Attached files
file | filename |
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EX-31 - Li-ion Motors Corp. | v204898_ex31.htm |
EX-32 - Li-ion Motors Corp. | v204898_ex32.htm |
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 31, 2010
|
|
or
|
|
¨
|
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
(Issuer’s
Telephone Number, Including Area
Code)
|
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, Par value $0.01 per share
Indicate
by check mark whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. x Yes ¨ 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 x 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 x No
On
December 8, 2010, there were 30,047,301 shares of common stock
outstanding.
LI-ION
MOTORS CORP.
INDEX
TABLE OF
CONTENTS
Page
No.
|
|
PART
I. FINANCIAL INFORMATION
|
|
ITEM
I - Unaudited Consolidated Financial Statements
|
1
|
Consolidated
Balance Sheets as of October 31, 2010 and July 31, 2010 (Unaudited)
|
2
|
Consolidated
Statements of Operations for the Three Months Ended October 31, 2010 and
2009 (Unaudited)
|
3
|
Consolidated
Statement of Comprehensive Income (Loss) for the Three Months Ended
October 31, 2010 and 2009 (Unaudited)
|
4
|
Consolidated
Statement of Stockholders Deficiency (Unaudited)
|
6
|
Consolidated
Statements of Cash Flows for the Three Months Ended October 31, 2010 and
2009 (Unaudited)
|
5
|
Notes
to Unaudited Consolidated Financial Statements
|
7
|
ITEM
2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations.
|
15
|
ITEM
3 – Quantitative and Qualitative Disclosures About Market
Risk
|
18
|
ITEM
4T– Controls and Procedures.
|
19
|
PART
II. OTHER INFORMATION
|
|
ITEM
1 - Legal Proceedings.
|
19
|
ITEM
6 – Exhibits.
|
20
|
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, 2010. 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 operations for the
three months ended October 31, 2010 and 2009 are not necessarily indicative of
the results for the entire fiscal year or for any other period.
1
Li-ion
Motors Corp.
(Formerly
EV Innovations, Inc.)
Consolidated
Balance Sheets
(unaudited)
October 31
|
July 31,
|
|||||||
2010
|
2010
|
|||||||
Assets
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,592,875 | $ | 2,113 | ||||
Note
receivable, net of allowance for doubtful account of
$912,272
|
- | - | ||||||
Inventories
|
35,000 | 35,000 | ||||||
Employee
advances
|
2,700 | 10,000 | ||||||
Other
current assets
|
104,824 | 51,000 | ||||||
Total
current assets
|
1,735,399 | 98,113 | ||||||
Property
and equipment, net
|
1,900,205 | 1,919,681 | ||||||
Deferred
patent costs
|
24,258 | 24,258 | ||||||
Total
assets
|
$ | 3,659,862 | $ | 2,042,052 | ||||
Liabilities
and Stockholders' Deficiency
|
||||||||
Current
liabilities:
|
||||||||
Bank
overdrafts
|
$ | - | $ | 14,104 | ||||
Accounts
payable and accrued expenses
|
1,402,484 | 1,296,734 | ||||||
Current
portion of long-term debt
|
18,417 | 22,444 | ||||||
Customer
deposits
|
100,000 | 100,000 | ||||||
Deferred
revenue
|
458,990 | 501,288 | ||||||
Total
current liabilities
|
1,979,891 | 1,934,570 | ||||||
Long-term
liabilities:
|
||||||||
Long-term
debt, less current portion
|
6,033,296 | 5,943,056 | ||||||
Long-term
deferred revenue, less current portion
|
- | 83,333 | ||||||
Total
liabilities
|
8,013,187 | 7,960,959 | ||||||
Commitments
and contingencies
|
- | - | ||||||
Stockholders'
deficiency
|
||||||||
Preferred
stock, $.001 par value, 5,000,000 shares authorized, 0 issued and
outstanding
|
- | - | ||||||
Common
stock, $.001 par value, 100,000,000 shares authorized, 30,047,301 issued
and outstanding at October 31, 2010 and July 31, 2010
|
30,047 | 30,047 | ||||||
Additional
paid-in capital
|
56,758,511 | 56,758,511 | ||||||
Accumulated
deficit
|
(61,133,047 | ) | (62,699,029 | ) | ||||
Accumulated
other comprehensive income
|
(8,836 | ) | (8,436 | ) | ||||
Stockholders'
deficiency
|
(4,353,325 | ) | (5,918,907 | ) | ||||
Total
liabilities and stockholders' deficiency
|
$ | 3,659,862 | $ | 2,042,052 |
See
accompanying notes to unaudited consolidated financial
statements
2
Li-ion
Motors Corp.
(Formerly
EV Innovations, Inc.)
Consolidated
Statements of Operations
(unaudited)
For the Three Months Ended
|
||||||||
October 31,
|
||||||||
2010
|
2009
|
|||||||
Sales:
|
$ | 1,985 | $ | 124,910 | ||||
Costs
and expenses:
|
||||||||
Cost
of sales
|
350 | 165,497 | ||||||
General
and administrative
|
364,530 | 371,322 | ||||||
Research
and development
|
481,977 | 432,621 | ||||||
Total
costs and expenses
|
846,857 | 969,440 | ||||||
Loss
from continuing operations
|
(844,872 | ) | (844,530 | ) | ||||
Other
(expenses) income:
|
||||||||
Interest
expense
|
(157,838 | ) | (62,564 | ) | ||||
Other
income
|
2,568,291 | 17,625 | ||||||
Net
income (loss) before provision for (benefit from) income
taxes
|
1,565,581 | (889,469 | ) | |||||
Provision
for (benefit from) income taxes
|
- | - | ||||||
Net
earnings (loss)
|
1,565,581 | (889,469 | ) | |||||
Less:
Net earnings (loss) attributable to noncontrolling
interest
|
- | - | ||||||
Net
earnings (loss) attributable to Li-ion Motors Corp
|
$ | 1,565,581 | $ | (889,469 | ) | |||
Net
earnings (loss) per share - basic and diluted:
|
||||||||
Net
earnings (loss) per common share attributable to Li-ion Motors Corp.
common shareholders
|
$ | 0.05 | $ | (0.04 | ) | |||
Weighted
average number of shares outstanding - basic and diluted
|
30,047,301 | 21,014,535 |
See
accompanying notes to unaudited consolidated financial
statements
3
Li-ion
Motors Corp.
(Formerly
EV Innovations, Inc.)
Consolidated
Statement of Comprehensive Income (Loss)
(unaudited)
For the Three Months Ended
|
||||||||
October 31,
|
||||||||
2010
|
2009
|
|||||||
Net
earnings (loss)
|
$ | 1,565,581 | $ | (889,469 | ) | |||
Other
comprehensive income
|
||||||||
Currency
translation adjustment
|
(400 | ) | (345 | ) | ||||
Comprehensive
income (loss)
|
1,565,181 | (889,814 | ) | |||||
Comprehensive
income (loss) attributable to noncontrolling interest
|
- | - | ||||||
Comprehensive
income (loss) attributable to Li-ion Motors Corp
|
$ | 1,565,181 | $ | (889,814 | ) |
See
accompanying notes to unaudited consolidated financial statements
4
Li-ion
Motors Corp.
(Formerly
EV Innovations, Inc.)
Consolidated
Statements of Cash Flows
(unaudited)
For the Three Months Ended
|
||||||||
October 31,
|
||||||||
2010
|
2009
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
earnings (loss)
|
$ | 1,565,581 | $ | (889,469 | ) | |||
Adjustments
to reconcile net earnings (loss) to net cash utilized by operating
activities
|
||||||||
Depreciation
|
19,476 | 21,469 | ||||||
Provision
for doubtful accounts
|
71,065 | - | ||||||
Increase
(decrease) in cash flows from changes in operating assets and
liabilities
|
||||||||
Accounts
receivable, net
|
- | 13,522 | ||||||
Inventories
|
- | 111,246 | ||||||
Employee
advances
|
7,300 | (1,967 | ) | |||||
Prepaid
expenses and other current assets
|
(53,824 | ) | 3,369 | |||||
Bank
overdraft
|
(14,104 | ) | - | |||||
Accounts
payable and accrued expenses
|
105,750 | 192,840 | ||||||
Customer
deposits
|
- | (76,977 | ) | |||||
Deferred
revenue
|
(125,631 | ) | (630 | ) | ||||
Net
cash provided by (used in) operating activities
|
1,575,613 | (626,597 | ) | |||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Additions
to property and equipment
|
- | (4,851 | ) | |||||
Net
cash used in investing activities
|
- | (4,851 | ) | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES :
|
||||||||
Advances
on promissory note
|
(71,065 | ) | - | |||||
Proceeds
from issuance of debt
|
560,835 | 113,941 | ||||||
Payments
on debt
|
(474,621 | ) | (10,641 | ) | ||||
Advances
from related parties
|
- | 740,266 | ||||||
Payments
to related parties
|
- | (206,081 | ) | |||||
Net
cash provided by (used in) financing activities
|
15,149 | 637,485 | ||||||
Effect
of exchange rate changes on cash and cash equivalents
|
- | (345 | ) | |||||
CHANGE
IN CASH AND CASH EQUIVALENTS
|
||||||||
Net
increase in cash and cash equivalents
|
1,590,762 | 5,692 | ||||||
Cash
and cash equivalents at beginning of period
|
2,113 | 5,182 | ||||||
Cash
and cash equivalents at end of period
|
$ | 1,592,875 | $ | 10,874 | ||||
SUPPLEMENTAL
CASH FLOW DISCLOSURES
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | 15,216 | $ | 26,615 | ||||
Income
taxes
|
$ | - | $ | - | ||||
SUPPLEMENTAL
DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
|
||||||||
Shares
issued for related party advances
|
$ | - | $ | 360,000 | ||||
Accrued
expenses transferred to long-term debt
|
$ | - | $ | 32,201 |
See
accompanying notes to unaudited consolidated financial
statements
5
Li-ion
Motors Corp.
(Formerly
EV Innovations, Inc.)
Consolidated
Statement of Stockholders' Deficiency
For
the Periods Ended As Noted
(unaudited)
Common
Shares
|
Accumulated
Other
|
|||||||||||||||||||||||||||
Number
of
|
$0.01
|
Additional
Paid in
|
Accumulated
|
Comprehensive
|
Comprehensive
|
|||||||||||||||||||||||
Common
Shares
|
Par
Value
|
Capital
|
Deficit
|
Income
(Loss)
|
Income
(Loss)
|
Total
|
||||||||||||||||||||||
Balance
- August 1, 2009
|
20,884,101 | 20,884 | 55,731,174 | (58,765,425 | ) | (13,413 | ) | (3,026,780 | ) | |||||||||||||||||||
Exercise
of stock options
|
685,000 | 685 | 615,815 | - | - | 616,500 | ||||||||||||||||||||||
1:2
Reverse stock split adjustment
|
(10,779,696 | ) | (10,780 | ) | 10,780 | - | - | - | ||||||||||||||||||||
Common
stock issued as collateral on loan
|
3,749,999 | 3,750 | (3,750 | ) | - | - | - | |||||||||||||||||||||
Common
stock issued as collateral on loan
|
10,000,000 | 10,000 | (10,000 | ) | - | - | - | |||||||||||||||||||||
Exercise
of stock options
|
500,000 | 500 | 349,500 | 350,000 | ||||||||||||||||||||||||
1:5
Forward split adjustment
|
5,007,897 | 5,008 | (5,008 | ) | - | - | - | |||||||||||||||||||||
Issuance
of non-employee stock options
|
- | - | 70,000 | - | - | 70,000 | ||||||||||||||||||||||
Foreign
currency translation
|
- | - | - | - | 4,977 | $ | 4,977 | 4,977 | ||||||||||||||||||||
Net
Loss
|
- | - | - | (3,933,604 | ) | - | (3,933,604 | ) | (3,933,604 | ) | ||||||||||||||||||
Comprehensive
loss
|
$ | (3,928,627 | ) | - | ||||||||||||||||||||||||
Balance
- July 31, 2010
|
30,047,301 | $ | 30,047 | $ | 56,758,511 | $ | (62,699,029 | ) | $ | (8,436 | ) | $ | (5,918,907 | ) | ||||||||||||||
Foreign
currency translation
|
- | - | - | - | (400 | ) | $ | (400 | ) | (400 | ) | |||||||||||||||||
Net
earnings
|
- | - | - | 1,565,581 | - | 1,565,581 | 1,565,581 | |||||||||||||||||||||
Comprehensive
loss
|
$ | 1,565,181 | - | |||||||||||||||||||||||||
Balance
- October 31, 2010
|
30,047,301 | $ | 30,047 | $ | 56,758,511 | $ | (61,133,448 | ) | $ | (8,836 | ) | $ | (4,353,325 | ) |
See
accompanying notes to unaudited consolidated financial
statements
6
Formerly
EV Innovations, Inc.)
Notes
to Unaudited Consolidated Financial Statements
October
31, 2010
Note
1. Financial Statement Presentation
History
and Nature of Business
Li-ion
Motors Corp (formerly EV Innovations, Inc., the “Company”) was incorporated
under the laws of the State of Nevada on April 12, 2000. The “Company’s”
original business was the exploration and development of mineral interests. The
Company abandoned this business in 2003.
The
Company is currently pursuing the development and marketing of electric powered
vehicles and products based on the advanced lithium battery technology it has
developed. As of July 31, 2009 the Company no longer considered itself a
development stage company as planned principal operations have begun in its
primary line of business.
On April
16, 2008, the Company sold their controlling interest of approximately 69% of
the outstanding common stock in Zingo, Inc. (presently Superlattice Power, Inc.,
“SPI”). Prior to April 16, 2008, SPI 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 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. On May 25, 2010 the
license agreement was amended to reflect Superlattice’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, 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, SPI 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
SPI that it will not give notice of default against them for their
failure to comply with this covenant over the term of the License
Agreement.
Effective
May 28, 2010 the Company entered into a ten year license agreement with Lithium
Electric Vehicle Corp. (“LEVC”) providing for the Company to license to LEVC
certain of the Company’s patent applications and technologies for electric
vehicles and other applications. The purpose of the licensee is to expand sales
of the Company’s current line of products by the manufacture and sale of such
products in Canada, which is LEVC’s exclusive territory under the
license agreement.
Basis of
Presentation
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,
raising 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.
On
October 27, 2010, the Company received $2.5 million as an award from Automotive
X-Prize (see Note 14) and during the previous fiscal year, entered into a ten
year license agreement with LEVC expanding the Company's products and technology
in Canada. The Company expects the funds received from Automotive X-Prize
and LEVC and the expected revenue from operations to be sufficient to cover
operations over the next twelve months.
7
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 were
increased from 35,714,285 to 50,000,000 shares.
In
January 2010, the Board of Directors approved a merger with a 100% subsidiary
resulting in the change of the Company’s name to Li-ion Motors, Corp. The Board
of Directors also approved a two-for-one reverse split that was effective
February 1, 2010 and the authorized shares were decreased in the same ratio to
25,000,000 shares. Pursuant to majority stockholder consent, the
authorized was increased from 25,000,000 shares to 100,000,000
shares.
Except
for the presentation of common shares authorized and issued on the consolidated
balance sheet and shares presented in the consolidated statement of
stockholders' deficiency, all shares and per share information has been revised
to give retroactive effect to the reverse stock splits.
On April
20, 2010, the Company approved a 20% restricted stock dividend for the holders
of its common stock, consisting of one share of common stock for each five
shares held of record on the May 28, 2010 record date.
On July
1, 2009, the Financial Accounting Standards Board (“FASB”) established
Accounting Standards Codification (“ASC”) as the primary source of authoritative
generally accepted accounting principles (“GAAP”) recognized by the FASB to be
applied by nongovernmental entities. Although the establishment of the ASC
did not change current GAAP, it did change the way we refer to GAAP throughout
this document to reflect the updated referencing convention.
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, 2010.
There were no significant changes to these accounting policies during the
three months ended October 31, 2010 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
The
Company advanced Superlattice Power, Inc. (“SPI”) $71,065 of which none was
repaid during the three months ended October 31, 2010. During the year
ended July 31, 2010 the Company advanced SPI $1,282,988, of which $441,781 was
repaid. As of October 31, 2010 the balance due to the Company in the amount of
$71, 065 has been reserved as bad debt and is included in general and
administrative expenses, as an allowance for doubtful account, due to uncertain
prospect of collection. As of July 31, 2010, the Company reserved $841,207,
which was included in general and administrative for the year ended July 31,
2010.
Note
4. Inventories
Inventories
consist of the following:
October 31,
|
July 31,
|
|||||||
2010
|
2010
|
|||||||
Finished
Goods
|
$ | 35,000 | $ | 35,000 | ||||
$ | 35,000 | $ | 35,000 |
Finished
goods as of October 31, 2010 and July 31, 2010, are related to the Company’s
planned sales of electric powered vehicles.
8
Note
5. Property and Equipment
Property
and equipment consist of:
October
31,
|
July
31,
|
|||||||
2010
|
2010
|
|||||||
Building
and Improvements
|
$ | 1,287,001 | $ | 1,287,001 | ||||
Furniture
and Fixtures
|
15,794 | 15,794 | ||||||
Office
Equipment
|
146,016 | 146,016 | ||||||
Machinery
and Equipment
|
36,971 | 36,971 | ||||||
Vehicles
|
66,429 | 66,429 | ||||||
Software
Costs
|
28,913 | 28,913 | ||||||
Land
|
700,000 | 700,000 | ||||||
2,281,124 | 2,281,124 | |||||||
Less
Accumulated Depreciation
|
(380,919 | ) | (361,443 | ) | ||||
Net
Property and Equipment
|
$ | 1,900,205 | $ | 1,919,681 |
Depreciation
expense for the three months ended October 31, 2010 and 2009 was $19,476 and
$21,469, respectively and is included in general and administrative expenses on
the Company’s consolidated statement of operations.
Note
6. Other Current Assets
October
31,
|
July
31,
|
|||||||
2010
|
2009
|
|||||||
Retainers
|
$ | 1,967 | $ | 7,500 | ||||
Deferred
Warranty Asset
|
19,162 | 25,594 | ||||||
Prepaid
Expenses
|
83,695 | 17,907 | ||||||
Total
|
$ | 104,824 | $ | 51,001 |
Note
7. Accounts Payable and Accrued Expenses
Accounts
payable, accrued expenses and other current liabilities at October 31, 2010
and July 31, 2010 consisted of:
October
31,
|
July
31,
|
|||||||
2010
|
2010
|
|||||||
Accounts
Payable
|
$ | 502,069 | $ | 599,518 | ||||
Accounts
Payable - Related Parties
|
74,943 | 63,325 | ||||||
Wages,
Paid Leave and Payroll Related Taxes
|
433,967 | 407,884 | ||||||
Accrued
Interest
|
252,605 | 114,619 | ||||||
Other
|
138,900 | 111,388 | ||||||
Total
|
$ | 1,402,484 | $ | 1,296,734 |
9
Note
8. Long-Term Debt
Long-term
debt consists of:
October
31,
|
July
31,
|
|||||||
2010
|
2010
|
|||||||
5%
Note payable to Bayview Loan Servicing, LLC, payable in monthly
installments of $5,349 including interest, collateralized by real property
due in full on or before March 2038 (1)
|
$ | 948,172 | $ | 953,437 | ||||
10%
Note payable to Crystal Capital Ventures, payable in May 2012
collateralized by 9,000,000 shares of the Company's common stock
(2)
|
3,000,000 | 3,000,000 | ||||||
11.24%
Note payable to Allegiance Direct Bank, payable in monthly installments of
approximately $1000, due in full on February 28, 2011 (3)
|
2,075 | 5,000 | ||||||
12%
Note payable to Frontline Asset Management, payable in monthly
installments of interest only, due in full on March 1, 2012
(4)
|
1,329,807 | 1,235,404 | ||||||
10%
Note payable to Winsor Capital Inc. due in full on April 15, 2013
collaterized by 12,000,000 shares of the Company's common stock
(5)
|
771,659 | 771,659 | ||||||
6,051,713 | 5,965,500 | |||||||
Less
Current Portion
|
(18,417 | ) | (22,444 | ) | ||||
$ | 6,033,296 | $ | 5,943,056 |
Principal
maturities for long-term debt are as follows for the first quarters ended
October 31:
2011
|
$ | 18,417 | ||
2012
|
4,347,000 | |||
2013
|
789,746 | |||
2014
|
19,029 | |||
2015
|
20,020 | |||
Thereafter
|
857,501 | |||
$ | 6,051,713 |
(1) In
November 2007, the Company refinanced a loan on its North Carolina building. The
loan is with Bayview Loan Servicing, LLC. Effective March 31, 2010 the Company
entered into a stipulation agreement with Bayview Loan Servicing, LLC that
reduced the current monthly payment to $5,349, including interest. In 2013,
Bayview Loan Servicing LLC may step up the interest rate at that time. The
loan is set to mature on March 31, 2038. Effective April 1, 2012, the
interest rate adjusts to Prime plus 4.875%. Interest rate changes are limited to
2% increase or decrease in any annual adjustments. During the three months ended
October 31, 2010 and 2009, the Company repaid $5,265 and $7,700, respectively.
Interest expense for the three months ended October 31, 2010 and 2009, for
Bayview Loan Servicing, LLC was $12,090 and $26,463,
respectively.
10
(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 loans bear interest payable monthly in arrears at the
rate of 10% per annum, and mature and are payable on May 4, 2012. The loan under
the loan agreement is 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 2,500,000 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. Pursuant to the anti-dilution provisions in the
Crystal Capital Ventures loan agreement with the 1:2 reverse stock split of
February 1, 2010 the Company issued 3,749,999 shares to Crystal Capital Ventures
so they again hold 7,500,000 post reverse stock split shares. In
connection with the Company's 20% stock dividend, the Company issued an
additional 1,500,000 common shares to be held as collateral.
As of
October 31, 2010, the Company has borrowed the full $3,000,000 under the loan
agreement from Crystal Capital. Interest expense to Crystal Capital for the
three months ended October 31, 2010 and 2009 was $75,616 and $76,619,
respectively.
On
December 2, 2010 the Company made an interest payment of $158,982 to Crystal
Capital for interest accrued through December 1, 2010. The Company is now
current with the loan.
(3) On
February 28, 2010 the Company financed a liability policy (workman’s
compensation) with Allegiance Direct Bank for the period February 28, 2010 to
February 28, 2011 for $13,351. The Company was required to make a down payment
of $3,351.15 in February 2010 and monthly payments including interest of 9.4%.
During the three months ended October 31, 2010 and 2009, the Company repaid
$2,925 and $2,940, respectively. Interest expense for the three months ended
October 31, 2010 and 2009 paid to Allegiance Direct Bank is $232 and $0,
respectively.
(4) On
February 26, 2010, the Company entered into a loan agreement with Frontline
Asset Management Inc. (“Frontline”). The loan provides for payments to the
Company of $2,000,000 with interest at a fixed annual rate of 12%. On May 1,
2010, an Addendum to the original Promissory Note, dated February 26, 2010, was
entered into which amended the term of the note to provide for
interest only payments, due on the last day of every month until maturity date
March 30, 2011 when all principal and accrued interest shall be due and
payable. During the three months ended October 31, 2010 and 2009, the
Company received advances totaling $560,835 and $0, respectively; and made
payments of $466,431 and $0, respectively. Interest expense for the three
months ended October 31, 2010 was $46,959.
During
the months of November and December 2010, the Company received advances of
$10,000 and repaid $343,747. On November 19, 2010, the Company made an
interest payment of $89,743 for interest accrued through November 1, 2010, and
on December 2, 2010 the Company made an additional interest payment of $11,266
for interest that had accrued through December 1, 2010.
(5) On
April 15, 2010 the Company entered into a loan agreement for $2,000,000 with
Winsor Capital Inc. The loan provides 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 is secured by
12,000,000 shares of the Company common stock. Each loan installment matures
three years from issuance of the installment. The loan has an anti-dilution
clause for the stocks issued. Stock is issued and delivered proportionately to
the delivery of funds. Interest expense for the three months ended October 31,
2010 was $19,450.
On
December 2, 2010 the Company made an interest payment of $36,355 to Winsor
Capital for interest accrued through December 1, 2010.
Note
9. Stockholders’ Equity
On
January 15, 2009, the Company’s shareholders approved a 1:3 reverse stock split
for the outstanding shares but it did not take effect until February 19, 2009.
Common stock, authorized shares was 35,714,285 and was increased to 50,000,000
on February 19, 2009. On February 20, 2009, the Company issued Wyndom Capital
Investments, Inc. an additional 6,666,665 shares as collateral for a loan that
in June 2009 went into default and the share collateral for which was taken by
the lender. Crystal Capital Ventures Inc. was issued 4,999,999 shares so they
again held 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
8.
11
On
February 1, 2010 the Company effected a 1:2 reverse stock split. Pursuant to the
anti-dilution provisions in the Crystal Capital Ventures loan agreement the
Company issued 3,749,999 shares to Crystal Capital Ventures, so they again held
7,500,000 post reverse stock split shares. Concurrent with the 1:2 reverse stock
split the authorized shares were also reduced from 50,000,000 to 25,000,000
shares. By shareholder approval on May 17, 2010 the authorized shares of common
stock were increased from 25,000,000 to 100,000,000.
Except
for the presentation of common shares authorized and issued on the consolidated
balance sheet and shares presented in the consolidated statement of
stockholders’ deficiency, all shares and per share information has been revised
to give retroactive effect to the reverse stock splits.
Note
10. 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
following table sets forth the reconciliation of the basic and diluted net loss
per common share computations for the three months ended October 31, 2010 and
2009.
Three
Months Ended
|
||||||||
October
31,
|
||||||||
2010
|
2009
|
|||||||
Basic
and Diluted EPS:
|
||||||||
Net
Income/(Loss) Ascribed to Common Shareholders - Basic and
Diluted
|
$ | 1,565,581 | $ | (889,469 | ) | |||
Weighted
Average Shares Outstanding - Basic and Diluted
|
30,047,301 | 21,014,535 | ||||||
Basic
and Diluted Net Loss Per Common Share
|
$ | 0.05 | $ | (0.04 | ) |
Net loss
per common share for the three months ended October 31, 2009 has been
revised. This revision was immaterial to the Company’s results of
operations and financial position. See below for further
discussion.
Three
Months Ended
|
||||
October
31, 2009
|
||||
Basic
and Diluted Loss Per Common Share
|
$ | (0.33 | ) | |
Weighted
Average Number of Shares
|
||||
Outstanding
-Basic and Diluted
|
20,558,046 |
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” (“ASC 718”).
The
Company recognizes the cost of all employee stock options on a straight-line
attribution basis over their respective contractual terms, net of estimated
forfeitures. The Company has selected the modified prospective method of
transition.
Stock
Dividend
On April
20, 2010 the Board of Directors approved a 20% restricted stock dividend for the
holders of our common stock, consisting of one share of common stock for each
five shares held of record on the May 28, 2010 record date.
12
Increase
in Authorized Common Stock
On
April 7, 2010, the Company’s board of directors approved an amendment to our
Articles of Incorporation to increase the authorized number of shares of common
stock from 25,000,000 shares, par value $.001 per share, to 100,000,000 shares,
par value $.001 per share. The Company thereafter received the written consent
from a shareholder of our company holding a majority (51.58%) of the outstanding
shares of our common stock on April 8, 2010. The Company filed the
amendment with the Secretary of State on Nevada on May 4, 2010, after mailing a
Definitive Information Statement to our stockholders and the amendment was
effective May 17, 2010.
Stock
Option Plan
As of
October 31, 2010, there are no shares of common stock remaining and available
for issuance under the stock option plans.
Note
12. Income Taxes
The
Company adopted the provisions of ASC 740, “Income Taxes” (“ASC 74”) on August
1, 2007. The implementation of ASC 740 did not impact the total amount of the
Company’s liabilities for uncertain tax position.
The
Company recorded no provisions for income taxes for the three months ended
October 31, 2010 and 2009.
Note
13. Commitments and Contingencies
Lease
Agreement
Our
principal executive office is located in Las Vegas, Nevada. We lease
approximately 1,900 square feet under a lease agreement that commenced in March
2008 and renews on an annual basis. The lease provides for an aggregate annual
payment of $18,000. We believe our current facilities will generally be adequate
for our needs for the foreseeable future.
Effective
April 16, 2008, SPI agreed to lease approximately 5,000 square feet of space in
the Company’s North Carolina facility at a rental rate of $2,500.00 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 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 current monthly rental of $2,756. Although the lease was signed, the space
is only 80% completed as of October 31, 2010. 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.
Total
rental income for the three months ended October 31, 2010 and 2009 was $10,519
and $10,125, respectively.
License
Agreement
Effective
May 28, 2010 the Company entered into a 10 year license agreement with Lithium
Electric Vehicle Corp. (“LEVC”) providing for the Company to license to LEVC
certain of the Company’s patent applications and technologies for electric
vehicles and other applications. The purpose of the licensee is to expand
sales of the Company’s current line of products by the manufacture and sale of
such products in Canada, which is LEVC’s exclusive territory under the license
agreement. LEVC agreed to pay the Company $2 million dollars over the initial
two year term with the option to extend the agreement on an annual basis for an
additional $500,000 per year. The revenue earned from the license
agreement is amortized over the two year period and for the three
months ended October 31, 2010 the Company recognized income of
$125,000 with $458,333 being deferred.
In
connection with the license agreement, LEVC agrees to pay the Company a royalty
on each and every licensed product sold or distributed by LEVC. The
royalty is due within ten days of each calendar quarter.
Surety
Bond
The
Company applied 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.
The Company is licensed as a motor vehicle dealer to engage in the business of
selling motor vehicles by the State of North Carolina DMV. The Company's
license is effective through March 31, 2011.
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.
13
An
arbitration award in the amount of $70,803 was awarded to Keith Boucher, a
former consultant for the Company against the Company for attorney’s fees and
costs incurred in arbitration. A Judgment has been awarded to Keith
Boucher. The parties agreed upon a monthly payment and the judgment was
satisfied in October 2010.
Barrett
Lyon, an individual, has filed suit against the Company in the Superior Court of
California, San Mateo County, for alleged breach of warranty for a vehicle he
purchased from the Company seeking $150,000 in damages, which includes
attorney’s fees. The Company has disputed his claims; however, on
September 15, 2010 the Company reached a settlement agreement with Mr. Lyon and
paid Mr. Lyon $75,000 in full settlement.
F&C
Promptly, Inc., a collection agency, filed in February 2009 a lawsuit against
the Company in the District Court, Clark County, Nevada, for approximately
$32,000 for collection of the account of the Law Offices of Richard McKnight
assigned to F&C Promptly, Inc. for collection. The Company has come to
an agreement with F&C Promptly, Inc. and has agreed to $4,000 a month
payment until paid in full. In November 2010, the agreement was paid in
full.
Caudle
& Spears has obtained a default judgment against the Company in Meckenberg
County, North Carolina, General Court, in the amount of $17,686. This law firm
represented us in our litigation against Martin Koebler, a former employee, whom
we successfully sued for return of Company property and other damages. The
Company is in settlement negotiations with Caudle & Spears, since its
judgment against Martin Koebler is still in the collection process. A payment
agreement has been reached in the amount of $2,500 per month with no interest
until paid. The Company is not current with the its payment arrangements
and has a balance of $4,263 still due.
Internal
Revenue Service served the Company with a tax lien dated March 3, 2010 in the
total amount of $251,928. Third quarter 2009 taxes are approximately $117,000,
which are included in total due. The Company has a payment plan in place with
the Internal Revenue Service (“IRS”).
Javad
Hajihadian, an individual, 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; with the understanding it would be a minimum of one year before
the car would be manufactured. The client has changed his mind and his
attorney contacted the Company to cancel his contract and have his payment
refunded. The parties have reached an agreement and the payment is being
refunded with interest. The settlement agreement was for $102,500 and stipulated
monthly payments of $10,250 commencing in July 2010. The Company is
current with the payments and expects this to be paid in full by March
2011.
Note
14. Automotive X Prize
The Progressive Insurance
Automotive X-Prize, (“PIAXP”), competition was announced in April 2008 as a way
to spur the development of clean, high-mileage vehicles, and is funded for a
total of $10 million, which will be divided among three separate
categories. The X-Prize challenge drew an unexpectedly strong response; 115
teams entered 136 separate vehicles, winners were announced in Washington D.C.
on September 15, 2010 and the Company was the winner in its entry class. On
October 27, 2010, the Company received $2.5 million from XPrize and was recorded
as other income in the Company’s consolidated statement of
operations.
Note
15. Subsequent Events
Subsequent
events have been evaluated through December 7, 2010.
14
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
Results
of Operations for the Three Months Ended October 31, 2010
Electric
Vehicle Operations
Sales of
our electric powered vehicles for the three months ended October 31, 2010 and
2009 were $0 and 124,910, 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 Superlattice, with the potential for future growth, enabling
us to work on many projects and vehicles concurrently.
With the
licenses of our lithium battery and electric vehicle technology described below,
we are concentrating on sales of our vehicles. We initiated several
nationwide newspaper advertising campaigns which generated some
orders for our vehicles, and we are also seeing as a result a significant
increase in inquiries about our electric vehicle products.
We
entered into a License Agreement (“Superlattice License Agreement”) with
Superlattice in April 2008, 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
Superlattice 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. On May 25, 2010, the Superlattice License Agreement was amended to
reflect Superlattice’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.
Superlattice
agreed to invest a minimum of $1,500,000 in 2008 and 2009 in development of the
technology for the Licensed Products. In the initial year under the License
Agreement, Superlattice invested $264,043 in the development of technology, and
therefore is not in compliance with its obligations under this covenant of the
Superlattice License Agreement. We have advised Superlattice, that we will not
give notice of default against Superlattice for its failure to comply with this
covenant for the term of the License Agreement.
On May
25, 2010 the Superlattice License Agreement was amended to limiting the license
granted to Superlattice to only the United States, permitting Li-ion to grant
other licenses to companies in other parts of the world.
Effective
May 28, 2010, we entered into a License Agreement (the “LEVC License Agreement”)
with Lithium Electric Vehicle Corp. (“LEVC”) providing for our license to LEVC
of certain of our patent applications and technologies for electric vehicles and
other applications. The purpose of the license is to expand sales of our current
line of products by the manufacture and sale of such products in Canada, which
is LEVC’s exclusive territory under the License Agreement.
15
Under the
LEVC License Agreement, LEVC has agreed, in consideration of the grant of the
license, to pay us $1,000,000, of which $666,667 has been paid, plus an amount
equal to the independent valuation of the license under the LEVC License
Agreement, less the $1,000,000 payment. The payment of the excess of the
valuation amount over the $1,000,000 payment would be made by way of a
convertible debenture or other securities. Additionally, LEVC, as licensee,
would pay an annual fee of $500,000, commencing on the second anniversary of the
date of the LEVC License Agreement, and a royalty as determined in the
independent valuation report. The initial term of the license is ten
years.
Cost
of Sales
Cost of
sales as a percentage of net sales for the three months ended October 31, 2010
was 18% compared to approximately 133% during the same period in 2009. The cost
of sales for 2010 represents the cost on sale of parts as there were no vehicle
sales during the three months ended October 31, 2010.
General
and Administrative Expenses
General
and administrative (“SG&A”) expenses decreased to $364,530 for the three
months ended October 31, 2010, as compared to $371,322 during the same period in
2009. The decrease was attributable to: (1) salaries and wages of
$44,463; (2) professional fees of $33,940; (3) financing activity expense of
$14,614; and (4) other various expenses of $4,454. The reduction in
expenditures was offset with an increase in (a) bad debt expense of $71,065; (b)
penalties of $13,344; and (c) travel related expenses of $6,270. Of all
SG&A expenses the Company incurred during the first quarter 2011, the
majority were charges that are expected to be recurring.
Research
and Development Expenses
No set
amount has been set aside for research and development (“R&D”), however, all
projects and purchases require approval prior to initiation. Salaries, payroll
taxes, and benefits expensed to R&D for the first quarter ended October 31,
2010, amounted to $254,440 and $ 405,956 for quarter ended October 31, 2009.
Parts and supplies expensed to R&D was $5,578 and $13,690 for the three
months ended October 31, 2010 and 2009, respectively. Shipping charges and
battery management systems were $52 and $12,975, for the three months ended
October 31, 2010 and 2009 respectively. During the first quarter 2011, the
Company began to build two prototypes of its electric powered
vehicles which increased R&D by $221,907. We expect that research and
development expenses will continue to remain substantial and grow as we
aggressively move to bring products to market
Interest
Expense
Interest
expense increased to $157,838 for the three months ended October 31, 2010 as
compared to $62,564 for 2009 due to additional issuance of debt. Interest
expense consists primarily of interest related to borrowings.
Other
Income
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 $2,756 the monthly rental to be escalated five (5%) percent
annually.
Other
income for the three months ended October 31, 2010 consists of (1) accounting
fees and rental income from Superlattice for $18,019; (2) revenue earned from
the license agreement with LEVC of $125,000; and (3) receipt of net proceeds
of $2,425,272 from XPrize.
Other
income for the three moths end October 31, 2009 consisted of accounting fees and
rental income from Superlattice for $17,625.
16
Net
Earnings (Loss)
Net
earnings attributable to common stockholders for the three months ended October
31, 2010 was $1,575,581 compared to a net loss of $889,469 for the previous
fiscal quarter. Basic and diluted gain attributable to common stockholders per
share of common stock for the three months ended October 31, 2010 was $0.05 as
compared to a loss of $0.04 for the previous fiscal quarter.
Liquidity
and Capital Resources
Since our
incorporation, we have financed our operations almost exclusively through the
sale of our common shares to investors and borrowings. We expect to finance
operations through borrowings and the sale of equity in the foreseeable future
as we receive minimal revenue from our current business operations. There is no
guarantee that we will be successful in arranging financing on acceptable
terms.
At
October 31, 2010, we had liabilities of $8,013,187, as compared with $7,960,959
at July 31, 2010; and a working capital deficiency of $244,492 and a
stockholders’ deficiency of $4,343,325.
Our
property, plant and equipment decreased to $1,900,205 at October 31, 2010, as
compared with $1,919,681 at July 31, 2010.
Net cash
provided by operating activities was $1,575,613 during the three months ended
October 31, 2010, as compared with $626,597 used in 2009, and cash
provided by during the three months ended October 31, 2010 in
investing activities was $15,149, as compared with cashed used of $637,485
during the same period in 2009.
During
the three months ended October 31, 2010, from the issuance of a promissory note
for a receivable, we advanced $71,065 to Superlattice Power, Inc. and was repaid
$0. During the three months ended October 31, 2010, we received net
proceeds of 560,835 from the issuance of promissory notes for debt, and made
repayments of $474,621. Net cash provided by financing activities for
the three months ended October 31, 2010 was $15,149, as compared with $637,485
for the comparable period in 2009.
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
October 31, 2010, the Company has borrowed the full $3,000,000 under the loan
agreement from Crystal Capital. Interest expense to Crystal Capital was $75,616
for the three months ended October 31, 2010 and $76,619 for the three months
ended October 31, 2009, respectively. The current balance as of October 31, 2010
due to Crystal Capital is $3,000,000.
On
October 12, 2010, the Company entered into a amendment to the Crystal loan
agreement, under which the lender agreed to extend the due date of the loan to
May, 2012.
On
February 26, 2010, the Company entered into a loan agreement with Frontline
Asset Management Inc. (“Frontline”). The loan provides for payments to the
Company of $2,000,000 with interest at a fixed annual rate of 12%. On May 1,
2010, an Addendum to the original Promissory Note, dated February 26, 2010,
which amended the term of the note to state interest only payments, due on the
last day of every month until maturity date March 30, 2011 when all principal
and accrued interest shall be due and payable. During the three months
ended October 31, 2010 and 2009, the Company received advances
totaling $560,835 and $0, respectively; and made payments of $466,431
and $0, respectively. Interest expense for the three months ended October
31, 2010 was $46,959.
17
On
October 11, 2010, the Company entered into a amendment to the Frontline loan
agreement, under which the lender agreed to extend the due date of the loan to
March 1, 2012.
On April
15, 2010 the Company entered into a loan agreement for $2,000,000 with Winsor
Capital Inc. The loan provides for loans 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 is secured by
10,000,000 shares of the Company common stock. Each loan installment matures
three years from issuance of the installment. The loan has an anti-dilution
clause for the stock issued as collateral. Stock is issued and delivered
proportionately to the delivery of funds. Interest expense for the three months
ended October 31, 2010 was $19,450.
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 has a payment plan in place with the Internal Revenue
Service (IRS) for delinquent payroll taxes, and with the three judgment
creditors. 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
continue operations.
Our
current operating funds are less than necessary for commercialization of our
planned products, and therefore we will need to obtain additional financing in
order to complete our business plan. We anticipate that up to
$2,000,000 of additional working capital will
be required over the next
12 months for market introduction of
these products through joint venture partners or otherwise. We do not have
sufficient cash on hand to meet these anticipated obligations, which are in
addition to payments we will owe to judgment creditors and the IRS.
We do not
currently have any other 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, 2010.
There were no significant changes to these accounting policies during the three
months ended October 31, 2010 and the Company does not expect that the adoption
of other recent accounting pronouncements will have a material impact on its
financial statements.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
Interest
Rate Risk - Interest rate risk refers to fluctuations in the value of a security
resulting from changes in the general level of interest rates. Investments that
are classified as cash and cash equivalents have original maturities of three
months or less. Our interest income is sensitive to changes in the general level
of U.S. interest rates. We do not have significant short-term investments,
and due to the short-term nature of our investments, we believe that there is
not a material risk exposure. Our debt is at fixed interest
rates.
18
Credit
Risk - Our accounts receivables are subject, in the normal course of business,
to collection risks. We regularly assess these risks and have established
policies and business practices to protect against the adverse effects of
collection risks. As a result we do not anticipate any material losses in this
area.
Item
4(T). Controls and Procedures.
As of the
end of the fiscal quarter covered by this Form 10-Q, the Company carried out an
evaluation, under the supervision and with the participation of the Company’s
management, including the Company’s Chief Executive Officer and Principal
Financial and Accounting Officer, of the effectiveness of the design and
operation of the Company’s disclosure controls and procedures as defined in Rule
13a-14 of the Securities Exchange Act of 1934. Based upon that evaluation, the
Chief Executive Officer and Principal Financial and Accounting Officer concluded
that the Company’s disclosure controls and procedures are effective in timely
alerting her to material information relating to the Company (including its
consolidated subsidiaries) required to be included in this Quarterly Report on
Form 10-Q. There have been no changes in the Company’s internal controls or in
other factors which could significantly affect internal controls subsequent to
the date the Company carried out its evaluation.
PART II-
OTHER INFORMATION
Item 1.
Legal Proceedings.
Other
than as described below, we are not a party to any material legal proceedings
and to our knowledge, no such proceedings are threatened or
contemplated.
Caudle
& Spears v. EV Innovations, Inc.
Caudle
& Spears has obtained a default judgment against the Company in Meckenberg
County, North Carolina, General Court, in the amount of $17,686. This law firm
represented us in our litigation against Martin Koebler, a former employee, whom
we successfully sued for return of Company property and other damages. The
Company is in settlement negotiations with Caudle & Spears, since its
judgment against Martin Koebler is still in the collection process. A payment
agreement has been reached in the amount of $2,500.00 per month with no interest
until paid. The Company is not current with these payments, and a balance
of $4,263 is still due.
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. Third quarter 2009 taxes are
approximately $117,000, which are included in total due. The Company has a
payment plan in place with the Internal Revenue Service (IRS).
Javad
Hajihadian, an individual, 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; with the understanding it would be a minimum of one year before
the car would be manufactured. The client has changed his mind and his
attorney contacted the Company to cancel his contract and have his payment
refunded. The parties have reached an agreement and the payment is being
refunded with interest. The settlement agreement was for $102,500 and
stipulated monthly payments of $10,250 commencing in July 2010. The
initial two payments were paid to Mr. Hajihadian in August 2010, and the Company
is current in its payments.
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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
|
||
Principal
Financial Officer)
|
||
Dated:
December 8, 2010
|
20