Li-ion Motors Corp. - FORM 10-Q

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EX-31 - Li-ion Motors Corp.	v178099_ex31.htm
EX-32 - Li-ion Motors Corp.	v178099_ex32.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended January 31, 2010

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

For the transition period from to

Commission File Number 000-33391

LI-ION MOTORS CORP.

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

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

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

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

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

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

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

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

Large accelerated filer ¨	Accelerated filer ¨

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding the issuer's common stock, $.001 par value, was 14,539,232 as of March 1, 2010.

LI-ION MOTORS CORP.

INDEX

Page No.

TABLE OF CONTENTS

		Page No.

PART I. FINANCIAL INFORMATION		1

ITEM I - Unaudited Consolidated Financial Statements		1

Consolidated Balance Sheets as of January 31, 2010 and July 31, 2009 (Unaudited)		2

Consolidated Statements of Operations for the Six and Three Months Ended January 31, 2010 and 2009 (Unaudited)		3

Consolidated Statement of Stockholders Deficiency (Unaudited)		4

Consolidated Statements of Cash Flows for the Six Months Ended January 31, 2010 and 2009 (Unaudited)		5

Notes to Unaudited Consolidated Financial Statements		6

ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations.		17

ITEM 3 – Quantitative and Qualitative Disclosures About Market Risk		21

ITEM 4T– Controls and Procedures.		21

PART II. OTHER INFORMATION		21

ITEM 1 - Legal Proceedings.		21

ITEM 6 – Exhibits.		22

EXHIBIT 31 - Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

EXHIBIT 32 - Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

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

The results of operations for the six and three months ended January 31, 2010 and 2009 are not necessarily indicative of the results for the entire fiscal year or for any other period.

LI-ION MOTORS CORP

(Formerly EV Innovations Inc.)

Consolidated Balance Sheets

(UNAUDITED)

	January 31,			July 31,
ASSETS	2010			2009

Current assets:
Cash	$	16,033		$	5,182
Accounts receivable, net of allowance for doubtful accounts of $0		-			13,522
Inventories		280,741			227,826
Employee advances		5,055			1,508
Other current assets		4,352			18,009
Total current assets		306,181			266,047

Property and equipment, net		1,953,872			1,989,981

Other long term assets:
Deferred patent costs		24,258			24,258
Total other long term assets		24,258			24,258

	$	2,284,311		$	2,280,286

LIABILITIES AND DEFICIENCY

Current liabilities:
Current portion of long-term debt	$	33,951		$	39,702
Accounts payable and accrued expenses		1,309,812			999,749
Customer deposits		422,454			391,199
Deferred revenue		2,548			3,808
Advances from related parties		550,981			97,940
Total current liabilities		2,319,746			1,532,398

Long-term debt - less current portion above		3,904,742			3,774,668

Commitments and contingencies		-			-

Deficiency:
Li-ion Motors Corp deficiency:
Preferred stock, $.001 par value, 5,000,000 shares authorized, no shares issued		-			-
Common stock, $.001 par value, 50,000,000 authorized; outstanding 21,569,101 at January 31, 2010 and 20,884,101 at July 31, 2009, respectively		21,569			20,884
Additional paid-in-capital		56,346,989			55,731,174
Deficit accumulated during the development stage		(60,292,223	)		(58,765,425	)
Cumulative other comprehensive loss		(16,512	)		(13,413	)
Total Li-ion Motors Corp deficiency		(3,940,177	)		(3,026,780	)

Noncontrolling interest		-			-
Total deficiency		(3,940,177	)		(3,026,780	)

Total liabilities and deficiency	$	2,284,311		$	2,280,286

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

LI-ION MOTORS CORP

(Formerly EV Innovations Inc.)

Consolidated Statements of Operations

(UNAUDITED)

	SIX MONTHS ENDED						THREE MONTHS ENDED
	January 31,						January 31,
	2010			2009			2010			2009

Sales	$	125,909		$	223,001		$	999		$	221,056

Costs and expenses:
Cost of sales		165,497			290,541			-			290,541
General and administrative		748,526			788,996			377,204			305,095
Research and development		656,955			579,207			224,334			162,955
		1,570,978			1,658,744			601,538			758,591

Loss from operations		(1,445,069	)		(1,435,743	)		(600,539	)		(537,535	)

Other income (expense):
Interest expense		(169,772	)		(448,391	)		(107,208	)		(421,098	)
Interest income		-			2,293			-			(4,784	)
Other income		35,250			42,916			17,625			23,501
Forgiveness of debt		52,793			-			52,793

Net loss from operations		(1,526,798	)		(1,838,925	)		(637,329	)		(939,916	)

Provision for (benefit from) income tax		-			-			-

Net loss		(1,526,798	)		(1,838,925	)		(637,329	)		(939,916	)
Other comprehensive income (loss):
Foreign currency translation		-			1,511			-			(850	)

Less: Net loss attributable to noncontrolling interest		-			-			-

Net loss attributable to Li-ion Motors Corp	$	(1,526,798	)	$	(1,837,414	)		(637,329	)		(940,766	)

Loss per share - basic and diluted:

Loss per common share attributable to Li-ion Motors Corp common shareholders	$	(0.06	)	$	(0.08	)	$	(0.02	)	$	(0.05	)

Weighted shares outstanding - basic and diluted		21,288,096			23,347,257			21,599,808			20,483,914

Amounts attributable to Li-ion Motors Corp common shareholders:
Net loss	$	(1,526,798	)	$	(1,838,925	)	$	(637,329	)		(939,916	)

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

LI-ION MOTORS CORP

(Formerly EV Innovations Inc.)

Consolidated Statement of Stockholders' Equity (Deficiency)

(UNAUDITED)

													Cumulative
							Additional						Other
	Common stock						Paid-in						Comprehensive			Noncontrolling
	Shares			Amount			Capital			Deficit			Income (loss)			Interest		Total
Balance July 31, 2008		23,347,257		$	23,347.00		$	47,790,509.00		$	(51,947,451.00	)	$	5,630.00		$	-	$	(4,127,965.00	)

Stock issuances
Exercise of options (valued at $0.90 per share)		3,500			4			(4	)		-			-			-		-
1:3 Reverse stock split adjustment		(15,566,844	)		(15,567	)		15,567			-			-			-		-
Value of stock options issued (valued at $0.90 per share)		-			-			2,630,000			-			-			-		2,630,000
Common stock issued as collateral on loan		11,666,664			11,667			(11,667	)		-			-			-		-
Exercise of options (valued at $0.90 per share)		1,433,524			1,433			1,285,417			-			-			-		1,286,850
Conversion of loan to equity		-			-			4,000,000			-			-					4,000,000
Conversion of accrued interest to equity		-			-			21,352			-			-					21,352
Net (loss) for the period		-			-			-			(6,817,974	)		-			-		(6,817,974	)

Foreign currency transactions		-			-			-			-			(19,043	)		-		(19,043	)

Balance July 31, 2009		20,884,101			20,884			55,731,174			(58,765,425	)		(13,413	)		-		(3,026,780	)

Stock issuances
Exercise of options (valued at $0.90 per share)		400,000			400			359,600											360,000
Exercise of options (valued at $0.90 per share)		285,000			285			256,215											256,500
Net (loss) for the period		-			-			-			(1,526,798	)		-			-		(1,526,798	)

Foreign currency transactions														(3,099	)				(3,099	)

Balance January 31, 2010		21,569,101		$	21,569		$	56,346,989		$	(60,292,223	)	$	(16,512	)	$	-	$	(3,940,177	)

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

LI-ION MOTORS CORP

(Formerly EV Innovations Inc.)

Consolidated Statements of Cash Flows

(UNAUDITED)

	SIX MONTHS ENDED
	January 31,
	2010			2009

Cash provided by (used in) Operating Activities:
Net loss	$	(1,526,798	)	$	(1,838,925	)
Items not affecting cash flows:
Depreciation and amortization		40,774			43,176
Changes in operating assets and liabilites
(Increase) decrease in accounts receivable		13,522			(48,489	)
Increase (decrease) in inventories		(52,915	)		242
Increase in employee advances		(3,547	)		(5,072	)
Decrease in prepaid expenses and other assets		13,657			47,463
Increase in accounts payable and accrued expenses		342,264			510,373
Increase in customer deposits		31,255			225,233
Decrease in deferred revenue		(1,260	)		-
Cash used in operating activities		(1,143,048	)		(1,065,999	)

Cash provided by (used in) Investing Activities:
Purchase of property and equipment		(4,665	)		(105,207	)
Increase in deferred patent costs		-			(1,139	)
Cash used in investing activities		(4,665	)		(106,346	)

Cash provided by (used in) Financing Activities:
Proceeds from the issuance of debt		108,060			486,428
Advances from related parties		1,401,759			1,088,967
Payments of related party advances		(332,218	)		(442,401	)
Payments of debt		(15,938	)		(15,414	)
Cash provided by financing activities		1,161,663			1,117,580

Effect of exchange rate changes on cash and cash equivalents		(3,099	)		(18,042	)

Net increase (decrease) in cash		10,851			(72,807	)

Cash at beginning of period		5,182			101,095

Cash at end of period	$	16,033		$	28,288

Supplemental information:
Cash paid during the year for:
Interest paid	$	52,629		$	54,389
Income taxes paid	$	-		$	-
Non - cash financing activities:
Related party advances paid in stock	$	615,500		$	-
Accrued expenses transferred to long term debt	$	32,201		$	28,850

SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

LI-ION MOTORS CORP

Notes to Unaudited Consolidated Financial Statements

January 31, 2010

Note 1. Financial statement presentation

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

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

History and Nature of Business

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

The Company is currently pursuing the development and marketing of electric powered vehicles and products based on the advanced lithium battery technology it has developed. As of July 31, 2009 the Company no longer considered itself a development stage company as planned principal operations have began in its primary line of business. The Company is organized by line of business and geographic area. The Company had two businesses, telecommunication services and the development and sale of electric powered vehicles.

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

Effective April 15, 2008, the Company entered into a license agreement with SPI providing for their license to SPI of their patent applications and technologies for rechargeable lithium ion batteries for electric vehicles and other applications (“licensed products”). Under the license agreement, the Company has the right to purchase their requirements of lithium ion batteries from SPI, and their requirements of lithium ion batteries shall be supplied by SPI in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of SPI. The Company’s cost for lithium ion batteries purchased from SPI shall be SPI’s actual manufacturing costs for such batteries for the fiscal quarter of SPI in which the Company’s purchase takes place.

Under the terms of the license agreement, SPI has agreed to invest a minimum of $1,500,000 in each of the next two years in development of the technology for the Licensed Products. To date, investments have been made in the amount of $314,517 in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement. The Company has advised SPI in a letter dated October 1, 2009, that it will not give notice of default against SPI for their failure to comply with this covenant in the first year of the term of the license agreement.

Basis of presentation

The Company’s financial statements for the six months ended January 31, 2010 have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. As of January 31, 2010, the Company had a working capital deficiency of approximately $2.0 million and a deficiency of approximately $3.9 million. In addition, during the year ended July 31, 2009, the Company defaulted on interest payments on a loan and the shares used as collateral to secure the loan to Wyndom Capital Investments, Inc. (“Wyndom”) was used to extinguish the loan and all unpaid interest. The 10,000,000 shares to Wyndom to extinguish the debt represent 47.9% of the Company’s outstanding shares, sufficient to make Wyndom the controlling shareholder. The Company currently is still in default on the interest payments for the second loan. See Note 5 for further information. 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.

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

The Company’s business is subject to most of the risks inherent in the establishment of a new business enterprise. The likelihood of success of the Company must be considered in light of the expenses, difficulties, delays and unanticipated challenges encountered in connection with the formation of a new business, rising operating and development capital, and the marketing of a new product. There is no assurance the Company will ultimately achieve a profitable level of operations.

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

In January 2009, the Company’s shareholders approved a one-for-three reverse stock split of its outstanding common shares which became effective on February 19, 2009. Also on February 19, 2009 the authorized shares of the Company was increased from 35,714,285 to 50,000,000 shares.

In January 2010, the Board of Directors approved a one-for-two reverse split, effective upon FINRA approval. On February 1, 2010, approval was received from FINRA, and the reverse split was effective as of that date.

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 noncontrolling interest. The noncontrolling interest of the company's earnings or loss is classified as net income (loss) attributable to noncontrolling interest in the consolidated statement of operations.

The following is a listing of the Company's subsidiaries and its ownership interests:

Global Electric, Corp.	67.57	%
R Electric Car, Co.	67.57	%
Solium Power, Corp.	67.57	%
Hybrid Technologies USA Distributing Inc.	100.00	%
Hybrid Electric Vehicles India Pvt. Ltd.	100.00	%

Estimates

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

Fair value of financial instruments

The fair value of accounts receivables, accounts payable and accrued expenses, long term debt, customer advances, and advances from related parties approximates fair value based on their short maturities.

The Company adopted FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”) on January 1, 2008, for all financial assets and liabilities that are recognized or disclosed at fair value in the condensed consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. While the Company adopted the provisions of ASC 820 for nonfinancial assets and liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis, no such assets or liabilities existed at the balance sheet date. As permitted by ASC 820, the Company delayed implementation of this standard for all nonfinancial assets and liabilities recognized or disclosed at fair value in the financial statements on a nonrecurring basis and adopted these provisions effective August 1, 2009.

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

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 at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions.

As of January 31, 2010, the Company held certain financial assets that are measured at fair value on a recurring basis. These consisted of cash and cash equivalents. The Company does not have any financial assets measured at fair value on a recurring basis as Level 2 or Level 3 and there were no transfers in or out of Level 2 or Level 3 during the three months ended January 31, 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 January 31, 2010.

Assets at fair value as of January 31, 2010 using

Quoted prices in

active markets for

Significant other

Significant

identical assets

observable inputs

unobservable

Total

(Level 1)

(Level 2)

inputs (Level 3)

Cash and cash equivalents

16,033

The Company had no financial assets accounted for on a non-recurring basis as of January 31, 2010.

There were no changes to the Company’s valuation techniques used to measure asset fair values on a recurring or nonrecurring basis during the six months ended January 31, 2010 and the Company did not have any financial liabilities as of January 31, 2010.

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.

Cash and cash equivalents

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

Accounts receivable

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

Inventories

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

Property and equipment

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

	Lives	Methods
Building improvements	39 years	Straight line
Furniture and fixtures	10 years	Accelerated
Software	3-5 years	Straight line
Computers	5 years	Straight line

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

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 January 31, 2010 there were only pending patent applications.

Stock based compensation

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

Revenue recognition

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

Shipping and handling

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

Advertising

Advertising costs are expensed as incurred and are included in general and administrative expenses. Total advertising expenditures for the six months ended January 31, 2010 and 2009 and amounted to approximately $340,000 and $179,000, respectively.

Research and development

No set amount has been set aside for research and development (“R&D”) but all projects and purchases must be approved before being started or purchased. As of January 31, 2010, there have been expenses put toward research and development. For the six months ending January 31, 2010, salaries, payroll taxes, and benefits amounted to approximately $637,400 in R&D, parts and supplies was approximately $19,528, shipping charges and battery management systems were approximately $11,420 and $8,108, respectively.

Concentration of risk

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

Income taxes

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

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

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

Long-lived assets

The Company accounts for long-lived assets in accordance with FASB ASC 360-10-35, “Impairment or Disposed of Long-lived Assets”, (“ASC 360-10-35”). The carrying value of long-lived assets is reviewed on a regular basis for the existence of facts and circumstances that may suggest impairment. The Company recognizes impairment when the sum of undiscounted future cash flows is less than the carrying amount of the asset. The write down of the asset is charged to the period in which the impairment occurs.

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

Foreign currency translation

The functional currency for some foreign operations is the local currency. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Cumulative Other Comprehensive Income (Loss). The translation losses for the six months ended January 31, 2010 and 2009 were approximately $0 and $1,511, respectively.

Comprehensive loss

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

Loss per Share

Basic loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified period. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares and potential common shares during the specified period. All potentially dilutive securities, which include options and warrants convertible into 1,000,000 and 1,019,000 common shares at January 31, 2010 and 2009, respectively, have been excluded from the computations, as their effect is anti-dilutive.

Recently issued pronouncements

During 2009, the Company adopted the revised accounting guidance related to business combinations. This guidance requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the literature. In accordance with this guidance, acquisition-related costs, including restructuring costs, must be recognized separately from the acquisition and will generally be expensed as incurred. That replaces the cost-allocation process detailed in previous accounting literature, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. The Company implemented this new guidance effective August 1, 2009.

During 2009, the Company implemented an update to the accounting guidance related to earnings per share. In accordance with this accounting guidance, unvested share-based payment awards with rights to dividends are participating securities and shall be included in the computation of basic earnings per share. The Company adopted this guidance effective August 1, 2009. This implementation did not have a material impact on prior periods presented.

The FASB has published a update to the accounting guidance on fair value measurements and disclosures as it relates to investments in certain entities that calculate net asset value per share (or its equivalent). This accounting guidance permits a reporting entity to measure the fair value of certain investments on the basis of the net asset value per share of the investment (or its equivalent). This update also requires new disclosures, by major category of investments, about the attributes of investments included within the scope of this amendment to the Codification. The guidance in this update is effective for interim and annual periods ending after December 15, 2009. The Company does not expect the adoption of this standard to have a material impact on the Company's results of operations, financial condition or cash flows.

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

Note 2. Inventories

Inventories consist of the following:

	January 31,		July 31,
	2010		2009
Raw materials	$	111,127	$	119,153
Work in progress		-		108,673
Finished goods		169,614		-
	$	280,741	$	227,826

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

Note 3. Property and equipment

Property and equipment consist of:

	January 31,			July 31,
	2010			2009
Building and improvements	$	1,275,086		$	1,274,636
Furniture and fixtures		30,582			29,023
Office equipment		143,965			143,965
Machinery and equipment		36,971			36,971
Vehicles		60,979			60,979
Software costs		35,766			32,924
Land		700,000			700,000
		2,283,349			2,278,498
Less accumulated depreciation		(329,477	)		(288,517	)
	$	1,953,872		$	1,989,981

Depreciation expense for the six months ended January 31, 2010 and 2009 was $38,983 and $41,432, respectively.

Note 4. Advances from related parties and related party transactions

The Company received and repaid additional advances from SSRI (owned by a Company stockholder) for the six and three months ended January 31, 2010 in amounts of $484,287 and $785,501 and $76,266 and $37,321, respectively. The Company also issued shares of stock for the payment of debt for the six and three months ended January 31, 2010 in the amounts of $616,500 and $256,500 respectively.

The Company received and repaid additional advances from Greg Navone (Director of the Company) for the six months ended January 31, 2010 and year ended July 31, 2009 in amount of $0 and $0, respectively for October 2009 and $51,000 and $51,000, respectively, for July 2009. As of January 31, 2010 and July 31, 2009, the amount due to the Company was $0 and $0, respectively. Mr. Navone resigned as a Director of the Company on July 10, 2009.

The Company received and repaid additional advances from Superlattice Power, Inc. (prior subsidiary) for the six and three months ended January 31, 2010 in amounts of $640,472 and $103,217, respectively. As of January 31, 2010 and July 31, 2009, the amount due to the Company was ($137,755) and $0, respectively.

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

Due from related parties and advances from related parties are reported as current assets or liabilities. These advances are not subject to written agreements and have no specific repayment terms but are deemed due on demand and are not interest bearing notes except for the Greg Navone note.

Note 5. Long-term debt

Long-term debt consists of:

	January 31,			July 31,
	2010			2009
10.875% note payable to Bayview Loan
Servicing, LLC, payable in monthly
installments of approximately $11,388 including
interest, collateralized by real property
due in full on or before December 2022 (1)	$	938,693		$	954,631

10% note payable to Crystal Capital
Ventures, payable in May 2011
collateralized by 7,500,000 shares of
the Company's common stock (2)		3,000,000			2,853,859

15.8% note payable to Allegiance
Direct Bank, payable in monthly
installments of approximately $980,
due in full on February 28, 2010 (3)		0			5,880
		3,938,693			3,814,370
Less current portion		(33,951	)		(39,702	)
	$	3,904,742		$	3,774,668

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

2010	$	17,884
2011		3,038,807
2012		43,245
2013		48,189
2014		53,699
Thereafter		736,869
	$	3,938,693

(1) In November 2007, the Company refinanced a loan on a building. The Company paid the remainder of the loan to Richard Howard, with $50,000 in cash and $1,000,000 from the new loan proceeds. The new loan with Bayview Loan Servicing, LLC is $1,000,000. The loan has an interest rate at 10.875% per annum with a monthly payment of $11,388, including interest. The loan is due on December 1, 2022. Interest expense for the six months ended January 31, 2010 and 2009 for Bayview Loan Servicing, LLC is approximately $52,390 and $54,389, respectively.

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

(2) On May 5, 2008, the Company entered into a loan agreement with Crystal Capital Ventures Inc. (“Crystal Capital”). The loan agreement provides for loans to the Company of up to $3,000,000, with a minimum initial loan of $500,000 taking place on May 19, 2008. The notes bear interest payable monthly in arrears at the rate of 10% per annum; and mature and are due and payable May 4, 2011. The loans under the loan agreement are secured by shares of the Company’s common stock held by Crystal Capital. The Company is required to issue shares as collateral at the rate of two and one half shares of the Company’s common stock for each dollar principal amount of the loan advanced to the Company. Following disbursement of the first $1,000,000 of funds pursuant to the loan agreement, on May 27, 2008, the Company issued 7,500,000 shares of common stock as collateral to Crystal Capital. After the 1:3 reverse stock split in February 2009 the Company issued Crystal an additional 5,000,000 shares to make their shares held as collateral total 7,500,000.

As of January 31, 2010, the Company has borrowed the full $3,000,000 under the loan agreement from Crystal Capital. The Company accrued interest to Crystal Capital of approximately $117,000 for the six months ended January 31, 2010 and $77,000 for the three months ended October 31, 2009, respectively. The Company went into default on the loan agreement in August 2008 but, as of March 22, 2010, the Company had not received notice of default from Crystal Capital.

(3) On January 31, 2009 the Company financed a workman’s compensation policy with Allegiance Direct Bank for the period January 31, 2009 to January 31, 2010 for $6,396. The Company was required to make a down payment of approximately $1,966 in January 2009 and monthly payments including interest of 15.8%. Interest expense for the six months ended January 31, 2010 and 2009 Allegiance Direct Bank is approximately $303 and $0, respectively.

Note 6. Stockholders’ equity

In January 2008, the Company’s shareholders approved a 1:7 reverse stock split. Except for the presentation of common shares authorized and issued on the consolidated balance sheet and shares presented in the consolidated statement of stockholders’ equity (deficit), all shares and par share information has been revised to give retroactive effect to the reverse stock split. Authorized shares were 50,000,000 and were increased to 250,000,000 on December 24, 2007. Crystal Capital Ventures Inc. holds 7,500,000 post reverse stock split shares as collateral for a loan up to $3,000,000 as discussed in Note 5.

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

The remainder of the shares under the 2006 stock option plan were granted and exercised on February 24, 2009, which closed that plan. The Company has registered the 2009 stock option plan with the SEC for 3,000,000 shares, and of those, 2,900,000 shares have been granted at an exercise price of $0.90 per share. 400,000 shares were exercised for the three months ended January 31, 2010.

For the six and three months ended January 31, 2010, 685,000 and 285,000 shares of common stock were issued, respectively and exercised for the 2009 Stock Option Plan, in the amounts of $360,000 and $256,500, respectively.

Note 7. Segment information

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

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

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

	SIX MONTHS ENDED
	January 31,
	2010			2009

Revenues from external customers:
United States	$	125,909		$	223,001
Hong Kong		-			-
India		-			-
Total revenues	$	125,909		$	223,001

Loss from operations:
United States	$	(1,526,798	)	$	(1,838,925	)
Hong Kong		-			-
India		-			-
Net loss from operations	$	(1,526,798	)	$	(898,208	)

Note 8. Share based compensation

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

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

On September 30, 2009, 400,000 stock options were exercised at an exercised price of $.90 for a value of $360,000.

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

Stock Option Plan

As of January 31, 2010, 1,000,000 shares of common stock remain available for issuance under the stock option plan.

A summary of the option activity under the Company’s stock option plan as of July 31, 2009 and changes during the six months ended January 31, 2010, is presented below.

				Weighted		Weighted
				Average		Average	Aggregate
				Exercise Share		Remaining	Intrinsic
Options	Shares			Price		Contractual	Value
Outstanding at July 31, 2009		1,685,000		$	0.90
Options granted		-		$	0.90
Options exercised		(685,000	)	$	0.90
Options cancelled/expired		-

Outstanding at January 31, 2010		1,000,000		$	0.90	4.54 years	$	(400,000	)

Exercisable at January 31, 2010		1,000,000		$	0.90

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

Stock compensation expense applicable to stock options for the six months ended January 31, 2010 and 2009 was approximately $0 and $0, respectively. The aggregate intrinsic value of options outstanding as of January 31, 2010 was $(400,000).

1,000,000 of the Company’s outstanding options were exercisable as of January 31, 2010.

Note 9. Net loss per common share

Loss per share is computed based on the weighted average number of shares outstanding during the year. Diluted loss per common share is computed by dividing net loss by the weighted average number of common shares and potential common shares during the specified periods. The Company has no outstanding options, warrants or other convertible instruments that could affect the calculated number of shares.

The following table sets forth the reconciliation of the basic and diluted net loss per common share computations for the six months ended January 31, 2010 and 2009.

	SIX MONTHS ENDED						THREE MONTHS ENDED
	January 31,						January 31,
	2010			2009			2010			2009
Basic and diluted EPS:
Net loss ascribed to common shareholders - basic and diluted	$	(1,526,798	)	$	(1,837,414	)	$	(637,329	)	$	(940,760	)
Weighted shares outstanding - basic and diluted		21,288,096			23,347,257			21,599,808			20,483,914
Basic and diluted net loss per common share	$	(0.06	)	$	(0.08	)	$	(0.02	)	$	(0.05	)

Net loss per common share for the six months ended January 31, 2010 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 one-for-seven and one-for-three reverse stock split as discussed in Note 6.

The amounts previously reported, in January 2009, were as follows:

	SIX MONTHS ENDED			THREE MONTHS ENDED
	January 31,			January 31,
	2009			2009
Basic and diluted loss per common share	$	(0.04	)	$	(0.05	)

Note 10. Going concern

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

Note 11. Commitments and contingencies

Effective April 16, 2008, SPI agreed to lease approximately 5,000 square feet of space in the Company’s North Carolina facility. The leased space will be suitable for, and utilized by SPI for, SPI’s developmental and manufacturing operations for licensed products pursuant to the license agreement. The leased space is leased on a month-to-month basis at a monthly rental of $2,625, the monthly rental to be escalated five (5%) percent annually. Although the lease was signed, the space is only 80% completed as of October 20, 2009. Also, effective April 16, 2008, the Company sold specified equipment and supplies related to the licensed agreement to SPI for the purchase price of $29,005. The Company also entered into a month to month lease agreement for $750 with SPI for renting offices in the Company’s Las Vegas corporate office.

LI-ION MOTORS CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2009

Total rent income for the six months ended January 31, 2010 and 2009 amounted to approximately $20,250 and $19,500, respectively.

Surety bond

LMC applied to North Carolina Department of Motor Vehicles for a manufacturing license. This application required a surety bond of $50,000 for three years which the Company acquired from Kaercher Campbell & Associates. LMC was licensed as a motor vehicle dealer to engage in the business of selling motor vehicles on March 9, 2009, until March 31, 2010, by the State of North Carolina DMV.

The Company has a payment plan in place with the Internal Revenue Service (IRS) for delinquent payroll taxes. Thru May 31, 2009 payments in arrears total $71,353.82. Third quarter 2009 taxes are approximately $117,000.00 which are included in the aforementioned payment plan.

Legal proceedings

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

An arbitration award in the amount of $70,803 was awarded to Keith Boucher against the Company for attorney’s fees and costs incurred in arbitration. Upon judgment domestication in North Carolina, January 2010, Keith Boucher was awarded a total of $79,426.66 and the first payment has been made.

Barrett Lyon, an individual, has filed suit against the Company in the Superior Court of California, San Mateo County, for alleged breach of warranty for a vehicle he purchased from the Company seeking $68,222 in damages, plus attorney’s fees estimated in the range of $10,000 to $30,000. Additional litigation is set for the spring 2010.

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. In January 2010, following the arbitration of the case, the Law Offices of Richard McKnight was awarded $30,288.82

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.

Note 12. Subsequent Events

In January 2010 the Board of Directors approved a merger and name change including a two for one reverse split that became effective February 1, 2010. The authorized shares decreased to 25,000,000. Crystal Capital Ventures was subsequently issued 3,749,999 shares in accordance with their loan agreement’s anti dilution clause to maintain 7,500,000 post-reverse stock split shares.

Item 2.

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

FORWARD LOOKING STATEMENTS

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

RESULTS OF OPERATIONS

SIX MONTHS ENDED JANUARY 31, 2010 AS COMPARED WITH THE THREE MONTHS ENDED JANUARY 31, 2009

We had sales of $125,909 and incurred a net loss of $1,526,798 for the six months ended January 31, 2010, which included general and administrative costs of $748,526 and research and development expense of $656,955.

Our net loss for the six-month period ended January 31, 2010 decreased from the comparative period in fiscal 2009 (from $1,838,925 in 2009 to $1,526,798 in 2010). This was primarily due to an decrease in general and administrative expense from $788,996 in the six-month period ended January 31, 2009, to $748,526 for the comparable period in 2010, a higher research and development expense of $656,955 in 2010 compared to $579,207 in 2009; and a decrease in sales from $223,001 in the six-month period ended January 31, 2009, to $125,909 in 2010. Cost of sales in 2010 was $165,497, as compared to $290,541 in 2009. In 2010, we also incurred interest expense of $169,772 related to loans payable, as compared with $448,391 for the comparable period in 2009.

THREE MONTHS ENDED JANUARY 31, 2010 AS COMPARED WITH THREE MONTHS ENDED JANUARY 31, 2009

We incurred a net loss of $637,329 for the three months ended January 31, 2010, which included general and administrative costs of $377,204 and research and development expense of $224,334.

We had sales of $999 for the three month period ended January 31, 2010. Our net loss for the three-month period ended January 31, 2010, decreased from the three-month period ended January 31, 2009 (from $939,916 for the prior period to $637,329 in 2010). This was primarily due to higher general and administrative costs of $377,204 in the three months ended January 31, 2010, as compared with $305,095 in the prior period. We incurred interest expense of $107,208 in 2010, as compared to $421,098 in the prior period. We incurred research and development costs of $224,334 in 2010, as compared to $162,955 in the prior period.

Electric Vehicle Operations

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

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

Effective April 15, 2008, we entered into a License Agreement (the “License Agreement”) with Superlattice Power, Inc. (“Superlattice”), providing for our license to Superlattice of our patent applications and technologies for rechargeable lithium ion batteries for hybrid vehicles and other applications (“Licensed Products”). Under the License Agreement, we have the right to purchase our requirements of lithium ion batteries from Superlattice, and our requirements of lithium ion batteries shall be supplied by Superlattice in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of Superlattice. Our cost for lithium ion batteries purchased from Superlattice shall be Superlattice’s actual manufacturing costs for such batteries for the fiscal quarter of Superlattice in which our purchase takes place.

Superlattice agreed to invest a minimum of $1,500,000 in each of the first two years in the development of the technology for the Licensed Products. In the initial year under the License Agreement, Superlattice invested approximately $264,043 in the development of technology, and therefore is not in compliance with its obligations under this covenant of the license agreement. We have advised Superlattice in a letter dated October 1, 2009, that we will not give notice of default against Superlattice for its failure to comply with this covenant in the first year of the term of the License Agreement.

Effective April 16, 2008, Superlattice agreed to lease approximately 5,000 square feet of space (“Leased Space”) in our North Carolina facility, such Leased Space to be suitable for, and utilized by Superlattice for, Superlattice’s developmental and manufacturing operations for Licensed Products pursuant to the License Agreement. The Leased Space is leased on a month-to-month basis at a monthly rental of $2,500, the monthly rental to be escalated five (5%) percent annually (currently $2,625). Effective April 16, 2008, we also sold to Superlattice for the purchase price of $29,005, specified equipment and supplies related to the Licensed Field.

Commercial Initiatives

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

5.2 Liquidity and Capital Resources

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

At January 31, 2010, we had liabilities of $6,224,488, as compared with $5,307,066 at July 31, 2009; and a working capital deficiency of $2,013,565 and a stockholders deficiency of $3,940,177. As of January 31, 2010, we had $16,033 cash on hand. In fiscal 2009, we also defaulted under our loan agreement with Wyndom Capital Investments, Inc. which, as its sole recourse under the loan agreement, took possession of 10,000,000 shares of our common stock held as collateral, and are in default under our loan agreement with Crystal Capital Ventures, Inc., pursuant to which we have pledged 7,500,000 shares of our Common Stock as collateral and which stock is the lender’s sole recourse in the event of a default. This lender has waived all defaults through December 7, 2009 under this loan agreement.

Our property, plant and equipment decreased to $1,953,872 at January 31, 2010, as compared with $1,989,981 at July 31, 2009.

We used net cash in operating activities of $1,143,048 in the six months ended January 31, 2010, as compared with $1,065,999 in the comparable period in 2009, and cash flows provided by investing activities were ($4,655) in 2010, as compared with ($106,346) in 2009.

During the six months ended January 31, 2010, we received net proceeds of $108,060 from the issuance of promissory notes for debt, and net proceeds of advances from related parties of $1,069,541. Total cash provided by financing activities in the six months ended January 31, 2010 was $1,161,663, as compared with $1,117,580 in 2009.

Wyndom Capital Loan Agreement

In October 2007, the Company entered into a loan agreement with Wyndom Capital Investments, Inc. (“Wyndom”). During the year ended July 31, 2008 the Company issued 3,333,335 shares of outstanding stock as collateral for the notes under the loan agreement. In February 2009 the Company had a 1:3 reverse stock split and issued 6,666,665 shares of common stock to Wyndom to make their shares held as collateral total 10,000,000. The agreement provided for loans of up to $4,000,000 with interest payable monthly at a rate of 10% per annum and due in full in January of 2010. Loans under the agreement were secured by the Company’s shares of common stock at a rate of two and one half shares to each dollar of principal. The Company paid interest to Wyndom of approximately $342,000 for the year ended July 31, 2009 and $154,000 for the year ended July 31, 2008, respectively. The Company defaulted on the loan in February 2008, but Wyndom had waived the default until June 2009 when they took possession of the 10,000,000 shares they held as collateral. As a result, our liability of $4,000,000 for principal and accrued unpaid interest was extinguished as of June 16, 2009, the date on which Wyndom took possession of the final portion of the share collateral.

Crystal Capital Ventures Loan Agreement

On May 5, 2008, the Company entered into a loan agreement with Crystal Capital Ventures Inc. (“Crystal”). The loan agreement provides for loans to the Company of up to $3,000,000, with a minimum initial loan of $500,000 on May 19, 2008. The notes bear interest payable monthly in arrears at the rate of 10% per annum and mature and are due and payable May 4, 2011. The loans under the loan agreement are secured by shares of the Company’s common stock held by Crystal. The Company is required to issue shares as collateral at the rate of two and one half shares of the Company’s common stock for each dollar principal amount of the loan advanced to the Company. Following disbursement of the first $1,000,000 of funds pursuant to the loan agreement, on May 27, 2008, the Company issued 2,500,000 shares of common stock as collateral to Crystal. After the 1:3 reverse stock split in February 2009 the Company issued Crystal an additional 5,000,000 shares to make their shares held as collateral total 7,500,000. After the 1:2 reverse stock split in February 2010 the Company issued Crystal an additional 3,749,999 shares to make their shares held as collateral total 7,500,000.

As of January 31, 2010, the Company had borrowed the full $3,000,000 from Crystal. The Company accrued interest to Crystal of approximately $117,000 and $77,000 for the six and three months ended January 31, 2010, respectively. The Company went into default on the loan agreement in August 2008 for failure to make required interest payments, but as of March 22, 2010, the Company had not received notice of default from Crystal Capital.

Liquidity Issues

The Company has been served with a tax lien dated March 3, 2010 from the Internal Revenue Service in the total amount of $251,928.14. The Company has a payment plan in place with the Internal Revenue Service (IRS) for delinquent payroll taxes. We have a judgment of $17,686 (reduced to $10,186 under a payment plan) and arbitration awards of $79,426 (reduced to $74,426 under a payment plan) and $30,288, entered against us. There is no assurance that we will be able raise additional required capital to meet obligations arising from the settlements of these litigation matters, as well as the settlement payments with the IRS, and to continue our operations.

Our current operating funds are less than necessary for commercialization of our planned products, and therefore we will need to obtain additional financing in order to complete our business plan. We anticipate that up to $5,000,000 of additional working capital will be required over the next 12 months for market introduction of these products through joint venture partners or otherwise. We do not have sufficient cash on hand to meet these anticipated obligations, which are in addition to payments we will owe to judgment creditors and the IRS.

We do not currently have any other arrangements for financing, although one loan agreement with a former lender is under negotiation, and we may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor sentiment. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to us.

Our auditors are of the opinion that our continuation as a going concern is in doubt. Our continuation as a going concern is dependent upon continued financial support from our shareholders and other related parties.

CRITICAL ACCOUNTING ISSUES

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

Other Matters

Recently Issued Pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

Item 4(T). Controls and Procedures.

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

PART II- OTHER INFORMATION

Item 1. Legal Proceedings.

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

Hybrid Technologies, Inc. v. Keith Boucher

In January, 2010, an arbitration award in the amount of $79,426 was awarded to Keith Boucher against the Company for attorneys fees and costs incurred in arbitration..

Barrett Lyon v. EV Innovations, Inc.

Barrett Lyon, an individual, has filed suit against the Company in the Superior Court of California, San Mateo County, for alleged breach of warranty for a vehicle he purchased from the Company, seeking $68,220.00 in damages, plus attorneys fees estimated in the range of $10,000 to $30,000.

F&C Promptly, Inc. v. EV Innovations, Inc.

F&C Promptly, Inc., a collection agency, filed in February 2009 a lawsuit against us 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 is separately suing Richard McKnight and brought a third party complaint against McKnight and his law office, alleging negligence and professional malpractice. In January 2010, following the arbitration of the case, the Law Offices of Richard McKnight was awarded $30,288.82

Caudle & Spears v. EV Innovations, Inc.

Caudle & Spears has obtained in Meckenberg County, North Carolina, General Court, a default judgment against us in the amount of $17,686. This law firm represented the Company in our litigation against Martin Koebler, a former employee, whom we successfully sued for return of Company property and other damages. We are in settlement negotiations with Caudle & Spears, and a payment agreement has been reached.

Internal Revenue Service

The Company has been served with a tax lien dated March 3, 2010 from the Internal Revenue Service in the total amount of $251,928.14. The Company has a payment plan in place with the Internal Revenue Service (IRS) for delinquent payroll taxes. Thru May 31, 2009 payments in arrears total $71,353.82. Third quarter 2009 taxes are approximately $117,000, which are included in the payment plan.

Item 6. Exhibits

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

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

SIGNATURES

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

	Li-ion Motors Corp.

	/s/ Stacey Fling
	Stacey Fling
	Chief Executive Officer and Director
	(Chief Executive Officer and
	Principal Financial Officer)
	Dated: March 22, 2010

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