UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended ~~October~~January 31, ~~2011~~2012
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission file number 000-33391

(Name of Registrant as Specified in Its Charter)

Nevada (State or Other Jurisdiction of Incorporation or Organization)		88-0490890 (I.R.S. Employer Identification No.)
4894 Lone Mountain #168, Las Vegas, Nevada (Address of Principal Executive Offices)		89130 (Zip Code)
(702) ~~425-7376~~ 940-9940 (Issuer’s Telephone Number, Including Area Code)

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

None

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

Common Stock, Par value $0.01 per share

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

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

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

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

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

On ~~December 8, 2011,~~March 19, 2012, there were ~~32,088,513~~26,423,455 shares of common stock outstanding.

Table of Contents

~~TAB~~TABLE LE OF CONTENTS

	Page No.
PART I. FINANCIAL INFORMATION

ITEM I1 – Unaudited Financial Statements	3

Balance Sheets as of ~~October~~January 31, ~~2011~~2012 and July 31, 2011 (Unaudited)	4

Consolidated Statements of Operations for the Three and Six Months Ended ~~October~~January 31, ~~2011~~2012 and ~~2010~~2011 (Unaudited)	5

Consolidated Statement of Comprehensive Income (Loss) for the Three and Six Months Ended ~~October~~January 31, ~~2011~~2012 and ~~2010~~2011 (Unaudited)	6

Consolidated Statements of Cash Flows for the ~~Three~~Six Months Ended ~~October~~January 31, ~~2011~~2012 and ~~2010~~2011 (Unaudited)	7

Statement of Stockholders Deficiency (Unaudited)	8

Notes to Unaudited Consolidated Financial Statements	9

ITEM 2 – Management's Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations	1719

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk	2123

ITEM 4T – Controls and Procedures	2123

PART II. OTHER INFORMATION

ITEM 1 – Legal Proceedings	22 24

ITEM 6 – Exhibits	2324

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PART I. FINANCIAL INFORMATION

~~ITE~~ITEM M 1. Financial Statements

Certain information and footnote disclosures required under accounting principles generally accepted in the United States of America have been condensed or omitted from the following consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that the following consolidated financial statements be read in conjunction with the year-end consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended July 31, 2011. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. The results of operation for the ~~three~~six months ended ~~October~~January 31, ~~2011~~2012 and ~~2010~~2011, are not necessarily indicative of the results for the entire fiscal year or for any other period.

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Li-ion Motors Corp.

Consolidated Balance Sheets

~~(unaudited)~~(unaudited)

	October			July 31,			January 31,			July 31,
	2011			2011			2012			2011
Assets

Current assets:

Cash and cash equivalents	$	284		$	5,118		$	431		$	5,118
Notes receivable, net of allowance for doubtful accounts of $782,680 and $762,327 respectively		1,750,000			1,750,000
Accounts receivable, net of allowance for doubtful accounts of $473,977 and $0, respectively								-			-
Notes receivable, net of allowance for doubtful accounts of $2,543,822, and $762,327, respectively								-			1,750,000
Inventories		466,690			380,558			209,947			380,558
Employee advances		-			-
Other current assets		246,694			193,893			55,761			193,893

Total current assets		2,463,668			2,329,569			266,139			2,329,569

Property and equipment, net		1,960,666			1,983,739			1,807,799			1,983,739

Deferred patent and trademark costs		36,583			35,858			36,733			35,858

Total assets	$	4,460,917		$	4,349,166		$	2,110,671		$	4,349,166

Liabilities and Stockholders' Equity (Deficiency)

Current liabilities:

Bank overdrafts	$	2,540		$	-		$	806		$	-
Accounts payable and accrued expenses		1,271,058			1,156,136			1,456,410			1,156,136
Current portion of long-term debt		855,000			399,407			334,571			399,407
Customer deposits		102,188			102,287			102,188			102,287
Deferred license agreement revenue		199,333			324,333			341,667			324,333

Total current liabilities		2,430,119			1,982,163			2,235,642			1,982,163

Long-term liabilities:

Long-term debt, less current portion		934,333			939,608			928,895			939,608
Deferred license agreement revenue, less current portion		1,327,083			1,370,833			1,283,333			1,370,833

Total liabilities		4,691,535			4,292,604			4,447,870			4,292,604

Commitments and contingencies		-			-			-			-

Stockholders' equity (deficiency)

Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding		-			-			-			-
Common stock, $.001 par value, 300,000,000 shares authorized, 32,088,513 issued and
outstanding at October 31, 2011 and July 31, 2011, respectively.		52,088			52,088
Common stock, $.001 par value, 60,000,000 shares authorized, 26,418,322 issued and 6,418,322 outstanding at January 31, 2012 and July 31, 2011, respectively.								26,418			26,418
Additional paid-in capital		62,613,779			62,613,779			62,639,449			62,639,449
Accumulated deficit		(62,867,331	)		(62,580,108	)		(64,974,380	)		(62,580,108	)
Accumulated other comprehensive loss		(9,154	)		(9,197	)		(8,686	)		(9,197	)
								(2,317,199	)		76,562
		(210,618	)		76,562
Less: Treasury stock, 20,000,000 shares at cost		(20,000	)		(20,000	)		(20,000	)		(20,000	)

Stockholders' equity (deficiency) attributable to Li-ion Motors Corp.		(230,618	)		56,562			(2,337,199	)		56,562

Non-controlling interests		-			-			-			-
Stockholders' equity (deficiency)		(230,618	)		56,562			(2,337,199	)		56,562
Total stockholders' equity (deficiency)		(230,618	)		56,562			(2,337,199	)		56,562

Total liabilities and stockholders' equity (deficiency)	$	4,460,917		$	4,349,166		$	2,110,671		$	4,349,166

See accompanying notes to unaudited consolidated financial statements

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Li-ion Motors Corp.

Consolidated Statements of Operations

~~(unaudited)~~(unaudited)

	For the Three Months Ended						For the Three Months Ended						For the Six Months Ended
	October 31,						January 31						January 31
	2011			2010			2012			2011			2012			2011
Revenue:
Sales	$	3,568		$	1,985		$	473,128		$	2,486		$	476,696		$	4,472
License agreement revenue		168,750			125,000			168,750			125,000			337,500			250,000
Total revenue		172,318			126,985			641,878			127,486			814,196			254,472

Costs and expenses:
Cost of sales		595			350			257,452			16,303			258,047			16,653
General and administrative		224,218			364,530			2,396,441			517,840			2,620,659			882,370
Research and development		255,866			481,977			155,785			547,228			411,651			1,029,205

Total costs and expenses		480,679			846,857			2,809,678			1,081,371			3,290,357			1,928,228

Loss from operations		(308,361	)		(719,872	)		(2,167,800	)		(953,885	)		(2,476,161	)		(1,673,756	)

Other (expenses) income:
Interest expense		(41,533	)		(157,838	)		(32,309	)		(144,883	)		(73,842	)		(302,721	)
Other income		62,671			2,443,291			93,060			109,508			155,731			2,552,799

Net earnings (loss) before provision for (benefit from) income taxes		(287,223	)		1,565,581			(2,107,049	)		(989,260	)		(2,394,272	)		576,322

Provision for (benefit from) income taxes		-			-			-			-			-			-

Net earnings (loss)		(287,223	)		1,565,581			(2,107,049	)		(989,260	)		(2,394,272	)		576,322

Less: Net earnings (loss) attributable to non-controlling interest		-			-			-			-			-			-

Net earnings (loss) attributable to Li-ion Motors Corp	$	(287,223	)	$	1,565,581		$	(2,107,049	)	$	(989,260	)	$	(2,394,272	)	$	576,322

Earnings (loss) per share - basic and diluted:
Earnings (loss) per common share attributable to Li-ion Motors Corp. common shareholders	$	(0.01	)	$	0.05		$	(0.33	)	$	(0.16	)	$	(0.37	)	$	0.10

Weighted average number of shares outstanding - basic and diluted		32,088,513			30,047,301			6,418,322			6,010,079			6,418,322			6,010,079

See accompanying notes to unaudited consolidated financial ~~statements.~~

statements

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~~Li-i~~onLi-ion Motors Corp.

Consolidated Statement of Comprehensive Income (Loss)

~~(unaudited)~~

(unaudited)

For the Three Months Ended
October 31,
2011 2010
Net earnings (loss) $ (287,223 ) $ 1,565,581

Other comprehensive income
Currency translation adjustment 43 (400 )

Comprehensive income (loss) (287,180 ) 1,565,181

Comprehensive income (loss) attributable to noncontrolling interest - -

Comprehensive income (loss) attributable to Li-ion Motors Corp $ (287,180 ) $ 1,565,181

	For the Three Months Ended						For the Six Months Ended
	January 31						January 31
	2012			2011			2012			2011
Net earnings (loss)	$	(2,107,049	)	$	(989,260	)	$	(2,394,272	)	$	576,322

Other comprehensive income
Currency translation adjustment		468			(535	)		511			(135	)

Comprehensive income (loss)		(2,106,581	)		(989,795	)		(2,393,761	)		576,187

Comprehensive income (loss) attributable to noncontrolling interest		-			-			-			-

Comprehensive income (loss) attributable to Li-ion Motors Corp	$	(2,106,581	)	$	(989,795	)	$	(2,393,761	)	$	576,187

See accompanying notes to unaudited consolidated financial statements

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Li-ion Motors Corp.

Consolidated Statements of Cash Flows

(unaudited)

~~(unaudited)~~

	For the Three Months Ended						For the Six Months Ended
	October 31,						January 31,
	2011			2010			2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)	$	(287,223	)	$	1,565,581		$	(2,394,272	)	$	576,322
Adjustments to reconcile net earnings (loss) to net cash utilized by operating activities
Depreciation		23,073			19,476			31,716			38,847
Loss on disposal of property and equipment								4,687			-
Provision for doubtful accounts		20,353			71,065			2,167,313			(5,131	)
Licensing fees		(43,750	)		-			(354,833	)		-
Non-cash sale of property and equipment								139,537
Non-cash sale of inventories								255,000
Non-cash sale of electric vehicles								217,000
Increase (decrease) in cash flows from changes in operating assets and liabilities
Inventories		(86,132	)		-			(84,389	)		-
Employee advances		-			7,300			-			(1,103	)
Prepaid expenses and other current assets		(52,801	)		(53,824	)		138,132			8,656
Deferred patent and trademark costs		(725	)		-			(875	)		(43,189	)
Bank overdraft		2,540			(14,104	)		806			(2,334	)
Accounts payable and accrued expenses		114,921			105,750			300,274			(264,483	)
Customer deposits		(99	)		-			(99	)		594
Deferred revenue		(125,000	)		(125,631	)		(66,000	)		(251,262	)
Net cash provided by (used in) operating activities		(434,843	)		1,575,613			353,997			56,917

CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment		-			-			-			-
Net cash used in investing activities		-			-			-			-

CASH FLOWS FROM FINANCING ACTIVITIES:
Advances on notes receivable		(35,976	)		(71,065	)		(54,539	)		(109,279	)
Payments received on notes receivable		15,623			-			22,984			114,410
Proceeds from issuance of debt		475,027			560,835			572,462			832,755
Payments on debt		(24,708	)		(474,621	)		(900,102	)		(895,655	)
Advances from related parties		-			-
Payments to related parties		-			-
Net cash provided by (used in) financing activities		429,966			15,149			(359,195	)		(57,769	)

Effect of exchange rate changes on cash and cash equivalents		43			-			511			(135	)

CHANGE IN CASH AND CASH EQUIVALENTS
Net increase (decrease) in cash and cash equivalents		(4,834	)		1,590,762			(4,687	)		(987	)
Cash and cash equivalents at beginning of period		5,118			2,113			5,118			2,113

Cash and cash equivalents at end of period	$	284		$	1,592,875		$	431		$	1,126

SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid during the period for:
Interest	$	9,411		$	15,216		$	9,975		$	319,724
Income taxes	$	-		$	-		$	-		$	-

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
Property and equipment, inventories and electric vehicles exchanged for payment on debt							$	611,537		$	-

See accompanying notes to unaudited consolidated financial statements

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Li-ion Motors Corp.

Consolidated Statement of Stockholders' Equity (Deficiency)

For the Periods Ended As Noted

(unaudited)

	Number of Common Shares		Common Shares $0.01 Par Value		Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Treasury Stock at Cost			Non-Controlling Interest		Comprehensive Income (Loss)			Total

Balance - August 1, 2010		6,010,079	$	6,010	$	56,782,548	$	(62,699,029	)	$	(8,436	)	$	-		$	-				$	(5,918,907	)

Issuance of stock for conversion of promissory notes		408,243		408		5,856,901		-			-			-			-					5,857,309
Common stock issued as collateral on loan		20,000,000		20,000		-		-			-			(20,000	)		-					-
Foreign currency translation		-		-		-		-			(761	)		-			-	$	(761	)		(761	)
Net earnings		-		-		-		118,921			-			-			-		118,921			118,921
Comprehensive income																		$	118,160			-

Balance - July 31, 2011		26,418,322		26,418		62,639,449		(62,580,108	)		(9,197	)		(20,000	)		-					56,562

Foreign currency translation		-		-		-		-			511			-			-	$	511			511
Net earnings		-		-		-		(2,394,272	)		-			-			-		-			(2,394,272	)
Comprehensive income																		$	511			-

Balance - January 31, 2012		26,418,322	$	26,418	$	62,639,449	$	(64,974,380	)	$	(8,686	)	$	(20,000	)	$	-				$	(2,337,199	)

See accompanying notes to unaudited consolidated financial statements

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Li-ion Motors Corp.

~~Consolidated Statement of Stockholders' Equity (Deficiency)~~

~~For the Periods Ended As Noted~~

~~(unaudited)~~

Number of
Common Shares

Common Shares
$0.01
Par Value

Additional Paid in
Capital

Accumulated
Deficit

Accumulated Other
Comprehensive
Income (Loss)

Treasury Stock
at Cost
Non-Controlling Interest
Comprehensive
Income (Loss)
Total

Balance - August 1, 2010 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

Foreign currency translation - - - - 43 - - $ 43 43
Net earnings - - - (287,223 ) - - - (287,223 ) (287,223 )
Comprehensive income $ (287,180 ) -

Balance - October 31, 2011 52,088,513 $ 52,088 $ 62,613,779 $ (62,867,331 ) $ (9,154 ) $ (20,000 ) $ - $ (230,618 )

~~See accompanying notes to unaudited consolidated financial statements~~

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Li~~-ion Motors Corp.~~

Notes to Unaudited Consolidated Financial Statements

~~October~~January 31, ~~2011~~2012

Note 1. Financial Statement Presentation

History and Nature of Business

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

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

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

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

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

The license agreement consists of an annual fee of $500,000 for ten years and an additional $1,750,000 based on a valuation report prepared by an independent third party. LEVC is required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year. The Company has received $732,666 from LEVC with a balance due of $267,334 as of ~~October~~January 31, ~~2011,~~2012, which is now delinquent. The Company has ~~not~~ reflected the delinquent amount due from LEVC ~~but~~in its accounts receivable and has established a reserve for doubtful accounts for the entire amount. The Company has recorded the amount received and the receivable as deferred revenue and has amortized the license fee income ratably over the 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. Due to the uncertainty of LEVC’s ability to complete the public registration in Germany and with LEVC having no assets to secure the note, the Company has recorded a reserve for doubtful accounts for the entire note amount of $1,750,000.

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Effective January 3, 2012, the Company entered into a management agreement with Advanced Technology Services, Inc. (“ATS”). The agreement stipulates that (1) ATS is responsible for the supervision of all persons who perform compensated services on behalf of the Company. Except for the Company’s President and Director, ATS shall employ and/or enter into consultant contracts with all persons who perform compensated services on its behalf, on such terms and conditions as are consistent with its budget and other requirements of its funds. All such persons shall be employees and independent contractors of ATS and not of the Company and ATS shall be responsible for all income and payroll tax withholding and reporting. (2) In administering funds, ATS will establish and maintain one or more bank accounts and will follow the same internal operating procedures regarding expense authorization and check writing procedures, including expense documentation requirements, as it follows for withdrawals of its own funds. (3) Maintenance of accurate, complete, and separate financial records, kept in accordance with generally accepted accounting principles, and ATS will prepare a monthly and a fiscal year-end balance sheet and income/expense statement for delivery to the Company within thirty (30) days after the close of the period. The Company may inspect any of its financial records at any reasonable time. (4) Neither party shall be liable to the other party or to third parties for the acts or omissions of the other party. Each party shall indemnify, assume the defense of (if requested), and hold harmless the other party and its directors, officers, employees, and agents from every claim, loss, damage, injury, expense (including attorney’s fees), judgment, and liability of every kind, nature, and description (“Liability”) arising in whole or in part from the indemnifying party’s negligent, fraudulent, or illegal acts or omissions except, as to the party requesting indemnification, to the extent such Liability results in whole or in part from the unauthorized, negligent, fraudulent, or illegal act or omission of the party requesting indemnification. In recognition for its services, ATS will receive a 10% management fee based upon of all expenditures for the month.

Basis of Presentation

Going Concern

The Company’s financial statements for the quarter ended ~~October~~January 31, ~~2011,~~2012, have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. ~~The Company did not have any revenue from vehicle sales during the first quarter 2012.~~ Management recognized that the Company’s continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses, as the Company continues to incur losses from operations.

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

The Company’s ability to raise additional capital is affected by trends and uncertainties beyond its control. The Company does not currently have any arrangements for financing and it may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor sentiment. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to it. These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include adjustments that might result from the outcome of these uncertainties.

Common Stock

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

On December 13, 2011, the Board of Directors unanimously approved an amendment to the Company’s Articles of Incorporation to decrease the authorized number of shares of common stock from 300 million shares, par value $.001 per share, to 60 million shares, par value $.001 per share. The Company filed the amendment with the Secretary of State of Nevada on December 14, 2011.

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Effective January 26, 2012, the Securities and Exchange Commission approved a one-for-five reverse split of the common stock. All share and per share amounts have been restated to reflect the one-for-five reverse stock split.

Note 2. Summary of Significant Accounting Policies

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended July 31, 2011. There were no significant changes to these accounting policies during the three months ended ~~October~~January 31, ~~2011~~2012 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

Reclassifications

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

Note 3. Notes Receivable

During the ~~three~~six months ended ~~October~~January 31, ~~2011,~~2012, the Company advanced Sky Power Solutions Corp. (“SPS”) ~~$35,976~~$54,539 of which ~~$15,623~~$22,984 was repaid through a reimbursement for a leased employee. During the ~~three~~six months ended ~~October~~January 31, ~~2010~~2011, the Company advanced SPS ~~$71,065,~~$109,279, of which ~~none~~$114,410 was repaid ($74,000 in the form of cash and ~~the~~$40,410 in reimbursement for a leased employee). The entire amount was reserved as an allowance for doubtful accounts . As of ~~October~~January 31, ~~2011~~2012 and July 31, 2011, an allowance for doubtful accounts in the amount of ~~$782,680~~$793,882 and $762,327, respectively, was recorded against the note receivable, reducing the amount to $0.

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

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~~The Company has assessed whether the loan is impaired and collectability is assured.~~ LEVC is currently attempting to complete a public registration in Germany. The Company has the option, upon the completion of the registration, of converting the note into LEVC common stock. Due to the uncertainty of LEVC’s ability to complete the public registration in Germany and with LEVC ~~believes~~having no assets to secure the ~~registration will be completed on or at December 31, 2011. The~~note, the Company ~~will further assess~~has recorded a reserve for doubtful accounts for the ~~collectability~~entire note amount of ~~the loan at that time should the registration not be completed. Management has determined no impairment existed at October 31, 2011.~~$1,750,000.

The Company recognized interest income of ~~$44,110,~~$88,219, none of which has been received, in accordance to the terms of the LEVC Note for the ~~three~~six months ended ~~October~~January 31, ~~2011, all~~2012. The Company has reflected the amount due from LEVC in its accounts receivable and has established a reserve for doubtful accounts for the entire amount.

Table of ~~which is included in other current assets as of October 31, 2011. See Note 6 for further information.~~Contents

Note 4. Inventories

Inventories consist of the following:

	October 31,		July 31,		Janury 31,		July 31,
	2011		2011		2012		2011
Raw Materials	$	1,103	$	1,103	$	1,103	$	1,103
Work-In-Progress		430,587		344,455		208,844		344,455
Finished Goods		35,000		35,000		-		35,000
	$	466,690	$	380,558	$	209,947	$	380,558

Raw materials, work in progress and finished goods for the quarter ended ~~October~~January 31, ~~2011,~~2012, and year ended July 31, 2011, are related to the Company’s planned sales of electric powered vehicles.

Note 5. Property and Equipment

Property and equipment consist of:

	October 31,			July 31,			January 31,			July 31,
	2011			2011			2012			2011
Building and Improvements	$	1,292,276		$	1,292,276		$	1,292,276		$	1,292,276
Equipment and Furniture and Fixtures		328,663			328,663			4,827			328,663
Vehicles		66,429			66,429			-			66,429
Software Costs		28,913			28,913			-			28,913
Land		700,000			700,000			700,000			700,000
		2,416,281			2,416,281			1,997,103			2,416,281

Less Accumulated Depreciation		(455,615	)		(432,542	)		(189,304	)		(432,542	)
Net Property and Equipment	$	1,960,666		$	1,983,739		$	1,807,799		$	1,983,739

Depreciation expense for the three months ended ~~October~~January 31, 2012 and 2011, was $8,643and $19,372, respectively. Depreciation expense for the six months ended January 31, 2012 and ~~2010~~2011, was ~~$23,073~~$31,716 and ~~$19,476,~~$38,847, respectively, and is included in general and administrative expenses on the Company’s consolidated statement of operations.

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During the three months ended January 31, 2012, the Company sold its equipment, furniture and fixtures, vehicles and software to Frontline Asset Management (“Frontline”) at net book value for $139,537 and was applied to our promissory note with Frontline (See Note 8).

Note 6. Other Current Assets

	October 31,		July 31,		January 31,		July 31,
	2011		2011		2012		2011

Retainers and Deposits	$	4,957	$	4,957	$	4,957	$	4,957
Deferred Product Asset		2,412		4,958		804		4,958
Prepaid Expenses		76,791		65,553		50,000		65,553
Interest Receivable		162,534		118,425		-		118,425

Total	$	246,694	$	193,893	$	55,761	$	193,893

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The deferred product asset is for product liability costs that the Company prepared and amortized over the two year life in the amount of ~~$23,182~~$24,132 and $20,636 as of ~~October~~January 31, ~~2011~~2012 and July 31, 2011, respectively and is included in accrued expenses-other.

Note 7. Accounts Payable and Accrued Expenses

Accounts payable, accrued expenses and other current liabilities at ~~October~~January 31, ~~2011~~2012 and July 31, 2011 consisted of:

	October 31,		July 31,		January 31,		July 31,
	2011		2011		2012		2011

Accounts Payable	$	711,404	$	608,623	$	795,391	$	608,623
Accounts Payable - Related Parties		25,336		28,029		25,117		28,029
Wages, Paid Leave and Payroll Related Taxes		326,390		259,122		449,456		259,122
Accrued Interest		29,366		8,403		20,938		8,403
Legal Settlements		168,951		171,750		158,951		171,750
Other		9,611		80,209		6,557		80,209

Total	$	1,271,058	$	1,156,136	$	1,456,410	$	1,156,136

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

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Note 8. Long-Term Debt

Long-term debt consists of:

October 31, July 31,
2011 2011
5% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,433 including interest, collateralized by real property due in full on or before March 2038 (1) $ 949,112 $ 951,921

9.367% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1,000, due in full on February 28, 2012 (2) 3,098 6,112

8.683% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1,800, due in full on October 26, 2012 (3) 17,393 -

12% Note payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2012 (4) 793,289 349,465

48.956% Note payable to Amicus Funding Group, LLC, payable in monthly installments of approximately $467, collateralized by real property due in full on September 1, 2013 (5) 6,878 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 (6) 19,563 24,123

1,789,333 1,339,015
Less Current Portion (855,000 ) (399,407 )
$ 934,333 $ 939,608

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

2012 $ 855,000
2013 22,413
2014 19,297
2015 20,301
2016 21,357
Thereafter 850,965
$ 1,789,333

	January			July 31,
	2012			2011
5% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,433 including interest, collateralized by real property due in full on or before March 2038 (1)	$	949,111		$	951,921

9.367% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1,000, due in full on February 28, 2012 (2)		-			6,112

12% Note payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2013 (3)		38,293			349,465

48.956% Note payable to Amicus Funding Group, LLC, payable in monthly installments of approximately $467, collateralized by real property due in full on September 1, 2013 (4)		6,499			7,394

26.85% Note payable to Treger Financial, payable in monthly installments of approximately $2,000, collateralized by real property due in full on June 1, 2012 (5)		19,563			24,123

10% Note payable to Cameo Properties, LLC payable in monthly installments of interest only, due in full on December 27, 2014 (6)		250,000			-

		1,263,466			1,339,015
Less Current Portion		(334,571	)		(399,407	)
	$	928,895		$	939,608

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Principal maturities for long-term debt are as follows for the second quarters ended January 31:

2013	$	334,571
2014		21,708
2015		19,543
2016		20,560
2017		21,630
Thereafter		845,454
	$	1,263,466

(1) In November 2007, the Company refinanced a loan on its North Carolina building. The loan is with Bayview Loan Servicing, LLC (“Bayview”). On March 31, 2010, the Company entered into a stipulation agreement with Bayview which reduced the monthly payment to $5,349, including interest. On May 27, 2011, the Company entered into a loan adjustment agreement with Bayview which increased the unpaid liability by $9,043 to $953,316 and decreased the monthly payments to $5,433, including interest. In 2013, Bayview may step up the interest rate at that time. The loan is set to mature on March 31, 2038. Effective April 1, 2012, the interest rate adjusts to Prime plus 4.875%. Interest rate changes are limited to 2% increase or decrease in any annual adjustments. During the three months ended ~~October~~January 31, ~~2011~~2012 and ~~2010,~~2011, the Company repaid ~~$2,809~~$0 and ~~$5,265,~~$2,666, respectively. During the six months ended January 31, 2012 and 2011, the Company repaid $0 and $7,982, respectively. On February 2, 2012, Bayview filed a Notice of Hearing on Foreclosure of Deed of Trust and Security Agreement with the Superior Court of Iredell County, North Carolina (See Note 13).

Interest expense for the three months ended ~~October~~January 31, ~~2011~~2012 and ~~2010,~~2011, for Bayview ~~Loan Servicing, LLC~~ was ~~$12,077~~$12,083and $12,056, respectively. Interest expense for the six months ended January 31, 2012 and ~~$12,090,~~2011, was $24,100 and $20,122, respectively.

(2) On February 28, 2011, the Company financed a general liability insurance policy with Allegiance Direct Bank (“Allegiance”) for the period February 28, 2011 to February 28, 2012 for $13,351. The Company was required to make a down payment of $3,351 in February 2011 and monthly payments including interest of 9.4%. During the three months ended ~~October~~January 31, ~~2011~~2012 and ~~2010,~~2011, the Company repaid ~~$3,013and $2,925,~~$0 and $2,075, respectively. During the six months ended January 31, 2012 and 2011, the Company repaid $3,013 and $5,000, respectively. The Company was unable to make the final three payments on the note and the Company’s general liability insurance was cancelled. The remaining months unused in the policy was credited back to the note of $3,098, which left a zero balance due to Allegiance.

Interest expense for the three months ended ~~October~~January 31, ~~2011~~2012 and ~~2010,~~2011, paid to Allegiance Direct Bank is ~~$115~~$82 and ~~$232,~~$29, respectively. Interest expense for the six months ended January 31, 2012 and 2011, paid to Allegiance Direct Bank is $197 and $261, respectively.

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

~~(4)~~ On February 26, 2010, the Company entered into a loan agreement with Frontline. The loan provides for payments to the Company of $2,000,000 with interest at a fixed annual rate of 12%. On ~~May 1, 2010,~~March 12, 2012, an Addendum to the original Promissory Note, dated February 26, 2010, was entered into which amended the term of the note to provide for interest only payments, due on the last day of every month until maturity date March ~~30, 2011~~1, 2013, when all principal and accrued interest shall be due and payable. On April 11, 2011, Frontline assigned $850,279 of its debt to Winsor Capital, Inc. (“Winsor”). On April 19, 2011, Frontline partially assigned $437,309 to Kisumu S.A. (“Kisumu”) and Kisumu immediately converted the assigned note for 1,041,212 shares of Common Stock at a fair value price of $0.42 per share. On April 19, 2011 Frontline assigned $420,000 to Eurolink Corporation (“Eurolink”) and Eurolink immediately converted the assigned note for 1,000,000 shares of Common Stock at a fair value price of $0.42 per share. On December 27, 2011 Frontline assigned $250,000 to Cameo Properties, LLC.

During the three months ended ~~October~~January 31, ~~2011~~2012 and ~~2010,~~2011, the Company received advances totaling ~~$457,634~~$114,828 and ~~$560,835,~~$271,920, respectively; and made payments of ~~$13,811~~$869,824 (in the form cash of $8,287; property and ~~$466,431,~~equipment of $139,537; electric vehicles of $217,000; inventories of $255,000; and an assignment to Cameo Properties of $250,000) and $416,242, respectively. During the six months ended January 31, 2012 and 2011, the Company received advances totaling $572,462 and $832,755, respectively; and made payments of $883,735 (in the form cash of $22,198; property and equipment of $139,537; electric vehicles of $217,000; inventories of $255,000; and an assignment to Cameo Properties of $250,000) and $882,673, respectively.

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Interest expense for the three months ended ~~October~~January 31, 2012 and 2011, was $15,244 and ~~2010,~~$32,905, respectively . Interest expense for the six months ended January 31, 2012 and 2011, was ~~$17,659~~$32,904 and ~~$46,959,~~$79,864, respectively.

~~(5)~~(4) On March 11, 2011, the Company financed $7,992 for office equipment with Amicus Funding Group, LLC (“Amicus”) and monthly payments including interest of 48.956% are approximately $477. During the three months ended ~~October~~January 31, ~~2011~~2012 and ~~2010,~~2011, the Company repaid ~~$515~~$380 and $0, respectively. During the six months ended January 31, 2012 and 2011, the Company repaid $895 and $0, respectively. The Company is in default on this note.

Interest expense for the three months ended January 31, 2012 and 2011, was $819 and $0, respectively. Interest expense for the ~~three~~six months ended ~~October~~January 31, 2012 and 2011, ~~and 2010,~~ was ~~$885~~$1,703 and $0, respectively.

~~(6)~~(5) On February 1, 2011, the Company financed $29,750 for production equipment with Treger Financial (“Treger”) and monthly payments including interest of 26.85% are approximately $2,000. During the three months ended ~~October~~January 31, 2012 and 2011, the Company repaid $0 and ~~2010,~~$0, respectively. During the six months ended January 31, 2012 and 2011, the Company repaid $4,560 and $0, respectively. The Company is in default on this note.

Interest expense for the three months ended ~~October~~January 31, 2012 and 2011, was $871 and ~~2010,~~$0, respectively. Interest expense for the six months ended January 31, 2012 and 2011, was ~~$1,206~~$2,077 and $0, respectively.

~~(7)~~(6) The Company entered into a Loan Agreement, dated as of July 14, 2011, with Cameo Properties LLC ~~(the “Lender”~~(“Cameo”) and was amended on October 14, 2011 (the “Amended Loan Agreement”). Each Note issued under the Amended Loan Agreement is due three years from the date of its issuance. The Amended Loan Agreement provides for loans to the Company of up to $750,000 (the “Loan”), with a minimum initial loan of $250,000 within 60 days of the date of the Loan Agreement, and up to an additional $500,000 within the first year and a half from execution of the Amended Loan Agreement. This is not a revolving facility, and any principal repaid by the Company will not be available for additional advances to the Company under the Amended Loan Agreement. The Company cannot, without the Lender’s consent prepay all or part of the Loan. The notes evidencing the installments of the loans bear interest payable monthly in arrears at the rate of 10% per annum, and mature and are due and payable three years from the date of issuance. On December 27, 2011, Frontline assigned $250,000 of its receivable to Cameo.

~~As of October~~Interest expense for the three months ended January 31, 2012 and 2011, ~~no funding transactions had taken place~~was $2,937 and ~~there~~$0, respectively. Interest expense for the six months ended January 31, 2012 and 2011, was ~~a zero balance on the Note.~~$2,937and $0, respectively.

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Note 9. Stockholders’ Equity (Deficiency)

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

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

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

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

~~Increase~~On December 13, 2011, by shareholder approval, the authorized shares of common stock shares were reduced from 300,000,000 to 65,000,000 shares.

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Effective January 26, 2012, the Securities and Exchange Commission approved a one-for-five reverse split of the common stock. Pursuant to the anti-dilution provisions in the Cameo Properties loan agreement the Company issued 16,000,000 shares to Cameo Properties, so they again held 20,00,000 post reverse stock split shares.

Increase/Decreases in Authorized Common Stock

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

Note 10. Net Earnings (Loss) Per Common Share

The following table sets forth the reconciliation of the basic and diluted net earnings (loss) per common share computations for the three months ended ~~October~~January 31, 2012 and 2011.

	Three Months Ended						Six Months Ended
	January 31,						January 31,
	2012			2011			2012			2011
Basic and Diluted Earnings (Loss) Per Share
Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted	$	(2,107,049	)	$	(989,260	)	$	(2,394,272	)	$	576,322
Weighted Average Shares Outstanding - Basic and Diluted		6,418,322			6,010,079			6,418,322			6,010,079

Basic and Diluted Net Earnings (Loss) Per Common Share	$	(0.33	)	$	(0.16	)	$	(0.37	)	$	0.10

Net loss per common share for the six months ended January 31, 2011, has been revised. All share and ~~2010.~~per share amounts have been restated to reflect the one-for-five reverse stock split as discussed in Note 9.

Three Months Ended
October 31,
2011 2010
Basic and Diluted Earnings (Loss) Per Share
Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted $ (287,223 ) $ 1,565,581
Weighted Average Shares Outstanding - Basic and Diluted 32,088,513 30,047,301

Basic and Diluted Net Earnings (Loss) Per Common Share $ (0.01 ) $ 0.05
The amounts previously reported for the three months ended January 31, 2011, were as follows:

	Three Months Ended			Six Months Ended
	January 31, 2011			January 31, 2011
Basic and Diluted Loss Per Common Share	$	(0.03	)	$	0.02

Weighted Average Number of Shares
Outstanding -Basic and Diluted		30,047,301			30,047,301

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Note 11. Share Based Compensation

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

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

~~Increase in Authorized Common Stock~~

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Stock Option Plan

As of ~~October~~January 31, ~~2011,~~2012, there are no shares of common stock remaining and available for issuance under the stock option plans.

Note 12. Income Taxes

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

The Company recorded no provisions for income taxes for the ~~three~~six months ended ~~October~~January 31, ~~2011~~2012 and ~~2010.~~2011.

Note 13. Commitments and Contingencies

Lease Agreement

Effective April 16, 2008, SPS agreed to lease approximately 5,000 square feet of space in the Company’s North Carolina facility at a rental rate of $2,500 per month and the monthly rental to be escalated five (5%) percent annually beginning April 16, 2009. The leased space is suitable for, and utilized by SPS for, SPS’s developmental and manufacturing operations for licensed products pursuant to the License Agreement. The leased space is leased on a month-to-month basis at a current monthly rental of $2,984. Although the lease was signed, the space is only 80% completed as of ~~October~~January 31, ~~2011. The Company also entered into a month to month lease agreement for $750 with SPS for renting offices in the Company’s Las Vegas corporate office.~~2012.

Total rental income for the three months ended ~~October~~January 31, 2012 and 2011, ~~and 2010~~ was ~~$10,931and~~$10,931 and $10,519, respectively. Total rental income for the six months ended January 31, 2012 and 2011, was $9,431 and $21,038, respectively.

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

Total rental income for the three months ended January 31, 2012 and 2011, was $6,928 and $0, respectively. Total rental income for the six months ended January 31, 2012 and 2011, was $6,928 and $0, respectively

Management Agreement

Total management fee expense for the three months ended January 31, 2012 and 2011, was $3,024 and $0, respectively. Total management fee expense for the six months ended January 31, 2012 and 2011, was $3,024 and $0, respectively.

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Surety Bond

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

Legal Proceedings

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

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

Internal Revenue Service (“IRS”) served the Company with a tax lien dated March 3, 2010 in the total amount of $251,928. Third quarter 2009 taxes are approximately $117,000, which are included in total due. The Company has been served with an additional tax lien dated January 19, 2011, in the amount of $2,925. The Company ~~has~~had a payment plan in place with IRS, however, the ~~Internal Revenue Service (“IRS”).~~Company is four months in arrears in payments for a total of $10,000 due at January 31, 2012. Management is working with the local IRS office to try and revise the payment agreement. The balance due on the most recent statement from the IRS is $524,372.

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

The Company’s facility in Mooresville North Carolina is financed through Bayview. The Company became delinquent with the mortgage payments and Bayview filed Foreclosure in Superior Court of Iredell County North Carolina. The hearing was March 13, 2012, and the attorneys for the Company attended the hearing to request a forbearance period so a repayment schedule might be effected. Bayview opposed the extension; due to prior extensions granted and previous times Bayview renegotiated the interest and reduced the rate. The Clerk of the Court granted 42 days, and a new hearing is set for April 24, 2012.

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~~ITE~~ITEM M 2. Management's Discussion and Analysis of Financial Condition and Results of ~~Operations.~~Operations

Forward Looking Statements

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

Results of Operations for the Three ~~Months~~and Six months Ended ~~October~~January 31, ~~2011~~2012

Electric Vehicle Operations

~~We did not have any sales for~~Sales of our electric powered vehicles for the three months ended January 31, 2012 and 2011 were $472,000 and $0, respectively. Vehicle parts sold during the three months ended ~~October~~January 31, ~~2011. Our only sales~~2012 and 2011 were $1,128 and $2,486, respectively.

Sales of our electric powered vehicles for the six months ended January 31, 2012 and 2011 were $472,000 and $0, respectively. Vehicle parts sold during the ~~three~~six months ended ~~October~~January 31, 2012 and 2011 were ~~for vehicle parts which totaled $3,568.~~$4,696 and $4,472, respectively.

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

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

Sky Power License Agreement

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

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

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

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Lithium Electric Vehicle Corp. License Agreement

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The license agreement ~~provides for~~consists of an annual fee of $500,000 for ten years and an additional $1,750,000 based on a valuation report prepared by an independent third party. LEVC is required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year. The Company has received $732,666 from LEVC with a balance due of $267,334 as of ~~October~~January 31, ~~2011,~~2012, which is now delinquent. The Company has ~~not~~ reflected the delinquent amount due from LEVC ~~but~~in its accounts receivable and has established a reserve for doubtful accounts for the entire amount. The Company has recorded the amount received and the receivable as deferred revenue and has amortized the license fee income ratably over the period. License agreement revenue recognized for the three months ended October 31, 2011 and 2010, was $168,750 and $125,000, respectively. The Company will continue to recognize license fee income ratably over the life of the agreement.

Cost of Sales

Cost of sales as a percentage of net vehicle sales for the three months ended ~~October~~January 31, ~~2011,~~2012 was ~~approximately 17% as~~54% compared to approximately ~~18%~~656% during the same period in ~~2010.~~2011. Cost of sales as a percentage of net vehicle sales for the six months ended January 31, 2012 was 54% compared to approximately 372% during the same period in 2011. Based on our historical review of costs, we expect that cost of sales in the future will remain in line on a percentage basis with our historic level of approximately 20%. As sales volumes and prices increase, costs should then reduce as a percentage of sales.

General and Administrative Expenses

General and administrative (“SG&A”) expenses ~~decreased~~increased to ~~$224,218~~$2,396,441 for the three months ended ~~October~~January 31, ~~2011,~~2012, as compared to ~~$364,530~~$517,840 during the same period in ~~2010.~~2011. The ~~decrease~~increase was attributable ~~to:~~to additional expenditures of bad debt of $2,311,375, which was offset by a reduction in: (1) ~~legal and professional fees of $60,564; (2)~~ advertising and ~~promotion~~marketing expense of ~~$18,732; (3)~~$302,591; (2) travel related expenses of ~~$15,742;~~$45,707; (3) professional fees of $44,857; (4) ~~salaries and wages~~insurance expense of ~~$14,499;~~$18,519; (5) ~~office expenditures~~warranty expense of ~~$5,546;~~$11,420; and (6) other various expenses of ~~$25,229.~~ $9,680.

SG&A expenses increased to $2,620,659 for the six months ended January 31, 2012, as compared to $882,370 during the same period in 2011. The increase was attributable to an additional expenditure of bad debt of $2,260,663, which was offset with reduction in: (1) advertising and marketing expense of $323,072; (2) professional fees of $81,279; (3) travel related expenses of $58,312; (4) insurance expense of $21,352; (5) warranty expense of $15,664; and (6) other various expenses of $22,695.

Of all SG&A expenses the Company incurred during the first ~~quarter 2011,~~six months of 2012, the majority were charges that are expected to be recurring.

Research and Development Expenses

No set amount has been set aside for research and development (“R&D”), however, all projects and purchases require approval prior to initiation. Salaries, payroll taxes, and benefits expensed to R&D for the three months ~~ending October~~ended January 31, 2012 and January 31, 2011, amounted to ~~$248,806~~$151,013 and ~~$254,440 for year ending July 31, 2010.~~$388,426, respectively. Parts and supplies ~~shipping charges, and battery management systems~~ expensed to R&D ~~were $7,060~~was $4,772 and ~~$5,630~~$13,381 for the three months ~~ending October~~ended January 31, 2012 and 2011, respectively. Shipping charges, battery management systems, and ~~October~~motor development costs were $0 and $37,948, for the three months ended January 31, ~~2010,~~2012 and 2011, respectively. ~~During the first quarter 2011, the Company began to build~~Costs associated with building two prototypes of ~~its~~our electric powered vehicles ~~which~~during the six months ended January 31, 2012 and January 31, 2011 was $0 and $107,473, respectively.

Salaries, payroll taxes, and benefits expensed to R&D for the six months ended January 31, 2012 and January 31, 2011, amounted to $399,819 and $642,865, respectively. Parts and supplies expensed to R&D was $11,832and $18,959 for the six months ended January 31, 2012 and 2011, respectively. Shipping charges, battery management systems, and motor development costs were $0and $48,000, for the six months ended January 31, 2012 and 2011, respectively. Costs associated with building two prototypes of our electric powered vehicles during the first six months of 2012 and 2011, increased R&D by ~~$221,907.~~ $0 and $319,381, 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 ~~$41,533~~$32,309 for the three months ended ~~October~~January 31, ~~2011,~~2012 as compared to ~~$157,838~~$144,883 for ~~2010. The decrease was~~2011, and $73,842 for the six months ended January 31, 2012 as compared to $302,721 for 2011 due to the ~~conversion~~reduction of ~~debt to~~ the Company’s ~~common stock during the fiscal year 2011.~~debt. Interest expense consists primarily of interest related to borrowings.

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Other Income

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

Effective January 3, 2012, Advanced Technology Services, Inc. agreed to lease approximately 35,000 square feet of space in the Company’s North Carolina facility at a rental rate of $6,928 per month and the monthly rental to be escalated five (5%) percent annually beginning January 1, 2013. Advance Technology Services has not paid any of the monthly rental fees to date.

Other income for the three months ended ~~October~~January 31, 2012 consists of (1) accounting fees and rental income from Sky Power for $16,931; (2) rental income from Advanced Tech of $6,928; (3) interest income from the LEVC note of $44,110; (4) forfeiture of customer deposit of $30,000; and (5) various other income of $130. Other income was reduced by $4,688 for loss from sale of assets and $351 for foreign exchange transactional expense.

Other income for the three months ended January 31, 2011 ~~consisted primarily~~consists of accounting fees and rental income from Sky Power for ~~$18,431~~$18,019 and forgiveness of debt of $111,321. Other income was reduced by $19,832 for foreign exchange transactional expense.

Other income for the six months ended January 31, 2012 consists of (1) accounting fees and rental income from Sky Power for $35,362; (2) rental income from Advanced Tech of $6,928; (3) interest income from the LEVC ~~Note~~note of ~~$44,110.~~$88,219; (4) forfeiture of customer deposit of $30,000; and (5) various other income of $130. Other income was reduced by $4,688 for loss from sale of assets and $220 for foreign exchange transactional expense .

Other income for the ~~three~~six months ended ~~October~~January 31, ~~2010, consisted~~2011 consists of accounting fees and rental income from ~~Superlattice~~Sky Power for ~~$18,019 and~~$36,038; receipt of net proceeds of $2,425,272 from ~~XPrize.~~XPrize; and forgiveness of debt of $111,321. Other income was reduced by $19,832 for foreign exchange transactional expense.

Net Earnings (Loss)

Net loss attributable to common stockholders for the three months ended ~~October~~January 31, ~~2011~~2012 was ~~$287,223, as~~$2,107,049 compared to ~~net earnings of $1,575,581~~$989,260 for the previous fiscal quarter. Basic and diluted loss attributable to common stockholders per share of common stock for the three months ended ~~October~~January 31, ~~2011~~2012 was ~~$0.01~~$0.33 as compared to $0.16 for the previous fiscal quarter.

Net earnings attributable to common stockholders for the six months ended January 31, 2012 was $2,394,272 compared to a net loss of $576,322 for the previous fiscal quarter. Basic and diluted loss attributable to common stockholders per share of common stock for the six months ended January 31, 2012 was $0.37 as compared to a gain of ~~$0.05~~$0.10 for the previous fiscal quarter.

Liquidity and Capital Resources

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

At ~~October~~January 31, ~~2011,~~2012, we had liabilities of ~~$4,691,535,~~$4,447,870, as compared with $4,292,604at July 31, 2011; and working capital deficiency of ~~$33,549~~$1,969,503 and stockholders' equity deficiency of ~~$230,618.~~$2,337,199.

Our property, plant and equipment decreased to ~~$1,960,666~~$1,807,799 at ~~October~~January 31, ~~2011,~~2012, as compared with $1,983,739 at July 31, 2011.

Net cash ~~used in~~provided by operating activities was ~~$434,843~~$353,997 during the ~~three~~six months ended ~~October~~January 31, ~~2011,~~2012, as compared with ~~$1,575,613~~$56,917 provided for in ~~2010.~~2011. We did not have any investing activities during the ~~three~~six months ended ~~October~~January 31, ~~2011~~2012 and ~~2010.~~2011.

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During the ~~three~~six months ended ~~October~~January 31, ~~2011,~~2012, from the issuance of a promissory note for a receivable, we advanced ~~$35,976~~$54,539 to Sky Power and were repaid ~~$15,623.~~$22,984. During the ~~three~~six months ended ~~October~~January 31, ~~2011,~~2012, we received net proceeds of ~~$475,027~~$572,462 from the issuance of promissory notes for debt, and made repayments of ~~$24,708.~~$900,102 (of which $611,537 was repaid by selling the Company’s property and equipment, inventories and electric vehicles to Frontline). Total cash ~~provided by~~used in financing activities infor the ~~three~~six months ended ~~October~~January 31, ~~2011~~2012 was ~~$429,666~~$359,195 as compared with ~~$15,149~~$57,769 in ~~2010.~~2011.

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

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

On February 26, 2010, the Company entered into a loan agreement with Frontline. The loan provides for payments to the Company of $2,000,000 with interest at a fixed annual rate of 12%. On ~~May~~March 1, ~~2010,~~2012, an Addendum to the original Promissory Note, dated February 26, 2010, was entered into which amended the term of the note to provide for interest only payments, due on the last day of every month until maturity date March 30, ~~2011~~2013, when all principal and accrued interest shall be due and payable. On April 11, 2011, Frontline assigned $850,279 of its debt to Winsor Capital, Inc. (“Winsor”). On April 19, 2011, Frontline partially assigned $437,309 to Kisumu S.A. (“Kisumu”) and Kisumu immediately converted the assigned note for 1,041,212 shares of Common Stock at a ~~strike~~fair value price of $0.42 per share. On April 19, 2011 Frontline assigned $420,000 to Eurolink Corporation (“Eurolink”) and Eurolink immediately converted the assigned note for 1,000,000 shares of Common Stock at a ~~strike~~fair value price of $0.42 per share. On December 27, 2011 Frontline assigned $250,000 to Cameo Properties, LLC.

On April 15, 2010 the Company entered into a loan agreement for $2,000,000 with Winsor. The loan provided for payments of up to $2,000,000 to the Company with an initial installment of $250,000 and additional installments of up to $1,750,000 with a 10% interest rate. The entire loan amount was secured by 12,000,000 shares of the Company common stock. Each loan installment matured in three years from issuance of the installment. The loan had an anti-dilution clause for the stock issued as collateral. Stock is issued and delivered proportionately to the delivery of funds. The loan was fully funded during the third quarter ending April 30, 2011 with (1) cash advances of $250,000; (2) debt assignment from Frontline of $850,279; (3) accrued interest of $33,534; and (4) $97,528 in cash advance fees.

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

On July 14, 2011, the Company entered into a Loan Agreement with Cameo Properties LLC (“Cameo”) and was amended on October 14, 2011 (the “Amended Loan Agreement”). Each Note issued under the Amended Loan Agreement is due three years from the date of its issuance. The Amended Loan Agreement provides for loans to the Company of up to $750,000 (the “Loan”), with a minimum initial loan of $250,000 within 60 days of the date of the Loan Agreement, and up to an additional $500,000 within the first year and a half from execution of the Amended Loan Agreement. This is not a revolving facility, and any principal repaid by the Company will not be available for additional advances to the Company under the Amended Loan Agreement. The Company cannot, without the Lender’s consent prepay all or part of the Loan. The notes evidencing the installments of the loans bear interest payable monthly in arrears at the rate of 10% per annum, and mature and are due and payable three years from the date of issuance. On December 27, 2011, Frontline assigned $250,000 of its receivable to Cameo. Pursuant to the anti-dilution provisions in the Amended Loan Agreement, the Company has issued 20,000,000 shares to Cameo Properties as collateral.

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Liquidity Issues

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

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

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

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

Critical Accounting Issues

The Company’s significant accounting policies are summarized in Note 1 of the Company’s Annual Report on Form 10-K for the year ended July 31, 2011. There were no significant changes to these accounting policies during the ~~three~~six months ended ~~October~~January 31, ~~2011~~2012, and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

~~Item~~ITEM 3. Quantitative and Qualitative Disclosures About Market ~~Risk.~~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~~ ITEM 4 (T). Controls and ~~Procedures.~~Procedures

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

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PART II. OTHER INFORMATION

ITEM 1. Legal ~~Proceedings.~~Proceedings

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

Caudle & Spears v. EV Innovations, Inc.

Caudle & Spears has obtained a default judgment against the Company in ~~Meckenberg~~Mecklenberg County, North Carolina, General Court, in the amount of $17,686. This law firm represented us in our litigation against Martin Koebler, a former employee, whom we successfully sued for return of Company property and other damages. The Company is in settlement negotiations with Caudle & Spears, since its judgment against Martin Koebler is still in the collection process. A payment agreement has been reached in the amount of ~~$2,500.00~~$2,500 per month with no interest until paid. The Company is not current with ~~these payments,~~its payment arrangements and ~~there is~~has a balance of $4,263 ~~that is currently~~still due.

Internal Revenue Service

~~We have~~Internal Revenue Service (“IRS”) served the Company with a tax lien dated March 3, 2010 in the total amount of $251,928. Third quarter 2009 taxes are approximately $117,000, which are included in total due. The Company has been served with an ~~outstanding~~additional tax lien dated January 19, 2011, in the amount of $2,925. The Company had a payment plan in place with IRS, however, the Company is four months in arrears in payments for a total of $10,000 due at January 31, 2012. Management is working with the local IRS office to try and revise the payment agreement. The balance due on the most recent statement from the IRS of $302,278 for the Company’s 940 and 941 payroll taxes for the first quarter 2009 through the second quarter 2011 and at July 31, 2011. Under a payment agreement we are paying $2,500 per month, with payment increasing to $5,000 in August 2012. Our payments are currently up to date through September 30, 2011.is $524,372.

Javad Hajihadian

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

Bayview Loan Servicing, LLC

The Company’s facility in Mooresville North Carolina is financed through Bayview Loan Servicing. The Company became delinquent with the mortgage payments and Bayview filed Foreclosure in Superior Court of Iredell County North Carolina. The hearing was March 13, 2012, and the attorneys for the Company attended the hearing to request a forbearance period so a repayment schedule might be effected. Bayview opposed the extension; due to prior extensions granted and previous times Bayview renegotiated the interest and reduced the rate. The Clerk of the Court granted 42 days, and a new hearing is set for April 24, 2012.

ITEM 6. Exhibits

31	Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act
32	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document *
101.SCH	XBRL Taxonomy Extension Schema Document *
101.CAL	XBRL Taxonomy Extension Calculation Linkbase *
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB	XBRL Taxonomy Extension Label Linkbase Document *
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document *

* Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and otherwise are not subject to liability under those sections.

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~~ITEM 6. Exhibits~~

31		~~Certification of Chief Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-~~SIGNATURES ~~Oxley Act of 2002, filed herewith.~~

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

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~~SIGNATURES~~

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

	Li-ion Motors Corp.

Date: ~~December 15, 2011~~ March 21, 2012	By:	/s/ Stacey Fling
		Stacey Fling
		Chief Executive Officer and Principal Financial Officer

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

~~Date: December 15, 2011~~	~~By:~~	~~/s/~~
By:	/s/ Stacey Fling

	Stacey Fling

	President

	(President, Chief Executive Officer

	Principal Financial Officer and Director)

Date: ~~December 15, 2011~~ March 21, 2012	~~By:~~	~~/s/ Holly Roseberry~~
	~~Holly Roseberry~~
	~~Title~~
	~~(Director)~~

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	Number of Common Shares		Common Shares $0.01 Par Value		Additional Paid in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Treasury Stock at Cost			Non-Controlling Interest		Comprehensive Income (Loss)			Total

Balance - August 1, 2010		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

Foreign currency translation		-		-		-		-			43			-			-	$	43			43
Net earnings		-		-		-		(287,223	)		-			-			-		(287,223	)		(287,223	)
Comprehensive income																		$	(287,180	)		-

Balance - October 31, 2011		52,088,513	$	52,088	$	62,613,779	$	(62,867,331	)	$	(9,154	)	$	(20,000	)	$	-				$	(230,618	)