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 and nine months ended April 30,
2013 and 2012, are not necessarily indicative of the results for the entire fiscal year or for any other period.
Note
1. Financial Statement Presentation
The balance sheet as of April 30, 2013 and the statement
of operations, stockholders’ deficiency and the cash flows for the periods presented have been prepared by Terra Inventions
Corp. and are unaudited. The financial statements are prepared in accordance with the requirements for unaudited interim periods
and consequently, do not include all disclosures required to be made in conformity with accounting principles generally accepted
in the United States of America. In the opinion of management, all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position, results of operations, change in stockholders’ deficiency and cash flows
for the periods presented have been made. The information for the balance sheet as of July 31, 2012, are derived from audited financial
statements of the Company.
History
and Nature of Business
Li-ion Motors Corp. was incorporated under the laws of the
State of Nevada on April 12, 2000. On November 30, 2012, Li-ion Motors merged with its wholly owned subsidiary, Terra Inventions,
Corp. (the “Company” or “Terra”) and as a result of the merger the name of the Company was changed. The
name Terra was effective for trading purposes on December 21, 2012. 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.
Effective April 15, 2008, the Company entered into a License
Agreement (“License Agreement”) with Sky Power Solutions, now Clean Enviro Tech Corp. (“CET”), CET providing
for their license to CET 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 CET, and their requirements of lithium ion batteries shall be supplied by CET in preference
to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of CET. The Company’s
cost for lithium ion batteries purchased from CET shall be CET’s actual manufacturing costs for such batteries for the fiscal
quarter of CET in which the Company’s purchase takes place. On May 25, 2010, the license agreement was amended to reflect
Clean Enviro Tech’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, CET had agreed to invest a minimum of $1,500,000 in each of the following two years(2009 and 2010)
in development of the technology for the Licensed Products. To date, CET 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 CET 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.
The Company entered into a ten year license agreement with
Lithium Electric Vehicle Corp. (“LEVC”) on May 28, 2010, 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 license was
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 consisted 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
was 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 had received $732,666 from LEVC with a balance due of $267,334 as of July 31, 2012. The Company reflected the
delinquent amount due from LEVC in its accounts receivable and had established a reserve for doubtful accounts for the entire amount.
In addition, the note of $1,750,000 had been reflected on the books of the Company. Due to LEVC having no assets to secure the
note, the Company recorded a reserve for doubtful accounts for the entire note amount of $1,750,000.
On February 19, 2013, the Company and LEVC amended the License
Agreement and both parties have agreed that; (1) Terra Inventions will own 49% of LEVC in exchange for the balance of any funds
due to Terra in connection with the license agreement; (2) LEVC intends to further develop Terra’s technology in Canada.
In exchange for this agreement Terra will have full access to these developments made by LEVC for Terra’s use, including
further development in the United States; (3) LEVC will retain ownership of further developments only; (4) Terra and LEVC also
agree that LEVC will be doing R&D and develop free energy technology and wind turbine technology to achieve higher efficiency
for electric vehicles. By Terra providing the platform, technology and BMS system for electric vehicles to LEVC, LEVC will also
allow Terra to further develop these technologies in the United States; and (5) both parties understand that LEVC will own these
technologies accept for rights hereby granted to Terra for the USA.
During the three months ended April 30, 2013, the Company
reversed the receivable for the license fees of $267,334 and the note receivable of $1,750,000 by offsetting the reserve for doubtful
accounts. These transactions did not have an effect on the Company’s financials. See Note 3.
Basis of Presentation
Going Concern
The Company’s financial statements for the nine months
ended April 30, 2013, 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 nine months ended April 30, 2013. 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”). Frontline Asset Management, Inc. (“Frontline”),
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 (“FINRA”) approved a one-for-five reverse split of the common stock.
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.
Our Board of
Directors unanimously approved an amendment to our Articles of Incorporation to decrease the authorized number of shares of common
stock from 400,000,000 shares, par value $.001 per share, to 40,000,000 shares, par value $.001 per share, on November 29, 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 November 29, 2012, and the amendment
was effective on that date.
Effective December 31, 2012, FINRA approved a one-for-ten
reverse split of the common stock. All share and per share amounts have been restated to reflect the one-for-ten reverse stock
split.
All shares and per share information has been revised to
give retroactive effect to the reverse stock splits.
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 April 30, 2013 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. Notes
Receivable
As of July 31, 2012, the Company had a note receivable balance
with CET 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 to $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 for the nine months ended April 30, 2013.
During the nine months ended April 30, 2013, the Company
advanced $0 and $0 was repaid by CET. During the nine months ended April 30, 2012 the Company advanced CET $71,364 of which $22,991was
repaid in payments through a reimbursement for a leased employee and $112,500 through an assignment of debt to Frontline. As of
April 30, 2013 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 bore an interest
of ten (10%) percent per annum on the outstanding amount of the loan and accrued 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 would 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 would be repaid in full by LEVC within
sixty (60) days of receiving written demand for repayment by the Company. LEVC would 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 included a conversion right in which the Company could
convert the LEVC Note if LEVC began trading on the TSX Venture Exchange. The conversion clause stipulated that the LEVC Note would
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 resulted in a fractional share, LEVC would, in lieu of issuing such fractional share,
pay to the Company an amount equal to the conversion value of the fractional share. The Company had recorded a reserve for doubtful
accounts for the entire note amount of $1,750,000.
The
Company recognized interest income of $88,645 and $
88,219
, none of which has been received,
in accordance to the terms of the LEVC Note for the nine months ended April 30, 2013 and April 30, 2012, respectively. The Company
had reflected the amount due from LEVC in its accounts receivable and had 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.
Due to the execution of the amended License Agreement on
February 19, 2013 with LEVC, the Company reversed the accounts and note receivables of $382,123 and $1,750,000, respectively, by
offsetting it with the established reserve for doubtful accounts. This a zero effect on the Company’s Consolidated Balance
Sheet.
Note 4. Property
and Equipment
Property and equipment consist of:
|
|
April 30,
|
|
July 31,
|
|
|
2013
|
|
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
|
|
|
(67,376
|
)
|
|
|
(268,601
|
)
|
Less Current Portion
|
|
|
—
|
|
|
|
(1,049,146
|
)
|
Net Property and Equipment
|
|
$
|
3,880
|
|
|
$
|
5,785
|
|
Depreciation expense for the three months ended April 30,
2013 and 2012, was $628 and $10,100, respectively. Depreciation expense for the nine months ended April 30, 2013 and 2012, was
$1,905 and $41,816, 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 $5,552 and is reflected on the
Company’s consolidated statement of operations.
Note 5. Accounts
Payable and Accrued Expenses
Accounts payable, accrued expenses and other current liabilities
at April 30, 2013 and July 31, 2012 consisted of:
|
|
April 30,
|
|
July 31,
|
|
|
2013
|
|
2012
|
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
316,672
|
|
|
$
|
291,156
|
|
Accounts Payable - Related Parties
|
|
|
13,177
|
|
|
|
4,682
|
|
Wages, Paid Leave and Payroll Related Taxes
|
|
|
1,022,492
|
|
|
|
948,410
|
|
Accrued Interest
|
|
|
52,871
|
|
|
|
120,067
|
|
Legal Settlements
|
|
|
152,976
|
|
|
|
152,976
|
|
Other
|
|
|
824
|
|
|
|
20,769
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,559,012
|
|
|
$
|
1,538,060
|
|
Accounts payable due to related parties are reimbursable
general and administrative expenses paid by the Company’s President.
Note 6. Long-Term
Debt
Long-term debt consists of:
|
|
April 30,
|
|
July 31,
|
|
|
2013
|
|
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, 2014 (2)
|
|
|
412,183
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
668,480
|
|
|
|
1,711,068
|
|
Less Current Portion
|
|
|
(418,480
|
)
|
|
|
(1,460,189
|
)
|
|
|
$
|
250,000
|
|
|
$
|
250,879
|
|
Principal maturities for long-term debt are as follows for
the third quarters ended April 30:
|
2013
|
|
|
$
|
418,480
|
|
|
2014
|
|
|
|
250,000
|
|
|
2015
|
|
|
|
—
|
|
|
2016
|
|
|
|
—
|
|
|
2017
|
|
|
|
—
|
|
|
Thereafter
|
|
|
|
—
|
|
|
|
|
|
$
|
668,480
|
|
(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 1, 2014,
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 fStock 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 CET 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 discounted value price of $0.30 per share. On October 2, 2012, Frontline purchased our
receivable with CET 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 discounted value price
of $0.0084 per share. On November 13, 2012, Frontline partially assigned $17,280 to Kisumu and Kisumu immediately converted the
assigned note for 3,200,000 shares of Common Stock at a discounted value price of $0.0054 per share. On December 26, 2012, Frontline
partially assigned $112,200 to Kisumu and Kisumu converted the assigned note for 18,700,000 shares of Common Stock at a discounted
price of $0.006 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.
Interest expense for the three months ended April 30, 2013
and 2012, was $12,006 and $15,227, respectively . Interest expense for the nine months ended April 30, 2013 and 2012, was $39,430
and $48,131, 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 April 30, 2013 and 2012, the Company repaid $0 and $0, respectively. During the nine months
ended April 30, 2013 and 2012, the Company repaid $0 and $895, respectively. The Company is in default on this note.
Interest expense for the three months ended April 30, 2013
and 2012, was $341 and $745, respectively. Interest expense for the nine months ended April 30, 2013 and 2012, was $1,369 and $2,448,
respectively.
(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 April 30, 2013
and 2012, was $6,096 and $5,624, respectively. Interest expense for the nine months ended April 30, 2013 and 2012, was $18,699
and $8,562, respectively.
Note 7. 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.
Effective December 31, 2012, the Securities and Exchange
Commission approved a one-for-ten reverse split of the common stock. Pursuant to the anti-dilution provisions in the
Cameo Properties loan agreement the Company issued 18,000,000 shares to Cameo Properties, so they again held 20,00,000 post reverse
stock split shares.
On September 13, 2012, Frontline converted $39,000
of accrued interest for 1,300,000 shares of Common Stock at a discounted value price of $0.30 per share. The Company recorded a
loss on extinguishment of debt in the amount of $26,000 in connection with the conversion.
On October
2, 2012, Frontline converted $12,180 for 1,450,000 shares of Common Stock at a discounted value price of $0.0084 per share.
The Company recorded a loss on extinguishment of debt in the amount of $5,220 in connection with the conversion.
On November 13, 2012, Frontline partially assigned
$17,280 to Kisumu and Kisumu immediately converted the assigned note for 3,200,000 shares of Common Stock at a discounted value
price of $0.0054 per share. The Company recorded a loss on extinguishment of debt in the amount of $13,120 in connection with the
conversion.
On December 26, 2012, Frontline partially assigned
$112,200 to Kisumu and Kisumu converted the assigned note for 18,700,000 shares of Common Stock at a discounted price of $0.006
per share. The Company recorded a loss on extinguishment of debt in the amount of $74,800 in connection with the conversion.
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.
On November 29, 2012, our Board of Directors unanimously
approved an amendment to our Articles of Incorporation to increase the authorized number of shares of common stock from 400,000,000
shares, par value $.001 per share, to 40,000,000 shares, par value $.001 per share. On the same day 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 November 29, 2012, and the amendment was effective on that date.
Note 8. 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 April 30, 2013 and 2012.
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
April 30,
|
|
April 30
|
|
|
2013
|
|
2012
|
|
2013
|
|
2012
|
Basic and Diluted Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted
|
|
$
|
(83,153
|
)
|
|
$
|
(241,019
|
)
|
|
$
|
(331,045
|
)
|
|
$
|
(2,664,667
|
)
|
Weighted Average Shares Outstanding - Basic and Diluted
|
|
|
39,938,166
|
|
|
|
20,642,347
|
|
|
|
27,270,403
|
|
|
|
20,642,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted Net Earnings (Loss) Per Common Share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.13
|
)
|
Net loss per common share for the nine months ended April
30, 2012, has been revised. All share and per share amounts have been restated to reflect the one-for-five reverse stock split
as discussed in Note 10.
The amounts previously reported for the nine and three months
ended April 30, 2012, were as follows:
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
April 30, 2012
|
|
April 30, 2012
|
Basic and Diluted Loss Per Common Share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Shares
|
|
|
|
|
|
|
|
|
Outstanding -Basic and Diluted
|
|
|
26,423,270
|
|
|
|
26,423,270
|
|
Note 9. 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 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 (“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 $590,634.
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.