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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, 2012


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) 940-9940
(Issuer’s Telephone Number, Including Area Code)

Securities registered under Section 12(b) of the Exchange Act:
None

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par value $0.01 per share


Indicate by check mark whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

[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 17, 2012, there were 32,373,470 shares of common stock outstanding.

 

 

Table of Contents  
   
Page No.
PART I. FINANCIAL INFORMATION 3
ITEM I - Unaudited Financial Statements 3
Balance Sheets as of October 31, 2012 and July 31, 2012 (Unaudited) 4
Consolidated Statements of Operations for the Three Months Ended October 31, 2012 and 2011 (Unaudited) 5
Consolidated Statement of Comprehensive Loss for the Three Months Ended October 31, 2012 and 2011 (Unaudited) 6
Consolidated Statements of Cash Flows for the Three Months Ended October 31, 2012 and 2011 (Unaudited) 7
Statement of Stockholders Deficiency (Unaudited) 8
Notes to Unaudited Consolidated Financial Statements 9-16
ITEM 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations 16-19
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk 19
ITEM 4 - Controls and Procedures 19
PART II. OTHER INFORMATION 19-20
ITEM 6 - Exhibits 21-24

 

 

 

 

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, 2012. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. The results of operation for the three months ended October 31, 2012 and 2011, are not necessarily indicative of the results for the entire fiscal year or for any other period.

 

 

 

Li-ion Motors Corp.
Consolidated Balance Sheets
(unaudited)
               
   October 31  July 31,
   2012  2012
Assets          
           
Current assets:          
Cash and cash equivalents  $44   $64 
Accounts receivable, net of allowance for doubtful accounts of $605,347 and $561,237, respectively   —      —   
Notes receivable, net of allowance for doubtful accounts of $1,750,000 and $2,458,602, respectively   —      —   
Inventories   1,500    1,500 
Building and building improvements, net   —      1,049,146 
Other current assets   3,190    3,190 
Total current assets   4,734    1,053,900 
Property and equipment, net   5,146    5,785 
Deferred patent and trademark costs   37,913    37,413 
Total assets  $47,793   $1,097,098 
           
Liabilities and Stockholders' Deficiency          
           
Current liabilities:          
Accounts payable and accrued expenses  $1,474,901   $1,538,060 
Current portion of long-term debt   463,107    1,460,189 
Customer deposits   102,188    102,188 
Total current liabilities   2,040,196    3,100,437 
           
Long-term liabilities:          
Long-term debt, less current portion   250,000    250,879 
Total liabilities   2,290,196    3,351,316 
           
Commitments and contingencies   —      —   
           
Stockholders' deficiency          
Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding   —      —   
Common stock, $.001 par value, 400,000,000 shares authorized, 29,173,470 and 26,423,470 issued and outstanding at October 31, 2012 and July 31, 2012, respectively.   29,173    26,423 
Additional paid-in capital   62,667,874    62,619,444 
Accumulated deficit   (64,931,435)   (64,892,123)
Accumulated other comprehensive loss   (8,015)   (7,962)
Stockholders' deficiency attributable to Li-ion Motors Corp.   (2,242,403)   (2,254,218)
           
Non-controlling interests   —      —   
Stockholders' deficiency   (2,242,403)   (2,254,218)
Total stockholders' deficiency   (2,242,403)   (2,254,218)
Total liabilities and stockholders' deficiency  $47,793   $1,097,098 
           
           
See accompanying notes to unaudited consolidated financial statements

 

 

 

Li-ion Motors Corp.
Consolidated Statements of Operations
(unaudited)
       
   For the Three Months Ended 
   October 31, 
    2012    2011 
Revenue:          
Sales  $—     $3,568 
License agreement revenue   —      168,750 
Total revenue   —      172,318 
           
Costs and expenses:          
Cost of sales   —      595 
General and administrative   48,320    224,218 
Loss on disposal of property and equipment   12,019    —   
Research and development   1,297    255,866 
           
Total costs and expenses   61,636    480,679 
           
Loss from operations   (61,636)   (308,361)
           
Other (expenses) income:          
Interest (expense)   (22,211)   (41,533)
Other income   44,535    62,671 
           
Loss before provision for (benefit from) income taxes   (39,312)   (287,224)
           
Provision for (benefit from) income taxes   —      —   
           
Net loss   (39,312)   (287,224)
           
Less: net loss attributable to non-controlling interest   —      —   
           
Net loss attributable to Li-ion Motors Corp  $(39,312)  $(287,224)
           
Loss per share - basic and diluted:          
Loss per common share attributable to Li-ion Motors Corp. common shareholders  $(0.00)  $(0.01)
           
Weighted average number of shares outstanding - basic and diluted   27,475,667    26,423,470 
           
           
See accompanying notes to unaudited consolidated financial statements

 

 

 

Li-ion Motors Corp.
Consolidated Statement of Comprehensive Loss
(unaudited)
           
   For the Three Months Ended
   October 31,
    2012    2011 
Net loss  $(39,312)  $(287,224)
           
Other comprehensive income          
Currency translation adjustment   (53)   43 
           
Comprehensive loss   (39,365)   (287,181)
           
Comprehensive loss attributable to noncontrolling interest   —      —   
           
Comprehensive loss attributable to Li-ion Motors Corp  $(39,365)  $(287,181)
           
           
See accompanying notes to unaudited consolidated financial statements

 

 

 

Li-ion Motors Corp.
Consolidated Statements of Cash Flows
(unaudited)
       
   For the Three Months Ended
   October 31,
    2012    2011 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(39,312)  $(287,224)
Adjustments to reconcile net earnings (loss) to net cash utilized by operating activities          
Depreciation   639    23,073 
Loss on disposal of property and equipment, net   12,019    —   
Provision for doubtful accounts   —      20,353 
Licensing fees   —      (43,750)
Increase (decrease) in cash flows from changes in operating assets and liabilities          
Inventories   —      (86,132)
Prepaid expenses and other current assets   —      (52,801)
Deferred patent and trademark costs   (500)   (725)
Bank overdraft   —      2,540 
Accounts payable and accrued expenses   (10,370)   114,921 
Customer deposits   —      (99)
Deferred revenue   —      (125,000)
Net cash used in operating activities   (37,524)   (434,844)
           
CASH FLOWS FROM INVESTING ACTIVITIES:          
Additions to property and equipment   —      —   
Net cash used in investing activities   —      —   
           
CASH FLOWS FROM FINANCING ACTIVITIES:          
Advances on notes receivable   —      (35,976)
Payments received on notes receivable   —      15,623 
Proceeds from issuance of debt   37,557    475,027 
Payments on debt   —      (24,708)
Net cash provided by financing activities   37,557    429,966 
           
Effect of exchange rate changes on cash and cash equivalents   (53)   43 
    —        
CHANGE IN CASH AND CASH EQUIVALENTS          
Net increase (decrease) in cash and cash equivalents   (20)   (4,835)
Cash and cash equivalents at beginning of period   64    5,118 
           
Cash and cash equivalents at end of period  $44   $283 
           
SUPPLEMENTAL CASH FLOW DISCLOSURES          
Cash paid during the period for:          
Interest  $—     $9,411 
Income taxes  $—     $—   
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES          
Assignment of note receivable with Sky Power Solutions Corp. to Frontline Asset Management debt  $70,860   $—   
Shares issued for debt  $51,180   $—   
           
See accompanying notes to unaudited consolidated financial statements

 

 

 

Li-ion Motors Corp.
Consolidated Statement of Stockholders' Equity (Deficiency)
For the Periods Ended As Noted
(unaudited)
                            
  Number of
Common Shares
  Common Shares
$0.01
Par Value
  Additional Paid in
Capital
  Accumulated
Deficit
   Accumulated Other
Comprehensive
Income (Loss) 
  Treasury Stock
at Cost
   Non- Controlling Interest    Comprehensive
Income (Loss) 
  Total
                                             
Balance - August 1, 2011  26,423,470   $26,423   $62,639,444   $(62,580,108)  $(9,197)  $(20,000)  $—     $118,160   $56,562 
                                             
Common stock issued as collateral on loan released to lender  —      —      (20,000)   —      —      20,000    —           —   
Foreign currency translation  —      —      —      —      1,235    —      —      1,235    1,235 
Net earnings  —      —      —      (2,312,015)   —      —      —      (2,312,015)   (2,312,015)
Comprehensive income                                    $(2,310,780)   —   
                                             
Balance-July 31, 2012  26,423,470    26,423    62,619,444    (64,892,123)   (7,962)   —      —           (2,254,218)
                                             
Common stock issued on conversion of debt  2,750,000    2,750    48,430    —      —      —      —           51,180 
Foreign currency translation  —      —      —      —      (53)   —      —      (53)   (53)
Net earnings  —      —      —      (39,312)   —      —      —      (39,312)   (39,312)
Comprehensive income       —                     —          $(39,365)   —   
                                             
Balance- July 31, 2012  29,173,470   $29,173   $62,667,874   $(64,931,435)  $(8,015)  $—     $—          $(2,242,403)
                                             
                                             
See accompanying notes to unaudited consolidated financial statements

 

 

 

 

 

Li-ion Motors Corp.

Notes to Unaudited Consolidated Financial Statements

As of and for the Three Months Ended October 31, 2012

 

Note 1. Financial Statement Presentation

 

History and Nature of Business

 

Li-ion Motors Corp. was incorporated under the laws of the State of Nevada on April 12, 2000. 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.

 

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

 

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

 

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

 

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

 

The license agreement consists of an annual fee of $500,000 for ten years and an additional $1,750,000 based on a valuation report prepared by an independent third party.  LEVC is required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year.  The Company has received $732,666 from LEVC with a balance due of $267,334 as of July 31, 2012, which is now delinquent.  The Company has reflected the delinquent amount due from LEVC in its accounts receivable and has established a reserve for doubtful accounts for the entire amount.

 

The Company is currently in discussions with LEVC regarding the delinquency.

 

The note of $1,750,000 has been reflected on the books of the Company. Due to LEVC having no assets to secure the note, the Company has recorded a reserve for doubtful accounts for the entire note amount of $1,750,000.

 

Basis of Presentation

 

Going Concern

 

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

 

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

 

 

 

 

The Company’s facility in Mooresville, North Carolina was financed through Bayview Loan Servicing, LLC (“Bayview”) and Frontline Asset Management, Inc. (“Frontline”), which had a second lien on the property. Li-ion became delinquent with the mortgage payments, and, following a prior foreclosure filing and new agreement as to payments under the mortgage, on July 12, 2012, Bayview refiled a notice of hearing on foreclosure on its deed of trust and security agreement for a hearing on August 21, 2012, the outstanding amount of the loan at July 31, 2012 being $946,279.   A similar notice of foreclosure pursuant to the Frontline deed of trust was filed by the Trustee with the same court on July 25, 2012, noticing a hearing for August 22, 2012, the amended notice of default in the amount of $660,546 having been given on July 23, 2012. The Trustee for Frontline also filed on July 25, 2012, a notice of foreclosure and sale to take place on August 22, 2012.  The Trustee under the Bayview deed of trust on August 21, 2012, filed its notice of foreclosure and sale to take place on September 18, 2012, of the real and personal property securing the deed of trust.   On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed, and Frontline assigned its rights to its foreclosure bid to A&S Holdings Inc., a related holding company, subject to the rights of Bayview, as the holder of the first mortgage on the property.

 

As of the filing of this Report, the Company does not have any substantive plan on where its facilities will be or how it will continue the manufacturing process of its electric vehicles.

 

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

 

Common Stock

 

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

 

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

 

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

 

Our board of directors unanimously approved an amendment to our Articles of Incorporation to increase the authorized number of shares of common stock from 60,000,000 shares, par value $.001 per share, to 400,000,000 shares, par value $.001 per share, on July 20, 2012. On the same date we received the written consent from shareholders of our company holding a majority (75.69%) of the outstanding shares of our common stock. We filed the amendment with the Secretary of State of Nevada on August 30, 2012, and the amendment was effective on that date.

 

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, 2012. There were no significant changes to these accounting policies during the three months ended October 31, 2012 and the Company does not expect that the adoption of other recent accounting pronouncements will have a material impact on its financial statements.

 

Note 3. Fair Value Measurements 

 

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

 

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

 

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

 

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

 

 

 

 

As of October 31, 2012, the Company held certain financial assets that are measured at fair value on a recurring basis.  These consisted of cash and cash equivalents.  The fair value of the cash and cash equivalents is determined based on quoted market prices in public markets and is categorized as Level 1.  The Company does not have any financial assets measured at fair value on a recurring basis as Level 3 and there were no transfers in or out of Level 1, Level 2 or Level 3 during the three months ended October 31, 2012 and 2011.

 

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 October 31, 2012 and July 31, 2012.

 

      Assets at Fair Value as of October 31, 2012 and 2011 Using
             
         Quoted Prices in
Activated Markets for Identical Asssets
    Significant Other
Observable Inputs
    Significant Observable
Inputs
 
    Total    (Level 1)    (Level 2)    (Level 2) 
October 31, 2012                    
Cash and Cash Equivalents  $44   $44   $—     $—   
                     
July 31, 2012                    
Cash and Cash Equivalents  $64   $64   $—     $—   

 

 

Note 4. Notes Receivable

 

As of July 31, 2012, the Company had a note receivable balance with Sky Power Corp. (“SPS”) of $708,602. On October 2, 2012 the Company sold its interest in the receivable to Frontline Asset Management (“Frontline”) for $0.10 on the dollar which reduced the Company’s debt with Frontline by $70,786. The entire note receivable had previously been reserved for in its entirety; therefore, we had a $70,786 credit in our bad debt expense which is included in the general and administrative expenses on the Company’s consolidated statement of operations.

 

During the three months ended October 31, 2012, the Company advanced $0 and $0 was repaid by SPS. During the three months ended October 31, 2011 the Company advanced SPS $35,976 of which $15,623 was repaid. As of October 31, 2012 and July 31, 2012, an allowance for doubtful accounts in the amount of $0 and $708,602, respectively, was recorded against the note receivable, reducing the amount to $0.

 

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

 

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

 

The Company recognized interest income of $44,535 and $44,110, none of which has been received, in accordance to the terms of the LEVC Note for the three months ended October 31, 2012 and October 31, 2011, respectively. The Company has reflected the amount due from LEVC in its accounts receivable and has established a reserve for doubtful accounts for the entire amount and is included in general and administrative expenses on the Company’s consolidated statement of operations.

 

 

 

 

Note 5. Inventories

 

Inventories consist of the following:

 

   October 31,  July 31,
   2012  2012
Finished Goods  $1,500   $1,500 
   $1,500   $1,500 

 

 

Finished goods for the quarter ended October 31, 2012, and year ended July 31, 2012, are related to the Company’s planned sales of electric powered vehicles.

 

 Note 6. Property and Equipment

 

Property and equipment consist of:

 

   October 31,  July 31,
   2012  2012
           
Building and Improvements  $—     $552,276 
Equipment and Furniture and Fixtures   4,827    4,827 
Vehicles   66,429    66,429 
Land   —      700,000 
           
    71,256    1,323,532 
           
Less Accumulated Depreciation   (66,110)   (268,601)
Less Current Portion   -    (1,049,146)
Net Property and Equipment  $5,146   $5,785 

 

Depreciation expense for the three months ended October 31, 2012 and 2011 was $639 and $23,073, respectively and is included in general and administrative expenses on the Company’s consolidated statement of operations.

 

On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed. Due to the foreclosure of the property and the loss of rights to the facility, the Company wrote-off the building and its improvements, which caused a loss of $12,019 and is reflected on the Company’s consolidated statement of operations.

 

Note 7. Other Current Assets

 

  July 31,  October 31,
   2012  2012
 Deposits   $3,190   $3,190 
 Total   $3,190   $3,190 

 

 

 

Note 8. Accounts Payable and Accrued Expenses

 

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

 

   October 31,  July 31,
   2012  2012
           
Accounts Payable  $313,686   $291,156 
Accounts Payable - Related Parties   7,177    4,682 
Wages, Paid Leave and Payroll Related Taxes   971,639    948,410 
Accrued Interest   27,533    120,067 
Legal Settlements   152,976    152,976 
Other   1,890    20,769 
           
Total  $1,474,901   $1,538,060 

 

 

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

 

 

 

 

Note 9. Long-Term Debt

 

Long-term debt consists of:

 

   October 31,  July 31,
   2012  2012
           
5% Note payable to Bayview Loan Servicing, LLC, payable
in monthly installments of $5,433 including interest, collateralized by real property.  Due to foreclosure of the building, the entire balance has been eliminated. (1)
  $—     $946,279 
           
12% Note payable to Frontline Asset Management,
payable in monthly installments of interest only, due in full
on March 1, 2013 (2)
   456,809    508,492 
           
48.956% Note payable to Amicus Funding Group, LLC,
payable in monthly installments of approximately $467,
collateralized by real property due in full on September 1, 2013 (3)
   6,297    6,297 
           
10% Note payable to Cameo Properties, LLC payable in
monthly installments of interest only, due in full on December 27, 2014 (4)
   250,000    250,000 
           
    713,106    1,711,068 
Less current portion   (250,000)   (399,407)
   $463,106   $1,311,661 

 

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

 

 2013   $463,106 
 2014    250,000 
 2015    —   
 2016    —   
 2017    —   
 Thereafter    —   
     $713,106 


 

 

 

 

(1 In November 2007, the Company refinanced the first mortgage loan on its Mooresville, North Carolina building (the “property”) with Bayview. On July 25, 2012, Frontline, the junior lien holder noticed a foreclosure hearing and sale to take place on August 22, 2012, and the sale of the property to an assignee of Frontline, which was the only bidder, was completed on September 14, 2012.  The Company debt to Bayview was reduced to zero upon the completion of the sale.

 

(2) On February 26, 2010, the Company entered into a loan agreement with Frontline. The loan provides for payments to the Company of $2,000,000 with interest at a fixed annual rate of 12%.  On March 1, 2012, an Addendum to the original Promissory Note, dated February 26, 2010, was entered into which amended the term of the note to  provide for interest only payments, due on the last day of every month until maturity date March 30, 2013, when all principal and accrued interest shall be due and payable.  On April 11, 2011, Frontline assigned $850,279 of its debt to Windsor Capital, Inc. (“Windsor”). On April 19, 2011, Frontline partially assigned $437,309 to Kisumu S.A. (“Kisumu”) and Kisumu immediately converted the assigned note for 1,041,212 shares of Common Stock at a fair value price of $0.42 per share.  On April 19, 2011, Frontline assigned $420,000 to Eurolink Corporation (“Eurolink”) and Eurolink immediately converted the assigned note for 1,000,000 shares of Common Stock at a fair value price of $0.42 per share.  On December 27, 2011, Frontline purchased two electric vehicles for $255,000.  On the same day Frontline assigned $250,000 to Cameo Properties, LLC.  On April 26, 2012, the Company assigned $112,500 of its note receivable with SPS to Frontline which reduced the balance due to Frontline by $112,500. On September 13, 2012, Frontline converted $39,000 of accrued interest for 1,300,000 shares of Common Stock at a fair value price of $0.30 per share. On October 2, 2012, Frontline purchased our receivable with SPS at $0.10 on the dollar for $70,786, which reduced the Company’s accrued interest by $43,726 and debt by $27,060. On October 2, 2012, Frontline converted $12,180 for 1,450,000 shares of Common Stock at a fair value price of $0.0084 per share.

 

Loans under the Frontline loan agreement are secured by a junior deed of trust on the Company’s  property located at 158 Rolling Hill Road, Mooresville, North Carolina.  On August 22, 2012, the foreclosure by Frontline of the property took place, pursuant to a notice of foreclosure and sale dated July 25, 2012, and the foreclosure sale to an assignee of Frontline, which was the only bidder, was completed on September 14, 2012.  Frontline received $50,000 upon the sale of the foreclosed property and this amount reduced the debt to Frontline.

 

During the three months ended October 31, 2012 and 2011, the Company received advances totaling $37,557 and $457,634, respectively; and made payments of $0 and $13,811, respectively. Interest expense for the three months ended October 31, 2012 and 2011, was $15,289 and $17,659, respectively.

 

(3) On March 11, 2011, the Company financed $7,992 for office equipment with Amicus Funding Group, LLC (“Amicus”) and monthly payments including interest of 48.956% are approximately $477. During the three months ended October 31, 2012 and 2011, the Company repaid $0 and $515, respectively. Interest expense for the three months ended October 31, 2012 and 2011, was $567 and $885, respectively. The Company is in default on this note.

 

(4) The Company entered into a Loan Agreement, dated as of July 14, 2011, with Cameo Properties LLC (“Cameo”) and was amended on October 14, 2011 (the “Amended Loan Agreement”). Each Note issued under the Amended Loan Agreement is due three years from the date of its issuance. The Amended Loan Agreement provides for loans to the Company of up to $750,000 (the “Loan”), with a minimum initial loan of $250,000 within 60 days of the date of the Loan Agreement, and up to an additional $500,000 within the first year and a half from execution of the Amended Loan Agreement. This is not a revolving facility, and any principal repaid by the Company will not be available for additional advances to the Company under the Amended Loan Agreement. The Company cannot, without the Lender’s consent, prepay all or part of the Loan. The notes evidencing the installments of the loans bear interest payable monthly in arrears at the rate of 10% per annum, and mature and are due and payable three years from the date of issuance. On December 27, 2011, Frontline assigned $250,000 of its receivable to Cameo. Interest expense for the three months ended October 31, 2012 and 2011, was $6,301 and $0, respectively.

 

Note 10. Stockholders’ Equity (Deficiency)

 

On July 14, 2011, the Company entered into a Loan Agreement with Cameo Properties LLC (“Cameo”). The loans under the Loan Agreement are secured, over the life of the loan, by 20 million shares of our common stock.  If the Company should default on the loan, Cameo will retain all of the 20 million shares of common stock.  In the event of a reverse stock split or combination of shares, the number of shares of common stock constituting the Share Collateral will, immediately following such reverse stock split or combination of shares, be increased by a new issuance of common stock of the Company to that number of shares constituting the Share Collateral immediately prior to such reverse stock split or combination of shares. The certificates representing any share dividends that the Company pays during the term of the Loan with respect to the Shares being held in escrow shall be credited and delivered to the Lender and held by the Lender pursuant to the terms of the Loan Agreement.

 

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

 

 

 

Changes to Authorized Common Stock

 

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

 

On December 13, 2011, the Board of Directors unanimously approved an amendment to the Company’s Articles of Incorporation to change the authorized number of shares of common stock from 300 million shares, par value $.001 per share, to 60 million shares, par value $.001 per share, and to effect a reverse split in the outstanding common stock in the same ratio.  The Company filed the amendment with the Secretary of State of Nevada on December 14, 2011.

 

Our board of directors unanimously approved an amendment to our Articles of Incorporation to increase the authorized number of shares of common stock from 60,000,000 shares, par value $.001 per share, to 400,000,000 shares, par value $.001 per share, on July 20, 2012. On the same date we received the written consent from shareholders of our company holding a majority (75.69%) of the outstanding shares of our common stock. We filed the amendment with the Secretary of State of Nevada on August 30, 2012, and the amendment was effective on that date.

 

Note 11. Net Earnings (Loss) Per Common Share

 

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

 

   Three Months Ended
   October 31,
   2012  2011
Basic and Diluted Earnings (Loss) Per Share      
Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted  $(39,312)  $(287,224)
Weighted Average Shares Outstanding - Basic and Diluted   27,475,667    32,088,513 
           
Basic and Diluted Net Earnings (Loss) Per Common Share  $(0.00)  $(0.01)

 

Note 12. Share Based Compensation

 

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

 

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

 

Stock Option Plan

 

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

 

Note 13. Income Taxes

 

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

 

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

 

Note 14. Commitments and Contingencies

 

Legal Proceedings

 

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

 

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

 

 

 

Internal Revenue Service (“IRS”) served the Company with a tax lien dated March 3, 2010 in the total amount of $251,928. Third quarter 2009 taxes are approximately $117,000, which are included in total due.  The Company has been served with an additional tax lien dated January 19, 2011, in the amount of $2,925. The Company had a payment plan in place with IRS; however, the Company is arrears in payments as of July 31, 2012. Management is working with the local IRS office to try and revise the payment agreement.  The balance due on the most recent statement from the IRS is $566,071.

 

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

 

The Company’s facility in Mooresville, North Carolina was financed through Bayview and Frontline, which had a second lien on the property. Li-ion became delinquent with the mortgage payments, and, following a prior foreclosure filing and new agreement as to payments under the mortgage, on July 12, 2012, Bayview  refiled a notice of hearing on foreclosure on its deed of trust and security agreement for a hearing on August 21, 2012, the outstanding amount of the loan at July 31, 2012 being $946,279.   A similar notice of foreclosure pursuant to the Frontline deed of trust was filed by the Trustee with the same court on July 25, 2012, noticing a hearing for August 22, 2012, with an amended notice of default, the amount of $508,492 being outstanding under the loan as of July 31, 2012. The Trustee for Frontline also filed on July 25, 2012, a notice of foreclosure and sale to take place on August 22, 2012.  The Trustee under the Bayview deed of trust on August 21, 2012, filed its notice of foreclosure and sale to take place on September 18, 2012, of the real and personal property securing the deed of trust.   On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed, and Frontline assigned its rights to its foreclosure bid to A&S Holdings Inc., subject to the rights of Bayview, as the holder of the first mortgage on the property.

 

Fine Mobile and Li-ion Motors entered into a confession of judgment in relation to X-Prize winnings.  The parties agreed to a payment arrangement of $10,000 per month for a period of eight (8) months.  If a default were to occur, the debtor would then be entitled to exercise confession of judgment in the amount of $120,000 without further delay.  The initial payment was wired on December 15, 2011; however, the Company was unable to make any additional payments.  On June 18, 2012 Fine Mobile executed the judgment with the Iredell County Sheriff’s Office and on July 2, 2012, the Sherriff took possession of the building located at 158 Rolling Hill Road, Mooresville, NC, seizing all remaining assets.

 

 Note 15. Subsequent Events

 

On November 13, 2012, Frontline assigned $17,280 of its debt to Kisumu, S.A. (“Kisumu”) and Kisumu converted the assigned note for 3,200,000 shares of common stock below fair market value at $0.0054 per share.

 

Li-ion Motors has filed merger documents with Nevada Secretary of State on November 30, 2012 to merge its wholly owned subsidiary, Terra Inventions Corp. into the Company, and in the merger to change the Company’s name to Terra Inventions Corp. The name change will take effect when approved for trading by FINRA. On the same date the Company filed a one-for-ten reverse split of the common stock with a change to the authorized common stock in the same ratio also to be effective upon approval for trading by FINRA.

 

 

 

 

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

 

Forward Looking Statements

 

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

 

 

 

Results of Operations for the Three Months Ended October 31, 2012

 

Electric Vehicle Operations

 

We did not have any sales for our electric vehicles during the three months ended October 31, 2012 and 2011. Our only sales during the three months ended October 31, 2011, were for vehicle parts which totaled $3,568.

 

With the licenses of our lithium battery and electric vehicle technology described below, we are concentrating on sales of our vehicles.

 

Sky Power License Agreement

 

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

 

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

 

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

 

Lithium Electric Vehicle Corp. License Agreement

 

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

 

The license agreement consists of an annual fee of $500,000 for ten years and an additional $1,750,000 based on a valuation report prepared by an independent third party.  LEVC is required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year.  The Company has received $732,666 from LEVC with a balance due of $267,334 as of July 31, 2012, which is now delinquent.  The Company has reflected the delinquent amount due from LEVC in its accounts receivable and has established a reserve for doubtful accounts for the entire amount.

 

The Company is still in discussions with LEVC regarding the delinquency.

 

The note of $1,750,000 has been reflected on the books of the Company and due to LEVC having no assets to secure the note; the Company has recorded a reserve for doubtful accounts for the entire note amount of $1,750,000.

 

Cost of Sales

 

Cost of sales as a percentage of net sales for the three months ended October 31, 2012, was approximately 0% as compared to approximately 0% during the same period in 2011. Based on our historical review of costs, we expect that cost of sales in the future will remain in line on a percentage basis with our historic level of approximately 20%. As sales volumes and prices increase, costs should then reduce as a percentage of sales.

 

General and Administrative Expenses

 

General and administrative (“SG&A”) expenses decreased to $48,320 for the three months ended October 31, 2012, as compared to $224,218 during the same period in 2011. The decrease was attributable to: (1) bad debt expense of $91,139; (2) penalties and late fees of $39,937; (3) depreciation expense of $22,434; (4) director fees of $16,000; and (5) other various expenses of $6,388. Of all SG&A expenses the Company incurred during the first quarter 2012, the majority were charges that are expected to be recurring.

 

 

Research and Development Expenses

 

No set amount has been set aside for research and development (“R&D”), however, all projects and purchases require approval prior to initiation. Salaries, payroll taxes, and benefits expensed to R&D for the three months ending October 31, 2012, amounted to $0 and $248,806 for the three months ending October 31, 2011. Parts and supplies, shipping charges, and battery management systems expensed to R&D were $1,297 and $7,060 for the three months ending October 31, 2012 and October 31, 2011, respectively. We expect that research and development expenses will continue to remain substantial and grow as we aggressively move to bring products to market.

 

Interest Expense

 

Interest expense decreased to $22,211 for the three months ended October 31, 2011, as compared to $41,533 for 2011. Interest expense consists primarily of interest related to borrowings.

 

Other Income

 

Other income for the three months ended October 31, 2012, consisted of interest income from the LEVC Note of $44,535.

 

Other income for the three months ended October 31, 2011, consisted primarily of accounting fees and rental income from Sky Power for $18,431 and interest income from the LEVC Note of $44,110.

 

Net Loss

 

Net loss attributable to common stockholders for the three months ended October 31, 2012 was $39,312, as compared to $287,223 for the previous fiscal quarter. Basic and diluted loss attributable to common stockholders per share of common stock for the three months ended October 31, 2012 was $0.00 as compared to $0.01 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, 2012, we had liabilities of $2,290,196, as compared with $3,351,316 at July 31, 2012; and working capital of $2,035,462 and stockholders' equity deficiency of $2,242,403.

 

Our property and equipment decreased to $5,146 at October 31, 2012, as compared with $5,785 at July 31, 2012.

 

Net cash used in operating activities was $37,524 during the three months ended October 31, 2012, as compared with $434,844 in 2011. We did not have any investing activities during the three months ended October 31, 2012 and 2011.

 

During the three months ended October 31, 2012, from the issuance of a promissory note for a receivable, we advanced $0 to Sky Power and were repaid $0. During the three months ended October 31, 2012, we received net proceeds of $37,557 from the issuance of promissory notes for debt, and made repayments of $0. Total cash provided by financing activities in the three months ended October 31, 2012 was $37,557 as compared with $429,666 in 2011.

 

Liquidity Issues

 

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

 

 

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

 

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

 

 Critical Accounting Issues

 

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

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

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

 

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

 

Item 4. 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 were not 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 over financial reporting during the Company’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings.

 

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

 

Caudle & Spears v. EV Innovations, Inc.

 

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

 

 

Internal Revenue Service

 

Internal Revenue Service (“IRS”) served the Company with a tax lien dated March 3, 2010 in the total amount of $251,928. Third quarter 2009 taxes are approximately $117,000, which are included in total due.  The Company has been served with an additional tax lien dated January 19, 2011, in the amount of $2,925. The Company had a payment plan in place with IRS; however, the Company is arrears in payments as of July 31, 2012. Management is working with the local IRS office to try and revise the payment agreement.  The balance due on the most recent statement from the IRS is $566,071.

 

Javad Hajihadian

 

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

  

 Bayview Loan Servicing, LLC

 

The Company’s facility in Mooresville North Carolina was financed through Bayview Loan Servicing, LLC (“Bayview”) secured by a first lien on the Company’s property located at 158 Rolling Hill Road  in Mooresville. Frontline Asset Management, Inc. (“Frontline”) holds a note in the amount of $2,000,000 (current balance due of $508,492) secured by a second lien on the property..  On July 12, 2012, Bayview  refiled a notice of hearing on foreclosure on its deed of trust and security agreement for a hearing on August 21, 2012, the outstanding amount of the loan at July 31, 2012 being $946,279.   A similar notice of foreclosure pursuant to the Frontline deed of trust was filed by the Trustee with the same court on July 25, 2012, noticing a hearing for August 22, 2012, with an amended notice of default, the amount of $508,492 being outstanding under the loan as of July 31, 2012. The Trustee for Frontline also filed in Superior Court of Iredell County North Carolina on July 25, 2012, a notice of foreclosure and sale to take place on August 22, 2012.  The Trustee under the Bayview deed of trust on August 21, 2012, filed its notice of foreclosure and sale to take place on September 18, 2012, of the real and personal property securing the deed of trust.   On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed, and Frontline assigned its rights to its foreclosure bid to A&S Holdings Inc., subject to the rights of Bayview, as the holder of the first mortgage on the property.

 

 FINE Mobile

 

Fine Mobile and Li-ion Motors entered into a confession of judgment in relation to the X-Prize winnings.  The parties agreed to a payment arrangement of $10,000 per month for a period of eight (8) months.  If a default were to occur, the debtor would then be entitled to exercise confession of judgment in the amount of $120,000 without further delay.  The initial payment was wired on December 15, 2011; however, the Company was unable to make any additional payments.  On June 18, 2012 Fine Mobile executed the judgment with the Iredell County Sheriff’s Office and on July 2, 2012, the Sherriff took possession of the building located at 158 Rolling Hill Road, Mooresville, NC, seizing all remaining assets.

 

 

 

ITEM 6. Exhibits

 

31   Certification  of  Chief Executive Officer and Principal  Financial Officer Pursuant to Section 302 of the Sarbanes-
Oxley Act of 2002, filed herewith.
     
32   Certification of Chief Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section  1350,  as
Adopted  Pursuant  to  Section  906 of the Sarbanes-Oxley Act of 2002, filed herewith.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Extension Schema Document
 
101.CAL   XRL Taxonomy Calculation Linkbase Document
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
     
101.LAB   XBRL Taxonomy Label Linkbase Document
     
101.PRE   XBRL Taxonomy Presentation Linkbase Document

The XBRL related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.

 

 

SIGNATURES

 

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

 

  Li-ion Motors Corp.  
       
Date: December 17, 2012 By: /s/ Stacey Fling  
    Stacey Fling  
    Chief Executive Officer and Principal Financial Officer  


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

 

           
By:   /s/ Stacey Fling        
  Stacey Fling        
  President        
  (President, Chief Executive Officer        
  Principal Financial Officer and Director)        
           
Date: December 17, 2012        

 

 

 

Exhibit 31 CERTIFICATION

 

I, Stacey Fling, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Li-ion Motor s Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant 's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f))for the registrant and have:

 

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c. evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d. disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

December 17, 2012 By: /s/ Stacey Fling

-----------------------------

Stacey Fling, President

(Principal Executive and Financial Officer)

 

 

 

EXHIBIT 32

 

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION

906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Li-ion Motors Corp. (the “Company”) on Form 10-Q for the quarter ended October 31, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stacey Fling, Chief Executive Officer and Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

 

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

 

/s/ Stacey Fling

----------------------

Stacey Fling

Chief Executive Officer and

Principal Financial Officer

 

December 17, 2012