  The agreement stipulates that  (1) ATS is responsible for the supervision of all persons who perform compensated services on behalf of the Company. Except for the Company’s President and Director, ATS shall employ and/or enter into consultant contracts with all persons who perform compensated services on its behalf, on such terms and conditions as are consistent with its budget and other requirements of its funds. All such persons shall be employees and independent contractors of ATS and not of the Company and ATS shall be responsible for all income and payroll tax withholding and reporting.  (2) In administering funds, ATS will establish and maintain one or more bank accounts and will follow the same internal operating procedures regarding expense authorization and check writing procedures, including expense documentation requirements, as it follows for withdrawals of its own funds. (3) Maintenance of accurate, complete, and separate financial records, kept in accordance with generally accepted accounting principles, and ATS will prepare a monthly and a fiscal year-end balance sheet and income/expense statement for delivery to the Company within thirty (30) days after the close of the period. The Company may inspect any of its financial records at any reasonable time.  (4) Neither party shall be liable to the other party or to third parties for the acts or omissions of the other party. Each party shall indemnify, assume the defense of (if requested), and hold harmless the other party and its directors, officers, employees, and agents from every claim, loss, damage, injury, expense (including attorney’s fees), judgment, and liability of every kind, nature, and description (“Liability”) arising in whole or in part from the indemnifying party’s negligent, fraudulent, or illegal acts or omissions except, as to the party requesting indemnification, to the extent such Liability results in whole or in part from the unauthorized, negligent, fraudulent, or illegal act or omission of the party requesting indemnification. In recognition for its services, ATS will receive a 10% management fee based upon of all expenditures for the month.

Basis of Presentation

Going Concern

The Company’s financial statements for the nine months ended April 30, 2012, 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.  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 decrease 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.

On December 13, 2011, the Board of Directors unanimously approved an amendment to the Company’s Articles of Incorporation to decrease the authorized number of shares of common stock from 300 million shares, par value $.001 per share, to 60 million shares, par value $.001 per share.  The Company filed the amendment with the Secretary of State of Nevada on December 14, 2011.
 
Effective January 26, 2012, the Securities and Exchange Commission approved a one-for-five reverse split of the common stock.  All share and per share amounts have been restated to reflect the one-for-five reverse stock split.
 
 
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 April 30, 2012 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 nine months ended April 30, 2012, the Company advanced Sky Power Solutions Corp. (“SPS”) $71,364.  The advances were reduced by $22,991 in payments through a reimbursement for a leased employee and $112,500 through an assignment of debt to Frontline Asset Management (“Frontline”).  During the nine months ended April 30, 2011, the Company advanced SPS $176,959 of which $168,849  was repaid ($74,000 in the form of cash and $94,849 in  reimbursement for a leased employee).   The entire amount was reserved as an allowance for doubtful accounts .  As of April 30, 2012 and July 31, 2011, an allowance for doubtful accounts in the amount of $698,208 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.

LEVC is currently attempting to complete a public registration in Germany.  The Company has the option, upon the completion of the registration, of converting the note into LEVC common stock.  Due to the uncertainty of LEVC’s ability to complete the public registration in Germany and with LEVC having no assets to secure the note, the Company has recorded a reserve for doubtful accounts for the entire note amount of $1,750,000.

The Company recognized interest income of $131,370, none of which has been received, in accordance to the terms of the LEVC Note for the nine months ended April 30, 2012.  The Company has reflected the amount due from LEVC in its accounts receivable and has established a reserve for doubtful accounts for the entire amount.
 
 
Note 4. Inventories

Inventories consist of the following:
 
   
April 30,
   
July 31,
 
   
2012
   
2011
 
Raw Materials
  $ 1,103     $ 1,103  
Work-In-Progress
    208,844       344,455  
Finished Goods
    35,000       35,000  
    $ 244,947     $ 380,558  
 
Raw materials, work in progress and finished goods for the quarter ended April 30, 2012, 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:
 
   
April 30,
   
July 31,
 
   
2012
   
2011
 
Building and Improvements
  $ 1,292,276     $ 1,292,276  
Equipment and Furniture and Fixtures
    4,827       328,663  
Vehicles
    66,429       66,429  
Software Costs
    -       28,913  
Land
    700,000       700,000  
      2,063,532       2,416,281  
                 
Less Accumulated Depreciation
    (259,413 )     (432,542 )
Net Property and Equipment
  $ 1,804,119     $ 1,983,739  


Depreciation expense for the three months ended April 30, 2012 and 2011, was $10,100 and $12,010, respectively. Depreciation expense for the nine months ended April 30, 2012 and 2011, was $41,816and $50,857, respectively, and  is included in general and administrative expenses on the Company’s consolidated statement of operations.  During the three months ended April 30, 2012, the Company evaluated its current fixed asset inventory of equipment, furniture and fixtures, and software and wrote off $137,804 due to being obsolete.  This was offset by $4,415 the Company received from Frontline for various equipment.
 
 
Note 6. Other Current Assets
 
   
April 30,
   
July 31,
 
   
2012
   
2011
 
             
Retainers and Deposits
  $ 3,657     $ 4,957  
Deferred Product Asset
    -       4,958  
Prepaid Expenses
    50,000       65,553  
Interest Receivable
    -       118,425  
                 
Total
  $ 53,657     $ 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 $24,936 and $20,636 as of April 30, 2012 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 April 30, 2012 and July 31, 2011 consisted of:

   
April 30.
   
July 31,
 
   
2012
   
2011
 
             
Accounts Payable
  $ 917,574     $ 608,623  
Accounts Payable - Related Parties
    27,971       28,029  
Wages, Paid Leave and Payroll Related Taxes
    482,059       259,122  
Accrued Interest
    86,723       8,403  
Legal Settlements
    158,951       171,750  
Other
    -       80,209  
                 
Total
  $ 1,673,278     $ 1,156,136  
 
Accounts payable due to related parties are reimbursable general and administrative expenses paid by the Company’s President and Consultant.
 
 
Note 8. Long-Term Debt

Long-term debt consists of:
 
   
April 30,
   
July 31,
 
   
2012
   
2011
 
5% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,433 including interest, collateralized by real property due in full on or before March 2038 (1)
  $ 946,279     $ 951,921  
                 
9.367% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1,000, due in full on February 28, 2012 (2)
    -       6,112  
                 
12% Note  payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 30, 2013 (3)
    273,768       349,465  
                 
48.956% Note payable to Amicus Funding Group, LLC, payable in monthly installments of approximately $467, collateralized by real property due in full on September 1, 2013 (4)
    6,499       7,394  
                 
26.85% Note payable to Treger Financial, payable in monthly installments of approximately $2,000, collateralized by real property due in full on June 1, 2012 (5)
    19,563       24,123  
                 
10% Note payable to Cameo Properties, LLC payable in monthly installments of interest only, due in full on December 27, 2014 (6)
    250,000       -  
                 
      1,496,109       1,339,015  
Less Current Portion
    (572,829 )     (399,407 )
    $ 923,280     $ 939,608  
 
Principal maturities for long-term debt are as follows for the second quarters ended April 30:

2013
  $ 572,829  
2014
    20,887  
2015
    19,793  
2016
    20,822  
2017
    21,906  
Thereafter
    839,872  
    $ 1,496,109  
 
(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 April 30, 2012 and 2011, the Company repaid $2,893 and $7,932, respectively. During the nine months ended April 30, 2012 and 2011, the Company repaid $5,642 and $12,005, respectively.  On March 26, 2012, Bayview agreed to a repayment plan in which the Company is required to pay an additional $5,000 per month for the next nine months or through January 5, 2013.  The Company is in default of this note.
 
 
Interest expense for the three months ended April 30, 2012 and 2011, for Bayview was $12,077 and $12,005, respectively. Interest expense for the nine months ended April 30, 2012 and 2011, was $36,068 and $32,127, respectively.

(2) On February 28, 2011, the Company financed a general liability insurance policy with Allegiance Direct Bank (“Allegiance”) 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 April 30, 2012 and 2011, the Company repaid $0 and $2,075, respectively. During the nine months ended April 30, 2012 and 2011, the Company repaid $3,013 and $5,000, respectively. The Company was unable to make the final three payments on the note and the Company’s general liability insurance was cancelled.  The remaining months unused in the policy was credited back to the note of $3,098, which left a zero balance due to Allegiance.

Interest expense for the three months ended April 30, 2012 and 2011, paid to Allegiance Direct Bank is $0 and $231, respectively. Interest expense for the nine months ended April 30, 2012 and 2011, paid to Allegiance Direct Bank is $197 and $492, respectively.

(3) On February 26, 2010, the Company entered into a loan agreement with Frontline Asset Management, Inc. ("Frontline"). The loan provides for payments to the Company of $2,000,000 with interest at a fixed annual rate of 12%.  On March 1, 2012, 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, 2013, 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.  On December 27, 2011, Frontline assigned $250,000 to Cameo Properties, LLC.  On April 26, 2011, the Company assigned $112,500 of its note receivable with SPS to Frontline which reduced the balance due to Frontline by $112,500.

During the three months ended April 30, 2012 and 2011, the Company received advances totaling $3,093 and $743,863, respectively; and made payments of $572 and $198,996, respectively.  During the nine months ended April 30, 2012 and 2011, the Company received advances totaling $575,555 and $1,576,618, respectively; and made payments of $22,270 and $1,081,669, respectively.
 
Interest expense for the three months ended April 30, 2012 and 2011, was $15,227 and $14,883, respectively . Interest expense for the nine months ended April 30, 2012 and 2011, was $48,131 and $94,746, respectively.

(4) 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 April 30, 2012 and 2011, the Company repaid $0 and $141, respectively.  During the nine months ended April 30, 2012 and 2011, the Company repaid $895 and $141, respectively.  The Company is in default on this note.

Interest expense for the three months ended April 30, 2012 and 2011, was $745 and $326, respectively. Interest expense for the nine months ended April 30, 2012 and  2011, was $2,448 and $326, respectively.

(5) 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 April 30, 2012 and 2011, the Company repaid $0 and $5,627, respectively. During the nine months ended April 30, 2012 and 2011, the Company repaid $4,560  and $5,627, respectively.  The Company is in default on this note.

Interest expense for the three months ended April 30, 2012 and 2011, was $514 and $1,811, respectively. Interest expense for the nine months ended April 30, 2012 and 2011, was $2,591 and $2,477, respectively.

(6) The Company entered into a Loan Agreement, dated as of July 14, 2011, with Cameo Properties LLC (“Cameo”) 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. On December 27, 2011, Frontline assigned $250,000 of its receivable to Cameo.

Interest expense for the three months ended April 30, 2012 and 2011, was $5,624 and $0, respectively. Interest expense for the nine months ended April 30, 2012 and 2011, was $8,562 and $0, respectively.
 
 
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 Assets, Inc. 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.  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.

On December 13, 2011, by shareholder approval, the authorized shares of common stock shares were reduced from 100,000,000 to 60,000,000 shares.
 
Effective January 26, 2012, the Securities and Exchange Commission approved a one-for-five reverse split of the common stock.  Pursuant to the anti-dilution provisions in the Cameo Properties loan agreement the Company issued 16,000,000 shares to Cameo Properties, so they again held 20,00,000 post reverse stock split shares.
 
Increase/Decreases 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.

On December 13, 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 300 million shares, par value $.001 per share, to 60 million shares, par value $.001 per share.  The Company filed the amendment with the Secretary of State of Nevada on December 14, 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 April 30, 2012 and 2011.
 
   
Three Months Ended
   
Nine Months Ended
 
   
April 30,
   
April 30,
 
   
2012
   
2011
   
2012
   
2011
 
Basic and Diluted Earnings (Loss) Per Share
                       
Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted
  $ (250,395 )   $ (53,957 )   $ (2,644,667 )   $ 522,544  
Weighted Average Shares Outstanding - Basic and Diluted
    26,423,470       6,065,817       26,423,470       6,028,250  
                                 
Basic and Diluted Net Earnings (Loss) Per Common Share
  $ (0.01 )   $ (0.01 )   $ (0.10 )   $ 0.09  

 
Net loss per common share for the nine months ended April 30, 2011, has been revised. All share and per share amounts have been restated to reflect the one-for-five reverse stock split as discussed in Note 9.

The amounts previously reported for the three months ended April 30, 2011, were as follows:

   
Three Months Ended
   
Nine Months Ended
 
   
April 30. 2011
   
April 30. 2011
 
Basic and Diluted Loss Per Common Share
  $ (0.00 )   $ 0.02  
                 
Weighted Average Number of Shares
               
  Outstanding -Basic and Diluted
    30,299,586       30,129,548  
 
Note 11. Share Based Compensation

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

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

Stock Option Plan

As of April 30, 2012, 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 nine months ended April 30, 2012 and 2011.
 
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 $3,038. Although the lease was signed, the space is only 80% completed as of April 30, 2012.

Total rental income for the three months ended April 30, 2012 and 2011, was $8,825 and $10,656, respectively. Total rental income for the nine months ended April 30, 2012 and 2011, was $29,187 and $31,694,  respectively.

Effective January 3, 2012, ATS agreed to lease approximately 35,000 square feet of space in the Company’s North Carolina facility at a rental rate of $6,928 per month and the monthly rental to be escalated five (5%) percent annually beginning January 1, 2013.

Total rental income for the three months ended April 30, 2012 and 2011, was $20,784 and $0, respectively. Total rental income for the nine months ended April 30, 2012 and 2011, was $27,712 and $0,  respectively
 
 
Management Agreement

Effective January 3, 2012, the Company entered into a management agreement with Advanced Technology Services, Inc. (“ATS”).  The agreement stipulates that  (1) ATS is responsible for the supervision of all persons who perform compensated services on behalf of the Company. Except for the Company’s President and Director, all such persons shall be employees and independent contractors of ATS and not of the Company.  (2) ATS will establish and maintain one or more bank accounts and will follow the same internal operating procedures regarding expense authorization and check writing procedures. (3) Maintenance of accurate, complete, and separate financial records, kept in accordance with generally accepted accounting principles.  (4) Neither party shall be liable to the other party or to third parties for the acts or omissions of the other party. . In recognition for its services, ATS will receive a 10% management fee based upon all expenditures for the month.

Total management fee expense for the three months ended April 30, 2012 and 2011, was $20,498 and $0, respectively.  Total management fee expense for the nine months ended April 30, 2012 and 2011, was $23,522 and $0, 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 was effective through March 31, 2012. The bond was not renewed and subsequently lapsed.  The Company is currently seeking to have another bond in place by end of the 2012 the fiscal year.

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 Mecklenberg 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 its payment arrangements and has a balance of $4,263 still due.

Internal Revenue Service (“IRS”) 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 had a payment plan in place with IRS, however, the Company is four months in arrears in payments for a total of $10,000 due at April 30, 2012. Management is working with the local IRS office to try and revise the payment agreement.  The balance due on the most recent statement from the IRS is $525,130.
 
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. Management was deposed December 2011, and produced requested documents and information.

The Company’s facility in Mooresville North Carolina is financed through Bayview. The Company became delinquent with the mortgage payments and Bayview filed Foreclosure in Superior Court of Iredell County North Carolina. The hearing was March 13, 2012, and the attorneys for the Company attended the hearing to request a forbearance period so  a repayment schedule might be effected.  Bayview opposed the extension; due to prior extensions granted and previous times Bayview renegotiated the interest and reduced the rate. The Clerk of the Court granted 42 days, and a new hearing is set for April 24, 2012.  Bayview granted a forbearance , a payment schedule was provided and the Company made the first payment. Since the first payment was made, there was no hearing in April. The Company is now in default.

Two creditors, an individual and a corporation, have received judgments against the Company in the amount of $5,160 and $110,000, respectively.
 
 
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 and Nine months Ended April 30, 2012

Electric Vehicle Operations

We had negative sales of our electric powered vehicles for the three months ended April 30, 2012 of $217,000 due to a return of merchandise which took place during the Company’s second quarter with Frontline Asset Management.  For the three months ended April 30, 2011, we had $0 in sales of our electric powered vehicles.  Vehicle parts sold during the three months ended April 30, 2012 and 2011 were $0 and $2,041, respectively.

 Sales of our electric powered vehicles for the nine months ended April 30, 2012 and 2011 were $255,000 and $0, respectively. Vehicle parts sold during the nine months ended April 30, 2012 and 2011 were $4,696 and $6,513, respectively.

We convert and manufacture vehicles in our developmental facility in Mooresville, North Carolina. 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.  Several nationwide newspaper advertising campaigns  generated some orders for our vehicles, and an  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., 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.
 
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 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 April 30, 2012, which is now delinquent.  The Company has reflected the delinquent amount due from LEVC in its accounts receivable and has established a reserve for doubtful accounts for the entire amount. The Company has recorded the amount received and the receivable as deferred revenue and has amortized the license fee income ratably over the life of the agreement.

Cost of Sales

Cost of sales as a percentage of net vehicle sales for the three months ended April 30, 2012 was a negative 17% (due to the reversal of the second quarter sale) as compared to approximately 29% during the same period in 2011.  Cost of sales as a percentage of net vehicle sales for the nine months ended April 30, 2012 was 85% compared to approximately 265% during the same period in 2011.   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 $82,334 for the three months ended April 30, 2012, as compared to $420,563 during the same period in 2011. The decrease was attributable to the reduction of expenditures in (1) financing related activities of $122,529; (2) bad debt expense of $65,764; (3) advertising of $61,456;  (4) professional fees of $57,746; (5) directors fees of $14,000; (6) travel of $12,528; (7) and other various expenses of $4,206.

SG&A expenses increased to $2,702,993 for the nine months ended April 30, 2012, as compared to $1,302,933 during the same period in 2011. The increase was attributable to an additional expenditure of bad debt of $2,194,898, which was offset with reduction in: (1) advertising and marketing expense of $380,928; (2) professional fees of $177,366; (3) financing related activities of $97,529; (4) travel related expenses of $66,254; (5) insurance expense of $27,504; (6) warranty expense of $20,139;  and (7) other various expenses of $25,118.

Of all SG&A expenses the Company incurred during the first nine months of 2012, 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 ended April 30, 2012 and April 30, 2011, amounted to $71,719 and $227,922, respectively. Parts and supplies expensed to R&D was $2,267 and $10,369 for the three months ended April 30, 2012 and 2011, respectively. Shipping charges, battery management systems, and motor development costs were $0 and a credit of $623, for the three months ended April 30, 2012 and 2011, respectively. Costs associated with building two prototypes of our electric powered vehicles during the third quarter 2011 were reclassed to the Company’s vehicle inventory created a credit of $319,380 to R&D.

Salaries, payroll taxes, and benefits expensed to R&D for the nine months ended April 30, 2012 and April 30, 2011, amounted to $475,969 and $870,788, respectively.  Parts and supplies expensed to R&D was $9,668 and $29,328 for the nine months ended April 30, 2012 and 2011, respectively. Shipping charges, battery management systems, and motor development costs were $0and $47,377, for the nine months ended April 30, 2012 and 2011, respectively.

We expect that research and development expenses will continue to remain substantial and grow as we aggressively move to bring products to market

Interest Expense

Interest expense decreased to $34,220 for the three months ended April 30, 2012 as compared to $105,505 for 2011, and $108,062 for the nine months ended April 30, 2012 as compared to $408,226 for 2011 due to the reduction of the Company’s debt. Interest expense consists primarily of interest related to borrowings.
 
 
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 $3,038 the monthly rental to be escalated five (5%) percent annually.

Effective January 3, 2012, Advanced Technology Services, Inc. agreed to lease approximately 35,000 square feet of space in the Company’s North Carolina facility at a rental rate of $6,928 per month and the monthly rental to be escalated five (5%) percent annually beginning January 1, 2013.

Other income for the three months ended April 30, 2012 consists of (1) accounting fees and rental income from Sky Power for $16,325; (2) rental income from Advanced Tech of $20,784; (3) interest income from the LEVC note of $43,151; (4) reclassification of loss on disposal of property and equipment of $9,376; and (5) various other income of $130. Other income was reduced by $164 for foreign exchange transactional expense .

Other income for the three months ended April 30, 2011 consists of: (1) accounting fees and rental income from Sky Power for $18,156; (2) interest income from the LEVC Note of $74,315; (3) recognition of fixed assets of $10,656; and (5) recycling of  scrap metal for $15; and (6) $386 for foreign exchange transactional expense.

Other income for the nine months ended April 30, 2012 consists of (1) accounting fees and rental income from Sky Power for $51,687; (2) rental income from Advanced Tech of $27,712; (3) interest income from the LEVC note of $131,370; (4) forfeiture of customer deposit of $30,000; and (5) various other income of $130.  Other income was reduced by $254 for foreign exchange transactional expense .

Other income for the nine months ended April 30, 2011 consists of (1) accounting fees and rental income from Sky Power for $54,194; (2) interest income from the LEVC Note of $74,315; (3) receipt of net proceeds of  $2,425,272 from XPrize; (4) forgiveness of debt of $111,321; (5) recognition of fixed assets of $10,656; and (6) recycling of  scrap metal for $630 .  Other income was reduced by $19,882 for foreign exchange transactional expense.
 
 
Net Earnings (Loss)

Net loss attributable to common stockholders for the three months ended April 30, 2012 was $241,019 compared to $53,957 for the previous fiscal quarter. Basic and diluted loss attributable to common stockholders per share of common stock for the three months ended April 30, 2012 was $0.01 as compared to $0.01 for the previous fiscal quarter.

Net earnings attributable to common stockholders for the nine months ended April 30, 2012 was $2,644,667 compared to net earnings of $522,544 for the previous fiscal quarter. Basic and diluted loss attributable to common stockholders per share of common stock for the nine months ended April 30, 2012 was $0.10 as compared to a gain of $0.09 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 April 30, 2012, we had liabilities of $4,727,825, as compared with $4,292,604 at July 31, 2011; and working capital deficiency of $2,266,225 and stockholders' equity deficiency of $2,587,712.

Our property, plant and equipment decreased to $1,804,119 at April 30, 2012, as compared with $1,983,739 at July 31, 2011.

Net cash used in operating activities was $492,588 during the nine months ended April 30, 2012, as compared with $752,956 in 2011, and cash used in investing activities during the nine months ended April 30, 2012, was $0, as compared to $140,704 during the same period in 2011.
 
 
During the nine months ended April 30, 2012, from the issuance of a promissory note for a receivable, we advanced $71,364 to Sky Power and were repaid $22,991. During the nine months ended April 30, 2012, we received net proceeds of $575,555 from the issuance of promissory notes for debt, and made repayments of  $39,978 .  Total cash provided by financing activities for the nine months ended April 30, 2012 was $487,204  as compared with $892,015 in 2011.
 
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.

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 March 1, 2012, 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, 2013, 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.  On December 27, 2011, Frontline assigned $250,000 to Cameo Properties, LLC.  On April 26, 2012, the Company assigned $112,500 of its note receivable with SPS to Frontline which reduced the balance due to Frontline by $112,500.

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.

On July 14, 2011, the Company entered into a Loan Agreement with Cameo Properties LLC (“Cameo”) 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. On December 27, 2011, Frontline assigned $250,000 of its receivable to Cameo.  Pursuant to the anti-dilution provisions in the Amended Loan Agreement, the Company has issued 20,000,000 shares to Cameo Properties as collateral.
 
 
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.

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 nine months ended April 30, 2012, 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.
 
 
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.

Caudle & Spears v. EV Innovations, Inc.
 
Caudle & Spears has obtained a default judgment against the Company in Mecklenberg 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 its payment arrangements and has a balance of $4,263 still due.

Internal Revenue Service

Internal Revenue Service (“IRS”) 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 had a payment plan in place with IRS, however, the Company is four months in arrears in payments for a total of $10,000 due at April 30, 2012. Management is working with the local IRS office to try and revise the payment agreement.  The balance due on the most recent statement from the IRS is $525,130.
 
 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. Management was deposed December 2011, and produced requested documents and information.

Bayview Loan Servicing, LLC

The Company’s facility in Mooresville North Carolina is financed through Bayview. The Company became delinquent with the mortgage payments and Bayview filed Foreclosure in Superior Court of Iredell County North Carolina. The hearing was March 13, 2012, and the attorneys for the Company attended the hearing to request a forbearance period so  a repayment schedule might be effected.  Bayview opposed the extension; due to prior extensions granted and previous times Bayview renegotiated the interest and reduced the rate. The Clerk of the Court granted 42 days, and a new hearing is set for April 24, 2012.  Bayview granted a forbearance , a payment schedule was provided and the Company made the first payment. Since the first payment was made, there was no hearing in April. The Company is now in default.

Other Litigation

Two creditors, an individual and a corporation, have received judgments against the Company in the amount of $5,160 and $110,000, respectively.
 
 
ITEM 6. Exhibits

31
32
101.INS
XBRL Instance Document *
101.SCH
XBRL Taxonomy Extension Schema Document *
101.CAL
XBRL Taxonomy Extension Calculation Linkbase *
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB
XBRL Taxonomy Extension Label Linkbase Document *
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document *
 
 
 
 
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: June 12, 2012
By:
/s/ Stacey Fling
 
   
Stacey Fling
 
   
Chief 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.
 
           
By: 
 /s/ Stacey Fling
       
 
Stacey Fling
       
 
President
       
 
(President, Chief Executive Officer
       
 
Principal Financial Officer and Director)
       
           
Date: June 12, 2012
       
           
 

 

XOTC:LIMO Quarterly Report 10-Q Filling

XOTC:LIMO Stock - Get Quarterly Report SEC Filing of XOTC:LIMO stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

Content Partners
XOTC:LIMO Quarterly Report 10-Q Filing - 4/30/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Popularity |  Our Choices |  Most Recent Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: XOTC:LIMO Quarterly Report 10-Q Filing - 1/31/2012  |  Next: XOTC:LIQT Insider Activity 4 Filing - 4/11/2012