UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
(Mark One)
(Mark One)
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended July 31, 2011
or
 
For the Fiscal Year Ended July 31, 2010
or
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                                      to                                     
 
For the transition period from                                      to
Commission file number 000-33391
 
(Name of Registrant as Specified in Its Charter)
 
Nevada
88-0490890
(State or Other Jurisdiction
(I.R.S. Employer
of Incorporation or Organization) 
88-0490890
(I.R.S. Employer
Identification No.)
   
4894 Lone Mountain #168, Las Vegas, Nevada
(Address
89130
 (Address of Principal Executive Offices)
89130
(Zip Code)
  (Zip Code)

(702) 425-7376
(Issuer’s Telephone Number, Including Area Code)
 
Securities registered under Section 12(b) of the Exchange Act:
None
 
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par value $0.01 per share
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x No
 
Indicate by checkmark if the registrant is not required to file reports to Section 13 or 15(d)Of the Act. ¨ Yes     x No
 
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     ¨ No
 
 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yesxo No 
 
The aggregate market value of voting and non-voting common equity held by non-affiliates as of January 31, 20102011, was  $9,047,301, based$9,092,403based on the average bid and asked prices on the OTC Bulletin Board on that date.
 
On October 27, 2010,28, 2011, there were 30,047,30132,088,406 shares of common stock outstanding.
 
 
 
 
 
Table of Contents
Item 1. Business3
Item 1A.  Risk Factors7
Item 1B. Unresolved Staff Comments8
Item 2. Properties8
Item 3. Legal Proceedings8
Item 4. [Removed and Reserved]9
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities9
Item 6. Selected Financial Data11
10
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations11
10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk15
Item 8. Financial Statements and Supplementary Data15
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure36
38
Item 9A (T). Controls and Procedures36
38
Item 9B. Other Information37
39
Item 10. Directors, Executive Officers and Corporate Governance37
��39
Item 11. Executive Compensation11
40
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters39
41
Item 13. Certain Relationships and Related Transactions, and Director Independence40
42
Item 14.  Principal Accountant Fees and Services41
43
Item 15. Exhibits and Financial Statement Schedules4244
 
 
2
 

PART I

NOTE REGARDING FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

This Annual Report contains historical information as well as forward-looking statements. Statements looking forward in time are included in this Annual Report pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to be materially different from any future performance suggested herein. We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-K, the following forward looking statements, among others, sometimes have affected, and in the future could affect, our actual results and could cause our actual consolidated results during 2010,2011, and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf.
 
Item 1. Business
 
Company History
 
Li-ion Motors Corp. (“we, “us”, the “Company” or “Li-ion”) was incorporated under the laws of the State of Nevada in April 2000. Since our incorporation, we have evaluated various business opportunities; however, after evaluation of several different lines of business, we determined to focus our efforts onThe Company is currently pursuing the development and marketing of electric powered vehicles and products.products based on the advanced lithium battery technology it has developed.

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

Recent Developments

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

As of July 31, 2010,2011, we had cash on hand of $2,113$5,118 and our liabilities totaled $7,960,959.$4,292,604. For the year ended July 31, 2010,2011, we incurred areported net lossearnings from continuing operations of $3,721,230.$118,921. On July 31, 2010,2011, we had  a working capital deficitsurplus of $1,836,457$347,406 and a stockholders' deficitequity of $5,918,907.$56,562.

On October 27, 2010, we received the $2,500,000 in funds for the XX- Prize award.  We will need additional capital to continue development and marketing of our electric vehicles, particularly given the number of companies competing in this sector and the fact that many of the larger car manufacturers are developing and marketing electric and hybrid vehicles.
 
We had 30,047,30152,088,406  shares of common stock issued and outstanding as of October 28, 2010.2011. Our common stock is traded on the OTC Bulletin Board.
 
3

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

Our Electric Battery Pack and Vehicle Technology
 
We commenced marketing conversions of four-wheel vehicles in 2007 and 2008. Then in 2009, we began to design and manufacture new and innovative autos of our own design.

In our Mooresville, North Carolina facility we converted and tested vehicles based on Chrysler PT Cruiser, Mini Cooper, Pontiac Vibe, Toyota Yaris and the Mercedes’ Smart car. We replaced the gasoline power systems with all electric lithium battery power systems and battery management systems.  We have developed a rapid charge system that reduces charge time by approximately 65%; it is currently being used and tested.
Our Mooresville facility consists of approximately 40,000 square feet of space. Currently we use approximately 20,000 square feet for conversion, production, manufacturing and design. We also have a battery lab that is leased to SuperlatticeSky Power Inc.Solutions Corp. (“Superlattice”Sky Power”) of approximately 5,000 square feet. The remaining square footage is used for offices and storage.

The Battery Technology We Use

In electric vehicles the battery pack performs the same function as the gas tank in a conventional vehicle: it stores energy needed to operate the vehicle. We use battery packs created in-house from Kokam cells in our converted vehicles. We anticipate using cells created by SuperlatticeSky Power in the  future.
3
 
License Agreements

We entered into a License Agreement (“SuperlatticeSky Power License Agreement”) with SuperlatticeSky Power in April 2008, providing for our license to SuperlatticeSky Power of our patent applications and technologies for rechargeable lithium ion batteries for hybridelectric vehicles and other applications (“Licensed Products”). Under the SuperlatticeSky Power License Agreement, we have the right to purchase our requirements of lithium ion batteries from Superlattice,Sky Power, and our requirements of lithium ion batteries shall be supplied by SuperlatticeSky Power in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of Superlattice.Sky Power. Our cost for lithium ion batteries purchased from SuperlatticeSky Power shall be Superlattice’sSky Power’s actual manufacturing costs for such batteries for the fiscal quarter of SuperlatticeSky Power in which our purchase takes place. On May 25, 2010, the SuperlatticeSky Power License Agreement was amended to reflect Superlattice’sSky Power’s territory would be the United States, U.S. possessions and territories only and the Company can license other companies in other parts of the world.
 
SuperlatticeSky Power agreed to invest a minimum of $1,500,000 in 2008 and 2009, in development of the technology for the Licensed Products. InTo date, Sky Power has not met the initial year under the License Agreement, Superlattice invested $264,043minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the Superlattice License Agreement. We havelicense agreement.  The Company has advised Superlattice,Sky Power that weit will not give notice of default against Superlatticethem for itstheir failure to comply with this covenant forover the term of the License Agreement.

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

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

Under the LEVC License Agreement, LEVC has agreed, in consideration of the grant of theThe license to pay us $1,000,000, of which $666,667 has been paid, plus an amount equal to the independent valuation of the license under the LEVC License Agreement, less the $1,000,000 payment.  The payment of the excess of the valuation amount over the $1,000,000 payment would be made by way of a convertible debenture or other securities. Additionally, LEVC, as licensee, would payagreement provides for an annual fee of $500,000 commencingfor ten years and an additional $1,750,000 based on the second anniversary of the date of thea valuation report prepared by an independent third party.  LEVC License Agreement, and a royalty as determined in the independent valuation report. The initial termis required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year.  The Company has received $732,666 from LEVC with a balance due of $267,334 as of July 31, 2011, which is ten years.now delinquent.  The Company has not reflected the amount due from LEVC but has recorded the amount received as deferred revenue and amortized the license fee income ratably over the period.  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.
 
4

Electric Motors

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

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

4

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

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

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

On March 9, 2009 the State of North Carolina issued a manufacturing license to the Company, and we now are manufacturing our own original design vehicles with Vehicle Identification Number’s (“VIN”), while we continue to convert other vehicles.
 
Since February 2004, the LiVTM series electric vehicle has been tested and is under review by a number of government agencies. The testing of the LiVTM series vehicles by NASA, Arcadis, a contractor to the U.S. Environmental Protection Administration, NYC Taxi Commission, and US Paratransit is completed. The LiVTM WISE is listed in the catalogue of the Unites States General Services Administration, and these vehicles are available for purchase by multiple government agencies. The target market for the LiVTM WISE is federal government offices, utility companies, defense organizations and fleet operators. Li-Ion worked with Zero Truck- USA for commercialization of lithium ion powered heavy duty truck. We now offer our own “Wave”Wave two and four door electric vehicles and the “Inizio”Inizio super cars to the US market. The “Wave”Wave electric vehicle is targeted at the commuter environment, and the “Inizio”Inizio super sport car targets the high performance car market. We anticipate that the “Inizio”Inizio and “Wave”Wave will be the front line vehicles for us.

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

5

Competition

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

Until recently, the market of all electric street-legal vehicles was small due to the technological complexities of producing competitively priced comparable cars. Historic production numbers in the 1990’s for Honda’s EV Plus were 340 units and Nissan’s Hypermini was 219 units. Toyota produced 1,500 RAV4 EVs and GM was able to lease 834 EV1’s. Advances in electric vehicle technology are allowing the industry to expand. Recent data indicates that Tesla sold over 700 electric vehicles through August 2009. The Norwegian company, THINK, created 1,160 machines and several of them are sold. According to a survey by Wintergreen Research Inc, 685 electric vehicles have been officially sold in the USA that are fully legal electric vehicles.

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

ZAP Alias is a 100% plug-in electric car designed in a three-wheeled configuration, two wheels in front, one in the rear.  ZAP has sold a three-wheeled city-car and truck called the Xebra since 2006 and has one of the only electric vehicle distribution and service dealer networks in existence. Currently, ZAP has over 60 dealers throughout the USA as well as a number of international distribution points, including South America and The Middle East.
            
5

Tata MotorsFisker Automotive is India's largest automobile company, India’s leader in commercial vehicleshas received EPA certification for its Karma sedan, a hybrid electric and amongturbocharged gasoline engine, and has commenced sales of the top three in passenger vehicles. Tata Motors plans to develop cars that are more fuel efficient, cleaner, with minimum impact to the environment.vehicle.

General Motors’ Chevrolet division is developing its model named “Volt”, an electric car, with a scheduled launch in the 2011 model year. Scheduled for Spring 2012 Volt - electric vehicle has two sources of energy, an electric source–a battery–that allows you to drive gas–free for an EPA–estimated 35 miles, and also an onboard gas generator that produces electricity so you can go up to a total of 375 additional miles on a full tank of gas4. You can drive using only electricity or you can use electricity and gas. 

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

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

The Nissan Leaf has planned commenced sales forin December 2010.

Employees

As of the date of this report, we have 3023 employees, including our President and CEO, Stacey Fling, with her assistants and accounting staff at the corporate office in Las Vegas, Nevada.
 
Research and Development Expenditures
 
We incurred research and development expenditures of $1,318,267 in our fiscal year ended July 31, 2011, and $1,264,420  in our fiscal year ended July 31, 2010, and $1,296,281  in our fiscal year ended July 31, 2009.2010.
 
Patents and Trademarks

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

1. Thermal Management System for Lithium Batteries -  Application No: 12829369
 
It has been observed that lithium ion batteries work efficiently and provide the highest mileage at certain predetermined temperatures.  Below optimum temperature, efficiency drops off drastically.  For example if an electric vehicle can run 100 miles at its battery’s  optimum operational temperature, at zero or subzero temperatures the vehicle’s mileage would drop by approximately forty percent.  To avoid this,  a heating system has been introduced to keep the battery temperature at a certain point to achieve the target mileage while driving during the winter  seasons which reach zero or subzero temperatures. The lithium ion battery is also not allowed to charge at zero, subzero or, or below temperatures for safety issues.

2. Rechargeable Battery Cathode Material - Application No. 12829355

 A novel cathode material for a rechargeable battery.
 
6

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

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

The Company has also filed two provisional patents related to our battery management system and reverse battery management.
6

Item 1A.  Risk Factors

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

We are continuing to incur substantial losses from our  operations.

We did not have had minimal revenues from our joint ventures andor sales of our products. We have not signed any definitive joint venture agreements to commercialize any of our products. As of July 31, 2010,2011, we had cash on hand of $2,113.$5,118. At that same date our liabilities totaled $7,960,959.$4,292,604. For the year ended July 31, 2010,2011, we incurred ahad net lossearnings from continuing operations of $3,721,230.$118,921.  On July 31, 2010,2011, we had  a working capital deficitsurplus of $1,836,457$347,406 and a stockholders' deficitequity of $5,918,907.$56,562.
 
We expect that we will continue to have minimal earnings or incur operating losses in the future. Failure to achieve or maintain profitability may materially and adversely affect the future value of our common stock.
 
If we do not obtain additional financing, our business will fail.

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

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

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

Because we have only recently commenced business operations, we expect to incur operating losses for the foreseeable future.
 
Our management has limited experience in products utilizing electric battery power and with negotiating commercial arrangements for such products.

Our management has limited experience in negotiating licenses and joint ventures to commercialize the types of products we are developing. As a result of this inexperience, there is a high risk we may be unable to complete our business plan and negotiate profitable licenses or joint ventures for our lithium ion battery powered products. Because of the intense competition for our planned products, there is substantial risk that we will not successfully commercialize these products.
 
7

Our products are highly regulated.

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

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

7

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

Another manufacturer of electric motor vehicles has received five reports of the batteries overheating, three of which caught fire, though no injuries have been reported. Our battery management systems will need to lessen or eliminate the risk of fire from the use of lithium ion batteries as a power source. If we are not able to develop such systems our business will not develop as planned. If our battery management systems fail, we could be liable to those who are harmed as a result of such failure.
 
Item 1B. Unresolved Staff Comments.

None.
 
Item 2. Properties.

Our principal executive office is located in Las Vegas, Nevada . We lease approximately 1,900 square feet under a lease agreement which commenced in March 2008July 2011, and renews on an annual basis. The lease provides for an aggregate annual payment of $18,000. $15,600. We believe our current facilities will generally be adequate for our needs for the foreseeable future. Our mailing address is 4894 Lone Mountain Rd., #168, Las Vegas, Nevada 89130, for which we pay $25 per month, on a month to month basis.

In May 2006, we purchased 40,000 square foot facility at 158 Rolling Hill in Mooresville, North Carolina. Effective March 31, 2010On May 27, 2011, the Company entered into a stipulationloan adjustment agreement with Bayview Loan Servicing, LLC that reducedwhich decreased the current monthly paymentpayments to $5,349,$5,433, including interest. In 2013, Bayview Loan Servicing LLC may step up the interest rate at that time.
 
We believe our current facilities will generally be adequate for our needs for the foreseeable future.

Item 3. Legal Proceedings.

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

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

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

8
Caudle & Spears v. EV Innovations, Inc.
 
Caudle & Spears has obtained a default judgment against the Company in Meckenberg County, North Carolina, General Court, in the amount of $17,686. This law firm represented us in our litigation against Martin Koebler, a former employee, whom we successfully sued for return of Company property and other damages. The Company is in settlement negotiations with Caudle & Spears, since its judgment against Martin Koebler is still in the collection process. A payment agreement has been reached in the amount of $2,500.00 per month with no interest until paid.  The Company is not current with these payments.payments, and there is a balance of $4,263 that is currently due.

Internal Revenue Service

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

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

8

Item 4. [Removed and Reserved]
 
PART II
 
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

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

Period High  Low 
August 1, 2009 to October 31, 2009 $1.85  $1.33 
November 1, 2009 - January 31, 2010 $1.60  $0.40 
February 1, 2010 - April 30, 2010 $2.25  $0.66 
May 1, 2010 - July 31, 2010 $2.19  $0.88 
August 1, 2010 to October 31, 2010 $1.56  $0.81 
November 1, 2010 - January 31, 2011 $1.01  $0.55 
February 1, 2011 - April 30, 2011 $1.14  $0.68 
May 1, 2011 - July 31, 2011 $0.85  $0.30 
Period High  Low 
August 1, 2008  to October 31, 2008 $3.35  $0.72 
November 1, 2008 to February 18, 2009 $0.89  $0.30 
February 19, 2009 to April 30, 2009 (1) $2.00  $1.02 
May 1, 2009 to July 31, 2009 $2.10  $1.30 
August 1, 2009 to October 31, 2009 $1.85  $1.33 
November 1, 2009 - January 31, 2010 $1.60  $0.40 
February 1, 2010 - April 30, 2010 $2.25  $0.66 
May 1, 2010 - July 31, 2010 $2.19  $0.88 

 (1)A one-for-three reverse split was effective February 19, 2009.
(2)A one-for-two reverse split was effective February 1, 2010.
 (3)(2)A 20% stock dividend was paid effective May 28, 2010, on the common stock.

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

9

Holders of Common Stock

As of October 15, 2010,17, 2011, we had 242187 holders of record of our common stock.

Dividends

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

 Securities Authorized for Issuance under Equity Compensation Plans

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

 
109
 

Number of Securities
Remaining Available For
Number of SecuritiesFuture Issuance Under
to be Issued UponWeighted-AverageEquity Compensation
Exercise ofExercise Price ofPlans (Excluding
Outstanding Opitons,Outstanding Option,Securities Reflected in
Plan Category
WarrantsandRights
WarrantsandRights
Column(a)
Equity Compensation Plans Approved by Security Holders---
Equity Compensation Plans Not Approved by Security Holders---
Total---

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

Sales of Unregistered Securities

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

Date Title and Amount (1) Purchaser 
Principal
Underwriter
 
Total Offering Price/
Underwriting
Discounts
January 18, 20088,571,427 shares of common stock issued as collateral security pursuant to Loan Agreement, dated October 29, 2007, between the Company and Wyndom Capital Investments Inc. Shares were issued pursuant to anti-dilution provisions in Loan Agreement.Wyndom Capital Investments Inc.NANA/NA
May 27, 20087,500,000 shares of common stock issued as collateral security pursuant to Loan Agreement, dated May 5, 2008, between the Company and Crystal Capital Investments Inc.Crystal Capital Investments Inc.NANA/NA
January 22, 20093,500 shares of common stock.ConsultantNA$3,675/NA
February 20, 20096,666,665 shares of common stock issued as collateral security pursuant to Loan Agreement, dated October 29, 2007, between the Company and Wyndom Capital Investments Inc. Shares were issued pursuant to anti-dilution provisions in Loan Agreement.Wyndom Capital Investments Inc.NANA/NA
February 20, 20094,999,999 shares of common stock issued as collateral security pursuant to Loan Agreement, dated May 5, 2008, between the Company and Crystal Capital Investments Inc. Shares issued pursuant to anti-dilution provisions in Loan Agreement.Crystal Capital Investments, Inc.NANA/NA
February 23, 2010 3,749,999 shares of common stock issued as collateral security pursuant to Loan Agreement, dated May 5, 2008, between the Company and Crystal Capital Investments Inc. Shares issued pursuant to anti-dilution provisions in Loan Agreement. Crystal Capital Investments, Inc. NA NA/NA
         
May 18, 2010 3,749,99910,000,000 shares of common stock issued as collateral security pursuant to Loan Agreement, dated April 15, 2010, between the Company and Winsor Capital Inc. Winsor Capital, Inc. NA NA/NA
May 28, 20105,007,897 shares of common stock issued as collateral security pursuant to Loan Agreement, dated May 5, 2008, between the Company and Winsor Capital Inc. Shares issued pursuant to anti-dilution provisions in Loan Agreement.
Winsor Capital, Inc.
NA
NA/NA

Item 6. Selected Financial Data.
 
Not applicable.
 
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Forward Looking Statements

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

 
1110
 

Results of Operations for the Year Ended July 31, 2010
2011

Electric Vehicle Operations

Sales ofWe did not have any sales for our electric vehicles forduring the fiscal year ended July 31, 20102011. Our only sales during fiscal year ended July 31, 2011, were $531,381, an increase of $55,553 or 12% as compared with 2009.for  vehicle parts which totaled $7,013.

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

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

Sky Power License Agreement

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

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

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

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

Under the LEVC License Agreement, LEVC has agreed, in consideration of the grant of theThe license to pay us $1,000,000, of which $666,667 has been paid, plus an amount equal to the independent valuation of the license under the LEVC License Agreement, less the $1,000,000 payment.  The payment of the excess of the valuation amount over the $1,000,000 payment would be made by way of a convertible debenture or other securities. Additionally, LEVC, as licensee, would payagreement provides for an annual fee of $500,000 commencingfor ten years and an additional $1,750,000 based on the second anniversary of the date of thea valuation report prepared by an independent third party.  LEVC License Agreement, and a royalty as determined in the independent valuation report. The initial termis required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year.  The Company has received $732,666 from LEVC with a balance due of $267,334 as of July 31, 2011, which is ten years.now delinquent.  The Company has not reflected the amount due from LEVC but has recorded the amount received as deferred revenue and amortized the license fee income ratably over the period.  License agreement revenue recognized for the fiscal year ended July 31, 2011 and 2010, was $704,167 and $83,333, respectively. The Company will continue to recognize license fee income ratably over the life of the agreement.

11

Cost of Sales

Cost of sales as a percentage of net sales for the fiscal year ended July 31, 20102011, was approximately 107%246% as compared to approximately 141%105% during the same period in 2009. This decrease was2010.  The increase is primarily attributableattributed to freight charges incurred for a shipment of a vehicle sold in the decreaseprior fiscal year of $15,000.  Adjusted cost of sales percentages would be 32% and 108%  for fiscal year ended July 31, 2011 and 2010, respectively, for the freight charges to be included in labor expenditures.the correct period.  Based on our historical review of costs, we expect that cost of sales in the future will remain in line on a percentage basis with our historic level of approximately 105%. As sales volumes and prices increase, costs should then reduce as a percentage of sales.

12

General and Administrative Expenses

General and administrative (“SG&A”) expenses decreased to $2,428,622$1,448,274 for the fiscal year ended July 31, 2010,2011, as compared to $4,794,393$2,428,622 during the same period in 2009.2010.  The decrease was attributable a $2,490,000 compensatory expense for stock options exercised.  In addition,to: (1) $945,287 reduction in the Company had a decrease in (1) advertisingprovision of the Sky Power promissory note; (2) salaries and marketing related expenses of $452,836;(2)  warranty expense for vehicles previously sold of $82,555; (3) financing activitywages expense of $72,521;$174,924; (3) professional fees for $93,212; (4) non-employee stock option expense of $70,000; (5) travel expense of $30,854; (6) legal fees of $52,474; (5) salaries$26,913; (7) insurance expense of $23,244 and wages of $36,979;(8) and (6)(9) other variousmiscellaneous expenses of $19,613.  The reduction$65,387.  These reductions were offset by increase in expenditures was offset with a $841,207 provision in connection with Superlattice promissory note with the Company.of: (1) marketing and advertising expense of $322,059; (2) financing related activity fees of $58,680; (3) penalties of $53,638; and (4) directors fees of  $15,096.  Of all SG&A expenses the Company incurred during fiscal 2010, the majority were charges that are expected to be recurring.

Research and Development Expenses

No set amount has been set aside for research and development (“R&D”), however, all projects and purchases require approval prior to  initiation. Salaries, payroll taxes, and benefits expensed to R&D for the year ending  July 31, 2010,2011, amounted to $1,107,532$1,261,478 and $1,054,749$1,107,532 for year ending July 31, 2009.2010. Parts and supplies, expensed to R&D was $129,728 and $202,167 for the years ending July 31, 2010 and July 31, 2009, respectively. Shippingshipping charges, and battery management systems expensed to R&D were $27,161$56,789 and $39,365,$156,888 for the yearsyear ending July 31, 20102011 and July 31, 20092010, respectively. We expect that research and development expenses will continue to remain substantial and grow as we aggressively move to bring products to market

Interest Expense

Interest expense decreased to $505,371$422,156 for the fiscal year ended July 31, 20102011 as compared to $742,825$505,371 for 2009.2010.  The decrease was due to the conversion of debt to the Company’s common stock. Interest expense consists primarily of interest related to borrowings.

Other Income

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

Other income for the fiscal year endended July 31, 2010 consists2011, consisted primarily of (1) accounting fees and rental income from SuperlatticeSky Power for $70,894;$72,625; (2) the company received an assignment of judgment from Martin Koebler for $21,114; and (3) revenue earnedinterest income from the license agreement with LEVC Note of $83,333.$118,440; (3) forgiveness of debt of $123,621; and (4) net proceeds of  $2,303,790 from X-Prize.

Other income for the fiscal year end July 31, 20092010 consisted of (1) receipt of an assignment of judgment for $21,114; (2) accounting fees and rental income from SuperlatticeSky Power for $69,375$70,894; and other miscellaneous revenue(3) forgiveness of $8,416.debt of $117,656.

Net Loss

Net lossearnings attributable to common stockholders for the fiscal year ended July 31, 2010 decreased2011, increased to $3,933,604$118,921 from $6,817,974a net loss of $3,933,604 for the previous fiscal year. Basic and diluted lossearnings attributable to common stockholders per share of common stock for the fiscal year ended July 31, 2011, was $0.22$0.00 as compared to $0.66a loss of $0.22 for the fiscal year ended July 31, 2009.2010.

12

Liquidity and Capital Resources

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

At July 31, 2010,2011, we had liabilities of $7,960,959,$4,292,604, as compared with $5,307,066$7,960,959 at July 31, 2009, a2010; and working capital deficiency of $1,836,457$347,406 and a stockholders’ deficiencystockholders' equity of $5,918,907. In fiscal 2009, we also defaulted under our loan agreement with Wyndom Capital Investments, Inc. which, as its sole recourse under the loan agreement, took possession of 10,000,000 shares of our common stock held as collateral.$56,562.

Our property, plant and equipment decreasedincreased to $1,983,739 at July 31, 2011, as compared with $1,919,681 at July 31, 2010, as compared with $1,989,981 at July 31, 2009.2010.

We used net cash in operating activities of $2,336,670$1,170,778 in the year ended July 31, 2010, as compared with $2,469,775$2,336,670  in 2009,2010, and cash used in investing activities was $22,857$135,157 in 2010, as compared with $62,106$22,857 in 2009.2010.

13

During the year ended July 31, 2010,2011, from the issuance of a promissory note for a receivable, we advanced $1,282,988$208,587 to SuperlatticeSky Power Inc. and was repaid $441,781.$287,467. During the year ended July 31, 2010,2011, we received net proceeds of $ 2,581,645$2,403,163 from the issuance of promissory notes for debt, and made repayments of  $430,516.  We received advances from a related party of $1,252,014 and repaid $210,455.$1,172,342.  Total cash provided by financing activities in the year ended July 31, 20102011 was $3,833,659,$1,309,701 as compared with $3,320,880$2,351,481 in 2009.2010.

On May 5, 2008, the Company entered into a loan agreement with Crystal Capital Ventures Inc. (Crystal”and on October 1, 2010, the loan was assigned to Starglow Asset, Inc. (“Starglow”).  The loan agreement providesprovided for loans to the Company of up to $3,000,000, with a minimum initial loan of $500,000 taking place on May 19, 2008. The notes bearloan bore an interest payable monthly in arrears at the rate of 10% per annum, and mature and are due and payableinitially matured  on May 4, 2011.2012. The loansloan under the loan agreement arewas secured by shares of the Company’s common stock held by Crystal.Starglow. The Company iswas required to issue shares as collateral at the rate of two and one half shares of the Company’s common stock for each dollar principal amount of the loan advanced to the Company.  Following disbursement of the first $1,000,000 of funds pursuant to the loan agreement, on May 27, 2008, the Company issued 2,500,000 shares of common stock as collateral to Crystal.collateral. After the 1:3 reverse stock split in February 2009 the Company issued Crystal an additional 5,000,000 shares to make their shares held as collateral total 7,500,000. AfterPursuant to the anti-dilution provisions in the loan agreement with the 1:2 reverse stock split inof February 1, 2010, the Company issued Crystal an additional 3,749,999 shares to makeagain  increase their holdings to 7,500,000 post reverse stock split shares.  In connection with the Company's 20% stock dividend, the Company issued an additional 1,500,000 common shares to be held as collateral total 7,500,000.

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

On October 12, 2010,April 19, 2011, Starglow converted the entire $3,000,000 outstanding loan amount for the 7,500,000 collateralized shares and the Company entered intoissued a amendmentStock 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 Crystal loan agreement, underdifference between 7,500,000 and the number of shares into which such 7,500,000 shares were changed in such first reverse split, the lender agreed to extend the due dateeffect of the loanStarglow Warrant being to May, 2012.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 Asset Management Inc. (“Frontline”).Frontline. The loan provides for payments to the Company of $2,000,000 with interest at a fixed annual rate of 12%. On May 1, 2010, an Addendum to the original Promissory Note, dated February 26, 2010, was entered into which amended the term of the note to  stateprovide for interest only payments, due on the last day of every month until maturity date March 1,30, 2011 when all principal and accrued interest shall be due and payable.  Interest expenseOn 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 year ended July 31, 2010 was $42,341.

On October 11, 2010, the Company entered intoassigned note for 1,000,000 shares of Common Stock at a amendment to the Frontline loan agreement, under which the lender agreed to extend the due datestrike price of the loan to March 1, 2012.$0.42 per share.

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

13

On April 19, 2011, Winsor converted the entire $2,000,000 outstanding loan amount for the year ended July 31, 2010 was $19,139.10,000,000 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.

Related Parties AdvancesLiquidity 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 receivedhas 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 advancesrequired capital to meet obligations arising from the settlements of $1,252,014these obligations and repaid $1,349,955 inlitigation matters, as well as the form of cash, common stocksettlement payments with the IRS, and two Li-ion manufactured electric vehicles from Salim Rana Investments  (“SSRI”) , a former shareholder, for the year ended July 31, 2010.  During fiscal year ended July 31, 2009, the Company received $2,123,399 and repaid $2,025,458 in the form of cash and common stock.  As of July 31, 2010 and 2009, the amount due to SSRI was $0 and $97,941, respectively.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.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.

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

14

Critical Accounting Issues

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

Other Matters

None. 

New Financial Accounting Standards

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

 
14

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of three months or less. Our interest income is sensitive to changes in the general level of U.S. interest rates.  We do not have significant short-term investments, and due to the short-term nature of our investments, we believe that there is not a material risk exposure.  Our debt is at fixed interest rates.

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

Item 8. Financial Statements and Supplementary Data.

LI-ION MOTORS, CORP.

CONSOLIDATED FINANCIAL STATEMENTS

July 31, 20102011 and 20092010

 
15
 

TABLE OF CONTENTS

Reports of Independent Registered Accounting Firms 17
   
Consolidated Balance Sheets as of July 31, 20102011 and  20092010 1918
   
Consolidated Statements of Operations for Years Ended July 31, 20102011 and July 31, 20092010 19
Consolidated Statement of Comprehensive Income (Loss) for Years Ended July 31, 2011 and 2010 20
   
Consolidated Statements of Cash Flows for the Years Ended July 31, 20102011 and July 31, 20092010 21
   
Consolidated Statement of Stockholders’ DeficiencyEquity (Deficiency) for the Years Ended July 31, 20102011 and July 31, 20092010 22
   
Notes to Consolidated Financial Statements, as of and for the Years Ending July 31, 20102011 and 20092010 23

 
16
 

Madsen & Associates, CPA's Inc.
684 East Vine Street
Murray, UT 84107

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Madsen & Associates, CPA's Inc.
684 East Vine Street
Murray, UT 84107
Board of Directors
Li-ion Motors Corp.
Las Vegas, NV

We have audited the accompanying consolidated balance sheetsheets of Li-ion Motors Corp. (formerly EV Innovations, Inc.) (collectively, the “Company”) as of July 31, 2011 and 2010, and the related consolidated statements of operations, comprehensive income (loss), stockholders' deficiencyequity (deficiency) and cash flows for the yearyears then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audit.  The financial statements of Li-ion Motors Corp. as of July 31, 2009, were audited by other auditors whose report, dated November 4, 2009, expressed an unqualified opinion on those statements.

We conducted our auditaudits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements.  An audit also includesstatements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audit providesprovide a reasonable basis for our opinion.

In our opinion, the 2011 and 2010 financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2011 and 2010, and the results of its operations and its cash flows foreach of the yeartwo years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Madsen & Associates, CPAs Inc.

October 29, 2010

17

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
EV Innovations, Inc.
Las Vegas, NV

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

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

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

The accompanying consolidated financial statements have been prepared assuming the companyCompany will continue as a going concern.  As shownThe Company did not have any revenue from vehicle sales in the consolidated financial statements,2011, does not have cash flows to support its current operations and need reserve to cover expenses in future periods as the Company incurred a net loss of $6.8 million for the year ending July 31, 2009.  As of July 31, 2009, current liabilities exceeded current assets by $1.3 million and the Company has a deficit of $3.0 million.  During the year ended July 31, 2009, the Company defaulted on two loans and the shares used as collateralcontinues to secure one of the loans was used to extinguish the loan and all unpaid interest.incur losses from operations.  These factors and others discusseddescribed in NotesNote 1 and 12, raise substantial doubt about the Company’s ability to continue as a going concern.

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

/s/Wiener, Goodman & Company, P.C.
/s/ Madsen & Associates, CPA's Inc.
Madsen & Associates, CPA's Inc.
November 9, 2011

Eatontown, New Jersey
17
November 4, 2009

Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Balance Sheets
  July 31, 
  2011  2010 
Assets      
       
Current assets:      
Cash and cash equivalents $5,118  $2,113 
Notes receivable, net of allowance for doubtful accounts of $762,327 and $841,207, respectively  1,750,000   - 
Inventories  380,558   35,000 
Employee advances  -   10,000 
Other current assets  193,893   51,000 
Total current assets  2,329,569   98,113 
Property and equipment, net  1,983,739   1,919,681 
Deferred patent and trademark costs  35,858   24,258 
Total assets $4,349,166  $2,042,052 
         
Liabilities and Stockholders' Equity (Deficiency)        
         
Current liabilities:        
Bank overdrafts $-  $14,104 
Accounts payable and accrued expenses  1,156,136   1,296,734 
Current portion of long-term debt  399,407   22,444 
Customer deposits  102,287   100,000 
Deferred license agreement revenue  324,333   501,288 
Total current liabilities  1,982,163   1,934,570 
Long-term liabilities:        
Long-term debt, less current portion  939,608   5,943,056 
Deferred license agreement revenue, less current portion  1,370,833   83,333 
Total liabilities  4,292,604   7,960,959 
Commitments and contingencies  -   - 
Stockholders' equity (deficiency)        
         
Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding  -   - 
Common stock, $.001 par value, 300,000,000 shares authorized, 52,088,513 and 30,047,301 issued and 32,088,513 and 30,047,301 outstanding at July 31, 2011 and July 31, 2010, respectively.  52,088   30,047 
Additional paid-in capital  62,613,779   56,758,511 
Accumulated deficit  (62,580,108)  (62,699,029)
Accumulated other comprehensive loss  (9,197)  (8,436)
   76,562   (5,918,907)
Less: Treasury stock, 20,000,000 shares at cost  (20,000)  - 
Stockholders' equity (deficiency) attributable to Li-ion Motors Corp.  56,562   (5,918,907)
Non-controlling interests  -   - 
Stockholders' equity (deficiency)  56,562   (5,918,907)
Total stockholders' equity (deficiency)  56,562   (5,918,907)
Total liabilities and stockholders' equity (deficiency) $4,349,166  $2,042,052 
See accompanying notes to consolidated financial statements

 
18
 
Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Balance Sheets

  July 31, 
  2010  2009 
Assets      
       
Current assets:      
Cash and cash equivalents $2,113  $5,182 
Accounts receivable, net of allowance for doubtful accounts of $0  -   13,522 
Note receivable, net of allowance for doubtful account of $841,207  -   - 
Inventories  35,000   227,826 
Employee advances  10,000   1,508 
Other current assets  51,001   18,009 
Total current assets  98,113   266,047 
Property and equipment, net  1,919,681   1,989,981 
         
Deferred patent costs  24,258   24,258 
         
Total assets $2,042,052  $2,280,286 
         
Liabilities and Stockholders' Deficiency        
         
Current liabilities:        
Bank overdrafts $14,104  $- 
Accounts payable and accrued expenses  1,296,734   999,749 
Current portion of long-term debt  22,444   39,702 
Customer deposits  100,000   391,199 
Deferred revenue  501,288   3,808 
Due to related parties  -   97,940 
Total current liabilities  1,934,570   1,532,398 
         
Long-term liabilities:        
Long-term debt, less current portion  5,943,056   3,774,668 
Long-term deferred revenue, less current portion  83,333   - 
          
Total liabilities  7,960,959   5,307,066 
         
Commitments and contingencies  -   - 
         
Stockholders' deficiency        
         
Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding  -   - 
Common stock, $.001 par value, 100,000,000 shares authorized, 30,047,301 issued and        
outstanding at July 31, 2010 and 20,884,101 at July 31, 2009 respectively  30,047   20,884 
Additional paid-in capital  56,758,511   55,731,174 
Accumulated deficit  (62,699,029)  (58,765,425)
Accumulated other comprehensive income  (8,436)  (13,413)
Stockholders' deficiency  (5,918,907)  (3,026,780)
Total liabilities and stockholders' deficiency $2,042,052  $2,280,286 
See accompanying notes to consolidated financial statements

19

Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Statements of Operations
 
  For the Years Ended 
  July 31, 
  2010  2009 
Sales $531,381  $475,828 
         
Costs and expenses:        
Cost of sales  559,569   625,866 
General and administrative  2,428,622   4,794,393 
Research and development  1,264,420   1,296,281 
Total costs and expenses  4,252,611   6,716,540 
Loss from continuing operations  (3,721,230)  (6,240,712)
         
Other (expenses)/income:        
Interest expense  (505,371)  (742,825)
Other income  175,341   77,791 
Forgiveness of debt  117,656   87,772 
Loss before provision for (benefit from) income taxes  (3,933,604)  (6,817,974)
Provision for (benefit from) income taxes  -   - 
Net loss  (3,933,604)  (6,817,974)
         
Less: Net loss attributable to noncontrolling interest  -   - 
Net loss attributable to Li-ion Motors Corp $(3,933,604) $(6,817,974)
         
Loss per share - basic and diluted:        
Loss per common share attributable to Li-ion Motors Corp. common shareholders $(0.22) $(0.66)
Weighted average number of shares outstanding - basic and diluted  17,986,016   10,278,989 
Amounts attributable to Li-ion Motors Corp. common shareholders:        
Net loss $(3,933,604) $(6,817,974)
  For the Year Ended 
  July 31, 
  2011  2010 
Revenue:      
Sales $7,013  $531,381 
License agreement revenue  704,167   83,333 
Total revenue  711,180   614,714 
Costs and expenses:        
Cost of sales  17,243   559,569 
General and administrative  1,448,274   2,428,622 
Research and development  1,318,267   1,264,420 
Total costs and expenses  2,783,784   4,252,611 
Loss from operations  (2,072,604)  (3,637,898)
Other (expenses) income:        
Interest expense  (422,156)  (505,371)
Other income  2,613,681   209,664 
Net earnings (loss) before provision for (benefit from) income taxes  118,921   (3,933,604)
Provision for (benefit from) income taxes  -   - 
Net earnings (loss)  118,921   (3,933,604)
Less: Net earnings (loss) attributable to non-controlling interest  -   - 
Net earnings (loss) attributable to Li-ion Motors Corp $118,921  $(3,933,604)
         
Earnings (loss) per share - basic and diluted:        
Earnings (loss) per common share attributable to Li-ion Motors Corp. common shareholders $0.00  $(0.22)
Weighted average number of shares outstanding - basic and diluted  31,396,030   17,986,016 

See accompanying notes to consolidated financial statements

19

Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Statement of Comprehensive Income (Loss)
  For the Year Ended 
  July 31, 
  2011  2010 
Net earnings (loss) $118,921  $(3,933,604)
         
Other comprehensive income        
Currency translation adjustment  (761)  4,977 
Comprehensive income (loss)  118,160   (3,928,627)
Comprehensive income (loss) attributable to noncontrolling interest  -   - 
Comprehensive income (loss) attributable to Li-ion Motors Corp $118,160  $(3,928,627)

See accompanying notes to consolidated financial statements

 
20
 

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

 For the Years Ended  For the Year Ended 
 July 31,  July 31, 
 2010  2009  2011  2010 
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net loss $(3,933,604) $(6,817,974)
Adjustments to reconcile net loss to net cash utilized by operating activities        
Net earnings (loss) $118,921  $(3,933,604)
Adjustments to reconcile net earnings (loss) to net cash utilized by operating activities        
Depreciation  77,917   82,350   71,099   77,917 
Loss on disposal of property and equipment  15,242   -   -   15,242 
Provision for doubtful accounts  841,207   -   (78,880)  841,207 
Non-cash stock-based compensation  70,000   2,630,000   -   70,000 
Non-cash sale of electric vehicles  (173,000)  -   -   (173,000)
Licensing fees  (204,167)  - 
Increase (decrease) in cash flows from changes in operating assets and liabilities                
Accounts receivable, net  13,522   79   -   13,522 
Note receivable, net  (1,750,000)  - 
Inventories  192,826   59,484   (345,558)  192,826 
Employee advances  (8,492)  (1,508)  10,000   (8,492)
Prepaid expenses and other current assets  (32,991)  51,110   (142,890)  (32,991)
Deferred patent and trademark costs  (11,600)  - 
Bank overdraft  14,104   51,600   (14,104)  14,104 
Accounts payable and accrued expenses  296,985   1,229,237   (140,598)  296,985 
Customer deposits  (291,199)  242,039   2,287   (291,199)
Deferred revenue  580,813   3,808   1,314,712   580,813 
Net cash used in operating activities  (2,336,670)  (2,469,775)
Net cash provided by (used in) operating activities  (1,170,778)  (2,336,670)
                
CASH FLOWS FROM INVESTING ACTIVITIES:                
Additions to property and equipment  (22,857)  (57,751)  (135,157)  (22,857)
Deferred patent costs  -   (4,355)
Net cash utilized in investing activities  (22,857)  (62,106)
Net cash used in investing activities  (135,157)  (22,857)
                
CASH FLOWS FROM FINANCING ACTIVITIES:                
Advances on promissory note  (1,282,988)  - 
Payments received on promissory note  441,781   - 
Advances on notes receivable  (208,587)  (1,282,988)
Payments received on notes receivable  287,467   441,781 
Proceeds from issuance of debt  2,581,645   1,146,481   2,403,163   2,581,645 
Payments on debt  (430,516)  2,174,399   (1,172,342)  (430,516)
Advances from related parties  1,252,014   (76,260)  -   1,252,014 
Payments to related parties  (210,455)  (789,609)  -   (210,455)
Net cash provided by financing activities  2,351,480   2,455,011 
Net cash provided by (used in) financing activities  1,309,701   2,351,481 
                
Effect of exchange rate changes on cash and cash equivalents  4,977   (19,043)  (761)  4,977 
          -     
CHANGE IN CASH AND CASH EQUIVALENTS                
Net decrease in cash and cash equivalents  (3,069)  (95,913)
Cash and cash equivalents at beginning of year  5,182   101,095 
Cash and cash equivalents at end of year $2,113  $5,182 
Net increase (decrease) in cash and cash equivalents  3,005   (3,069)
Cash and cash equivalents at beginning of period  2,113   5,182 
Cash and cash equivalents at end of period $5,118  $2,113 
                
SUPPLEMENTAL CASH FLOW DISCLOSURES                
Cash paid during the period for:                
Interest $352,129  $119,032  $394,927  $352,129 
Income taxes $-  $-  $-  $- 
                
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES                
Shares issued for related party advances $966,500  $1,286,850  $-  $966,500 
Accrued expenses transferred to long-term debt $-  $538,319 
Electric vehicles exchanged for related party advances $-  $173,000 
Shares issued for debt $5,857,309  $- 

See accompanying notes to consolidated financial statements

 
21
 

Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Consolidated Statement of Stockholders' DeficiencyEquity (Deficiency)
For the YearsPeriods Ended As Noted
   
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, 2009  15,112,302  $15,112  $55,736,946  $(58,765,425) $(13,413) $-  $-     $(3,026,780)
Exercise of stock options  1,185,000   1,185   965,315   -   -   -   -      966,500 
Common stock issued as collateral on loan  3,749,999   3,750   (3,750)  -   -   -   -      - 
Common stock issued as collateral on loan  10,000,000   10,000   (10,000)  -   -   -   -      - 
Issuance of non-employee stock options  -   -   70,000   -   -   -   -      70,000 
Foreign currency translation  -   -   -   -   4,977   -   -  $4,977   4,977 
Net Loss  -   -   -   (3,933,604)  -   -   -   (3,933,604)  (3,933,604)
Comprehensive loss                             $(3,928,627)  - 
Balance - July 31, 2010  30,047,301   30,047   56,758,511   (62,699,029)  (8,436)  -   -       (5,918,907)
                                     
Issuance of stock for conversion of promissory notes  2,041,212   2,041   5,855,268   -   -   -   -       5,857,309 
Common stock issued as collateral on loan  20,000,000   20,000   -   -   -   (20,000)  -       - 
Foreign currency translation  -   -   -   -   (761)  -   -  $(761)  (761)
Net earnings  -   -   -   118,921   -   -   -   118,921   118,921 
Comprehensive income                             $118,160   - 
Balance - July 31, 2011  52,088,513  $52,088  $62,613,779  $(62,580,108) $(9,197) $(20,000) $-      $56,562 

  
Number of
Common Shares
  
Common Shares
$0.001
Par Value
  
Additional Paid
in
Capital
  
Accumulated
Deficit
  
Accumulated Other
Comprehensive
Income (Loss)
  
Comprehensive
Income (Loss)
  Total 
                      
Balance - August 1, 2008
  23,347,257  $23,347  $47,790,509  $(51,947,451) $5,630     $(4,127,965)
Exercise of stock options  3,500   4   (4)  -   -      - 
1:3 Reverse stock split adjustment  (15,566,844)  (15,567)  15,567   -   -      - 
Issuance of non-employee stock options  -   -   2,630,000   -   -      2,630,000 
Common stock issued as collateral on loan  11,666,664   11,667   (11,667)  -   -      - 
Exercise of stock options  1,433,524   1,433   1,285,417   -   -      1,286,850 
Conversion of loan to equity  -   -   4,000,000   -   -      4,000,000 
Conversion of accrued interest to equity  -   -   21,352   -   -      21,352 
Foreign currency translation  -   -   -   -   (19,043) $(19,043)  (19,043)
Net Loss              (6,817,974)      (6,817,974)  (6,817,974)
Comprehensive loss    -   -   -       -  $(6,837,017)  - 
Balance - July 31, 2009  20,884,101   20,884   55,731,174   (58,765,425)  (13,413)      (3,026,780)
Exercise of stock options  685,000   685   615,815   -   -       616,500 
1:2 Reverse stock split adjustment  (10,779,696)  (10,780)  10,780   -   -       - 
Common stock issued as collateral on loan  3,749,999   3,750   (3,750)  -   -       - 
Common stock issued as collateral on loan  10,000,000   10,000   (10,000)  -   -       - 
Exercise of stock options  500,000   500   349,500               350,000 
1:5 Forward split adjustment  5,007,897   5,008   (5,008)  -   -       - 
Issuance of non-employee stock options  -   -   70,000   -   -       70,000 
Foreign currency translation  -   -   -   -   4,977  $4,977   4,977 
Net Loss    -   -   -   (3,933,604)  -   (3,933,604)  (3,933,604)
Comprehensive loss                     $(3,928,627)  - 
Balance - July 31, 2010  
  30,047,301  $30,047  $56,758,511  $(62,699,029) $(8,436)     $(5,918,907)
See accompanying notes to consolidated financial statements

 
22
 

Li-ion Motors Corp.
(Formerly EV Innovations, Inc.)
Notes to Consolidated Financial Statements
For the Years Ended and as of July 31, 20102011 and 20092010

 Note 1. Financial Statement Presentation

History and Nature of Business

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

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

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

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

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

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

 BasisThe license agreement consists of Presentationan 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 July 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’s businessCompany is subjectcurrently in discussions with LEVC regarding the delinquency.  LEVC is attempting to mostcomplete a public registration in Germany.  As part of the risks inherent inregistration statement, LEVC is required to be current with the establishment of a new business enterprise. The likelihood of success of the Company must be considered in light of the expenses, difficulties, delays and unanticipated challenges encountered in connection with the formationannual license fees.  LEVC expects to make the delinquent payments to the Company prior to December 31, 2011.

The note of a new business, raising operating and development capital,$1,750,000 has been reflected on the books of the Company and the marketing of a new product.  Therefee is no assurance the Company will ultimately achieve a profitable level of operations.

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

 
23
 

Basis of Presentation

In January 2009, Going Concern

The Company’s financial statements for the year ended July 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 in 2011.  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 approvedand in 2010, the Company received approximately $2.5 million as an award from Automotive XPrize (see Note 15).  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 one-for-three reverse stock splitnumber of its outstanding common shares which became effective on February 19, 2009. Also on February 19, 2009factors, including investor sentiment.  Market factors may make the authorized sharestiming, amount, terms or conditions of additional financing unavailable to it.  These uncertainties raise substantial doubt about the ability of the Company was increasedto continue as a going concern.  The accompanying financial statements do not include adjustments that might result from 35,714,285 to 50,000,000 shares.the outcome of these uncertainties.

 Common Stock

In January 2010, the Board of Directors approved a merger with a 100% subsidiary resulting in the change of the Company’s name to Li-ion Motors, Corp. The Board of Directors also approved a two-for-oneone-for-two reverse split that was effective February 1, 2010, and the authorized shares were decreased in the same ratio to 25,000,00025 million shares.  By motion of the Board on May 17, 2010,Pursuant to majority stockholder consent, the authorized was increased from 25,000,000 shares to 100,000,000100 million shares.

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

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

On July 1, 2009,June 24, 2011, the Financial Accounting Standards Board (“FASB”) established Accounting Standards Codification (“ASC”) asof Directors unanimously approved an amendment to the primary sourceCompany’s Articles of authoritative generally accepted accounting principles (“GAAP”) recognized byIncorporation to increase the FASBauthorized number of shares of common stock from 100 million shares, par value $.001 per share, to be applied by nongovernmental entities.  Although300 million shares, par value $.001 per share.  The Company filed the establishmentamendment with the Secretary of State of Nevada on August 10, 2011, after mailing a Definitive Information Statement to the ASC did not change current GAAP, it did changeCompany’s stockholders and the way we refer to GAAP throughout this document to reflect the updated referencing convention.amendment was effective August 10, 2011.

All shares and per share information has been revised to give retroactive effect to the reverse stock split and stock dividend.

Note 2.  Summary of Significant Accounting Policies

Basis of Consolidation

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

24

The following is a listing of the Company's subsidiaries and its ownership interests:
 
Global Electric, Corp.  67.57%
R Electric Car, Co.  67.57%
Solium Power, Corp.  67.57%
Hybrid Technologies USA Distributing Inc.  100%
Hybrid Electric Vehicles India Pvt. Ltd.  100%

Reclassifications

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

Use of Estimates

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

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Fair Value Measurements

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

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

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

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

As of July 31, 2010,2011, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents.  The fair values of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1.  The Company does not have any financial assets measured at fair value on a recurring basis as Level 3 and there were no transfers in or out of Level 1, Level 2 or Level 3 during the years ended July 31, 20102011 and 2009.2010.

The following table sets forth by level, within the fair value hierarchy, the Company’s financial assets accounted for at fair value on a recurring basis as of July 31, 20102011 and 2009.2010.

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    Assets at Fair Value as of July 31, 2010 and 2009 Using     Assets at Fair Value as of July 31, 2011 and 2010 Using 
    
Quoted Prices in
Activated Markets for
Identical Asssets
  
Significant Other
Observable Inputs
  
Significant Observable
Inputs
     
Quoted Prices in
Activated Markets
for Identical Asssets
  
Significant Other
Observable Inputs
  
Significant Observable
Inputs
 
 Total  (Level 1)  (Level 2)  (Level 2)  Total  (Level 1)  (Level 2)  (Level 2) 
July 31, 2011            
Cash and Cash Equivalents $5,118  $5,118  $-  $- 
                
July 31, 2010                            
Cash and Cash Equivalents $2,113  $2,113  $-  $-  $2,113  $2,113  $-  $- 
                
July 31, 2009                
Cash and Cash Equivalents $5,182  $5,182  $-  $- 

The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above.  Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values.  The Company did not have any other financial instruments with the scope of the fair value disclosure requirements as of July 31, 2010.2011.

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

Cash and Cash Equivalents

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

 Accounts Receivable

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

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Inventories

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

Property and Equipment

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

 Lives Methods
Building Improvements 
Building Improvements39 Years Straight Line
Furniture and Fixtures10 years Declining BalanceAccelerated
Software3-5 years Straight Line
Computers5 years Straight Line

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

Evaluation of Long-Lived Assets

The Company accountsreviews property and equipment for long-lived assetsimpairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with FASBthe guidance in ASC 360-10-35,360-15-35 “Impairment or DisposedDisposal of Long-livedLong-Lived Assets”, (“ASC 360-10-35”).  The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts and circumstances that may suggest impairment. The Company believes the estimate of its valuation of long-lived assets is a “critical accounting estimate” because if circumstances arose that led to a decrease in the valuations it could have a material impact on the Company’s results of operations. The Company recognizesAn impairment exists when the sum of undiscounted future cash flows is less than the carrying amount of the asset.long-lived assets is not recoverable and exceeds its fair value.  The write downcarrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  If an impairment exists the resulting write-down would be the difference between the fair market value of the long-lived asset is charged toand the period in which the impairment occurs.  The Company does not believe that any changes have taken place.related net book value.

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Deferred Patent Costs

The Company capitalizes costs directly incurred in pursuing patent applications as deferred patent costs. When such applications result in an issued patent, the related costs are amortized over the remaining legal life of the patents, which is assumed to be 17 years, using the straight-line method. On a quarterly basis, the Company reviews the issued patents and pending patent applications and if the Company determines to abandon a patent application, or an issued patent no longer has economic value, the unamortized balance in deferred patent costs relating to that patent is immediately expensed. As of July 31, 20102011, our patents were in the approval processing phase.

Revenue Recognition

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

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

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

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Customer Deposits

The Company receives advances from customers for automobiles to be manufactured in the future.  The Company applies these advances against future billings.  As of July 31, 20102011 and 2009,2010, customer deposits amounted to $100,000$102,287 and $391,199,$100,000, respectively.

Shipping and Handling

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

Advertising

Advertising costs are expensed as incurred and are included in general and administrative expenses. Total advertising expenditures for the year ended July 31, 20102011 and 20092010 and amounted to $73,975$369,034 and $526,811,$73,975, respectively.

Research and Development

No set amount has been set aside for research and development (“R&D”), however, all projects and purchases require approval prior to initiation. Salaries, payroll taxes, and benefits expensed to R&D for the year ending  July 31, 2011 and 2010, amounted towere $1,261,479 and $1,107,532, and $1,054,749 for year ending July 31, 2009.respectively.  Parts and supplies expensed to R&D was $129,728supplies; battery and $202,167 for the year endings July 31, 2010motor management systems; and July 31, 2009, respectively. Shippingshipping charges were $56,788 and battery management systems were $27,160 and $39,365,$156,888, for the year ending July 31, 20102011 and July 31, 20092010, respectively. We expect thatThe Company expects the research and development expenses will continue to remain substantial and grow as wethe Company aggressively movemoves to bring products to marketmarket.

Concentration of Risk

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

Income taxes

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

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Foreign Currency Translation

The functional currency for some foreign operations is the local currency. The reporting currency is the US Dollar. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Other Comprehensive Income (Loss). The translation lossesgain for the yearsyear ended July 31, 2011, was $761 and the translation loss for the year ended July 31, 2010, and 2009 were $4,977 and $19,043, respectively.was $4,977.

Comprehensive Loss

The Company reports comprehensive loss in accordance with the requirements of FASB ASC 220-10-15, “Comprehensive Income”, and (“ASC 220-10-15”). For the years ended July 31, 20102011 and 2009,2010, the difference between net loss and comprehensive loss was foreign currency translation.

LossNet Earnings (Loss) Per Common Share

Basic lossearnings (loss) per common share is computed by dividing net lossearnings (loss) by the weighted average number of common shares outstanding during the specified period.  Diluted lossearnings (loss) per common share is computed by dividing net lossearnings (loss) by the weighted average number of common shares and potential common shares during the specified period. All potentially dilutive securities which include options convertible into 0 and 1,585,000 common shares at July 31, 2010 and 2009, respectively, have been excluded from the computations for the year ending July 31, 2011, as their effect is anti-dilutive.

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Recently Issued Pronouncements

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

Note 3. Notes Receivable

TheDuring the year ended July 31, 2011, the Company advanced SuperlatticeSky Power Inc.Solutions Corp. (“SPS”) $208,587 of which $287,467  was repaid ($173,600 in the form of cash and $113,867 in  reimbursement for a leased employee).  During the year ended July 31, 2010 the Company advanced SPS $1,282,988, of which $441,781 was repaid and the net amount was reserved as an allowance for doubtful accounts .  As of July 31, 2011 and July 31, 2010, an allowance for doubtful accounts in the amount of $762,327 and $841,207, 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.

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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 July 31, 2011.

The Company recognized interest income of $118,425, none of which has been received, in accordance to the terms of the LEVC Note for the year ended July 31, 2010. As2011, all of which is included in other current assets as of July 31, 2010 and July 31, 2009, the amount due to the Company was $841,207 and $0, respectively. The balance due to the Company has provided a valuation allowance and included in selling, general and administrative expenses, as an allowance2011.  See Note 6 for doubtful account, due to uncertain prospect of collection.further information.

Note 4. Inventories

Inventories consist of the following:

 Years Ended  Years Ended 
 July 31,  July 31, 
 2010  2009  2011  2010 
Raw Materials $-  $119,153  $1,103  $- 
Work-In-Progress  -   108,673   344,455   - 
Finished Goods  35,000   -   35,000   35,000 
 $35,000  $227,826  $380,558  $35,000 

Raw materials, work in progress and finished goods for the year ended July 31, 2010,2011, and year ended July 31, 2009,2010, are related to the Company’s planned sales of electric powered vehicles.

 Note 5. Property and Equipment

Property and equipment consist of:

  July 31,  July 31, 
  2011  2010 
Building and Improvements $1,292,276  $1,287,001 
Equipment and Furniture and Fixtures  328,663   198,781 
Vehicles  66,429   66,429 
Software Costs  28,913   28,913 
Land  700,000   700,000 
   2,416,281   2,281,124 
         
Less Accumulated Depreciation  (432,542)  (361,443)
Net Property and Equipment $1,983,739  $1,919,681 
  Years Ended 
  July 31, 
  2010  2009 
Building and Improvements $1,287,001  $1,274,636 
Furniture and Fixtures  15,794   29,023 
Office Equipment  146,016   143,965 
Machinery and Equipment  36,971   36,971 
Vehicles  66,429   60,979 
Software Costs  28,913   32,924 
Land  700,000   700,000 
   2,281,124   2,278,498 
         
Less Accumulated Depreciation  (361,443)  (288,517)
Net Property and Equipment $1,919,681  $1,989,981 
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Depreciation expense for the year ended July 31, 2011 and 2010 was $71,099 and 2009 was $77,917, and $82,350, respectively and is included in selling, general and administrative expenses on the Company’s consolidated statement of operations.

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Note 6. Other Current Assets

 Years Ended  Years Ended 
 July 31,  July 31, 
 2010  2009  2011  2010 
Retainers  $7,500  $- 
Deferred Warranty Asset 25,594  - 
      
Retainers and Deposits $4,957  $7,500 
Deferred Product Asset  4,958   25,594 
Prepaid Expenses  17,907   18,009   65,553   17,906 
Interest Receivable  118,425   - 
        
Total $51,001  $18,009  $193,893  $51,000 

The deferred product asset is for product liability costs that the Company prepared and amortized over the two year life in the amount  of $20,636 and $25,594 as of July 31, 2011 and 2010, respectively and is included in accrued expenses-other.

Note 7. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses and other current liabilities at July 31, 20102011 and 20092010 consisted of:

  Years Ended 
  July 31, 
  2011  2010 
       
Accounts Payable $608,623  $422,018 
Accounts Payable - Related Parties  28,029   63,325 
Wages, Paid Leave and Payroll Related Taxes  259,122   407,884 
Accrued Interest  8,403   114,619 
Legal Settlements  171,750   177,500 
Other  80,209   111,388 
         
Total $1,156,136  $1,296,734 
  Years Ended 
  July 31, 
  2010  2009 
Accounts Payable $422,018  $460,896 
Accounts Payable - Related Parties  63,325   - 
Wages, Paid Leave and Payroll Related Taxes  407,884   267,353 
Accrued Interest  114,619   121,344 
Legal Settlements  177,500   - 
Other  111,388   150,156 
Total   $1,296,734  $999,749 

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

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

The Company did not have any related party transactions during the year ended July 31, 2011.  For the year ended July 31, 2010, the Company received additional advances of $1,252,014 and repaid $1,349,955 in the form of cash ($210,455), common stock ($966,500), and two Li-ion manufactured electric vehicles ($173,000) from Salim, Salim, Rana Investments  (“SSRI”) , a former shareholder, for the year ended July 31, 2010.  During fiscal year ended July 31, 2009, the Company received $2,123,399 and repaid $2,025,458 in the form of cash and common stock.  As of July 31, 2010 and 2009, the amountshareholder. The balance due to SSRI at July 31, 2011 and 2010, was $0 and $97,941,$0, respectively.

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

Due from related parties and advances from related parties are reported as current assets or liabilities. These advances are not subject to written agreements and have no specific repayment terms but are deemed due on demand and are not interest bearing notes.
 
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Note 9. Long-Term Debt

Long-term debt consists of:

  Years Ended 
  July 31, 
  2010  2009 
5% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,349 including interest, collateralized by real property due in full on or before March 2038 (1) $953,437  $954,631 
         
10% Note payable to Crystal Capital Ventures, payable in May 2012 collateralized by 9,000,000 shares of the Company's common stock (2)  3,000,000   2,853,859 
         
11.24% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1000, due in full on February 28, 2011 (3)  5,000   5,880 
         
12% Note  payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2012 (4)  1,235,404   - 
         
10% Note payable to Winsor Capital Inc. due in full on April 15, 2013 collaterized by 12,000,000 shares of the Company's common stock (5)  771,659   - 
   5,965,500   3,814,370 
Less Current Portion  (22,444)  (39,702)
  $5,943,056  $3,774,668 
  2011  2010 
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) $951,921  $953,437 
         
10% Note payable to Starglow Asset, Inc. (formerly Crystal Capital Ventures, Inc.) paid in full (2)  -   3,000,000 
         
9.367% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1000, due in full on February 28, 2012 (3)  6,112   5,000 
         
12% Note  payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2012 (4)  349,465   1,235,404 
         
10% Note payable to Winsor Capital Inc. paid in full  (5)  -   771,659 
         
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 (6)  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 (7)  24,123   - 
         
   1,339,015   5,965,500 
Less Current Portion  (399,407)  (22,444)
  $939,608  $5,943,056 

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

2012 $399,407 
2013  22,136 
2014  19,933 
2015  20,045 
2016  21,088 
Thereafter  856,406 
  $1,339,015 

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2011 $22,444 
2012  4,252,379 
2013  789,518 
2014  18,789 
2015  19,768 
Thereafter  862,602 
  $5,965,500 

(1) In November 2007, the Company refinanced a loan on its North Carolina building. The loan is with Bayview Loan Servicing, LLC. EffectiveLLC (“Bayview”). On March 31, 2010, the Company entered into a stipulation agreement with Bayview Loan Servicing, LLC thatwhich reduced the current monthly payment to $5,349, including interest. On May 27, 2011, the Company entered into a loan adjustment agreement with Bayview which increased the unpaid liability by $9,043 to $953,316 and decreased the monthly payments to $5,433, including interest. In 2013, Bayview Loan Servicing LLC may step up the interest rate at that time.  The loan is set to mature on March 31, 2038.  Effective April 1, 2012, the interest rate adjusts to Prime plus 4.875%. Interest rate changes are limited to 2% increase or decrease in any annual adjustments. Interest expense for the year ended July 31, 2011 and 2010, was $34,753 and 2009 for Bayview Loan Servicing, LLC was $95,286, and $107,083. respectively.

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

As of July 31, 2010,On April 19, 2011, Starglow converted the entire $3,000,000 outstanding loan amount for the 7,500,000 collateralized shares and the Company has borrowedissued a Stock Purchase Warrant (“Starglow Warrant”) which entitles Starglow, for a three-year period, to purchase at a purchase price of $.001 per share, on a one time basis and only following the full $3,000,000 undereffectiveness of the loan agreementfirst reverse split of the Company’s common stock following the issuance of the Starglow Warrant, such number of shares of common stock as is equal to the difference between 7,500,000 and the number of shares into which such 7,500,000 shares were changed in such first reverse split, the effect of the Starglow Warrant being to protect Starglow from Crystal Capital. any dilution to its 7,500,000 share holding resulting from such first reverse split.

Interest expense to Crystal Capital was $341,676 for the yearyears ended July 31, 2011 and 2010, was $208,767 and $202,007 for the year ended July 31, 2009,$341,676, respectively. The Company is now current with the loan.

(3) On February 28, 20102011 the Company financed a liability policy ( workman’s(workman’s compensation) with Allegiance Direct Bank for the period February 28, 20102011 to February 28, 20112012 for $13,351. The Company was required to make a down payment of $3,351.15$3,351 in February 20102011 and monthly payments including interest of 9.4%. During the year ended July 31, 2011 and 2010, the Company repaid $8,888 and $10,880, respectively. Interest expense for the yearsyear ended July 31,31,2011 and 2010, and 2009 paid to Allegiance Direct Bank is $565$692 and $0,$565, respectively.

(4) 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 of which $1,235,404 has been advanced as of July 31, 2010, with interest at a fixed annual rate of 12%.  On May 1, 2010, an Addendum to the original Promissory Note, dated February 26, 2010, was entered into which amended the term of the note to  stateprovide for interest only payments, due on the last day of every month until maturity date March 1, 201230, 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.

During the year ended July 31, 2011 and 2010, the Company received advances totaling $ 1,968,314 and $ 1,635,210, respectively; and made payments of $1,146,665and $399,807, respectively.  Interest expense for the year ended July 31, 2011 and 2010, was $42,341.$101,522 and $42,341, respectively.

(5) On April 15, 2010, the Company entered into a loan agreement for $2,000,000 with Winsor Capital Inc. (“Winsor”). The loan providesprovided 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 iswas secured by 12,000,00010,000,000 shares of the Company common stock. Each loan installment maturesmatured in three years from issuance of the installment. The loan hashad an anti-dilution clause for the stocks issued.stock issued as collateral. Stock is issued and delivered proportionately to the delivery of funds.  The loan was fully funded with (1) cash advances of $916,492; (2) debt assignment from Frontline of $850,279; (3) accrued interest of $33,534; and (4) $199,695 in cash advance fees.

32

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.

Interest expense for the year ended July 31, 2011 and 2010, was $19,139.$56,537 and $19,139, respectively.

(6) 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 year ended July 31, 2011 and 2010, the Company repaid $598 and $0, respectively. Interest expense for the year ended July 31, 2011 and 2010, was $1,269 and $0, respectively.

(7) 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 year ended July 31, 2011 and 2010, the Company repaid $5,627 and $0, respectively. Interest expense for the year ended July 31, 2011 and 2010, was $3,996 and $0, respectively.

8) 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 July 31, 2011, no funding transactions had taken place and there was a zero balance on the Note.

Note 10. Stockholders’ Equity

On January 15, 2009, the Company’s shareholders approved a 1:3 reverse stock split for the outstanding shares but it did not take effect until February 19, 2009. Common stock, authorized shares was 35,714,285 and was increased to 50,000,000 on February 19, 2009. On February 20, 2009, the Company issued Wyndom Capital Investments, Inc. an additional 6,666,665 shares as collateral for a loan that in June 2009 went into default and the share collateral for which was taken by the lender. Crystal Capital Ventures Inc. was issued 4,999,999 shares so they again hold 7,500,000 post reverse stock split shares as of February 20, 2009, as collateral for a loan of up to $3,000,000 as discussed in Note 5. (Deficiency)

On February 1, 2010, the Company effected a 1:2 reverse stock split. Pursuant to the anti-dilution provisions in the Crystal Capital Ventures loan agreement issued 3,749,999 shares to Crystal Capital Ventures so they again hold 7,500,000held 7.5 million post reverse stock split shares. Concurrent with the 1:2 reverse stock split the authorized shares were also reduced from 50,000,00050 million to 25,000,00025 million shares. By motion of the Board, May 17, 2010 the authorized were increased from 25,000,00025 million common shares to 100,000,000100 million common shares.

ExceptOn 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 presentation10,000,000 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 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 19, 2011, Starglow, (formerly Crystal Capital Ventures) converted the entire $3,000,000 outstanding loan amount for the 7,500,000 collateralized shares.

On April 19, 2011, Winsor converted the entire $2,000,000 outstanding loan amount for the 10,000,000 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, authorized and issued onbe increased by a new issuance of common stock of the consolidated balance sheet andCompany to that number of shares presented inconstituting the consolidated statementShare Collateral immediately prior to such reverse stock split or combination of stockholders’ equity (deficit), all shares and parshares. The certificates representing any share information has been revised to give retroactive effectdividends that we pay during the term of the Loan with respect to the reverse stock splits.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.

 
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Stock Dividend

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

Increase in Authorized Common Stock

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

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 11. Net LossEarnings (Loss) Per Common Share

Loss per share is computed based on the weighted average number of shares outstanding during the year. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares and potential common shares during the specified periods.

The following table sets forth the reconciliation of the basic and diluted net lossearnings (loss) per common share computations for the years ended July 31, 20102011 and 2009.2010.


  Years Ended 
  July 31, 
  2010  2009 
Basic and Diluted EPS:      
Net Loss Ascribed to Common Shareholders - Basic and Diluted $(3,933,604) $(6,817,974)
Weighted Average Shares Outstanding - Basic and Diluted  17,986,016   10,278,989 
Basic and Diluted Net Loss Per Common Share $(0.22) $(0.66)
   Years Ended 
   July 31, 
  2011  2010 
Basic and Diluted Earnings (Loss) Per Share      
Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted $118,921  $(3,933,604)
Weighted Average Shares Outstanding - Basic and Diluted  30,628,907   17,986,016 
Basic and Diluted Net Earnings (Loss) Per Common Share $0.00  $(0.22)

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

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

  Year Ended 
  July 31, 2009 
Basic and Diluted Loss Per Common Share $(0.33)
Weighted Average Number of Shares    
Outstanding -Basic and Diluted  20,558,046 

Note 12. Share Based Compensation

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

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

Stock Dividend

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

Increase in Authorized Common Stock

 On April 7, 2010, the Company’s board of directors approved an amendment to our Articles of Incorporation to increase the authorized number of shares of common stock from 25,000,000 shares, par value $.001 per share, to 100,000,000 shares, par value $.001 per share. The Company thereafter received the written consent from a shareholder of our company holding a majority (51.58%) of the outstanding shares of our common stock on April 8, 2010. The Company filed the amendment with the Secretary of State on Nevada on May 4, 2010, after mailing a Definitive Information Statement to our stockholders and the amendment was effective May 17, 2010.

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Stock Option Plan

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

A summary of the option activity under the Company’s stock option plan as of July 31, 20102011 and 2009.2010.

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Option Options  
Weighted Average
Exercise Share
Price
  
Weighted Average
Remaining
Contractual
  
Aggregate
Intrinsic
Value
  Options  
Weighted Average
Exercise Share 
Price
  
Weighted Average
Remaining
Contractual
  
Aggregate
Intrinsic 
Value
 
Outstanding at August 1, 2008  55,845  $1.80   -  $- 
            
Outstanding at August 1, 2009  685,000  $1.80   -  $- 
Options Granted  1,000,000  $1.80      $-   500,000  $0.70      $- 
Options Exercised  (713,345) $1.80   -  $-   (1,185,000) $1.15   -  $- 
Outstanding at July 31, 2009  342,500  $1.80   -  $- 
Outstanding at July 31, 2010  -  $-   -  $- 
Options Granted  500,000  $0.70   -  $-   -  $-   -  $- 
Options Exercised  (842,500) $1.15   -  $-   -  $-   -  $- 
Options Cancelled/Expired  -  $-   -  $-   -  $-   -  $- 
Outstanding at July 31, 2010  -  $-  -  $- 
Exercisable at July 31, 2010  -  $-   -  $- 
Outstanding at July 31, 2011  -  $-   -  $- 
Exercisable at July 31, 2011  -  $-   -  $- 

Employee stock compensation expense applicable to stock options for the years ended July 31, 20102011 and 20092010 was $0 and $0, respectively. The aggregate intrinsic value of options outstanding as of July 31, 20102011 was $0.

The Company established the 2009 Restricted Stock Plan (“the 2009 Plan”) in February, 2009 and filed an S-8 Registration Statement with the Securities and Exchange Commission that was declared effective. The 2009 Plan allows the Company's Board of Directors to issue up to 3,000,0003 million common shares pursuant to the 2009 Plan as compensation for services by employees and non-employees to the Company. The Company's Board of Directors has the discretion to set the price, vesting schedules and other terms and conditions for options granted under the 2009 Plan.

During the years ended July 31, 20102011 and 2009,2010, the Company granted 500,000zero and 1,000,000500,000 options, respectively with an option price of $0.70$0.00 and $1.80$0.70 per share, respectively, to various consultants. During the years ended July 31, 2011 and 2010, zero and 2009, 500,000 and 4,315,000 options, respectively, were vested at the fair market value of which was determined under the Black-Scholes formula to be approximately $70,000$0 and $2,630,000$70,000 and is included in general and administrative expenses. During the years ended July 31, 2011 and 2010, zero and 2009,1,185,000 and 713,3451,185,000 options were exercised and issued, respectively valued at $1.15$0.00 and $1.80$1.15 per share.

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A summary of the Company’s Restricted Stock Plans follows:
Authorized Options and UnGranted:Number of Shares
Balance August 1, 2008 (2006 Plan)57,417
Options Authorized (2006 Plan)-
Options Granted (2006 Plan)(57,417)
Options Cancelled/Expired (2006 Plan)-
Options Authorized (2009 Plan)1,500,000
Options Granted (2009 Plan)(1,000,000)
Options Cancelled/Expired (2009 Plan)-
Balance July 31, 2009 (2009 Plan)500,000
Options Granted (2009 Plan)(500,000)
Options Cancelled/Expired (2009 Plan)-
Balance July 31, 2010 (2009 Plan)-

During the years ended July 31, 20102011 and 2009,2010, total related advances converted in return for the exercise and issuance of options under the plan amounted to approximately $976,000$0 and $1,287,000,$976,000, respectively.

Note 13. Income Taxes

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

The Company recorded no provisions for income taxes for the years ended July 31, 20102011 and 2009.2010.

A reconciliation of taxes on income computed at federal statuary rate to the amount provided is as follows:
 
  Years Ended 
  July 31, 
  2011  2010 
Tax Provisions Computed at Federal Statuary Rate of 35%      
Continuing Operations $41,622  $(1,376,761)
Increase (Decrease) in Taxes Resulting From:        
(Used) Unused Operating Losses  (41,622)  1,376,761 
  $-  $- 
  Years Ended 
  July 31, 
  2010  2009 
Tax Provisions Computed at Federal Statuary Rate of 35%      
Continuing Operations $(1,376,761) $(2,378,818)
Increase (Decrease) in Taxes Resulting From:        
Unused Operating Losses  1,376,761   2,378,818 
  $-  $- 

 
3435
 

Components of deferred income tax assets are as follows:
 
 Years Ended  Years Ended 
 July 31,  July 31, 
 
2010
Tax Effect
  
2009
Tax Effect
  
2011
Tax Effect
  
2010
Tax Effect
 
            
Deferred Tax Assets - Current:            
United States Net Operating Loss $21,937,579  $20,560,818  $21,895,957  $21,937,579 
Valuation Allowances  (21,937,579)  (20,560,818)  (21,895,957)  (21,937,579)
 $-  $-  $-  $- 

The net operating loss carry forward as of July 31, 20102011, is approximately $62.7$62.6 million and will expire in years through 2024.2025.

Note 14. Commitments and Contingencies

Lease Agreement

Our principal executive office is located at 5413 Rusty Anchor Court,in Las Vegas, NV 89130.Nevada. We lease approximately 1,900 square feet under a lease agreement that commenced in March 2008July 2011, and renews on an annual basis. The lease provides for an aggregate annual payment of $18,000.$15,600. We believe our current facilities will generally be adequate for our needs for the foreseeable future.

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

Total rental income for the years ended July 31, 2011 and 2010 was $42,625 and 2009 was $40,894, and $39,000, respectively.

License Agreement

Effective May 28, 2010 the Company entered into a 10 year license agreement with Lithium Electric Vehicle Corp. (“LEVC”) providing for the Company to license to LEVC certain of the Company’s patent applications and technologies for electric vehicles and other applications. The purpose of the licensee is to expand sales of the Company’s current line of products by the manufacture and sale of such products in Canada, which is LEVC’s exclusive territory under the license agreement. LEVC agreed to pay the Company $2 million dollars over the initial two year term with the option to extend the agreement on an annual basis for an additional $500,000 per year.  The revenue earned from the license agreement is amortized over the two year period and for the year ending July 31, 2010, the Company recognized income of $83,333 with $583,333 being deferred.

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

Surety Bond

The Company applied torenewed the manufacturing license with the North Carolina Department of Motor Vehicles for a manufacturing license.Vehicles. This application requiredlicense requires a surety bond of $50,000 for three years which the Company acquired from Kaercher Campbell & Associates.Associates and is effective through February 18, 2012. The Company is licensed as a motor vehicle dealer to engage in the business of selling motor vehicles by the State of North Carolina DMV.  The Company's license is effective through March 31, 2011.

35
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.

An arbitration award in the amount of $70,803 was awarded to Keith Boucher, a former consultant for the Company. against the Company for attorney’s fees and costs incurred in arbitration. A Judgment has been awarded to Keith Boucher.  The parties have agreed upon a monthly payment and  anticipates it will be paid in full by June 2011.

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

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

Caudle & Spears has obtained a default judgment against the Company in Meckenberg County, North Carolina, General Court, in the amount of $17,686. This law firm represented us in our litigation against Martin Koebler, a former employee, whom we successfully sued for return of Company property and other damages. The Company is in settlement negotiations with Caudle & Spears, since its judgment against Martin Koebler is still in the collection process. A payment agreement has been reached in the amount of $2,500 per month with no interest until paid.  The Company is not current with the its payment arrangements and has been making payments and expects this to be paid in full by November 2010.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”).

36

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

Note 15. Automotive X PrizeOther Miscellaneous Income

(1) The Progressive Insurance Automotive X-Prize, (“PIAXP”X-Prize”), competition was announced in April 2008 as a way to spur the development of clean, high-mileage vehicles, and is funded for a total of $10 million, which will be divided among three separate categories. The X-Prize challenge drew an unexpectedly strong response; 115 teams entered 136 separate vehicles, winners were announced in Washington D.C. on September 15, 2010 and the Company was the winner in its entry class. On October 27, 2010, the Company received $2.5net proceeds of approximately $2.3 million from XPrizeX-Prize and will record the amountwas recorded as other income in the Company’s subsequent consolidated statement of operations.operations for the year ended July 31, 2011.

(2) Other income for the year ended July 31, 2011, consisted primarily of (a) accounting fees and rental income from Sky Power for $72,625; (b) interest income from the LEVC Note 16. Subsequent Eventsof $118,440; (c) forgiveness of debt in connection with the adjustment of previously recorded accounts payable of $123,621; and (d) net proceeds of  $2,303,790 from X-Prize (see 1 above).  Other income for the fiscal year end July 31, 2010 consisted of (a) receipt of an assignment of judgment for $21,114; (b) accounting fees and rental income from Sky Power for $70,894; and (c) forgiveness of debt in connection with the adjustment of previously recorded accounts payable of $117,656.

37

Subsequent events have been evaluated through November 1, 2010.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
 
None.
 
Item 9A (T). Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executiveChief Executive and financial officer,Principal Financial Officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship of possible controls and procedures.

36

As of July 31, 2010,2011, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were ineffective as a result of a significant deficiencies and material weaknesses as discussed in the following paragraph.

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

Management's Annual Report on Internal Control over Financial Reporting

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

Management assessed the effectiveness of internal control over financial reporting as of July 31, 2010.2011. We carried out this assessment using the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework.

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

Management's report was not subject to attestation by our registered public accounting firm, pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report. Management concluded in this assessment that, as of July 31, 2010, given the above reportable conditions,2011, our internal control over financial reporting was effective.

There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
during the fourth quarter of our 20102011 fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
38

 Limitations on the Effectiveness of Controls
 
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives. The Company's Chief Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.

Item 9B. Other Information.

None.
PART III
 
Item 10. Directors, Executive Officers, and Corporate Governance.

Our executive officers and directors and their respective ages as of October 30, 201031, 2011 are as follows:

37

Name Age Position
Stacey Fling 5152 Chief Executive Officer, President and Director
Holly. Roseberry 5859 Director

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

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

Holly Roseberry was appointed as our secretary, treasurer and chief financial officer February 2002. On November 15, 2002, she resigned from these positions and was appointed as our President, Chief Executive Officer and as a Director.  On May 1, 2009, she resigned from all offices held with the Company while agreeing to continue as a Director. From 2001 to 2003, she managed the Azra Shopping Center. She obtained a Bachelor of Arts degree from Sacred Heart University in Bridgeport, Connecticut in 1973. Ms. Roseberry was employed from 1993 to 1996 as human resources
 manager, and from 1997 to 1999 as business  office  manager,  for a Las Vegas  Wards Department Store.  Ms. Roseberry has held the positions of President, Chief Executive Officer and a Director of our former majority-owned subsidiary, Zingo, Inc. August 30, 2005 to June 4, 2008. MsMs. Roseberry now consults with the Company providing valuable advice based on her experience.experience with the Company.

Term of Office

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

Committees

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

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Corporate Code of Conduct

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

Significant Employees

We have no significant employees other than the officers described above.
 
 Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who beneficially  own more  than ten  percent  of the Company's  equity  securities,  to file  reports  of  ownership  and  changes in ownership with the Securities and Exchange Commission.  Officers,  directors and greater than ten percent  shareholders are required by SEC regulation to furnish the  Company  with copies of all  Section  16(a)  forms they file.  Based on its review of the copies of such forms  received  by it, the Company  believes  that during the fiscal  year ended  July  31,  20102011, all such  filing  requirements applicable to its officers and  directors  were  complied  with.
 
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Item 11. Executive Compensation.

The following table sets forth certain information as to the Company's  highest
paid executive officers and directors for  the  Company's  fiscal years ended July 31, 2009, 20082011, 2010, and 2007.2009.  No other compensation was paid to any such  officer or director other than the cash compensation set forth below.

Summary Compensation Table

Name and Principal Position Year * Salary ($)  Bonus ($)  
Stock
Awards ($)
  
Option
Awards ($)
  
Non-Equity
Incentive Plan
Compensation ($)
  
Change in Pension Value
and Nonqualified
Deferred Commensation
Earnings ($)
  
All Other
Compensation
($)
  Total ($)  Year * Salary ($)  Bonus ($)  
Stock
Awards ($)
  
Option
Awards ($)
  
Non-Equity
Incentive Plan
Compensation ($)
  
Change in Pension Value
and Nonqualified
Deferred Commensation
Earnings ($)
  
All Other
Compensation
($)
  Total ($) 
(a) (b) (c)  (d)  (e)  (f)  (g)  (h)  (i)  (j)  (b) (c)  (d)  (e)  (f)  (g)  (h)  (i)  (j) 
                                                    
Stacey Fling, President 2009 $16,923  $-  $-  $-  $-  $-  $-  $16,923  2009 $16,923  $-  $-  $-  $-  $-  $-  $16,923 
 2010 74,100  -  -  -  -  -  -  74,100  2010  74,100   -   -   -   -   -   -   74,100 
                                   2011  61,200   -   -   -   -   -   -   61,200 
                                  
Holly Roseberry, Director 2008 64,720  -  -  -  -  -  -   64,720  2009  52,040   -   -   -   -   -   1,154   53,194 
 2009 52,040  -  -  -  -  -  1,154   53,194  2010  -   -   -   -   -   -   -   - 
 2010 -  -  -  -  -  -   -   -  2011  -   -   -   -   -   -   -   - 
        
* Years ended July 31, 2011, 2010 2009 and 2008.

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

Option/SAR Grants in Last Fiscal Year

There were no grant of options to purchase our common stock to our officers or directors in fiscal 2010,2011, and there were no exercises of such options during or options held at the end of such fiscal year by officers or directors.
 
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Directors’ Compensation

The following table shows compensation paid to our directors in the fiscal year ended July 31, 2010.2011.
 
Director Compensation

Name 
Fees Earned
or Paid in
Cash ($)
  
Stock
Awards ($)
  
Option
Awards ($)
  
Non-Equity
Incentive Plan
Compensation ($)
  
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)
  
All Other
Compensation ($)
  Total ($)  
Fees Earned
or Paid in
Cash ($)
  
Stock
Awards ($)
  
Option
Awards ($)
  
Non-Equity
Incentive Plan
Compensation ($)
  
Change in
Pension Value
and Nonqualified
Deferred
Compensation
Earnings ($)
  
All Other
Compensation ($)
  Total ($) 
(a) (b)  (c)  (d)  (e)  (f)  (g)  (h)  (b)  (c)  (d)  (e)  (f)  (g)  (h) 
Stacey Fling $12,000                 $12,000  $12,000                      $12,000 
Holly Roseberry $30,090                      $30,090  $52,000                      $52,000 

*  Stacey Fling has acted as a director since May 1, 2009; Mehboob Charania resigned as a director on November 28, 2008; Brian Newman resigned as a director on May 1, 2009; Gregory Navone resigned as a director on July 10, 2009; and Holly Roseberry commenced service as a Director on November 15, 2002.
 
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth certain information concerning the number of shares of our common stock owned  beneficially as of  October 28, 2010,17, 2011, by: (i) each person  (including  any group) known to us to own more than five percent (5%) of any  class of our  voting  securities,  (ii)  each of our  directors, and (iii)officers and directors as a group. Unless otherwise indicated,  the shareholders listed  possess  sole  voting and  investment  power with  respect to the shares shown.

 
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Title of Class Owner 
Number of
Shares of
Common Stock
  
Percentage of
Outstanding
  Owner 
Number of
Shares of
Common Stock
  
Percent
Outstanding
 
Common Stock                
 Stacey Fling, President and Chief Executive Officer 107   *  
Stacey Fling, President and Chief Executive Officer
5413 Rusty Anchor Court
Las Vegas, NV 89130
  107   * 
 4933 W. Cragi Road                  
 Las Vegas, NV 89130        
Holly Roseberry, Director
1260 North Sloan Lane
Las Vegas, NV 89110
  -   * 
                    
 Holly Roseberry, Director 107   *  
All Officers and Directors
Directors as a Group (2 persons)
  107   * 
 1260 North Sloan Lane                  
 Las Vegas, NV 89110        
Winsor Capital, Inc.
35 New Road #2112
Belize City, Belize
  5,000,000   15.58%
                    
 All Officers and Directors   214   *  
Honeycomb Development LLC
P.O. BOX 556
Charlestown, Nevis, West Indies
  2,500,000   7.79%
 Directors as a Group (2 persons)                  
           
Legend International, LLC
Hunkins Waterfront Plaza
Main Street
Charlestown, Nevis, West Indies
  2,500,000   7.79%
 Crystal Capital Venture   9,000,000   29.95%          
 1274 Sundial Avenue         
Starglow Asset, Inc.
171 A Belize Corozal Rd.
Orange Walk Town, Belize
  2,500,000   7.79%
 Coral Grove                 
 P.O. BOX 2135         
Wazalmin Capital Corp.
88022 - 7235 Bell Shire
Missisauga, ON, Canada
  2,005,000   6.25%
 Belize City, Belize       
          
 Rocamar Invest, Ltd. 1,504,287   5%
 2502 - 1331 W. Georgia Street        
 Vancouver, BC Canada V6E 4P1        
          
 Winsor Capital. Inc. 12,000,000   39.93%
 35 New Road, #2112        
 Belize City, Belize       
*        Less than 1%
 
(1)As of October 15, 2010,17, 2011, there were 30,047,30132,088,406 shares of our  common  stock issued and outstanding.

Change in Control

We are not aware of any arrangement that might result in a change in control in the future.
 
 Item 13. Certain Relationships and Related Transactions, and Director Independence.Independence

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

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

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

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Under the terms of the license agreement, SPISPS has agreed to invest a minimum of $1,500,000 in each of the firstnext two years in development of the technology for the Licensed Products. To date, SPISPS has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement.  The Company has advised SPISPS  that weit will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement.
 
Effective April 16, 2008, SPISPS agreed to lease approximately 5,000 square feet of space in the Company’s North Carolina facility at a rental rate of $2,500.00$2,500 per month and the monthly rental to be escalated five (5%) percent annually beginning April 16, 2009.  The leased space is suitable for, and utilized by SPISPS for, SPI’sSPS’s developmental and manufacturing operations for licensed products pursuant to the License Agreement. The leased space is leased on a month-to-month basis at a current monthly rental of $2,756.$2,894. Although the lease was signed, the space is only 80% completed as of July 31, 2010.2011. The Company also entered into a month to month lease agreement for $750 with SPI for renting offices in the Company’s Las Vegas corporate office.

 
Item 14.  Principal Accountant Fees and Services.
 Fiscal 2011  Fiscal 2010 
 Fiscal 2010  Fiscal 2009       
Audit - Related Fees (1) $37,000  $30,000  $42,000  $37,000 
Tax Fees (2) -  -   -   - 
All Other Fees -  -   -   - 
Audit committee pre-approval processes, percentages of
servicesapproved by audit committee, percentage of hours spent on audit engagement by persons other than principal accountant's full time employees.
  N/A   N/A   N/A   N/A 
(1)           Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s consolidated annual financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Madsen & Associates in connection with statutory and regulatory filings or engagements.
 
(2)           Tax Fees consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance, international tax, research, and unclaimed property services.
 
 
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Item 15. Exhibits and Financial Statement Schedules.

Exhibit
No.
 Description
3.1Articles of Incorporation of the Company.(Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed with the Commission on May 29, 2001.)
3.1aCertificate of Amendment to Articles of Incorporation filed October 27, 2004. (Incorporated by reference to Exhibit3.1a to the Company’s Current Report on Form 8-K, filed with the Commission on November 2, 2004.)
3.1bForm of Restatement of Articles of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1a to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on December 15, 2004.)
3.1cCertificate of Amendment to Articles of Incorporation, filed effective March 9, 2005. (Incorporated by reference to Exhibit 3.1c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on May 23, 2005.)
3.1dCertificate of Change, filed effective January 17, 2008. (Incorporated by reference to Exhibit 3.1d to the Company’s Current Report on Form 8-K, filed with the Commission on January 16, 2008.)
3.1eCertificate of Amendment to Articles of Incorporation, filed effective December 24, 2007, filed herewith.
3.1 Articles of Incorporation of the Company.(Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed with the Commission on May 29, 2001.)
   
3.1a Certificate of Amendment to Articles of Incorporation filed October 27, 2004. (Incorporated by reference to Exhibit3.1a to the Company’s Current Report on Form 8-K, filed with the Commission on November 2, 2004.)
   
3.1b Form of Restatement of Articles of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1a to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on December 15, 2004.)
   
3.1c Certificate of Amendment to Articles of Incorporation, filed effective March 9, 2005. (Incorporated by reference to Exhibit 3.1c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on May 23, 2005.)
   
3.1d Certificate of Change, filed effective January 17, 2008. (Incorporated by reference to Exhibit 3.1d to the Company’s Current Report on Form 8-K, filed with the Commission on January 16, 2008.)
   
3.1e Certificate of Amendment to Articles of Incorporation, filed effective December 24, 2007. (Incorporated by reference to Exhibit 3.1e to the Company’s Annual Report on Form 10-K, filed with the Commission on November 12, 2008.)

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3.1f Certificate of Amendment to Articles of Incorporation, filed effective February 19, 2009.(Incorporated by reference to Exhibit 3.1f to the Company’s Current Report on Form 8-K, filed with the Commission on February 27, 2009.)
   
3.1g Certificate of Merger with subsidiary, dated December 28, 2009, amending Articles of Incorporation of Company to change the name of the Company to Li-ion Motors Corp. (Incorporated by reference to Exhibit 3.1g to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.)
   
3.1h Certificate of Change, filed effective February 1, 2010. (Incorporated by reference to Exhibit 3.1h to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.)
   
3.1i Certificate of Amendment to Articles of Incorporation, filed effective May 17, 2010. (Incorporated by reference to Exhibit 3.1i to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.)
3.1j Certificate of Amendment to Articles of Incorporation, filed effective August 10, 2011. (Incorporated by reference to Exhibit 3.1j to the Company’s Current Report on Form 8-K, filed with the Commission on August 16, 2011.)

44
3.2 By-Laws of the Company. (Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed with the Commission on May 29, 2001.)
   
4.1 Specimen Common Stock Certificate. (Incorporated herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.)
   
4.2 Whistler Investments, Inc. 2003 Restricted Stock Plan. (Incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 filed with the Commission on July 18, 2003.)
4.3EV Innovations, Inc. 2005 Restricted Stock Plan. (Incorporated herein by reference to Exhibit 4. to the Company's Registration Statement on Form S-8 filed with the Commission on April 22, 2005.)
4.4Promissory Note, dated December 3, 2004, payable to Trade Winds Telecom, LLC. (Incorporated by reference to Exhibit 4.4 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on May 23, 2005.)
10.1Mineral Claim dated October 2, 2000.(Incorporated herein by reference to Exhibit 10.1 to the Company's Registration Statement on Form SB-2 filed with the Commission on May 29, 2001.)
10.2Mineral Property Staking and Sales agreement, dated 20 September 19, 2000, between Mr. Edward McCrossan and the Company. (Incorporated herein by reference to Exhibit 10.2 to the Company's Registration Statement on Form SB-2 filed with the Commission on May 29, 2001.)
   
10.3 Office Services Agreement, dated May 1, 2000, between the Company and Dewey Jones. (Incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form SB-2 filed with the Commission on May 29, 2001.)
   
10.4 Asset Purchase Agreement dated April 10, 2002 between Salim S. Rana Investments Corp. and Whistler Investments, Inc. (Incorporated by reference to Exhibit No. 10.1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on May 6, 2002.)
   
10.5 Agreement dated January 1, 2003 between Whistler Investments, Inc. and Kim Larsen respecting the disposition of Azra Shopping Center. (Incorporated by reference to Exhibit 10.1 to the Company's Amendment No. 1 to its Annual Report on Form 10-KSB filed May 8, 2003)

45
10.6 Amendment to Licensing Agreement, dated October 21, 2003, between Nu Age Electric Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed with the Commission on November 21, 2003.)

43
10.7 Agreement dated October 21,2003, by and between RV Systems, Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed with the Commission on November 21, 2003.)
   
10.8 Investment Agreement, dated as of January 19, 2004, by and between Whistler Investments, Inc. and Dutchess Private Equities Fund, L.P. (Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K, filed with the Commission on January 23, 2004.)
   
10.9 Registration Rights Agreement dated as of January 19, 2004, by and between Whistler Investments, Inc. and Dutchess Private Equities Fund, L.P. (Incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K, filed with the Commission on January 23, 2004.)
   
10.10 Stock Redemption and Reissuance Agreement, dated as of February 10, 2004, Between Whistler Investments, Inc. and Salim S. Rana Investments, Inc. (Incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)
   
10.11 Letter from City of Austin, Texas, dated February 27, 2004. (Incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)
   
10.12 Memorandum of Understanding, dated March 15, 2004, between Shanghai Geely Metop International and the Global Electric 21 subsidiary of Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)
   
10.13 Loan Agreement, made as of the 20th day of February, 2004, among Sterling Capital Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)
   
10.14 Letter Agreement, dated February 3, 2004, between Whistler Investments, Inc. and RV Systems, Inc. (Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.)
   
10.15 Purchase and Sale Agreement, made effective as of the 3rd day of December, 2004, between WhistlerTel, Inc. and Trade Winds Telecom, LLC. (Incorporated by reference to Exhibit 10.15 to the Company's Current Report on Form 8-K, filed with the Commission on December 8, 2004.)
   
10.16 Bill of Sale and Assignment, dated as of December 3, 2004, between Trade Winds Telecom LLC and Whistlertel,Inc. (Incorporated by reference to Exhibit 10.16 to the Company's Current Report on Form 8-K, filed with the Commission on December 8, 2004.)
   
10.17 Agreement and Plan of Reorganization, dated as of August 18, 2005, among the Company, Whistlertel, Inc. and Javakingcoffee, Inc. (Incorporated by reference to Exhibit 10.17 to the Company's Current Report on Form 8-K, filed with the Commission on August 24, 2005.)

46
10.18 Notice, dated July 2, 2005, from EV Innovations, Inc. To RV Systems, Inc. (Incorporated by reference to Exhibit10.18 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 26, 2005.)

44
10.19 Non-reimbursable Space Act Agreement between National Aeronautics and Space Administration, John F. Kennedy Space Center and EV Innovations, Inc. (Incorporated by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on March 17, 2006.
   
10.20 Agreement dated March 30, 2006 between Paratransit, Inc. and the Company. (Incorporated herein by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.)
   
10.21 Request for Pilot Approval, submitted May 31, 2006, to New York City Taxi and Limousine Commission by the Company. (Incorporated herein by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.)
   
10.22 Consulting Agreement, dated March 26, 2007, between Hybrid Technologies, Inc. and Griffen Trading Company.(Incorporated by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on June 19, 2007.)
   
10.23 Loan Agreement, dated as of October 29, 2007, between Wyndom Capital Investments, Inc. and the Company.(Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 13, 2007.)
   
10.24 Form of Note issuable pursuant to the Loan Agreement, dated October 29, 2007, between Wyndom Capital Investments, Inc. and the Company, filed herewith. (Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 13, 2007.)
   
10.25 Stock Purchase Agreement, dated as of April 15, 2008, between the Company and Blue Diamond Investments, Inc.(Incorporated by reference to Exhibit 10.25 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2008.)
   
10.26 License Agreement, dated April 15, 2008, between the Company and Zingo, Inc. (now SuperlatticeSky Power Power, Inc.).(Incorporated by reference to Exhibit 10.25 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2008.)
   
10.27 Loan Agreement, dated as of May 5, 2008, between Crystal Capital Ventures Inc. and the Company. (Incorporated by reference to Exhibit 10.27 to the Company’s Current Report on Form 8-K, filed with the Commission on June 6, 2008.)
   
10.28 Form of Note issuable pursuant to the Loan Agreement, dated May 5, 2008, between Crystal Capital Ventures Inc. and the Company. (Incorporated by reference to Exhibit 10.28 to the Company’s Current Report on Form 8-K, filed with the Commission on June 6, 2008.)
   
10.29 Letter to the SuperlatticeSky Power Power, Inc., dated October 1, 2009, waiving default under April 14, 2008 License Agreement, filed herewith.
   
10.30 Loan Agreement, dated as of April 15, 2010, between Winsor Capital Inc. and the Company. (Incorporated by reference to Exhibit 10.30 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2010.)

47
10.31 Form of Note issuable pursuant to the Loan Agreement, dated April 15, 2010, between Winsor Capital Inc. and the Company. (Incorporated by reference to Exhibit 10.31 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2010.)

45
10.32 License Agreement, made effective May 28, 2010, between the Company and Lithium Electric Vehicle Corp. (Incorporated by reference to Exhibit 10.32 to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.)
   
10.33 Promissory Note, payable to Frontline Asset Management, Inc., filed herewith.
   
10.34 Amendment to Promissory Note, dated October 11 , 2010, between the Company and Frontline Asset Management, Inc., filed herewith.
   
10.35 Amendment, dated as of October  11, 2010, to License Agreement, dated as of May 28, 2010, by and between the Company and Lithium Electric Vehicle Corp., filed herewith.
   
10.36 Amendment, dated as of October 12, 2010, to Loan Agreement, dated as of May 5, 2008, between the Company and Crystal Capital Investments, filed herewith.
   
10.37 Amendment, dated May 25, 2010, to License Agreement, dated April 14, 2008, between the Company and SuperlatticeSky Power Power, Inc., filed herewith.
   
10.38Stock Purchase Warrant, dated April 19, 2011, issued to Starglow Asset, Inc. (Incorporated by reference to Exhibit 10.38 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on June 14, 2011.)
10.39Stock Purchase Warrant, dated April 19, 2011, issued to Winsor Capital, Inc. (Incorporated by reference to Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on June 14, 2011.)
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.

 EV INNOVATIONS, INC. 
    
Date: November 2, 201015, 2011By:/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 and C.E.O. 
 (President, Chief Executive Officer 
 Principal Financial Officer and Director) 
   
Date: November 2, 201015, 2011 
   
   
By: /s/ Holly Roseberry 
 Holly Roseberry 
 (Director) 
   
Date: November 2, 201015, 2011 

 
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